<PAGE>



================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                   ----------

                                   FORM 20-F/A
                                   (Mark One)

     [_]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
          SECURITIES EXCHANGE ACT OF 1934

                                       OR

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2003

                                       OR

     [_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
          AND EXCHANGE ACT OF 1934

                         Commission file number: 1-14722

                                   ----------

                           TELSTRA CORPORATION LIMITED
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                     AUSTRALIAN CAPITAL TERRITORY, AUSTRALIA
                 -----------------------------------------------
                 (Jurisdiction of incorporation or organization)

            242 EXHIBITION STREET, MELBOURNE, VICTORIA 3000 AUSTRALIA
            ---------------------------------------------------------
                    (Address of principal executive offices)

                    Securities registered or to be registered
                     pursuant to section 12 (b) of the Act.

      Title of each Class                   Name of Exchange on which Registered
      -------------------------------       ------------------------------------
      Ordinary Shares/(1)/                        New York Stock Exchange
      American Depositary Shares/(2)/             New York Stock Exchange


 Securities registered or to be registered pursuant to Section 12(g) of the Act.
                                      None


        Securities for which there is a reporting obligation pursuant to
                            Section 15(d) of the Act.
                                      None


Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

        Ordinary Shares                            [12,866,600,200]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                     Yes [X]                  No [_]

Indicate by check mark which financial statement item the registrant has elected
to follow.

                     Item 17 [_]              Item 18 [X]

================================================================================

(1) Not for trading but only in connection with the listing of the American
Depositary Shares.
(2) Evidenced by American Depositary Receipts, each American Depositary Share
representing five Ordinary Shares.

The purpose of this annual report on Form 20-F/A is to file in ASCII format via
the Securities and Exchange Commission's EDGAR system a copy of the annual
report on Form 20-F for the fiscal year ended June 30, 2003, previously filed
via EDGAR on December 22, 2003.



<PAGE>


                             Telstra Corporation Limited and controlled entities
<TABLE>
<CAPTION>
Contents
--------------------------------------------------------------------------------------------------
SEC Item/(1)/                                                                             Page No.
--------------------------------------------------------------------------------------------------
<C>            <S>                                                                             <C>
               Summary Overview ...............................................................  3
Item 3         Key Information ................................................................  4
                     Selected financial data ..................................................  4
                     Exchange rate information ................................................  7
                     Cautionary statement regarding "forward-looking statements" .............. 13
Item 4         Information on the Company ..................................................... 14
                     History and development of the Company ................................... 14
                     Organisational structure ................................................. 14
                     Marketing and customer service ........................................... 16
                     Products and services .................................................... 18
                     International investments ................................................ 27
                     Capital Expenditures and Divestitures .................................... 28
                     Networks and systems ..................................................... 28
                     Property, plant and equipment ............................................ 34
Item 4         Competition and Regulation ..................................................... 35
                     Competition .............................................................. 35
                     Regulation ............................................................... 39
Item 5         Operating and Financial Review and Prospects ................................... 56
                     Application of critical accounting policies .............................. 56
                     Critical accounting policies applied in our USGAAP reconciliation ........ 59
                     Changes in accounting policies ........................................... 61
                     Overview of key factors affecting our business and financial performance . 61
                     Results of operations .................................................... 64
                     Operating revenue ........................................................ 66
                     International business ventures .......................................... 93
                     Liquidity and capital resources .......................................... 96
                     Contractual obligations and commercial commitments .......................101
                     Off Balance Sheet Arrangements ...........................................103
                     Related party transactions ...............................................104
                     Research and development .................................................105
Item 6         Directors, Management and Employees ............................................113
                     Directors ................................................................113
                     Senior management ........................................................116
                     Business address .........................................................118
                     Compensation of directors and officers ...................................118
                     Emoluments for board members and senior executives .......................118
                     Employees ................................................................127
Item 7         Major Shareholders and Related Parties .........................................129
                     Major shareholders .......................................................129
                     Relationship with the Commonwealth of Australia ..........................130
                     Related party transactions ...............................................132
Item 9         Listing Information ............................................................133
Item 8         Legal Proceedings ..............................................................136
Items 8, 10    Constitution and Documents on Display ..........................................137
                     Our constitution .........................................................137
                     Dividend policy ..........................................................141
                     Documents on display .....................................................141
Item 10        Exchange Controls and Foreign Ownership ........................................142
Item 10        Taxation .......................................................................148
                     Australian taxation ......................................................148
                     United States taxation ...................................................150
Item 11        Quantitative and Qualitative Disclosures about Market Risk .....................153
</table>
----------------
/(1)/   This document includes the disclosure requirements of the US Securities
        and Exchange Commission (SEC) and will be lodged with the SEC as our
        annual report on Form 20-F for fiscal 2003. This column lists the item
        numbers of Form 20-F included in this report.
        The following items are omitted:
        Items 1, 2, 12 and 16: omitted as not applicable.
        Items 13 (Defaults, dividend arrearages and delinquencies): omitted
        as there have been no defaults, arrearages or delinquencies.
        Items 14 (Material modifications to the rights of security holders and
        use of proceeds): omitted as there have been no material modifications.

                                                                               1

<PAGE>


Telstra Corporation Limited and controlled entities
<TABLE>
<CAPTION>
Contents
--------------------------------------------------------------------------------------------------
SEC Item/(1)/                                                                             Page No.
--------------------------------------------------------------------------------------------------

<C>            <S>                                                                             <C>
Items 6, 15    Corporate Governance and Board Practices .......................................157
               Directors' report ..............................................................166
Items 17, 18   Financial Statements ...........................................................175
               Corporate Social Responsibility ................................................331
               Occupational Health and Safety .................................................332
               Environment ....................................................................333
               Freedom of Information .........................................................334
               Glossary .......................................................................336
               Total Year Financial Summary ...................................................340
Item 19        Exhibits .......................................................................341
               Signature ......................................................................342
</table>
----------------
/(1)/   This document includes the disclosure requirements of the US Securities
        and Exchange Commission (SEC) and will be lodged with the SEC as our
        annual report on Form 20-F for fiscal 2003. This column lists the item
        numbers of Form 20-F included in this report.
        The following items are omitted:
        Items 1, 2, 12 and 16: omitted as not applicable.
        Items 13 (Defaults, dividend arrearages and delinquencies): omitted
        as there have been no defaults, arrearages or delinquencies.
        Items 14 (Material modifications to the rights of security holders and
        use of proceeds): omitted as there have been no material modifications.

                                                                               2

<PAGE>
                             Telstra Corporation Limited and controlled entities


Summary Overview
--------------------------------------------------------------------------------

General

Telstra is Australia's leading telecommunications and information services
company, with one of the best known brands in the country. We offer a full range
of services and compete in all telecommunications markets throughout Australia,
providing more than 10.3 million Australian fixed line and more than 6.5 million
mobile services.

Our main activities include the provision of:

     .  basic access services to most homes and businesses in Australia;

     .  local and long distance telephone calls in Australia and international
        calls to and from Australia;

     .  mobile telecommunications services;

     .  a comprehensive range of data and internet services (including through
        Telstra BigPond(TM), Australia's leading ISP);

     .  management of business customers' IT and/or telecommunications services;

     .  wholesale services to other carriers and carriage service providers;

     .  advertising, directories and information services; and

     .  cable distribution services for FOXTEL's cable subscription television
        services.

Our international business includes Hong Kong CSL Limited, one of Hong Kong's
leading mobile operators; TelstraClear Limited, the second largest full service
carrier in New Zealand and Reach Ltd (REACH), one of the leading wholesale
providers of combined voice, data and internet connectivity services in the
Asia-Pacific region.

One of our major strengths in providing integrated telecommunications services
is our vast geographical coverage through both our fixed and mobile network
infrastructure. This network and systems infrastructure underpins the carriage
and termination of the majority of Australia's domestic and international voice
and data telephony traffic.

Telstra's vision is to be Australia's connection to the future and our mission
is to develop, design and deliver great communications solutions to every
customer. Our goal is profitable growth for the Company and shareholders and we
will achieve this through terrific people and great teamwork, innovative
products, operational excellence, outstanding customer service, smart
investments and winning in the marketplace.

                                                                               3

<PAGE>


Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

Selected financial data

We recommend that the following information be read in conjunction with our
financial statements, the accompanying notes to our financial statements and
other information included in this annual report.

Our selected data is from the following sources:

     .  financial data is derived from our audited consolidated financial
        statements and accompanying notes to our financial statements, which
        were prepared in accordance with Australian GAAP. Where this differs in
        material respects from USGAAP, these differences are shown in note 30 to
        the financial statements; and

     .  statistical data represents management's best estimates.

Financial data
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                        Year ended 30 June
                                                                 2003     2003/(1)/      2002        2001        2000        1999
                                                                          (in millions, except per share amounts)
                                                                  A$         US$          A$          A$          A$          A$
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>         <C>         <C>         <C>         <C>
Statement of Financial Performance Data
Amounts in accordance with Australian GAAP:
Revenue from ordinary activities/(2)/......................      21,700      14,539      20,928      23,086      20,567      18,220
Expenses from ordinary activities (excluding
depreciation, amortisation and interest expense)/(2)(6)/...      12,446       8,339      11,319      13,149      11,942       9,820
Depreciation and amortisation..............................       3,447       2,309       3,267       2,871       2,646       2,502
Profit before income tax expense...........................       4,928       3,302       5,446       6,297       5,349       5,320
Net profit.................................................       3,394       2,274       3,650       4,061       3,673       3,488
Net profit available to Telstra Entity shareholders........       3,429       2,297       3,661       4,058       3,677       3,486
Earnings per share/(3)/....................................        0.27        0.18        0.29        0.32        0.29        0.27
Earnings per ADS/(3)/......................................        1.35        0.90        1.42        1.58        1.43        1.35
Dividends provided for or paid/(4)/........................       3,345       2,241       2,830       2,445       2,316       4,247
Dividends per share/(3)/...................................        0.27        0.18        0.22        0.19        0.18        0.33
Dividends per ADS/(3)/.....................................        1.35        0.90        1.10        0.95        0.90        1.65
Amounts in accordance with USGAAP:
Operating revenue..........................................      20,495      13,732      20,196      19,456      19,343      17,571
Net income.................................................       3,450       2,311       3,898       3,576       4,093       3,416
Basic earnings per share/(3)/..............................        0.27        0.18        0.31        0.28        0.32        0.27
Basic earnings per ADS/(3)/................................        1.35        0.91        1.55        1.41        1.59        1.33
Dividends per ADS/(5)/.....................................   US$  0.77               US$  0.58   US$  0.46   US$  1.07   US$  0.45
Statement of Financial Position Data (at year end)
Amounts in accordance with Australian GAAP:
Total assets...............................................      35,599      23,849      38,219      37,473      30,339      27,682
Current interest-bearing liabilities.......................       1,323         886       1,896       2,604       3,316       2,265
Non-current interest-bearing liabilities...................      11,232       7,525      12,481      11,386       6,505       4,946
Shareholders' equity/net assets............................      15,422      10,333      14,106      13,722      11,602      10,294
Amounts in accordance with USGAAP:
Total assets...............................................      40,422      27,082      42,719      42,561      34,536      31,108
Current borrowings.........................................       1,323         886       1,866       2,604       3,316       2,265
Non-current borrowings.....................................      11,580       7,758      12,372      11,943       6,505       4,946
Shareholders' equity/net assets............................      18,025      12,076      18,402      17,795      16,528      16,199
</TABLE>

4

<PAGE>


                             Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

Financial data
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                        Year ended 30 June
                                                                 2003     2003/(1)/      2002        2001        2000        1999
                                                                          (in millions, except per share amounts)
                                                                  A$         US$          A$          A$          A$          A$
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>      <C>            <C>         <C>         <C>         <C>
Revenue from ordinary activities comprises:
Sales revenue..............................................      20,495      13,732      20,196      18,679      19,343      17,571
Interest received/receivable...............................          84          56         126         103          62          49
Revenue from sale of assets/investments....................         859         575         302       3,303         842         330
Dividends revenue..........................................         1.0         0.7         1.0          16          12          13
Miscellaneous revenue......................................         261         175         303         985         308         257
                                                              ---------------------------------------------------------------------
                                                                 21,700      14,539      20,928      23,086      20,567      18,220
                                                              =====================================================================
Expenses from ordinary activities (excluding
depreciation and amortisation, and
interest expense) includes:
Book value of assets/investments sold......................         661         443         307       2,164         503         308
                                                              =====================================================================
----------
<FN>
<F1>
/(1)/   Unless otherwise noted, all amounts have been translated at the noon
        buying rate on 30 June 2003 of A$1.00 = US$0.67.
<F2>
/(2)/   For a breakdown of operating revenue by product group and a breakdown of
        operating expenses by expense category, see "Operating and Financial
        Review and Prospects".
<F3>
/(3)/   Calculated based on 12,866,600,200 shares and, in the case of ADS
        calculations, based on a ratio of five shares per ADS. Basic earnings
        per share for each year was the same as diluted earnings per share.
<F4>
/(4)/   During the year ended 30 June 2003, we paid dividends of A$3,345 million
        (2002/2003 interim ordinary dividend, 2002/2003 special dividend and
        2001/2002 final ordinary dividend).
<F5>
/(5)/   Calculated based on dividends paid during the year on a ratio of five
        shares per ADS, in US currency based on the exchange rates applicable at
        each payment date.
<F6>
/(6)/   Includes our share of equity accounted net losses of associates.
</FN>
</TABLE>

                                                                               5

<PAGE>


Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

Statistical data

-----------------------------------------------------------------------------
                                                       Year ended 30 June
                                                   2003        2002     2001
-----------------------------------------------------------------------------
Billable traffic data (in millions)
Local calls (number of calls)...................   9,794      10,269   10,696
National long distance minutes/(1)/.............   9,161       9,170    9,082
Fixed-to-mobile minutes.........................   3,944       3,691    3,268
International direct minutes....................     740         781      693
Mobile telephone minutes/(2)/...................   6,335       5,780    5,277
Inbound calling product minutes.................   2,655       3,345    3,871
Network and operations data (at year end)
Basic access lines in service (in millions)/(3)/
   Residential..................................    6.15        6.35     6.27
   Business.....................................    2.60        2.72     2.83
                                                  ---------------------------
   Total retail customers.......................    8.75        9.07     9.10
   Domestic wholesale...........................    1.56        1.33     1.36
                                                  ---------------------------
   Total basic access lines in service..........   10.31       10.40    10.46
                                                  ===========================
FaxStream(R) services access lines
 (in thousands)/(4)/                                 390         400      413
ISDN access lines (basic line equivalents)
 (in thousands)/(5)/                               1,213       1,268    1,235
Mobile services in operation (SIO)
 (in thousands)/(6)/
   GSM..........................................   5,812       5,346    4,712
   CDMA.........................................     757         596      464
                                                  ---------------------------
   Total mobile services in operation...........   6,569       5,942    5,176
                                                  ===========================
Online subscribers (thousands)
   Narrowband subscribers.......................   1,158       1,056      864
   Broadband subscribers/(7)/...................     293         166       78
   xDSL in Intercarrier.........................      68           3       --
                                                  ---------------------------
   Total online subscribers.....................   1,519       1,225      942
                                                  ===========================
FOXTEL subscribers (thousands)
   FOXTEL cable subscribers.....................     477/(8)/    487      477
   FOXTEL direct to home satellite subscribers..     358/(8)/    313      268
                                                  ---------------------------
   Total FOXTEL subscribers.....................     835/(8)/    800      745
                                                  ===========================
Value-added services (thousands)
Mobile MessageBank(R) customers.................   5,499       5,062    4,258
Easycall(R) call waiting customers..............   5,605       5,605    5,604
Fixed line MessageBank(R) customers.............   1,444       1,448    1,414
Calling number display customers................     994         897      785
Employee data
Domestic full-time staff/(9)/...................  37,169      40,427   44,874
Full-time staff and equivalents/(10)/...........  42,064      44,977   48,317

----------
/(1)/   Includes national long distance minutes from our public switched
        telephone network (PSTN) and independently operated payphones to
        Australian fixed telephones. Excludes minutes related to calls from
        non-PSTN networks, such as ISDN and virtual private networks and
        FaxStream(R) services.
/(2)/   Includes all calls made from mobile telephones including long distance,
        international and data calls, based on calling party pays billing.
        Excludes CSL.
/(3)/   Excludes advanced access services, such as ISDN and FaxStream(R)
        services.
/(4)/   Facsimile access product.
/(5)/   Expressed in equivalent number of clear voice channels.

6

<PAGE>


                             Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

/(6)/   Excludes CSL SIOs.
/(7)/   Broadband subscribers include DSL layer 2 and 3S subscribers; retail
        products include cable, satellite, ISP, HyperConnect and ADSL, while
        wholesale products include Flexstream(R), DSL layer 2 and DSL layer 3S.
/(8)/   Includes FOXTEL's direct subscribers and subscribers receiving resold
        FOXTEL services via Telstra.
/(9)/   Excludes offshore, casual and part time employees.
/(10)/  Includes all domestic and offshore employees, including controlled
        entities.

Exchange rate information

Our consolidated financial statements are shown in Australian dollars (A$)
except where another currency is specified. For convenience, this report has
translations of certain A$ into US dollars (US$) at an exchange rate as at 30
June 2003 of A$1.00 = US$0.6713. These translations are indicative only and do
not mean that the A$ amounts could be converted to US$ at the rate indicated.

The tables below show the rates of exchange at the noon buying rate in New York
City for cable transfers in foreign currencies as certified for customs purposes
by the Federal Reserve Bank of New York:

     .  at the latest practicable date before the publication of this annual
        report, being 15 December 2003: A$1.00 = US$0.7429;

     .  the high and low exchange rates for six months preceding the date of
        this annual report:

        -----------------------------
                       High     Low
        June 2003     0.6729   0.6564
        July 2003     0.6823   0.6454
        August 2003   0.6593   0.6390
        Sept 2003     0.6810   0.6395
        Oct 2003      0.7077   0.6814
        Nov 2003      0.7238   0.6986

     .  for the five most recent fiscal years:
        ----------------------------------------------------
        Year ended   At period    Average
         30 June        end      rate/(1)/    High     Low
        ----------------------------------------------------
           1999         0.6611      0.6248   0.6712   0.5550
           2000         0.5971      0.6238   0.6703   0.5685
           2001         0.5100      0.5372   0.5996   0.4828
           2002         0.5628      0.5240   0.5748   0.4841
           2003         0.6713      0.5884   0.6729   0.5280
        ----------
        /(1)/ The average of the noon buying rates on the last day of each month
              during the year.

Fluctuations in the A$ to US$ exchange rate will affect:

     .  the US$ equivalent of the A$ price of our shares on the Australian Stock
        Exchange (ASX). Consequently, this is likely to affect the market price
        of our American depositary shares (ADS) in the US; and

     .  the US$ amounts received by holders of ADSs on conversion by the
        Depositary of cash dividends paid in A$ on the shares underlying the
        ADSs.

                                                                               7

<PAGE>


Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

Risk factors

The following describes some of the significant risks that could affect us.
Additionally, some risks may be unknown to us and other risks, currently
believed to be immaterial, could turn out to be material. All of these could
materially adversely affect our business, profits, assets, liquidity and capital
resources. They should be considered in connection with any forward-looking
statements in this annual report and the warning regarding forward-looking
statements in this section of this annual report.

We are subject to extensive regulation that may negatively affect our business
and profitability by constraining our ability to pursue certain business
opportunities and activities and affecting the returns we can generate on our
assets

We operate in a heavily regulated environment. Australia has generally
applicable and established competition law. There is further
telecommunications-specific legislation that regulates matters such as carrier
and carriage service provider obligations, industry specific competition
regulation and those of our services to which competitors can have access (and
the terms and conditions under which we provide this access).

We are also subject to regulations that are specific to Telstra only and not
applicable to our competitors. For example, under the Telstra Corporation Act
1991 (Cwth) (Telstra Act), the Communications Minister may direct us to act in
particular ways that benefit the public interest even though those actions may
not be in our best commercial interests.

In addition, in June 2003 the Commonwealth Government introduced draft
legislation into Parliament providing a framework for the possible further sale
of the Commonwealth's interest in Telstra. It is possible that as part of this
process the Commonwealth Government may seek to alter the regulatory regime by
changing the environment in which we operate.

Because of these numerous factors, there is a risk that we could be exposed to
significant limitations, uncommercial imposts, penalties and compensation
payments in relation to our current and future activities. This may make it
prudent on some occasions for us to cease or choose not to engage in business
activities in which we might otherwise engage or avoid, defer or abandon certain
capital projects. The regulatory regime may also affect our plans or the plans
of our subscription television interest, FOXTEL, to upgrade and expand our
networks. These regulatory risks could therefore have an adverse effect on our
ability to pursue certain business opportunities and activities and the returns
we can generate on our assets. This may in turn adversely affect our financial
performance.

In addition, the operations of our investments in other countries are also
subject to extensive regulation which has a significant effect on their
businesses. Changes in the administration of those regulations or changes in the
policies of the Governments of these countries could have a significant negative
effect on the performance of our investments and on our consolidated results.

For more information regarding our regulatory environment and our obligations
and potential liabilities under Australian and overseas regulations, see
"Competition and Regulation - Regulation".

8

<PAGE>


                             Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------


Competition in the Australian telecommunications market could cause us to
continue to lose market share and reduce our prices and profits from current
products and services

The Australian telecommunications market has become increasingly competitive
since the Commonwealth Government introduced open competition on 1 July 1997.
Although the overall market has experienced growth to date, we have lost
substantial market share in some key markets. In response, we have lowered the
prices of our products and services, particularly the prices for our local
calls, national long distance calls and international telephone services and
calls to and from mobile services. We expect that these trends will continue due
to competitive activity, Government regulations requiring lower telephone call
prices and regulatory facilitation of access to our networks, products and
services.

We expect competitors to continue to engage in vigorous price competition. We
also expect that our competitors will continue to market aggressively to those
of our customers who purchase large volumes of telecommunications services from
us. The continued loss of market share could have an adverse effect on our
financial results in the market or markets in which this type of competition
occurs.

For more information on our competitive environment, see "Competition and
Regulation - Competition".

We are required to incur new debt in order to undertake expansion and develop
our business and we may be unable to obtain future financing at favourable rates

Because the Telstra Act requires that the Commonwealth own at least 50.1% of our
shares, we are not able to sell new shares in order to raise capital to fund
acquisitions, expand and otherwise develop our business unless the Commonwealth
Government increases its shareholding on an equivalent pro rata basis.
Therefore, we usually need to obtain additional capital financing via debt or
other non-equity instruments, principally by borrowing money from banks or
selling bonds to investors. Incurring additional debt to raise capital increases
the amount of interest we are required to pay and our future obligations to
repay principal. This increases overall expenses which negatively affects our
profits and eventually gives rise to a need to repay maturities, which places
demands on our cash flow.

In addition, if we are unable to borrow the amounts we need at affordable rates,
it may restrict our ability to pursue our business strategies and adversely
affect our ability to finance our operations. Our ability to raise additional
finance is also influenced by general conditions in financial markets, in
particular as they relate to the telecommunications sector.

Fluctuations in currency exchange rates may adversely affect our revenues,
operating results and the translation value of our overseas investments

Because we purchase some materials and supplies with prices dependent on foreign
currencies and have substantial international investments denominated in foreign
currencies, movements in the value of the A$ against other currencies can
adversely affect our performance including revenues, operating results and
balance sheet amounts.

While the majority of our foreign currency exposures associated with our
borrowings are fully hedged to A$, we partially hedge exposures to purchases and
translation risk associated with our investments, generally to around fifty
percent of the value. We enter into hedge transactions of these exposures
principally to reduce the volatility of exchange rate movements on our financial
performance and results. These strategies do not fully remove foreign currency
exposure and there is a risk that currency movements could negatively affect our
operating results or financial position. For the fiscal year ended 30 June 2003,
approximately 7% of our revenues, 72% of our borrowings and 5% of our total
assets were denominated in currencies other than the A$ prior to hedging.

                                                                               9

<PAGE>


Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

More information on our exposure to risk from foreign currency exchange rate
fluctuations is provided in "Quantitative and Qualitative Disclosures about
Market Risk".

If growth in mobiles and some of our other products slows, our revenues may not
grow as rapidly as in the past and may even decrease, which in turn could
adversely affect our profitability

In recent years, our revenues have grown in large part because of rapid
expansion in some of our products such as mobile communications and data and
internet products, mainly as a result of the expansion of those markets in
Australia. We have seen some indications that some of our product markets are
not likely to continue expanding at the same rate as has been the case in recent
years. If these markets do not continue to expand, then in the absence of new
products and services our revenue growth may slow, which in turn could affect
our consolidated financial position and results of operations.

Rapid technological changes and the convergence of traditional
telecommunications markets with data, internet and media markets exposes us to
significant operational, competitive and technological risks

Rapid changes in telecommunications and IT are continuing to redefine the
markets in which we operate, the products and services required by our customers
and the ability of companies to compete in the telecommunications industry in
Australia and elsewhere in the world. These changes broaden the range, reduce
the costs and expand the capacities and functions of infrastructures capable of
delivering these products and services.

As traditional telecommunications, data, internet and media markets converge, it
is possible that further new competitors may enter the markets in which we have
traditionally competed and we may confront established competitors in new
markets we seek to enter. This could result in reduced market share, revenue and
profitability in our traditional markets and could adversely affect our ability
to win market share and operate profitably in these new markets.

Partially as a result of these changes and the entry of many new participants
providing new generation data and internet services, the prices that can be
charged for many products and services have also been falling which may affect
our financial position and results of operations in these markets.

To address the converging telecommunications, data, internet and media markets,
we may be required to devote considerable resources to enhancing our ability to
deliver services required by these markets. There is a risk that competitors may
deploy or develop technologies that provide them with lower costs or other
operating advantages compared with us. This could give these competitors an
advantage if we are unable to promptly and efficiently provide the services that
they provide. We have invested substantial capital and other resources in the
development and modernisation of our networks and systems. However, we may be
required to incur significant capital expenditures in addition to those already
planned in order to remain competitive. This may also render some previous
capital investments ineffective.

The establishment of a link between adverse health effects and electromagnetic
energy could expose us to liability or negatively affect our operations

Certain reports have suggested, but not proven, that electromagnetic energy
(EME) emissions from mobile phone base stations and radio communications
facilities (including handsets) may have adverse health consequences for users
and the community.

The consensus of national and international scientific opinion is that there is
no substantiated evidence of public health effects from the EME generated by
radio frequency technology, including mobile phones and base stations, when used
in accordance with applicable standards.

10

<PAGE>


                             Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

In our operations, we comply with the EME levels permitted by legislation and
applicable standards. While to date we have been able to insure these risks, the
level of insurance cover available is reducing and premiums are rising to a
point where the risks may not be economically insurable. However, there is a
risk that an actual or perceived health risk associated with mobile
telecommunications equipment and facilities could:

     .  lead to litigation against us;

     .  adversely affect us by reducing the number or the growth rate of mobile
        telecommunications services or lowering usage per customer; or

     .  hinder us in installing new mobile telecommunications equipment and
        facilities.

Any of these, or a combination of more than one, could have a negative effect on
our results or financial position. For more information on EME, see "Information
on the Company - Networks and systems - Electromagnetic energy".

Network and/or system failures could result in reduced user traffic, reduced
revenue and harm to our reputation

Our technical infrastructure is vulnerable to damage or interruption from
floods, wind storms, fires, power loss, telecommunication failures, cable cuts,
intentional wrongdoing and similar events. The networks and systems that make up
our infrastructure require regular maintenance and upgrade that may cause
disruption. The occurrence of a natural disaster or other unanticipated problems
at our facilities or any other damage to or failure of our networks and/or
systems could result in consequential interruptions in service across our
integrated infrastructure. Network and/or system failures, hardware or software
failures or computer viruses could also affect the quality of our services and
cause temporary service interruptions. Any of these occurrences could result in
customer dissatisfaction and damages or compensation claims as well as reduced
revenue.

Our ability to pursue our strategy with respect to some investments in which we
share control or do not own a controlling interest may be limited

Some of our domestic Australian and international activities are conducted
through subsidiaries, joint venture entities and other equity investments. Under
the governing documents for some of these entities, certain key matters such as
the approval of business plans and decisions as to the timing and amount of cash
distributions require the agreement of our co-participants. Our co-participants
may have different approaches with respect to the investment and the markets in
which they operate and on occasions we may be unable to reach agreement with
them.

In some cases, strategic or venture participants may choose not to continue
their participation. In addition, our arrangements with our co-participants may
expose us to additional investment, capital expenditure or financing
requirements. There are also circumstances where we do not participate in the
control of, or do not own a controlling interest in, an investment and our
co-participants may have the right to make decisions on certain key business
matters with which we do not agree.

All of these factors could negatively affect our ability to pursue our business
strategies with respect to the concerned entities and the markets in which they
operate. For more information on some of our investments, see "Information on
the Company - International investments".

                                                                              11

<PAGE>


Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

If our REACH joint venture does not perform as expected, we may not be able to
utilise capacity prepurchases

In February 2001 we formed REACH, a 50:50 joint venture with PCCW Limited (PCCW)
which merged our respective international infrastructure assets. REACH provides
wholesale voice, data and internet connectivity services in the Asia-Pacific
region. The financing arrangements of REACH are currently without recourse to
our joint venture partner, PCCW, or to us. Depressed conditions in the global
market for international internet capacity have adversely affected the
performance of REACH and caused us to write down the carrying value of our
investment in REACH to zero in the half-year period ended 31 December 2002. If
these negative market conditions persist, REACH may continue to underperform and
its operating cash flow may not grow as expected.

On 15 April 2003, we and PCCW entered into capacity prepurchase arrangements
with REACH and certain of its subsidiaries whereby we and PCCW each contributed
US$143 million for the prepurchase of capacity to be used in the future. The
payments (which will be compounded to reflect the time value of money) are to be
applied against the cost of the services and capacity supplied to us and PCCW by
REACH as and when REACH has available surplus cash in accordance with a
prescribed formula. Until REACH has such available surplus cash, Telstra will
continue to purchase capacity from REACH as required for its operations.

The value of our operations and investments may be adversely affected by
political and economic developments in Australia or other countries

Our business is dependent on general economic conditions in Australia, including
levels of GDP, interest rates and inflation. A significant deterioration in
these conditions could adversely affect our business and results of operations.

We may also be adversely affected by developments in other countries where we
have made equity investments or entered into ventures in the mobiles or
telecommunications sectors including in Hong Kong, other countries in Asia and
New Zealand. The level of acceptance of our services in these markets may limit
our ability to expand our products and services there. Accordingly, we may be
required to commit substantial resources to developing and marketing our
products and services for selected international markets and to developing
international sales and support channels. Some of these countries have
political, economic, regulatory and legal systems that are different from those
in Australia and may be less predictable. As a result, our international
operations will be subject to numerous unique risks, including:

     .  multiple and conflicting regulations regarding communications, use of
        data and control of internet access;

     .  changes in regulatory requirements, import and export restrictions and
        tariffs;

     .  the burden of complying with the laws of a variety of jurisdictions;

     .  fluctuations in currency exchange rates and interest rates;

     .  changes in political and economic stability;

     .  potentially adverse tax consequences; and

     .  reduced protection for intellectual property rights in certain
        countries.

Any of these factors could materially and adversely affect our future revenues,
operating results and financial condition.

12

<PAGE>


                             Telstra Corporation Limited and controlled entities


Key Information
--------------------------------------------------------------------------------

The financial distress of our suppliers and competitors may have a negative
impact on us

Due to the slow down in the industry internationally and the resultant
overcapacity globally, a number of our suppliers and competitors are financially
distressed. If major suppliers collapse it may make it more costly to manage the
ongoing expansion of our networks, systems and products and more difficult to
manage the operations and maintenance of our existing networks, systems and
technology. This may have a negative impact on our financial position and
operations. In addition, because of financial distress, some carriers and
providers who have purchased wholesale telecommunications services from us may
not be able to continue operating or may become insolvent. This may impact our
revenue and/or bad debts, as we may not be able to collect amounts owing to us
from these companies.

Cautionary statement regarding "forward-looking statements"

Some of the information contained in this annual report may constitute
forward-looking statements that are subject to various risks and uncertainties.
These statements can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "anticipate", "estimate", "continue", "plan",
"intend", "believe" or other similar words. These statements discuss future
expectations concerning results of operations or of financial condition or
provide other forward-looking information. Our actual results, performance or
achievements could be significantly different from the results expressed in, or
implied by, those forward-looking statements. Important factors that could cause
our actual results to differ materially from the forward-looking statements we
make in this annual report are set forth above under the caption "Risk factors"
and elsewhere in this annual report. Given these risks, uncertainties and other
factors, you should not place an undue reliance on any forward- looking
statement, which speaks only as of the date made.


                                                                              13

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

History and development of the Company

Our origins date back to 1901, when the Postmaster-General's Department was
established by the Commonwealth Government to manage all domestic telephone,
telegraph and postal services, and to 1946, when the Overseas Telecommunications
Commission was established by the Commonwealth Government to manage
international telecommunications services. Since then we have been transformed
and renamed several times as follows:

     .  the Australian Telecommunications Commission, trading as Telecom
        Australia, in July 1975;
     .  the Australian Telecommunications Corporation, trading as Telecom
        Australia, in January 1989;
     .  the Australian and Overseas Telecommunications Corporation Limited in
        February 1992;
     .  Telstra Corporation Limited in April 1993, trading internationally as
        Telstra; and
     .  trading domestically as Telstra in 1995.

We were incorporated as an Australian public limited liability company in
November 1991. Following the opening of Australia's telecommunications markets
to full competition in July 1997, we underwent a partial privatisation in
November 1997 under which the Commonwealth sold approximately 33.3% of our
issued shares to the public. Following the initial privatisation, those of our
shares that are not held by the Commonwealth are quoted on the Australian Stock
Exchange and on the New Zealand Stock Exchange. American depositary shares, each
representing five shares evidenced by American depositary receipts, have been
issued by the Bank of New York as depositary (Depositary) and are listed on the
New York Stock Exchange.

A further global offering by the Commonwealth of up to 16.6% of our issued
shares was launched in September 1999. The shares sold by the Commonwealth were
also listed on the Australian Stock Exchange, the New Zealand Stock Exchange and
the New York Stock Exchange on 18 October 1999. As at 30 June 2003, the
Commonwealth owned approximately 50.1% of our issued shares and it is required
by legislation to own at least that much.

Organisational structure

In January 2003, our organisational structure changed. In particular, the three
previous product focussed groups of Telstra Retail, Telstra Mobile and Telstra
Country Wide were realigned to better serve customer needs for convenient and
effective contact and service from Telstra.

From 1 January 2003, our organisational structure consisted of eight strategic
business units and three corporate centre business units as outlined below.

Strategic business units

     .  Telstra Consumer and Marketing is responsible for serving metropolitan
        consumer and small business customers with our full range of products
        and services including fixed, wireless and data, the overall management
        of Telstra's brands, advertising and sponsorships, the management of
        fixed and mobile products and implementing our product bundling
        initiatives.

     .  Telstra Business and Government is responsible for serving our
        corporate, medium enterprise and Government customers with the full
        range of Telstra products and services of interest to this group of
        customers. This business unit also includes Customer Care and product
        management groups.

14

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

     .  Telstra Country Wide is responsible for providing telecommunications
        services to customers in outer metropolitan, regional, rural and remote
        parts of Australia. This business unit was formed in June 2000 with the
        aim to establish a strong presence and grow our business in regional
        Australia. In January 2003, Telstra Country Wide assumed responsibility
        for an additional 10 communities in Queensland, the Australian Capital
        Territory, New South Wales and Victoria.

     .  Telstra Broadband & Media, a new business unit established in January
        2003, is responsible for our broadband and online services business
        BigPond(TM), our advertising, directories and information services
        business Sensis and Telstra Media (including our FOXTEL investment).

     .  Telstra Wholesale provides wholesale products and services to the
        Australian domestic market. Telstra Wholesale provides a wide range of
        products and services including fixed, wireless, data and internet,
        transmission and IP, interconnection, access to our network facilities
        and retail/rebill products. The integration of Telstra's wholly owned
        subsidiary, Network Design and Construction Ltd (NDC), resulted in the
        NDC marketing and sales function serving external customers to Telstra
        joining Telstra Wholesale on 1 July 2003.

     .  Telstra International manages our international interests, including
        Hong Kong CSL Limited and our joint venture REACH in Hong Kong. It also
        directs our offshore growth strategy, with a current focus on enhancing
        the value of our existing investments and rationalising the investments
        that are non-core to Telstra.

     .  Infrastructure Services operates and maintains our telecommunications
        infrastructure. It supports our domestic retail and wholesale business
        units that in turn serve the end retail and wholesale market.
        Infrastructure Services is responsible for the provisioning,
        restoration, operation and management of our fixed, mobile, IP and data
        networks. This includes voice and data, product and application
        platforms and the online environment. As Telstra's primary service
        provider, Infrastructure Services is a fully integrated service business
        and aims to maximise the growth of our domestic retail and wholesale
        business while maintaining a competitive cost position.

     .  Telstra Technology (previously known as Networks and Technology Group)
        was established in August 2002 as the core product technology group in
        Telstra. It develops and supports products specified by our market
        facing business units. Underpinning the products is a range of
        technologies which are optimally designed and implemented to provide the
        best outcome for Telstra and our customers. Telstra Technology also
        undertakes substantial research and development to ensure that Telstra
        remains at the forefront of technology in Australia.

Corporate centre business units

     .  Finance & Administration is responsible for mergers and acquisitions and
        corporate policy and support functions including finance, risk
        management and assurance, shared services for processing functions,
        credit management, treasury, investor relations, acquisitions and
        divestments, productivity directorate, information technology and other
        corporate services. In addition, it is responsible for strategic
        planning and management of Telstra's investment portfolio and the
        financial management of the majority of our fixed assets, including
        network assets, through the Asset Accounting Group.

     .  Legal & Office of the Company Secretary provides legal and company
        secretarial services across Telstra. It is also responsible for
        corporate security and liaison with law enforcement agencies.

                                                                              15

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

     .  Regulatory, Corporate & Human Relations manages corporate communications
        and public affairs across Telstra including media relations, employee
        communications, corporate image and reputation and external relations
        including Government affairs. It also manages personnel, organisation
        effectiveness, health and safety, environment, remuneration, training
        and leadership development programs. In addition, it has responsibility
        for regulatory positioning and negotiation, including assessment of
        regulatory decisions and preparation of submissions to industry
        regulators, as well as facilitation of regulatory compliance through the
        provision of advice and a regulatory compliance assurance program.

On 3 September 2003, we announced further changes to our organisational
structure to continue aligning our structure with customer needs and our
corporate strategy. A new group called Telstra Technology, Innovation and
Products has been formed which brings together Telstra Technology with business
unit product development areas, network technologies, IT systems and Telstra
Research Laboratories. A further new group called Corporate Development has also
been formed, with responsibility for investor relations, mergers and
acquisitions, business development and corporate strategy. These organisational
changes took effect from 1 October 2003.

Our organisational structure for financial reporting purposes has evolved over
recent years to meet our business needs and has included the following:

     .  in fiscal 2001, the business unit reporting structure consisted of
        Telstra Retail (including Telstra Country Wide), Telstra OnAir, Telstra
        International and Infrastructure Services & Wholesale;

     .  in fiscal 2002, the business unit reporting structure consisted of
        Telstra Retail, Telstra Country Wide, Telstra Mobile (previously Telstra
        OnAir), Telstra International, Infrastructure Services (including
        Networks & Technology Group which was separated in August 2002) and
        Telstra Wholesale. We combined Telstra Retail and Telstra Country Wide
        as a single reportable business segment as they were considered
        substantially similar; and

     .  in fiscal 2003, Telstra Retail, Telstra Mobile and Telstra Country Wide
        were restructured. The scope of Telstra Country Wide was increased and
        two new groups were formed, being Telstra Consumer and Marketing and
        Telstra Business and Government. These three groups form their own
        reportable segments for financial reporting purposes. Telstra Broadband
        & Media, which was also established in fiscal 2003, does not form its
        own reportable segment and is included in "Other" in the segments
        contained in note 5 to our financial statements. Telstra International,
        Infrastructure Services (including Telstra Technology) and Telstra
        Wholesale have remained unchanged.

See "Operating and Financial Review and Prospects - Segment information" for a
discussion of the financial performance of our reportable segments during the
last three fiscal years. Note 5 to our financial statements also provides
information on our reportable business segments.

A list of our controlled entities is provided in note 23 to our financial
statements. Our joint venture entities and associated entities are listed in
note 24 to our financial statements.

Marketing and customer service

From supplying Australia's largest public and private sector organisations, to
supplying people who use our services at home, Telstra is Australia's leading
fully integrated telecommunications company, providing more than 10.3 million
Australian fixed line services and more than 6.5 million mobile services.

Using sophisticated customer analytics, we target our offers, advertising and
customer contact based upon our customers' needs. This has helped us to
understand their needs and consequently improve our relationships with our
customers, which has become one of our key competitive advantages.

16

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Residential customers and small businesses

We segment our residential customers based upon their usage and lifestyle
patterns. We segment our small business customers according to the type of
business they operate and the way they interact with their customers. This
information on customers by segment is then used to tailor our marketing
campaigns.

We enable customers to interact with us online, through door-to-door sales
representatives and telephone sales channels and face to face via Telstra Shops,
Telstra licensed stores, Telstra Business Shops, Telstra kiosks and indirectly
through more than 5,000 retail outlets nationwide in conjunction with our retail
partners.

Medium and large businesses and Governments

To help identify businesses' key drivers and develop appropriate
telecommunications packages, business customers have been segmented by size and
industry: medium and large businesses and Australian Federal, State and the
Australian Capital Territory Governments. We offer a range of targeted
telecommunications solutions to all of our customer segments focussing on the
unique communications needs of each customer group.

This year, Telstra Business and Government restructured its sales force to be
more focussed and responsive to our customers' requirements. Significant focus
has also been placed on education of our staff to equip them to better service
the needs of a growth area of our business, data products and solutions. In
particular, our account managers and communications consultants have received
detailed training to improve their technical skills.

Regional, rural and remote customers

Telstra Country Wide was established to improve service levels, business
performance and to strengthen relations with customers and communities in
regional, rural and remote areas of Australia. Thirty-five regionally-based area
general managers address the sales, marketing and service needs of our
customers.

Wholesale customers

Our wholesale customers include licensed carriers, carriage service providers
and internet service providers (ISPs). Telstra Wholesale provides products and
services to more than 620 customers, including approximately 500 ISPs.

Wholesale customers typically buy products and services from Telstra Wholesale,
add their own inputs and then sell to the retail market, but also include other
wholesalers. Telstra Wholesale seeks to grow the industry by building strong
commercial partnerships, providing appropriate product solutions and continually
improving our customer services. We will continue to extend our wholesale
product range and improve our online ordering, billing and assurance processes.
We now provide our customers automated online services via our website,
www.telstrawholesale.com.

Advertising customers

Sensis Pty Ltd (Sensis), our wholly owned subsidiary, is a leading Australian
advertising directories and information services provider. Sensis provides
print, voice, online and wireless products and services to more than 400,000
customers nationally, including small and medium enterprises, large corporates
and Governments.

Sensis manages two of Australia's leading brands, Yellow Pages(R) and White
Pages(R), along with the CitySearch(R) OnLine city guide, the Whereis(R) mapping
and guidance site and the GOeureka(TM) internet search engine.

                                                                              17

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Global business solutions

We have business offices in the Asia Pacific region, Europe and the US to
support local, regional and global telecommunications requirements for
multinational corporate customers. Together with our partners and alliances, we
have the network capabilities that offer customers access to more than 230
countries and territories across the globe. We provide total network solutions
including dedicated consulting, planning, project management, system integration
and customer support seven days a week.

Products and services

We offer a broad range of telecommunications and information products and
services to a diverse customer base. The following table shows our operating
revenue by major product and service category and as a percentage of total
operating revenue for the last three fiscal years. See also "Operating and
Financial Review and Prospects" for a discussion of the revenue performance of
our products and services during the last three fiscal years.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Operating revenue by product and service category, including percentage of total operating revenue contributed
                                       by each product and sales category
----------------------------------------------------------------------------------------------------------------
                                                                              Year ended 30 June
                                                                   2003             2002              2001
                                                                 (in millions, except percentage of revenue)
                                                               A$     %/(2)/     A$     %/(2)/     A$     %/(2)/
----------------------------------------------------------------------------------------------------------------
<S>                                                          <C>      <C>      <C>      <C>      <C>      <C>
Basic access .............................................    3,091       14    2,880       14    1,955        8
Local calls ..............................................    1,567        7    1,643        8    1,915        8
PSTN value added services ................................      272        1      261        1      263        1
National long distance ...................................    1,162        5    1,216        6    1,267        5
Fixed-to-mobile ..........................................    1,517        7    1,419        7    1,287        6
International direct .....................................      307        1      336        1      338        1
Mobile services ..........................................    3,227       15    3,242       16    2,906       13
Mobile handsets ..........................................      381        2      226        1      213        1
Data .....................................................    1,053        5    1,051        5    1,192        5
ISDN (access and calls)  .................................      951        4    1,037        5    1,094        5
Internet and IP Solutions ................................      802        4      605        3      425        2
Sensis (advertising and directories) .....................    1,217        6    1,135        5      909        4
Customer premises equipment ..............................      202        1      220        1      274        1
Intercarrier services ....................................    1,170        6    1,124        5    1,132        5
Inbound calling products .................................      494        2      562        3      657        3
Solutions management .....................................      487        2      477        2      428        2
Various controlled entities ..............................    1,836        9    2,001       10    1,342        6
Payphones ................................................      148        1      154        1      166        1
Other sales and services .................................      611        3      607        3      916        4
                                                             ---------------------------------------------------
Sales revenue ............................................   20,495       95   20,196       97   18,679       81
Other revenue /(1)/ (excluding interest income) ..........    1,121        5      606        3    4,304       19
                                                             ---------------------------------------------------
Total operating revenue (excluding interest income) ......   21,616      100   20,802      100   22,983      100
                                                             ===================================================

----------
<FN>
<F1>
/(1)/ Other revenue includes revenue from sale of assets/investments, dividends
      received/receivable and miscellaneous revenue. Interest received/
      receivable is included in net interest.
<F2>
/(2)/ Represents percentage of total operating revenue contributed by each
      product and service category.
</FN>
</TABLE>

18

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Revenues are derived from domestic and international sales as follows:
--------------------------------------------------------------------
                                              Year ended 30 June
                                          2003      2002        2001
                                                   (in %)
--------------------------------------------------------------------
Australia..........................       91.0       90.1       92.8
Hong Kong..........................        4.4        5.3        2.6
New Zealand........................        2.7        1.5         --
Other International................        1.9        3.1        4.6

No individual country makes a material contribution to revenue other than
Australia, Hong Kong and New Zealand.

Basic access

We provide basic access services to most homes and businesses in Australia. We
also sell access services to carriage service providers who then sell these
services to their customers. Our basic access service consists of installing,
renting and maintaining connections between our customers' premises and our PSTN
to provide basic voice, facsimile (including services marketed under our
FaxStream(R) brand name) and internet services. Our basic access service does
not include enhanced products like ISDN access and ADSL services. These are
recorded under "Data and internet services".

We charge our customers fees for connecting new lines and reconnecting existing
lines. We charge all our residential customers approximately the same rates for
basic access service even though it is more expensive for us to provide basic
access service in rural areas.

Housing growth and customer requirements for additional basic access lines
drives demand for residential basic access lines. The number of basic access
lines in service has decreased in recent years but this has been offset, to some
extent, by our success in encouraging customers to adopt alternative access
services that have more capabilities, such as ISDN services and new internet
access products using ADSL technology. Growth in the number of home offices and
increasing demand for integrated voice and data services has caused some of our
customers to switch to these alternative access services.

We market additional lines in areas where we have capacity available and in
other areas we augment our network capacity with a range of technologies,
including ADSL. We continue to target and selectively upgrade our customer
access network as part of a network plant lifecycle maintenance program to
reduce the number of faults and thereby improve our service levels. This upgrade
has also assisted us to meet the demands for service in a more timely way and
provide our network with additional capacity for further growth in the volume of
lines.

Local calls

We provide local call services to most residential and business customers in
Australia and we generally charge for local calls on an untimed call fee basis.
We also provide local call services to carriage service providers at a
commercially negotiated or regulated rate. These carriage service providers
resell local call services and bill their customers directly.

National long distance calls

We are the leading provider of national long distance services in Australia.
This comprises national long distance calls made from our PSTN network by
residential and business customers to a fixed network. We also provide national
long distance services to other carriers for resale.

                                                                              19

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

We charge for national long distance calls on a timed basis after a call
connection fee. Charges usually depend on the duration, destination, time of day
and day of the week of the call but are also offered on a capped price basis. We
offer a suite of calling options to allow customers to choose the package most
suitable for their individual needs. In addition, we offer a variety of specials
to increase the use of our network in low demand periods.

Fixed-to-mobile calls

Fixed-to-mobile calls are calls made from our PSTN network to a mobile network.
We charge for fixed-to-mobile calls on a timed basis after a call connection
fee. Charges usually depend on the duration and time of day or day of the week
of the call and whether or not the mobile called is a Telstra mobile service. We
also offer capped calls on some of our package options during certain times and
on specified days of the week for calls made to Telstra mobile services.

International telephone services

We are the leading provider of international telephone services in Australia
offering customers international telephone services to more than 230 countries
and territories. In addition, through REACH we offer international outbound
telephone services on a wholesale basis.

We generally charge for international telephone calls on a per second basis
after a call connection fee. The charge usually depends on the duration of the
call and the destination of the call.

REACH now provides the connections we use to supply international services to
our wholesale and retail customers. Prior to the creation of REACH, inbound and
outbound traffic on the international network was delivered largely under
bilateral contracts with major overseas carriers. We now have services
agreements with REACH to cover these arrangements. REACH pays us for
international traffic that terminates in Australia. These termination charges
are based on the cost of delivering traffic to destinations in Australia using
the domestic network. For more information regarding our arrangements with
REACH, refer to "Operating and Financial Review and Prospects - international
business ventures".

Mobile goods and services

We continue to be the leading provider of mobile telecommunications services in
Australia in terms of mobile revenue, the number of customers and the
geographical coverage area of our network.

The mobile telecommunications market in Australia is characterised by a
significant degree of penetration and we estimate that market penetration as at
30 June 2003 was approximately 72%. With our evolution into mobile data
products, we also provide our customers with a range of messaging, information,
transaction and entertainment services. We are increasingly offering our
business customers a variety of wireless data applications that enhance
productivity.

The Australian mobiles market is highly competitive. To compete in this market,
we rely on:

     .  our innovative marketing plans;
     .  our network coverage and quality;
     .  using a number of different distribution methods to deliver our products
        and services to our customers; and
     .  our well-known and trusted brand name.

20

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Our mobile telecommunications services include:

     .  digital cellular services;
     .  sales of mobile handsets; and
     .  a wide range of added features and functions for communication via voice
        or data.

Our digital mobile service allows customers to send and receive voice and data
calls. We also offer our mobile customers additional services including:

     .  MessageBank(R);
     .  Call Waiting;
     .  Call Forwarding;
     .  Calling Number Display;
     .  mobile facsimile and data services;
     .  Memo;
     .  Call Connect;
     .  International Roaming;
     .  Short Messaging Services (SMS) including PocketNews(R);
     .  Multi Media Messaging (MMS);
     .  Wireless Application Protocol (WAP) services, including content such as
        financial information, sports, e-mail, weather, flights and directories;
     .  packet data services using GPRS and One Times Radio Transmission
        Technology (1xRTT); and
     .  other entertainment and information services available through
        telstra.com(R) and communic8(R).

Our wholly owned subsidiary Hong Kong CSL Limited (CSL) is also a leading
provider of mobile services in Hong Kong. CSL's history of technical innovation
in areas such as MMS provides great learning opportunities for us and will
produce opportunities in the Australian and international markets. For further
information on CSL, see "Information on the Company - International
investments".

GSM digital service

Our digital GSM network covers more than 96% of the Australian population. We
have continued to expand our digital GSM coverage into regional centres and
along highways that link regional centres. We have also focussed on improving
depth of coverage in major cities, particularly in-building and underground
coverage. We offer international roaming in more than 120 countries.

We offer our GSM customers a wide selection of products and services giving them
maximum flexibility and choice. Customers are rewarded for their usage and
loyalty through prices that reduce the more time they spend on calls and through
monthly loyalty bonuses (on member plans) that may be used towards the cost of a
handset or to reduce their monthly bill.

CDMA digital service

Our CDMA network offers the largest cellular mobile phone coverage area in
Australia, reaching more than 1.4 million square kilometres using an external
antenna and covering more than 98% of the Australian population. CDMA has a
number of advantages over GSM in some applications for users who require wider
service coverage and faster data speed than circuit-switched GSM. Customers are
increasingly connecting to our CDMA network and it is one of the fastest growing
areas of the mobile business.

                                                                              21

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Telstra Mobile Satellite

In fiscal 2002, we launched Telstra Mobile Satellite which is a hand-held mobile
satellite voice and data service for people living, working or travelling in
rural and remote Australia. The service operates off the Iridium Low Earth Orbit
satellite system which provides global mobile satellite phone coverage. We have
signed a service partner agreement to sell the Iridium service including
handsets, antennas and airtime.

3G wireless service

In December 2002, we launched Australia's first commercial third generation (3G)
mobile service which is based on 1xRTT on our CDMA network. 1xRTT is a 3G
development of CDMA technology for high speed packet switched data. In March
2003, we launched Telstra Mobile Loop(R) on 1xRTT to customers which features
downloadable games and ringtones, e-mail access and picture messaging.

CDMA 1xRTT is currently available in every Australian capital city, together
with the Gold Coast, the Sunshine Coast, Sale, Gippsland and along sections of
the Hume Highway between Melbourne and Albury.

Data and internet services

We provide new generation data and internet services such as:

     .  broadband and narrowband services for consumers and small businesses
        through Telstra's ISP, BigPond(TM);
     .  business grade internet solutions;
     .  IP Solutions; and
     .  domestic and international frame relay and ATM products.

We also provide data and specialised services such as ISDN, digital data
services, voice grade dedicated lines, transaction/EFTPOS services and video and
audio network services.

Our retail strategy for data and internet services is to:

     .  enhance and improve service delivery of existing data services;
     .  develop innovative new generation IP and internet services, including
        DSL services for business;
     .  work with customers as they require migration from existing data
        services to new generation data and internet services;
     .  enhance our hosting, storage, security and application services; and
     .  expand our range of managed solutions.

In relation to internet services, one of our key focuses is on broadband and our
goal is to provide broadband services through our retail and wholesale channels
to 1 million broadband SIOs by December 2005 and to achieve $1 billion in
broadband revenue by December 2006.

Our retail focus through BigPond(TM) is to:

     .  increase customers by offering products and services that provide
        compelling and customer friendly solutions;
     .  excite, educate and convert customers to broadband through focused
        marketing campaigns; and
     .  convert sales opportunities for broadband through existing channels and
        explore new sales channels.

We offer a range of internet products and packages under our BigPond(TM) brand.
Telstra BigPond(TM) Home and Business offer dial-up modem and ISDN internet
services to residential and business customers across Australia. Telstra
BigPond(TM) Broadband provides broadband internet services to consumer and
business customers via hybrid fibre coaxial cable, satellite or ADSL access
technologies. In addition, Telstra Internet

22

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Direct provides business customers with high quality dedicated internet access
within Australia at transmission rates up to 1 Gbps.

We also provide wholesale internet access products for use by ISPs and carriage
service providers. Our wholesale focus through Telstra Wholesale is to:

     .  foster broadband take up;
     .  enhance the product range to meet service provider needs;
     .  develop innovative solutions that enable new broadband services to be
        offered; and
     .  drive network enhancements to support uptake.

Other data services

We offer other data services, in some cases with business partners, including:

     .  games-based entertainment, children's education and online music
        services;
     .  conferencing services that provide audio, video and internet
        conferencing (including the Conferlink(R) product range); and
     .  administration and support services to funds managers for their back
        office administration and asset management operations.

Online services

In March 2000, we announced the availability of our online communications hub,
telstra.com(R). Since this launch, the communications hub has grown
substantially, from around 565,000 subscribers in June 2000 to more than
1,300,000 subscribers as at 30 June 2003.

telstra.com(R) provides access to a number of services and features including:

     .  information about our products and services;
     .  current Telstra corporate and investor relations information;
     .  access to online messaging applications such as web-based e-mail and
        online SMS;
     .  the ability to view and pay Telstra accounts online, as well as order
        Telstra products and services; and
     .  acting as a springboard to our ISP business - Telstra BigPond(TM).

Extensive work has been undertaken in fiscal 2003 to further develop
telstra.com(R) to enhance it as an effective channel to market our products and
services.

Advertising, Directories and Information services

We are a leading provider of advertising, directories and information services
to consumers, small and medium enterprises, corporations and Governments through
our advertising business and wholly owned subsidiary Sensis. Sensis was formerly
known as Pacific Access Pty Ltd and was rebranded Sensis on 19 August 2002.

Sensis delivers targeted, multi-channel solutions incorporating directories
advertising, non-directories advertising and information services.

Directories advertising incorporates the White Pages(R) (available in print and
online) and Yellow Pages(R) directories (available in print, online and voice)
and provides a vast array of advertising formats to meet the varying needs of
businesses and Governments.

                                                                              23

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Non-directories advertising incorporates the CitySearch(R) city guide, Sensis
WebWorks(TM) web site development and management service and Sensis
MediaSmart(TM):

     .  the CitySearch(R) site is an online city guide and is positioned as the
        premier provider of local information on topics ranging from restaurants
        and shopping to travel and professional services;
     .  the Sensis WebWorks(TM) product offers small and medium enterprises a
        simple template-based online solution with which to build their business
        website; and
     .  Sensis MediaSmart(TM) is a core non-directory online advertising
        business, managing online advertising campaigns across all Sensis online
        sites and leading external sites such as AFL.com.au, travel.com.au and
        asx.com.au.

The information services portfolio leverages our advertising and content
management capabilities to create specific solutions for Governments and the
corporate sector. These solutions include the Whereis(R) portfolio of location
and navigation products which delivers detailed street directory and geo-mapping
functionality via a range of electronic channels, the MacroMatch(R) service
which uses White Pages(R) data to help companies 'cleanse' their databases of
incorrect contact information and the Electronic White Pages(R) solution which
delivers high speed access to White Pages(R) information.

Our commitment to customers has led to the development and launch this year of
the Sensis Customer Charter. Sensis is, in fact, the world's first directory
company to make this commitment to its customers and the implementation of the
charter is already driving substantial improvement in our customer service and
delivery processes.

Our print operations, which have driven client value for over 100 years, are now
being successfully enhanced and extended through the development of a growing
portfolio of new media offerings. Sensis will continue to achieve solid,
sustainable growth through our ongoing focus on product innovation, enhancing
our go-to-market capabilities and sales excellence.

Customer Premises Equipment

We provide telephone, data and other telecommunications equipment for rental or
sale to our customers. In fiscal 2003, Telstra and Commander Australia Ltd
(Commander) finalised an agreement that changed the relationship between the
parties. As a result of this, Telstra is no longer limited in dealing with key
telephone systems exclusively with Commander and Telstra is able offer a wider
choice of equipment to better address customer requirements. These new
arrangements enable Telstra to enhance its position in the business market.

Intercarrier services

We provide telecommunications services to other carriers and carriage service
providers. Many new competitors have entered the Australian telecommunications
market and as the Australian telecommunications market expands, demand for our
intercarrier services may increase. The prices we charge other carriers and
carriage service providers are mostly regulated.

Inbound and contact centre solutions

We offer inbound call services including:

     .  Freecall(TM) 1800, a reverse charge call service used widely by large
        and small businesses to extend their market reach and attract sales;
     .  Priority(R) One3, a shared cost service offering a 6 digit national
        number used by larger businesses as a front door to their contact
        centres and franchise operations for service calls;

24

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

     .  Priority(R) 1300 services, a shared cost service offering a 10 digit
        number, similar to the Priority(R) One3 service, used when a short
        number format is not required;
     .  Contact centre enablement services, including network-based interactive
        voice response (IVR), computer telephony integration (CTI), call routing
        services and online customer selection menus; and
     .  InfoCall(R) 190, a telephone premium rate service where we bill the
        calling customers for both content and carriage on our bill and
        undertake a revenue share arrangement with the service provider.

We also supply a range of products to our consumer and business customers that
offer alternative billing options including prepaid cards, automated reverse
charging and calling cards.

Services solutions

We provide management of all or part of a business customer's IT and
telecommunications services including management of each of the following:

     .  managed voice services: our network based enhanced voice and data
        switching products, IP products and the provision of related
        professional services;

     .  managed data services: our core data products including IP-based network
        solutions, ATM, frame relay, ISDN, ADSL and dedicated data network,
        equipment and the provision of professional services;

     .  managed contact services: a customer's call or contact centre including
        network services, equipment and third party hardware/applications and
        professional services;

     .  managed mobility services: fleet management of mobile phone networks and
        new wireless based technologies such as wireless Local Area Networks
        (LANs);

     .  managed IT services: IT based products and services including firewalls,
        desktops, peripheral services and application service products; and

     .  whole of business solutions: complex once off or whole of business
        solutions incorporating a range of the above services.

Other sales and services

Our other sales and services mainly include payphones, domestic information and
connection services, video and teleconferencing and audio and video services.

We provide information and connection services through a number of call centres
in Australia and through the White Pages(R) OnLine and Yellow Pages(R)
OnLine sites. We provide voice recognition technology to allow the automation of
more than 2,400 of the most frequently requested numbers. In fiscal 2003, we
responded to over 248 million calls with the majority of these basic operator
services being provided without charge to the customer. For the last four years
we have charged for directory assistance services provided to mobiles and
business customers. We cannot charge or amend charges for our directory
assistance services without the approval of the Communications Minister.

Payphones

We are the leading provider of payphones in Australia. As at 30 June 2003, we
operated approximately 33,400 public payphones. Other private operators have
approximately 34,200 payphones that are connected to a payphone access line
provided by us. Our Universal Service Obligation requires us to make payphone
services reasonably accessible throughout Australia including in
non-metropolitan and rural areas. Approximately half of our public payphones are
in these areas.

                                                                              25

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Wholesale services

In addition to providing products for resale, we provide a range of other
products specifically tailored for wholesale customers. These include:

     .  interconnection services, including originating and terminating access
        to our fixed and mobile networks, preselection services and access to
        our network facilities such as ducts, towers and exchange space;
     .  domestic and international transmission services, including leased
        lines;
     .  broadband, IP backbone and traditional data services;
     .  mobile telecommunications services; and
     .  network design and construction services.

Both GSM and CDMA mobile products and services are offered to our wholesale
customers.

We also manage and deliver a wide range of customer processes for wholesale
customers. These include product and service provisioning, ordering and
activation, billing, fault reporting and end user and product transfer.

Subscription television

We own 50% of FOXTEL, with Publishing & Broadcasting Ltd (PBL) and The News
Corporation Limited (News Corporation) each owning 25%. The FOXTEL partners have
committed, with very limited exceptions, to confine their involvement in the
provision of subscription television services in Australia to participation in
FOXTEL. PBL and News Corporation have made long term programming commitments to
FOXTEL.

FOXTEL has entered into various program supply arrangements, including some with
minimum subscriber fee commitments. Refer to "Operating and Financial Review and
Prospects - Contractual obligations and commercial commitments" for further
details regarding our exposure to these commitments.

We are the exclusive long-term supplier of cable distribution services for
FOXTEL's cable subscription television services in our cabled areas and we
receive a share of FOXTEL's cable subscription television revenues. We can
independently, or through partnerships and alliances, provide a broad range of
communications, data and information services to other parties using our
broadband network.

Under arrangement with the FOXTEL partners, FOXTEL may provide, in addition to
subscription television services, a range of information and other services.

In fiscal 1999, FOXTEL introduced a commercial satellite service which enables
subscription television to be delivered to approximately two million homes not
passed by our broadband cable, excluding homes in areas serviced by the
Australian subscription television provider Austar United Communications Limited
(Austar). FOXTEL has licensed movie programming to Austar for delivery in most
areas serviced by Austar on an exclusive basis, with the effect that FOXTEL may
not provide a service containing this programming in those areas.

FOXTEL has the exclusive subscription television rights to the Australian
Football League (AFL) matches. The AFL is a major component of sports viewing in
Australia. Under the terms of the agreement negotiated with the AFL in 2001,
FOXTEL has acquired the exclusive subscription television rights to all AFL
matches for a term of five years commencing in 2002. The agreement also obliges
FOXTEL to offer some form of AFL to the other subscription television operators,
namely Austar and Optus Vision. However, FOXTEL is free to set the charge for
such a service.

On 1 December 2002, Telstra commenced bundling FOXTEL's subscription television
service with telephone and internet services and charging customers for them on
a single Telstra bill.

26

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Also on 1 December 2002, SingTel Optus commenced reselling FOXTEL subscription
television channels on the Optus Vision cable network. Under this agreement,
FOXTEL assumed some of Optus' rights and financial obligations under its movie
and other content arrangements. FOXTEL also supplies some Optus Vision content
over the FOXTEL platforms. This arrangement will run until 2010.

On 1 October 2003, Telstra commenced reselling Austar subscription television
services as part of its Telstra Rewards packages. This arrangement, together
with our FOXTEL arrangements, allow Telstra to provide a residential
subscription television package to most areas in Australia regardless of
geography.

A discussion of competition in the subscription television services market is
contained in "Competition and Regulation - Subscription television".

International investments

Our major international investments include:

     .  CSL, our wholly owned subsidiary that is one of Hong Kong's leading
        mobile operators with over one million customers and a market share of
        around 17%. CSL focuses on attracting and retaining high value customers
        and through its mobile brands, 1O1O and One2Free, CSL continues to offer
        its customers a highly targeted range of innovative mobile services;

     .  TelstraClear Limited (TelstraClear), the second largest full service
        carrier in New Zealand that provides innovative voice, data, internet,
        mobile, managed services and cable television products and services to
        more than 12% of the New Zealand market. On 9 April 2003, we moved to
        full ownership of TelstraClear by acquiring the remaining 42%
        shareholding from Austar. New Zealand is a strategically important
        market for our trans-Tasman customers and this investment enables these
        important customers to receive the same end-to-end services that we
        provide in a seamless way; and

     .  REACH, a 50:50 joint venture with PCCW and one of the leading wholesale
        providers of combined voice, data and internet connectivity services in
        the Asia-Pacific region. REACH has an interest in over fifty submarine
        cable systems, as well as landing rights, backhaul, operating licenses
        and bilateral agreements in most major international markets.

We also have a number of smaller offshore investments and joint ventures which
include:

     .  a 35% equity interest in the satellite communications operator, Xantic
        B.V. (formerly Station 12 B.V.) that is headquartered in the
        Netherlands; and

     .  a 39.9% equity interest in Australia-Japan Cable Holdings Limited, a
        network cable provider based in Bermuda.

On 24 September 2003, we entered into an agreement to sell our 20.4% equity
interest in Mitra Global Telekomunikasi Indonesia (MGTI) to PT Alberta
Telecommunication (a subsidiary of Saratoga Investama Sedaya) subject to the
satisfaction of certain conditions. PT Alberta Telecommuncation will acquire
100% of MGTI for approximately US$266 million enterprise value and the
transaction is expected to be completed by the end of December 2003.

We are also evaluating business opportunities in the Asian region where we have
established presence and operational experience. In particular, we continue to
explore opportunities in China and we have entered into an agreement with the
Beijing Organising Committee for the Games of the XXIX Olympiad to act as the
adviser for the provision of telecommunications consultancy services for the
2008 Beijing Olympic Games.

                                                                              27

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Capital Expenditures and Divestitures

For a discussion of the significant capital expenditures and divestitures we
made in the preceding three year period, refer to "Operating and Financial
Review and Prospects - Liquidity and capital resources".

Networks and systems

One of our major strengths in providing integrated telecommunications services
is our vast geographical coverage through both our fixed and mobile network
infrastructure. This network and systems infrastructure underpins the carriage
and termination of the majority of Australia's domestic and international voice
and data telephony traffic. This large, diverse network is monitored and
supported through a largely centralised global operations centre, which has a
fully tested recovery plan that enables network management to be transferred to
an alternate location in the event of an unforeseen disaster.

Ongoing substantial investment of both capital and resources is required to
ensure that we maintain this leading position from both a technology and
industry position. An example of how this requirement has been effectively met
through fiscal 2003 is Telstra's investment in the Voice on Packet Core
technology. In mid 2002, Telstra commenced work on a new IP-based telephony
product called Telstra IP Telephony, targeting enterprise customers. The new
product and underlying "softswitch" platform provides hosted PBX-style call
features (including both traditional telephony features and new multimedia
features) to business users over their existing IP LANs and Wide Area Networks
(WANs).

Research and development

Telstra reviews its project expenditure at the end of each financial year to
determine actual spend on research and development and our reviews show that we
spent an estimated $187 million in fiscal 2003, A$170 million in fiscal 2002 and
A$217 million in fiscal 2001 on research and development. For a detailed
discussion of our research and development refer to "Operating and Financial
Review and Prospects - Research and development".

Transmission infrastructure

Our national transmission infrastructure consists of both terrestrial and
non-terrestrial transmission systems. Our domestic terrestrial systems are
almost exclusively digital and use approximately 3.5 million kilometres of
optical fibre and more than 2,100 digital radio systems. Our major transmission
routes incorporate Synchronous Digital Hierarchy technology. In fiscal 2003, we
completed construction of an extensive Dense Wave Division Multiplexing (DWDM)
network from South Hedland through Perth, Adelaide, Melbourne, Sydney, Brisbane
and onto Cairns with links to Darwin and Tasmania as well.

In addition, we have selected suppliers for the provision of 10G/Bit DWDM
systems in our network. We are examining proposals to implement this technology
on the Perth to Adelaide, Adelaide to Melbourne, Melbourne to Sydney and Sydney
to Brisbane routes when required. We are also examining potential lease options
for these routes as an alternative to building our own capacity.

During fiscal 2003, we completed the installation of a second optical fibre
cable from Victoria to Tasmania which will provide additional transmission
capacity and further mitigate the risk of communications failure on key
communications links to and from Tasmania.

Our international switching and transmission requirements are provided by REACH
which owns international gateway switches in Sydney and an expanding network of
switches across Asia, North America and Europe to augment its state-of-the-art
global data/IP system. REACH operates the largest and most highly meshed IP
backbone network in Asia and has investment interests in more than 50 submarine
cable systems worldwide.

28

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

REACH uses satellite communication systems to supplement international traffic
capacity where undersea cables are not feasible and to provide route diversity
and circuit redundancy, as well as specialist satellite-based applications.
REACH owns satellite earth stations in Australia and Hong Kong, including the
largest satellite teleport in Asia.

Public Switched Telephone Network (PSTN)

Australia's geographic characteristics provide unique challenges for the
provision of nationwide digital PSTN coverage. These challenges are being
overcome by innovative application of a range of modern technologies. Over 300
major digital switching nodes are interconnected by state-of-the-art
transmission systems and handle traffic from customers connected to more than
10,000 access sites. A combination of copper, fibre optic, radio and satellite
technologies are used to achieve end-to-end connections. Access to the world is
achieved through REACH's international gateway switches and our intelligent
network platforms provide advanced services including toll-free and calling card
products.

A trial of CDMA-based wireless local loop equipment is now complete and Telstra
has begun the deployment of this technology in regional Australia as part of its
contract with the Commonwealth Government to improve communications in extended
zones. This technology will soon be more widely used to provide telephony access
for customers to whom traditional copper pair access is unavailable or
impracticable. The application of such technologies is aimed at providing
economic solutions to previously difficult situations while meeting service
standards.

The PSTN supports voice, facsimile and data products and the rapid growth in
popularity of the internet has changed PSTN usage, influencing capacity
considerations. The Telstra PSTN now handles more minutes of data and internet
traffic than voice traffic. The combination of new broadband access services and
growth in dial-up internet usage, messaging services and mobile telephony is
leading to convergence of voice and data in the longer term. This will provide a
solid base for seamless transition to future convergent service provision.

Our network supports a range of switch features which facilitate voice calls.
These could include products like Homeline(TM) Features such as Call Waiting,
Call Return, Abbreviated Dialling and Virtual Private Networks (VPN). New types
of telephones and customer premises equipment which make these features more
accessible and easy to use are continually entering the market.

The PSTN also supports many operator assisted service products such as directory
assistance and CallConnect. We are seeking to enhance these services by
automating them with new voice recognition technology.

Integrated Services Digital Network (ISDN)

ISDN is a flexible, switched digital network. The integrated nature of this
network refers to the fact that ISDN can support many applications at the same
time while using a single access point to the network. The ISDN network supports
traditional telephony as well as various data applications such as
videoconferencing, internet access and EFTPOS.

The ISDN network is available to approximately 96% of the Australian population.
ISDN provides an end to end digital connection that allows Telstra to deliver
minimum 64kbps connections to customers.

Intelligent network (IN) platforms

We operate a number of IN platforms that support a range of advanced services
including:

     .  inbound services such as Freecall(TM) 1800, Priority(R) One3,
        Priority(R) 1300 and InfoCall(R) 190;
     .  calling cards (Telecard(TM));

                                                                              29

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

     .  prepaid cards (Phoneaway(R), Say G'Day(TM));
     .  information services numbers;
     .  number portability;
     .  advanced network routing; and
     .  screening functions.

Our inbound services are important to our major business customers because they
support their call centre and customer service operations.

We also operate two additional IN platforms that provide the full range of
enhanced features which support our mobile products.

Data networks

We operate a number of data networks including a:

     .  Switched Data Network (SDN);
     .  National Transaction Switching Network;
     .  Digital Data Network (DDN);
     .  Dial IP Platform; and
     .  Multi Protocol Label Switching (MPLS) Network.

Our SDN is comprised of approximately 575 switches linked to access multiplexers
at more than 120 sites around Australia. The SDN provides:

     .  public packet switching data services suitable for a wide range of data
        applications;

     .  site-to-site and multi-site WAN connectivity;

     .  national coverage for frame-relay data services from 64kbps up to 45Mbps
        (subject to available transmission capacity); and

     .  national coverage for ATM data services, supporting access rates from
        2Mbps to 622Mbps (subject to available transmission capacity).

SDN is also the backbone for the IP WAN services, supporting a range of access
types from the fixed ATM and frame services for domestic and global use to
Dynamic Dial, ADSL, wireless services and value-added features including
firewalls, hosting, Messenger, IP Voice and IP Video.

Our retail customers use ATM and frame relay data services on the SDN to build
wide-area corporate data networks. Our ATM point to point connections currently
range from 64kbps to 152Mbps. Our wholesale customers use the SDN as a key
element of their own retail offerings.

Our National Transaction Switching Network is suitable for electronic funds
transfer and inventory applications. This network provides dedicated and dial-up
access in a secure environment, suitable for transmitting transactions.

Our DDN, with its fully integrated management system, provides dedicated secure
site to site transmission at speeds ranging from 1200bps up to 2Mbps. This
network has extensive coverage, with more than 2,500 points of presence
nationally across Australia for both Telstra retail DDS and Telstra Wholesale
Data Access Radial (DAR) products.

30

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

In addition, the DDN is the underlying access infrastructure for Telstra's
Accelerated Frame Relay product using its large network reach over multiple
access technologies such as G.Shdsl, HDSL and optic fibre to enable the customer
access into the SDN core network. DDN also supports the declared wholesale
product of Data Access Radial which supplies the access for carriers to enable
their customers to connect to their own retail offerings.

Our Dial IP platform supports dial-up access from the ISDN or public switched
telephone networks to LANs, WANs and online data applications.

The new Wireless IP product provides easy mobile access to Telstra's IP
Solutions via a GPRS capable device such as a mobile phone or a personal digital
assistant (PDA) to streamline business for business that is on the move.

Internet Protocol (IP) networks

We operate a national internet backbone network. It is a fully IP-routed network
which provides the backbone for all our Telstra Internet Direct services and all
Telstra BigPond(TM) internet offerings, as well as Telstra Wholesale's internet
products.

Our internet backbone network connects to the rest of the internet via the
international links provided by REACH and connects domestically via peering
links with its peer ISPs.

We operate two major internet data centres, one in Melbourne and one in Sydney.
The computer server infrastructure in these centres controls access to the
network and provides applications including e-mail, news, chat, web hosting and
games. The server infrastructure supports real time activation of customers and
also provides billing functionality, service monitoring and surveillance.
Caching servers are deployed to store and serve often requested internet content
so that customers receive faster web page delivery and we are able to contain
our internet traffic costs.

We have a platform supporting Telstra Wholesale and Telstra internet services.
This has been used to provide a Telstra BigPond(TM) Home product with universal
local call access across Australia. Telstra BigPond(TM) Home is now available
throughout Australia with dial-up access at the cost of a local call.

We deliver our IP Metropolitan Area Network (MAN) and Telstra Ethernet MAN
services through an MPLS network that has ethernet switches located in customer
buildings and interconnected by a high speed network. IP MAN plus IP WAN
together form the network to deploy our IP Solutions products. Telstra is
offering a Government IP solution which provides a fibre based IP network for
use by Government agencies in metropolitan and regional locations, as well as
accelerating the provision of fibre based wideband services by non-Government
customers.

We have also extended the core, carrier grade IP network known as the Routed
Data Network to sites in metropolitan and some regional areas.

Broadband network

Telstra delivers broadband capability through a variety of technologies using
cable modem, ADSL and satellite services.

Our hybrid fibre co-axial cable (HFC) broadband network passes approximately 2.5
million homes and approximately 70% of the network is underground. The optic
fibre component of this broadband network consists of two forward and one return
path fibres, with nodes capable of serving up to 1,200 customers each.

                                                                              31

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

The cable network is designed to provide two way transmission for interactive
services and high speed data transfer up to 10Mbps. ADSL is a broadband access
technology using existing PSTN access infrastructure with speeds up to 1.5Mbps
(download) and up to 512kbps (upload). We have three very fast broadband service
options available to customers in ADSL enabled areas in Australia:

     .  an internet service for residential customers that allows customers to
        use the internet through their existing telephone lines without tying up
        the phone line or needing an additional line;

     .  an internet service for companies to provide their staff, offices or
        branches with remote access capability to the corporate network; and

     .  a service for ISPs to provide their customers with ADSL internet access.

Since August 2000, we have been rolling out our broadband services and we
achieved our target coverage for fiscal 2003 of 955 ADSL enabled exchanges. We
also offer satellite broadband services via both a two way satellite service and
a satellite download/dialup backchannel in areas of Australia for customers who
are unable to access broadband via cable or ADSL.

Mobile telecommunications networks

We own and operate a number of networks for the provision of mobile telephone
services that together cover more than 98% of the Australian population. We
serve more than 6.5 million SIOs with these networks. Through CSL we also
operate mobile services in Hong Kong.

In Australia, our GSM digital network operates in the 900MHz and 1800MHz
spectrum band. As at 30 June 2003, our GSM digital network in Australia had
approximately 57 mobile switches and base station controllers and in the order
of 3,800 base stations nationally. We are continuing to expand the capacity of
the GSM network, with more than 200 new base stations established in fiscal 2003
to provide additional capacity and enhance depth of coverage.

The GPRS service is available in the vast majority of our GSM network and
provides "always on" data access to WAP and internet information services, as
well as access to corporate customers' LANs and intranets.

Our second digital mobile telecommunications network in Australia is based on
CDMA technology, with coverage around double the area of the GSM network. It
operates in the 800MHz band that our closed analogue network used previously. As
at 30 June 2003, our CDMA digital network in Australia had approximately 26
mobile switches and base station controllers and there were in the order of
2,500 CDMA base stations nationally.

Electromagnetic energy (EME)

Certain reports have suggested that EME emissions from mobile phone base
stations and radio communications facilities (including handsets) may have
adverse health consequences for users and the community.

We are committed to being open and transparent on all issues relating to EME
emissions. We comply with all relevant radio frequency standards and have
comprehensive policies and procedures to ensure the health and safety of the
community and our employees.

We rely on the expert advice of national and international health authorities
such as the Australian Radiation Protection and Nuclear Safety Agency (ARPANSA)
and the World Health Organisation (WHO) for overall assessments of health and
safety impacts. The consensus is that there is no substantiated scientific
evidence of health effects from the EME generated by radio frequency technology,
including mobile phones and base stations, when used in accordance with
applicable standards.

32

<PAGE>


                             Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Telstra Research Laboratories ensure that we have accurate and scientifically
substantiated information and contribute to the national and international EME
research program. In the last 10 years we have invested more than A$10 million
in this program.

An area of industry leadership is the development of base station EME software
that calculates environmental emission levels in a matter of seconds. Our widely
acclaimed RF-MAP(TM) software enables operators, local authorities and community
groups to assess the environmental impacts of mobile phone base stations and
confirm compliance with safety standards. We have given copies of our RF-MAP(TM)
software to national and international health authorities as well as community
and Government organisations, reflecting our commitment to sharing expertise and
providing the community with easy to use solutions.

Australian carriers, through the Mobile Carriers Forum, have adopted a strategy
incorporating the Telstra developed EME site management process to help ensure
compliance with the ACA electromagnetic radiation framework and the Australian
Communications Industry Forum (ACIF) code of practice for radiocommunications
infrastructure deployment.

Information processes and systems

We have a range of information processes and systems to support our delivery of
products and services. We intend to increase the benefits of our offerings to
customers by:

     .  introducing new products to the market faster;
     .  further integrating our customer access technology and systems across
        channels; and
     .  reducing our overall IT costs.

We have recently invested and will continue to invest in many new systems and
processes in the following seven principal areas:

     .  sales and marketing;
     .  customer ordering and provisioning;
     .  online access for customers;
     .  billing and credit management;
     .  service assurance;
     .  workforce management; and
     .  back office processes.

We are focused on rationalising and simplifying the delivery processes across
Telstra. Together with our IT service providers, we will focus on driving
efficiency and adaptability across our delivery systems.

Information technology alliances

We have outsourced our data centre mainframe operations and a proportion of our
midrange operations and applications maintenance and enhancement activities to
IBM Global Services Australia Limited (IBM GSA) for a 10 year period from July
1997. In March 2001, we entered into major IT applications development
outsourcing agreements with EDS (Australia) Pty Limited in relation to billing
activities and shared databases and with Deloitte Consulting in relation to our
enterprise resource planning stream which encompasses finance, personnel and
administrative IT systems. In August 2002, we entered into a strategic
relationship with Sun Microsystems Australia Pty Ltd for the supply of core
online platforms and systems to create a single online operating environment.

On 28 August 2003, we entered into an agreement with IBM to sell our 22.6%
equity interest in IBM GSA for $153.5 million. The transaction was completed on
5 September 2003.

                                                                              33

<PAGE>


Telstra Corporation Limited and controlled entities


Information on the Company
--------------------------------------------------------------------------------

Property, plant and equipment

Overview

A large part of our network is constructed on land occupied under our statutory
powers and immunities. We also own and occupy land that includes strategic
sites, such as the properties on which our telephone exchanges are located. We
own more than 5,300 freehold sites and occupy more than 6,600 sites on a
leasehold or other basis. Most of our sites are related directly to our
telecommunications operations and are used for housing network equipment of
various types, such as telephone exchanges, transmission stations, microwave
radio equipment and mobile radio repeater equipment. Some of our operational
sites are on leased land or land that we have access to by statutory right or
other formal or informal arrangement. In addition to our operational sites, we
own or lease a range of properties used for office accommodation, storage and
other miscellaneous purposes which is discussed in "Operating and Financial
Review and Prospects - Contractual obligations and commercial commitments".

In August 2002, as a part of our comprehensive property strategy review, we sold
seven office properties for A$570 million. We have entered into long term
operating leases in relation to these properties.

Land access powers

The land access powers conferred on carriers by the Telecommunications Act 1997
(Cwth) (Telecommunications Act) are limited to those inspections, maintenance
and installation activities that will have a low impact on the surrounding
environment. For activities not covered by the land access powers, we must
obtain all necessary consents, including the consent of the relevant town
planning authority as well as from the owner of the land, before network
construction activities may commence. Where the construction activities are to
occur on land where native title exists, the native title claimants and holders
may also need to be involved. Obtaining these consents may cause delay to the
commencement of construction.

In some circumstances where we rely on the land access powers conferred by the
Telecommunications Act to carry out construction activities, or where native
title exists, compensation may be claimed against us.

Environmental issues

Environmental aspects covering the handling and storage of dangerous goods,
noise from fixed plant, visual amenity and disposal of waste (including obsolete
and decommissioned equipment) are required to be managed as part of operating
and maintaining plant and equipment on occupied sites. We minimise the potential
risks associated with these environmental aspects through various control
procedures. Incident processes are in place to mitigate the potential for
significant impacts. Each decommissioned plant is screened for hazardous
substances such as polychlorinatedbiphenyls (PCBs) and chloroflurocarbons (CFCs)
prior to recycling and hazardous materials are disposed of in compliance with
regulatory requirements. Sites to be divested undergo environmental screening
prior to sale and, if appropriate, remediation.

There are no current significant environmental issues that impede the
utilisation or integrity of our network operation.

34

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Competition

Overview

Competition in Australia's telecommunications market began in 1989 when
competitors began to provide a limited number of services. In 1991, competition
increased with the decision to establish a carrier duopoly and open resale of
Telstra's services, particularly national long distance and international
telephone services. Competition intensified in 1992 when Optus, now SingTel
Optus Pty Limited (Optus), won the second carrier licence enabling it to offer
unrestricted local, national long distance, analogue mobile and international
telephone services. We started offering digital mobile telephone services over
our own network in 1993. In the same year, Optus and Vodafone Holdings
(Australia) Pty Limited (Vodafone) began offering those services over their own
networks.

On 1 July 1997, the Commonwealth Government introduced the current regulatory
regime which provides for open competition in Australia's telecommunications
industry. Since then, there has been a significant increase in the number of
carriage service providers that have entered the Australian telecommunications
market. As at 30 June 2003, we supplied services to more than 620 wholesale
customers that compete in the retail telecommunications market.

From a position of originally being the sole provider of telecommunications
products and services in Australia, inevitably, competition has reduced our
market share. However, competition has also contributed to growth in the overall
telecommunication services market. We expect both these trends to continue but
at lesser rates.

As at 30 June 2003, we estimate our retail market shares in the products and
services we provide to be as follows: basic access services: 78%; local calls:
76%; domestic long distance minutes: 66%; international long distance minutes:
53%; mobile services: 46%; internet services (narrowband): 27%; internet
services (broadband): 50%; data revenue: 63% (excluding ISDN); and subscription
television services (FOXTEL): 57%.

We are permitted to compete in all telecommunications markets throughout
Australia. Our competitors are also permitted to compete in all these markets.
As convergence becomes more prominent, our competitors may seek to take
advantage of their position in one market to enter or improve their position in
another market.

Access and local calls

We currently face infrastructure competition in basic access and local call
services in the central business districts of the major capital cities and major
metropolitan areas. Our main facilities-based competitors are Optus (fixed and
mobile), Vodafone (mobile), AAPT Limited (AAPT) (fixed) and Primus
Telecommunications (Australia) Pty Limited (Primus) (fixed). These carriers and
others have established dedicated connections with large business customers,
mainly in central business districts. Dedicated connections allow a competitor
to direct a business' telecommunications traffic to their own networks including
local, long distance and international calls and data transmission. The
availability of local number portability has contributed to the development of
facilities-based competition in these markets.

National long distance and international telephone services

Competition has significantly eroded our market share for national long distance
and international telephone services. A number of our competitors own their own
switches, lease access and transmission capacity and resell services mainly from
Optus and us. Smaller competitors usually only resell complete services.

                                                                              35

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Carriage service providers must provide their customers with call-by-call
selection or "override" dialling and default choice or "preselection" in respect
of national long distance, international calls and fixed-to-mobile calls, all of
which further assist other carriage service providers to compete. See
"Competition and Regulation - Regulation" for a discussion of regulatory
requirements for preselection.

Wholesale originating and terminating access and transmission services are
important for facilities-based provision of national long distance and
international telephony services. The pricing of these services influences the
development of some of the retail offerings of our competitors.

Competition already exists in the wholesale provision of transmission services
on major domestic and international routes. The pricing of these services is
dictated by commercial negotiation and is falling as new competitors enter the
wholesale market. The regulatory processes also provide a framework to determine
terms, conditions and pricing of transmission services, particularly on routes
that are not fully competitive.

Mobile telecommunications services

The mobile telecommunications market is one of the most competitive
telecommunications markets in Australia and we estimate that market penetration
as at 30 June 2003 was approximately 72%. As this level of market saturation
increases, we expect the rate of further market penetration to slow for all
carriers.

The composition of new subscribers is also changing as growth in subscriber
acquisitions is driven more by pre-paid services, rather than the traditional
post-paid contract customers. Increasingly, mobile service providers are looking
to future growth in revenue from data usage by existing subscribers. There is
evidence of strong growth in data usage which is currently driven by the
popularity of SMS. Agreement between carriers for inter-carrier SMS between GSM
and CDMA networks has facilitated this growth.

Over the past year, 3G commercial services were also launched by both Telstra
and Hutchison 3G.

Data services

We offer a complete portfolio of traditional data services (such as Digital Data
Service (DDS), ISDN and leased lines) as well as growth services such as frame
relay and IP Solutions. The Australian data market is intensely competitive,
with approximately 27 competitors.

Customers are increasingly substituting the more traditional data services with
DSL or IP-based solutions and competition is most intense in these growth areas.
Several DSL network providers are offering VPN over DSL services as an
alternative to frame relay or leased line data connections. Others are also
offering or trialling Voice over DSL (VoDSL), with a view to offering integrated
voice and data bundles.

We work on engineering our data products and our customer support processes to
establish a value proposition that will ensure Telstra's data products hold
their own under these competitive conditions.

Internet access services

For internet access services, competition is generally based on quality of
service, price, speed and availability of local call access and associated
information or transaction services. The internet service provider market in
Australia is diverse and highly competitive, with approximately 600 competing
retail service providers. There has been some consolidation in this market over
the past year and we would expect this trend to continue going forward.

36

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

We provide both dial-up and broadband internet access services. Broadband
services are provided to end users by Telstra BigPond(TM) using ADSL, cable and
satellite platforms. Telstra Wholesale provides industry participants with a
variety of broadband offerings including DSL Layer 3, DSL Layer 2 and Virtual
ISP Broadband. We also offer an ISDN internet access service as an alternative
to standard PSTN dial-up to deliver faster internet speeds and recently released
a new pricing plan for this product for both retail and wholesale customers.

Online services

Our online, content and web hosting services are subject to a high level of
competition from domestic and international competitors. We seek to
differentiate ourselves through a variety of factors including brand recognition
and the entertainment, educational and commercial value of our content. We are
meeting customer demand by offering our own content and forging alliances with
content providers.

We provide services under a range of brands including telstra.com(R), Yellow
Pages(R), White Pages(R), GOeureka(TM), Whereis(R) and CitySearch(R).

Wholesale services

Telstra Wholesale has more than 620 customers including approximately 500 ISPs
and 50 wholesale competitors. Telstra Wholesale is focused on the delivery of
communication services to intermediaries operating in Australia and offers
around 30 wholesale-only products for our customers such as PSTN
interconnection, DAR, Telstra Wholesale Safe Internet and a number of ADSL
products.

Since June 2001, we have moved from around 20 arbitrations before the ACCC to
only two subscription television arbitrations. These involve C7 and TARBS. As at
30 June 2003, there was no litigation or regulatory arbitrations concerning
Telstra Wholesale. This is a demonstration of the significant progress we have
made in negotiating wholesale deals commercially and expeditiously during recent
years.

Subscription television

The subscription television services market is competitive. FOXTEL (of which we
own 50%) is the leading subscription television provider in Australia, with
approximately 835,000 subscribers (aggregating FOXTEL's direct subscribers and
subscribers receiving resold FOXTEL services via Telstra) as at 30 June 2003. In
addition, FOXTEL also supplies its programming to Optus on a wholesale basis,
who supplies that programming to over 200,000 subscribers. Collectively, FOXTEL
is now seen in over 1 million households.

FOXTEL is well positioned to compete on the basis of its brand and diverse
program offerings delivered over both cable (via Telstra) and satellite. In
fiscal 2003, FOXTEL continued its consistent history of annual growth with 4.4%
growth in subscribers (aggregating FOXTEL's direct subscribers and subscribers
receiving resold FOXTEL services via Telstra) and 32% growth when Optus
wholesale subscribers are included. FOXTEL and Optus Vision are the main
providers of subscription television services over cable in largely overlapping
areas. FOXTEL also provides satellite services to homes not passed by our cable
network.

Austar distributes subscription television through wireless and satellite
systems in regional areas and has similar programming to FOXTEL. FOXTEL and
Austar compete only in limited areas. While there are no restrictions on FOXTEL
entering the Austar territory, many of the program rights held by FOXTEL do not
permit it to broadcast that content into the Austar territory. Also, FOXTEL has
licensed some programming to Austar on an exclusive basis in relation to most of
the Austar territory. Other subscription television operators offer limited
services.

                                                                              37

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Subscription television providers compete with free-to-air television operators
and are prevented by law from holding exclusive broadcast rights to most major
sports programs. Competition is currently based on a number of factors including
programming, brand, price, marketing, service support and geographic scope of
service delivery.

In September 1999, the ACCC declared an analogue cable subscription television
broadcast carriage service. Two potential subscription television competitors
have sought access under the declaration and we continue to be engaged in
arbitration with these access seekers. The ACCC has not declared a digital
service. See "Competition and Regulation - Regulation - Access".

In March 2002, FOXTEL concluded a series of agreements, including one with Optus
Vision to provide FOXTEL programming to Optus for transmission on its service.
Under this agreement, FOXTEL took over responsibility for paying certain program
content obligations of Optus. The agreement commenced operation on 1 December
2002. These agreements were approved by the ACCC in November 2002 subject to
conditions that have been met by undertakings which cover the supply of FOXTEL
services to third parties, third party access to Telstra and FOXTEL's analogue
and digital platforms and requirements for Austar to provide its subscription
television services to infrastructure owners.

The undertakings lodged by Telstra and FOXTEL in November 2002 in relation to
analogue subscription television access cover price and non price terms and
conditions for third party access seekers and the ACCC rejected these
undertakings in December 2003. Telstra and FOXTEL intend to lodge revised
undertakings which address the reasons for the ACCC's rejection of the previous
undertakings.

The obligation to provide a digital subscription television access service is
subject to either Telstra launching such a service commercially or the ACCC
granting Telstra and FOXTEL exemptions from the operation of Part XIC of the
Trade Practices Act 1974 (Cwth) (TPA) in relation to that service. In December
2002, Telstra and FOXTEL lodged exemption applications in relation to the
digital subscription television access service and in December 2003 the ACCC
granted exemption orders in favour of Telstra and FOXTEL.

Also in March 2002, FOXTEL agreed to supply its service to Telstra in order for
Telstra to resell the service as part of our bundled offerings along with our
consumer telecommunications products. We obtained subscription television
broadcasting licences via a wholly owned subsidiary and notified the ACCC of a
technical third line force in relation to Telstra reselling the FOXTEL
subscription television service as part of a bundle with our services. The ACCC
approved the arrangements and on 1 December 2002, Telstra commenced bundling the
FOXTEL subscription television services with our telecommunications products.

The impact of the March 2002 agreements and the subsequent undertakings will
considerably expand the number of companies offering a retail subscription
television product (including Telstra) and much of this will be the FOXTEL
product, either as a resale product or as content supplied from FOXTEL to other
infrastructure operators. We expect this to increase the appeal of FOXTEL and
the general penetration of subscription television.

In March 2003, Telstra also entered into an agreement with Austar to allow
Telstra to resell Austar subscription television services to Telstra customers
in regional Australia as part of our bundled offerings along with our consumer
telecommunications products. In May 2003, Telstra lodged third line forcing
notifications with the ACCC in relation to Telstra bundling its services with
Austar services and the ACCC indicated on 29 September 2003 that it had accepted
those notifications.

The ACCC released a report in June 2003 on emerging market structures in the
telecommunications sector. This report included a recommendation that Telstra
should be forced to divest its investment in FOXTEL to increase competition in
telecommunications markets. The Commonwealth Government has rejected this
recommendation.

38

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Advertising, Directories and Information Services

Our White Pages(R) and Yellow Pages(R) directories and related products (both
print and online) are key advertising and contact information channels for
Governments and businesses, in particular small and medium enterprises across
Australia. As such, we operate within the highly competitive Australian
advertising market, competing with a range of other domestic and international
advertising businesses, local newspapers and direct marketing companies which
also target a similar customer base.

Competing directory providers have access to carriage service provider
subscribers contact details from the Integrated Public Number Database which we
maintain as a requirement of our carrier licence.

Payphones

In our payphones business, we expect increasing competition due to new market
entrants and indirect competition from increased mobile telephone use.

Regulation

Overview

Some of the major features of the Australian telecommunications regulatory
regime are:

     .  industry specific competition regulation;
     .  any to any connectivity;
     .  extensive industry specific consumer protection regulation;
     .  industry codes and standards under a self-regulatory regime;
     .  no limits on the number of carriers;
     .  carriage service providers with many of the same access rights and
        obligations as carriers; and
     .  limited carrier land access rights and statutory immunities.

Reviews were undertaken in fiscal 2001 and 2002 on some specific
telecommunications regulations, with the most significant having been the
Productivity Commission's review of telecommunications competition regulation.

Principal industry regulators

The Communications Minister is primarily responsible for telecommunications
industry policy and legislation.

The Communications Minister can make rules in connection with the implementation
and operation of certain aspects of the regulatory regime and, at his
discretion, impose or vary the conditions of a carrier licence. In addition, the
Communications Minister has the power under section 159 of the
Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cwth)
to give binding directions to us to take specified action towards ensuring that
we comply with that Act. This Ministerial direction power applies in addition to
the Ministerial power in Part 3 of the Telstra Act to give such directions in
relation to the exercise of powers by us as appear to the Minister to be
necessary in the public interest.

The ACCC administers the TPA which regulates competition generally and includes
specific provisions governing the telecommunications industry. The ACCC
administers the telecommunications access regime, provisions for controlling
anti-competitive conduct and Telstra retail price control arrangements.

                                                                              39

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

The Australian Communications Authority (ACA) is responsible for regulating the
non-competition aspects of the telecommunications industry under the
Telecommunications Act and the Telecommunications (Consumer Protection and
Service Standards) Act including:

     .  carrier licensing;
     .  technical regulation;
     .  quality of service;
     .  the customer service guarantee;
     .  priority assistance;
     .  network reliability framework;
     .  preselection, numbering and number portability;
     .  the universal service obligation;
     .  the digital data service obligation;
     .  spectrum management; and
     .  industry codes and standards.

The ACA may give written directions to carriers, carriage service providers and
content service providers requiring them to comply with various provisions of
the Telecommunications Act, the Telecommunications (Consumer Protection and
Service Standards) Act, their licence conditions and registered industry codes.
Breach of such a direction is subject to a penalty of up to A$10 million.

Both the ACCC and the ACA are independent statutory agencies. The ACCC is not
generally subject to the control or direction of the Communications Minister or
the Commonwealth. The Communications Minister has a power of direction in
relation to the ACA. However, both the ACCC and the ACA can take action
regarding the regulation of the telecommunications industry without the prior
approval or knowledge of the Communications Minister or the Commonwealth.

The industry also self-regulates through codes and standards

Bodies that represent one or more sections of the industry, such as the ACIF,
may develop industry codes governing activities of carriers, carriage service
providers and other industry participants. These activities mainly relate to
matters affecting:

     .  consumers;
     .  inter-carrier operations;
     .  interconnection and performance of networks;
     .  radio;
     .  environmental issues; and
     .  customer equipment and cabling.

The ACA may register such codes under the Telecommunications Act, direct
industry participants to comply with a registered code and, in the absence of a
registered code, set mandatory industry standards. If a carrier or carriage
service provider does not comply, it may be subject to a penalty of up to
A$250,000. The ACIF also has compliance mechanisms for breach by an industry
participant of an ACIF code to which the participant has agreed, which include
non-monetary "public censure" sanctions.

The codes registered under Part 6 of the Telecommunications Act with the ACA as
at 30 June 2003 relate to:

     .  the handling of life threatening and unwelcome calls;
     .  call charging and billing accuracy;
     .  end-to-end network performance;
     .  preselection;

40

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

     .  commercial churn;
     .  calling number display;
     .  complaint handling;
     .  customer information on prices, terms and conditions;
     .  billing;
     .  credit management;
     .  customer transfer;
     .  local and mobile number portability;
     .  unconditioned local loop service network deployment rules;
     .  integrated public number database, data provider, data user and IPND
        manager;
     .  emergency call services;
     .  deployment of radiocommunications infrastructure; and
     .  SMS.

The Telecommunications Industry Ombudsman (TIO) is an industry-funded body
established to investigate and resolve retail customer complaints about
telecommunications services and carrier land access disputes. Participation is
mandatory for all carriers and most carriage service providers unless exempted
by the ACA.

Carriers, carriage service providers and content service providers

We are a carrier, carriage service provider and a content service provider.

A carrier is any person holding a carrier licence. In general, the owner of
network infrastructure must not use the infrastructure to supply
telecommunications services to the public unless it holds a carrier licence.

A carriage service provider is a person who supplies a telecommunications
service to the public using network infrastructure owned by a carrier.

A content service provider is a person who uses a telecommunications service to
supply to the public a content service, such as a broadcasting service or an
online information or entertainment service.

Competition regulation

Competition rule

In addition to the general requirements of trade practices law, a carrier or
carriage service provider must not engage in anti-competitive conduct in breach
of the competition rule. A carrier or carriage service provider may breach the
competition rule if it:

     .  contravenes general trade practices rules relating to anti-competitive
        conduct in respect of a telecommunications market; or
     .  has a substantial degree of market power and takes advantage of that
        power with the effect or likely effect of substantially lessening
        competition in any telecommunications market, taking into account other
        conduct if necessary.

The ACCC can issue a Part A competition notice if it has reason to believe that
a carrier or carriage service provider has contravened the competition rule. A
Part A competition notice need not describe conduct in very specific terms but
may instead describe the general kind of conduct which the ACCC believes is in
breach of the competition rule. Any repetition of the conduct while the
competition notice is in force can lead to penalties or damages being awarded
against the carrier or carriage service provider.

                                                                              41

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

The ACCC can also issue a Part B competition notice. This Part B notice, which
the ACCC may issue simultaneously with or after a Part A notice, will be more
detailed than the Part A notice. The sole function of a Part B notice is its
evidentiary effect. It is presumptive evidence of the information in it and can
be used in court proceedings against the carrier or carriage service provider
for penalties or damages.

To issue a competition notice (Part A or Part B), the ACCC need only have a
reason to believe that there is a breach of the competition rules rather than
being affirmatively satisfied of a breach of the competition rule after full
investigation.

Any person (including a carrier's or carriage service provider's competitors)
may apply at any time to the Federal Court for an injunction to restrain
anti-competitive conduct, whether or not a competition notice has been issued.

A carrier or carriage service provider may be liable to pay penalties of up to
A$10 million plus A$1 million per day of contravention, and for compensatory
damages to affected third parties, if:

     .  it continues to engage in conduct the subject of a competition notice
        after the notice comes into effect; and
     .  the Federal Court finds that the conduct is in breach of the competition
        rule.

No final decision in relation to a competition notice has yet been handed down
by a court.

If the ACCC issues a competition notice, it may also give a carrier or carriage
service provider a written notice advising it of the action the ACCC believes
should be taken to ensure that the carrier or carriage service provider does not
continue to engage in the kind of conduct dealt with in a Part A competition
notice. An advisory notice can be issued at any time. While such a written
notice from the ACCC is of an advisory nature only, in practical terms there may
be significant pressure on a carrier or carriage service provider to comply with
the notice given the potential breadth and ambiguity of a Part A competition
notice and the ability of the ACCC to revoke a Part A competition notice if the
carrier or carriage service provider complies with the advisory notice. Also, a
court may have regard to the ACCC's opinion in determining whether a carrier or
carriage service provider is liable for penalties or damages if the court finds
it to have been in breach of the competition rule.

No competition notices remain in force against Telstra, nor were any issued in
fiscal 2003

Information gathering powers

The ACCC may seek information from carriers or carriage service providers with
substantial market power in the telecommunications industry concerning charges
for products and services, including in Telstra's case only, charges for basic
carriage services, subject to a right of appeal to the Australian Competition
Tribunal. The ACCC may publish information concerning charges and services if it
is satisfied that there would be a net public benefit in doing so and has a
further general power to obtain information in relation to designated
telecommunications matters.

Record-keeping rules

The ACCC has in place financial record-keeping rules. These accounting rules
require detailed six-monthly reporting to the ACCC of non-public cost and
revenue information in relation to our wholesale and retail services.

The ACCC will be able to refer to this information on our costs and revenues in
its market conduct and access investigations. Similar accounting rules apply to
both Optus and Vodafone. AAPT and Primus are required to comply with the same
rules but only in relation to retail services.

42

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

2000 Productivity Commission review

The Productivity Commission commenced a review of the industry specific
competition regulation in the TPA in June 2000 and submitted its final report to
the Minister (the Treasurer) in late calendar 2001. In its final report, the
Productivity Commission recommended the retention of the
telecommunications-specific competition regulation only on the basis that a
review of the ACCC's decision to issue a competition notice was subject to
merits review. In addition, the Productivity Commission recommended certain
changes to the telecommunications access regime under Part XIC, much of which
was designed to encourage the speedy resolution of arbitration decisions.

Telecommunications (Competition) Act 2002

The Commonwealth Government's response to the Productivity Commission's report
resulted in amendments to the TPA introduced through the Telecommunications
(Competition) Act 2002 which came into effect in December 2002. The key changes
were:

     .  the removal of merits review of ACCC decisions in arbitrations about the
        terms upon which carriers supply declared services. ACCC decisions in
        relation to final arbitral determinations were previously subject to
        appeal on merits to the Australian Competition Tribunal. Appeal rights
        on ACCC decisions on access undertakings were, however, retained;

     .  the introduction of pre-investment or "safe harbour" provisions to
        provide certainty to carriers over regulatory risk associated with new
        infrastucture investment. We have sought to utilise these provisions in
        respect of the digitisation of our subscription television cable
        network; and

     .  the ACCC was required to publish model price and non-price terms of
        supply of the core services which carriers supply of PSTN interconnect,
        local call resale and unconditioned local loop services.

In response to these changes, in January 2003 we lodged access undertakings with
the ACCC setting out the prices upon which we are willing to supply these core
PSTN services to other carriers until fiscal 2006.

In October 2003, the ACCC published a determination of its model price and
non-price terms of supply of the core PSTN services. The model prices are
significantly below the "rack rate" prices we lodged in our access undertakings
in January 2003. In November 2003, we lodged revised access undertakings with
the ACCC for these services, which undertakings accord with the ACCC's model
terms and conditions. The ACCC has yet to decide whether to accept or reject our
undertakings. We or an affected party have the right to seek merits review of
the ACCC's decision by appeal to the Australian Competition Tribunal.

Accounting Separation

On 24 April 2002, the Communications Minister announced that a series of
additional regulatory measures would be introduced in response to the
Productivity Commission's report. The Minister stated that the Commonwealth
Government will be requiring accounting separation of our wholesale and retail
arrangements in order to ensure our wholesale arm treats all retail providers in
an equitable fashion.

                                                                              43

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

On 19 June 2003, the Minister for Communications issued his final Accounting
Separation Direction to the ACCC requiring it to issue record keeping rules
giving effect to that direction. We are currently reviewing the ACCC Record
Keeping Rules. Included in this work is the requirement upon Telstra to update
our regulatory accounting records from historic to current cost, which will
impose some resource costs on us. Preparation of the regulatory accounts for the
core PSTN services of PSTN interconnection, local call resale and the
unconditioned local loop will provide a basis for comparison in relation to any
existing regulated prices for these products. It will, however, be several years
before completely accurate current cost accounts can be produced. The interim
reports to be published from late calendar 2003 will be based upon a large
number of assumptions, will need to be treated with caution as to their exact
meaning and may be open to interpretation.

An additional requirement under the accounting separation rules will be for
Telstra to publish imputation test results for various PSTN services including
basic access, locals calls, national long distance, international long distance
and fixed to mobile services. An imputation test measures whether an efficient
competitor of Telstra can compete against our retail product offering, based on
our retail price and an assessment of the efficient wholesale and retail costs
to the competitor of providing the service. In the context of the Accounting
Separation obligations, these costs will be determined by the information in our
regulatory accounts.

A further requirement relating to the Accounting Separation obligations will be
for the ACCC to publish a series of metrics that compare our performance in
terms of new service connections and fault rectification for both wholesale and
retail customers. We are required by law to provide equivalent service and
believe that these metrics will demonstrate our compliance. However, because
wholesale customers represent a small and non-random sample of the Telstra
customer base, statistical anomalies are possible and could be subject to
misinterpretation.

It is possible that, as a result, we could be subjected to increased regulatory
intervention.

Another requirement relating to the Accounting Separation obligations will be
for the ACCC to publish information about the state of competition in relation
to services for business customers. It is not yet clear what information might
be in these reports.

Retail price restrictions

The Commonwealth Government has set retail price controls on some of our
services and groups of services that apply from 1 July 2002 to 30 June 2005.

CPI-X or CPI+X price restrictions

We cannot increase the weighted average price of local calls, national long
distance and international calls and fixed-to-mobile calls by more than the CPI
less 4.5%. If the CPI is less than 4.5%, we are required to reduce our prices
accordingly. Previously this cap was set at CPI less 5.5% and the group of
services was much broader and included connections, line rental, mobile calls
and leased line charges.

We have scope to increase line rental charges by up to CPI+4%. This cap
recognises that basic access lines are currently priced at considerably less
than the cost to provide the service and that we should be permitted to increase
the line rental charge to cover costs, while at the same time reducing call
prices which have, in the past, subsidised the below cost line rental.

Connection services continue to be capped so that the charge for them increases
by no more than the CPI.

The ACCC has powers to monitor and report on our compliance with price controls.

44

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Local call charges

We and other carriage service providers must offer untimed local calls to:

     .  residential and charity customers for all local calls; and
     .  business customers for local voice calls.

We are not permitted to charge more than 40 cents (including GST) for a local
call from a public payphone. We are not permitted to charge more than 22 cents
(including GST) for a local call from any other service except where the higher
call price is offered as part of a package that offers a lower line rental than
the standard line rental. We offer reduced rates for local calls with some of
our service plans.

We continue to be obliged to ensure that:

     .  our average price for untimed local calls provided to
        residential/charity customers in non-metropolitan areas in a fiscal year
        does not exceed the average price charged by us to residential or
        charity customers in metropolitan areas in the previous fiscal year; and
     .  our average price for untimed local calls provided to business customers
        in non-metropolitan areas in a fiscal year does not exceed the average
        price charged by us to business customers in metropolitan areas in the
        previous fiscal year.

Directory assistance service charges

We cannot impose or alter a charge for our directory assistance services without
the approval of the Communications Minister. In October 1999, we commenced
charging business and mobile customers for national and long distance directory
assistance services after approval of the Minister. Our residential customers
continue to receive these directory services without charge.

Access

The ACCC has broad powers to determine those of our services to which
competitors will have access and the terms and conditions under which we provide
this access.

Declaration of services

The TPA creates an access regime specific to the telecommunications industry.
The ACCC may declare telecommunications services or other services that
facilitate the supply of a telecommunications service to be "declared services".
Carriers and carriage service providers have a qualified right to acquire
declared services from other carriers and carriage service providers.

Carriers and carriage service providers must comply with "standard access
obligations"

Unless exempted by the ACCC, carriers and carriage service providers who supply
declared services to themselves or anyone else must comply with "standard access
obligations". They must provide the declared services to carriers, carriage
service providers or content service providers who require them in order to
provide telecommunications services or content services to end users.

Services not declared are not subject to regulation under this access regime.
Therefore, access to non-declared services is a commercial matter, subject only
to the general trade practices law.

                                                                              45

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Current declared services

The services which have been listed as declared by the ACCC include:

     .  originating and terminating access for domestic PSTN and ISDN, GSM and
        CDMA mobile telecommunications networks;
     .  transmission capacity on all routes (except links between mainland
        capital cities) on bandwidths of 2, 4, 6, 8, 34/45, 140/155 or higher
        Mbps;
     .  digital data access service (domestic carriage of data between exchange
        or other network facilities and customer premises);
     .  an unconditioned local loop service using unconditioned copper wire in
        our customer access network;
     .  local PSTN originating and terminating services (which in our view is
        not materially different from the domestic PSTN originating and
        terminating access described above);
     .  local carriage services (in effect, this is local call resale);
     .  analogue cable subscription television broadcast carriage service; and
     .  the spectrum sharing service (also known as "line sharing").

Terms and conditions of access

A carrier or carriage service provider may give the ACCC access undertakings
which set forth the terms and conditions on which it will offer to supply
declared services. An undertaking only becomes operative if it is accepted by
the ACCC. The terms and conditions (including price) of standard access
obligations are to be resolved by commercial negotiations. If negotiations fail
but an access undertaking (including the relevant terms and conditions) has been
provided by the access provider and has been accepted by the ACCC, the access
undertaking will apply. If there is no such undertaking, the ACCC may arbitrate
the terms and conditions on which the standard access obligation will be met.

Access arbitrations

There is a detailed regime for ACCC arbitration of access disputes. At present,
however, there are no arbitrations involving Telstra's supply of its telephony
services. The only two arbitrations in which we are currently involved concern
analogue subscription television services. However, it may be that in the future
some of our wholesale customers will seek an arbitrated decision from the ACCC
in relation to the terms and conditions of a declared service.

The ACCC has wide discretion in access disputes to deal with matters relating to
access to the declared service and may terminate an arbitration in certain
circumstances.

ACCC decisions in relation to undertakings are currently subject to appeal on
the merits to the Australian Competition Tribunal. However, in December 2002 the
Commonwealth Government removed merits appeal rights from the ACCC's final
decisions in arbitrations (although transitional arrangements preserved merits
appeal rights in relation to the two subscription television arbitrations).

Access pricing

The Communications Minister may make a pricing determination setting out
compulsory principles for establishing access prices that must be followed by
the ACCC. To date no ministerial pricing determination has been issued.

46

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

The ACCC has published general Access Pricing Principles setting out how the
ACCC proposes to approach price issues when considering access undertakings and
determining access disputes. In general, the ACCC proposes that the prices of
declared services should be cost-based. In particular, it proposes to require
access prices for such services to be based on the total service long run
incremental cost (TSLRIC) of providing the service.

In January 2003, we lodged access undertakings with the ACCC setting out the
prices upon which we are willing to supply the core PSTN services of PSTN
interconnect, local call resale and unconditioned local loop services. In
November 2003, we lodged revised undertakings for these services. The ACCC's
decision on whether to accept or reject the undertakings is not expected until
early 2004.

In October 2003, the ACCC published its determination of its model price and
non-price terms of supply of these core services.

In September 2003, we lodged an access undertaking with the ACCC setting out the
price at which we are willing to supply the spectrum sharing service. This
undertaking will be assessed by the ACCC in due course.

Local call resale

The ACCC has stated that for local call resale, it is likely to adopt pricing on
the basis of our retail price less "average retail" (or avoidable) costs in any
access dispute. Future pricing of local call resale is likely to be determined
through the current access undertakings process.

PSTN originating/terminating access

The ACCC has issued final pricing principles for PSTN originating and
terminating services based on TSLRIC principles. Future pricing of PSTN access
is also likely to be determined through the current access undertakings process.

Mobile terminating access

The prevailing regulatory pricing methodology for mobile terminating access
services is still the retail benchmarking method. Under this approach, each
mobile carrier's access prices are linked to its own retail price movements and
it was envisaged that retail price competition would lead to wholesale prices
falling at the same rate as retail prices for mobile services provided by a
mobile carrier.

The ACCC is undertaking an inquiry into the regulation of mobile services and
has released a broad discussion paper covering the declared mobile access
services, as well as domestic and international intercarrier roaming and 3G
services. The main issue relates to the regulation of mobile terminating access
services. The ACCC is expected to issue a draft report in December 2003.

PSTN termination to non-dominant carriers

The ACCC has issued final pricing principles for PSTN termination to
non-dominant carriers. The ACCC determined that the charges for termination of
the non-dominant PSTN networks should be based upon our de-averaged TSLRIC and
that no access deficit contribution should be included in the TSLRIC of
non-dominant networks. The ACCC also found that where a non-dominant PSTN
network has costs significantly lower than those of Telstra's TSLRIC, the ACCC
may assess whether an argument exists for looking specifically at the TSLRIC of
the particular services of the non-dominant PSTN network.

Unconditioned local loop (ULL)

The ACCC has issued final pricing principles for the declared ULL service based
on TSLRIC principles. Future pricing of ULL services is also likely to be
determined through the current access undertakings process.

                                                                              47

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Spectrum Sharing Services

The ACCC announced its decision to declare the Spectrum Sharing Service (or
"line sharing") on 30 August 2002. We are unaware of the approach that will be
used by the ACCC in determining the appropriate price for the service.

Carrier-to-carrier access obligations

Each carrier must provide access on request to other carriers to:

     .  its customer cabling and customer equipment and facilities (including
        lines, towers, ducts and land) in place on 30 June 1991 or installed
        since that date using statutory powers, if it is reasonable to do so;
     .  information relating to the operation of its networks; and
     .  its underground ducts and certain of its towers and sites with the aim
        of ensuring that facilities are colocated on towers and in underground
        ducts, unless the ACA finds that collocation is not technically
        feasible.

Access to these facilities and information is on commercially negotiated or
arbitrated terms and conditions. We have entered into a number of facilities
access agreements with other carriers. The Communications Minister can determine
pricing principles for access to customer cabling and equipment, network
infrastructure and information relating to the operation of a network but has
not done so to date.

Carriers must also comply with the Facilities Access Code issued by the ACCC in
relation to access to underground facilities and certain towers and sites.

Carrier licences

Carrier licences are issued by the ACA. The annual charge for a carrier licence
is currently A$10,000 plus a pro rata revenue-based contribution to industry
regulatory costs.

All carriers must, as a condition of their carrier licence, comply with the
Telecommunications Act, the Telecommunications (Consumer Protection and Service
Standards) Act and the standard access obligations. Any breach of licence
conditions is subject to a penalty of up to A$10 million.

The Communications Minister may impose conditions on any carrier licence. The
Communications Minister must consult with the carrier before doing so. Our
carrier licence currently requires us to:

     .  provide operator and directory assistance services;
     .  annually produce, publish and provide an alphabetical telephone
        directory;
     .  establish and maintain an integrated public number database and provide
        access to the database to all carriage service providers;
     .  ensure reductions in connection and annual charges for certain basic
        telecommunications services of at least specified amounts if a customer
        does not rent a handset from us for use with that service;
     .  have in place and report against an approved industry development plan
        and comply with the plan to the extent it relates to research and
        development;
     .  provide resale (for a limited time) of and/or roaming on our analogue
        service to the operators of proposed new digital mobile networks on
        commercially negotiated or arbitrated terms and conditions;
     .  extend an equivalent mobile service to those areas previously served by
        the analogue network (we are providing this through our CDMA network);
     .  develop, implement and maintain a priority assistance policy and have
        processes, systems and practices in place to ensure that those customers
        with a life threatening medical condition can be identified and provided
        with priority assistance; and

48

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

     .  monitor and publicly report on the reliability of Telstra's network in
        designated geographical areas of Australia and, where necessary, take
        appropriate action to remediate a customer's service.

Carriage service provider obligations

A carriage service provider that provides certain basic telecommunications
services must provide or arrange for the provision of:

     .  itemised billing services;
     .  operator services; and
     .  directory assistance services to end users.

We must provide operator and directory assistance services to carriage service
providers on request, on terms and conditions commercially negotiated or
arbitrated terms and conditions. A carriage service provider must supply
information for the integrated public number database.

Powers and immunities

A carrier may enter onto land and exercise any of the following powers:

     .  inspect the land to determine whether the land is suitable for the
        carrier's purposes;
     .  install a facility on the land; and
     .  maintain a facility that is situated on the land.

A carrier may only exercise the power to install a facility if:

     .  the carrier holds a facility installation permit, which the ACA may only
        issue subject to stringent conditions;
     .  the facility has been determined to be a "low impact facility" by the
        Communications Minister (for example, specified types of underground
        conduit and cable); or
     .  the facility is a temporary defence facility.

If we engage in these activities, we must take reasonable steps to restore the
relevant land and may be liable to pay compensation to land owners for financial
loss or damage suffered by them as a result of our activities. We are also
subject to a Telecommunications Code of Practice providing for notice and
objection mechanisms. The Secretary to the Commonwealth Department of the
Environment may impose conditions on some facilities installation activities.

Facilities other than those described above may only be installed with the
permission of the relevant landowner and in compliance with all relevant State,
Territory and local laws.

No limitation of tort liability

The ACA has power to impose a cap on our liability in tort for damages claims
but has decided not to do so.

Number portability

Number portability allows customers to switch certain services to another
carriage service provider but keep the same telephone number.

The ACA numbering plan mandates number portability for some services

The ACA has put in place a numbering plan for Australia. Pursuant to a direction
by the ACCC, the plan sets out the following rules:

                                                                              49

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

     .  local number portability was operational on a trial basis from November
        1999 and fully operational by 1 January 2000 as mandated by the ACA.
        There are a limited number of specific cases where an exemption has been
        granted;
     .  inbound number portability affecting all 1800, 1300 and One3 numbers
        became operational on 30 November 2000;
     .  mobile number portability became available from 25 September 2001; and
     .  the ACCC has directed the ACA to implement premium rate number
        portability. Telstra will work with industry to progress this.

Terms and conditions of supply are negotiated or arbitrated

The terms and conditions on which carriage service providers supply number
portability are set by commercial negotiation or arbitration.

The Communications Minister may make a number portability pricing principles
determination that would govern any arbitration. However, no such determination
has been made to date. In June 1999, the ACCC issued a paper setting out the
local number portability pricing principles that it would be inclined to apply
if it were required to arbitrate in relation to terms and conditions for the
provision of local number portability. These principles state that each carrier
or carriage service provider should bear the costs it incurs in its own network
to meet the obligation under the numbering plan to provide local number
portability.

Mobile number portability

The ACCC's final report on mobile number portability pricing principles only
allows us to recover from other carriers or carriage service providers our
efficiently incurred transit costs of providing mobile number portability from
other carriers or carriage service providers.

Preselection and override codes

Preselection allows customers, while connected to a carriage service provider,
to specify another carriage service provider to provide some telecommunications
services. Override codes allow a customer to select a different carriage service
provider on a call-by-call basis.

Currently, carriage service providers must provide for the preselection of one
carriage service provider for the following voice calls:

     .  national long distance calls;
     .  fixed-to-mobile calls;
     .  international calls; and
     .  some operator services.

An override function for these voice calls must also be provided.

The terms and conditions for provision of preselection are as agreed between the
carriage service providers. In the absence of agreement, there is provision for
arbitration by an agreed arbitrator or the ACCC.

50

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Interception

Carriers are required by law to cooperate with law enforcement agencies in
Australia. They must also, unless exempted by the Communications Minister,
ensure that telecommunications services passing over their networks can be
intercepted by agencies that hold an interception warrant. This requirement can
lead to delay in the launch of particular carriage services until the services
are capable of being intercepted. Moreover, carriers are required to bear the
capital and ongoing costs of implementing interception capability in their
networks.

Universal service and digital data service obligations

As the primary universal service provider, we have an obligation to fulfill the
universal service obligation (USO) throughout the whole of Australia. This means
that we must ensure that standard telephone services, payphones and any
prescribed carriage service (of which none have been prescribed) are reasonably
accessible to all people in Australia on an equitable basis, wherever they
reside or carry on business.

As part of this obligation, we must make special customer equipment available to
people with disabilities and offer interim telephone services in certain
circumstances where there will be an extended delay in connecting or repairing a
fault with a standard telephone service.

We are also a digital data service provider and have an obligation to fulfill
the digital data service obligation (DDSO) throughout the whole of Australia.
This requires us to ensure that all people in Australia have reasonable access
to a digital data service with a data speed broadly equilavent to 64kbps. We
fulfill the DDSO through the supply of ISDN services, to which at least 96% of
the Australian population have access, and through the supply of BigPond(TM)
satellite 1 way services for the remainder of the population.

In our roles as the primary universal service provider and digital data service
provider, we are required to submit plans to the ACA and the Communications
Minister for their approval which set out how we will progressively fulfil the
USO and DDSO throughout Australia. Telstra's approved USO Policy Statement, USO
Standard Marketing Plan and Digital Data Service Plans are available from our
web site at www.telstra.com.au/universalservice and
www.telstra.com.au/corporate/ddsp.htm.

The Communications Minister may determine a system to select carriers to be the
primary universal service providers or regional universal service provider for
all or some universal services for particular years.

The net losses that result from supplying loss-making services and from
facilitating the satellite subsidy in the course of fulfilling the USO and DDSO
are required to be shared among all carriers. The Telecommunications (Consumer
Protection and Service Standards) Act 1999 (Cwth) provides that a universal
service provider's net universal service cost, as assessed by the ACA, is to be
shared amongst the universal service provider and other participating carriers
on a basis proportional to the eligible revenue of each carrier.

For this purpose, the ACA assesses levy debits (required contributions to
recognised USO costs) of other participating carriers, thereby requiring them to
make payments into a universal service reserve from which payments are
ultimately made to the universal service provider equal to the amount of its
corresponding levy credit.

However, current legislation does not ensure that the costs we incur in
providing the USO are fully recognised and properly funded by all industry
participants. In accordance with the current legislation, the Telecommunications
Laws Amendment (Universal Service Cap) Act 1999 (Cwth), the Communications
Minister determines the net USO costs. These amounts are usually significantly
less than our own assessment of the USO costs. The other participating carriers
are required to pay us contributions based on the ACA assessments of their
eligible annual revenue. The Communications Minister has also exercised the

                                                                              51

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

power to determine the cost of the USO for up to three years in advance - he has
determined costs for fiscal 2003 as A$234.1 million, fiscal 2004 as A$231.7
million and fiscal 2005 as A$211.3 million.

As the primary universal service provider, we receive no contribution from other
carriers for any non-recognised USO costs.

Customer service guarantee (CSG)

At the direction of the Communications Minister, the ACA has made mandatory
standards for carriage service providers (including Telstra) in relation to the
provision and repair of standard telephone services and the keeping of customer
appointments associated with these activities.

These customer service standards have been in effect since 1 January 1998. A
revised CSG Standard came into effect in July 2000 which clarified that the new
standard only applied to eligible customers with five or less standard telephone
services and tightened some connection and restoration timeframes.

In accordance with the CSG Standard:

     .  we will connect a new standard telephone service within timeframes that
        range between two working days (where a telephone service has recently
        been working at the new premises and can be automatically re-connected)
        and a maximum of 20 working days (where new Telstra network
        infrastructure has to be provided). The actual timeframe may also be
        dependant upon whether the CSG customer is located in an urban, rural or
        remote location; and
     .  we will repair a CSG service in set timeframes according to the
        customer's location, which is either one, two or three full working days
        for customers located in urban, rural and remote areas respectively.

As from 1 January 2003, we reduced our connection timeframes in minor rural and
remote locations where Telstra infrastructure does not exist from 6 months to 20
working days.

The damages payable under the CSG Standard include:

     .  for a missed appointment, A$12 for a residential or charity customer and
        A$20 for a business customer; and
     .  for a delayed connection or repair, A$12 for residential customers and
        A$20 for business customers for each working day of delay up to five
        working days and A$40 per working day of delay after that.

Damages cannot exceed A$25,000 per customer for each contravention.

If we have reason to believe that an event has occurred that is reasonably
likely to result in us being liable to pay damages to a customer for a breach of
the CSG Standard, we will notify the customer and pay those damages, whether by
account credit or otherwise, within a prescribed period. This is the case
irrespective of whether the customer has claimed those damages.

The Minister issued a draft direction in June 2003 to amend the CSG Standard and
sought comments from industry and Telstra has provided a response to this draft
direction.

Priority Assistance

The Communications Minister made an amendment to our carrier licence conditions
in May 2002 requiring Telstra to implement arrangements for maximising service
continuity to priority customers. As part of these arrangements, we must
develop, implement and maintain a documented priority assistance policy and have
processes, systems and practices in place to ensure that priority customers can
be identified and provided with priority assistance in accordance with Telstra's
priority assistance for individuals policy.

52

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

The Communications Minister approved Telstra's policy on 17 June 2002. The
policy aims to provide eligible residential customers, who have a diagnosed
life-threatening medical condition with a high risk of rapid deterioration and
whose life may be at risk without access to a fully operational phone service,
with the highest level of service practicably available at the time on the
connection and repair of standard telephone services.

Telstra customers need to substantiate their eligibility or the eligibility of
someone else residing at their premises, with certification from a medical
practitioner or an authorised person.

Priority customers are entitled, unless circumstances make it unreasonable, to
have a first standard telephone service connected and a fault with a nominated
standard telephone service repaired within 24 hours in urban and rural areas and
within 48 hours in remote areas. In addition, priority customers receive 24
hour, 7 days a week service for fault management, handling and repair. Where
these timeframes cannot be met, we will offer eligible priority customers the
choice between an interim priority service and an alternative service, for
example call diversion to another telephone number of their choice.

As part of our licence condition, we must undertake a communications strategy to
generate public awareness and advise customers of priority assistance. As at
June 2003, we had recorded approximately 140,000 priority customers.

Network Reliability Framework

The Network Reliability Framework (NRF) is an outcome of the Telecommunications
Service Inquiry (Besley Inquiry) which was conducted during 2000. The Inquiry
recommended to the Communications Minister that the ACA be required to monitor
fault rates in our network in order to identify reliability problems.

The NRF was introduced through an amendment to our carrier licence conditions,
which took effect from 1 January 2003, and embraces CSG telephone services only
-generally, those telephone services that are provided to customers with five or
less standard telephone services.

The NRF is a compliance and reporting framework that aims to improve the
reliability of our network at three different levels:

     .  Level 1 - 44 geographical areas throughout Australia, which are based on
        Telstra's work regions. We are required to provide a monthly report to
        the ACA on the percentage of CSG services with no faults and the average
        percentage of service availability for each geographical area. This
        information is also made publicly available on our web site at
        www.telstra.com.au/servicereports;

     .  Level 2 - the exchange service area (ESA) level, of which there are
        approximately 5,000 throughout Australia. We are required to provide
        monthly reports to the ACA of those ESAs where a predetermined number of
        CSG services (which is dependent upon the total number of CSG services
        in the ESA) have had one or more faults in each of the two preceding
        calendar months. The ACA can request further information from us
        regarding the performance of a particular ESA and may seek to have
        remedial action undertaken to reduce the incidence of faults in a
        particular ESA; and

     .  Level 3 - the individual service level. We are required to take
        reasonable action to prevent a CSG service from experiencing four or
        more faults in a rolling 60 day period or experiencing five or more
        faults in a year. Where either of these thresholds is breached, we are
        required to investigate the reason for the breach, undertake such
        remediation as is necessary and report the contravention to the ACA.

The NRF adds to the range of consumer safeguards already in place, for example
the USO, CSG Standard and priority assistance.

                                                                              53

<PAGE>


Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

Supply terms and conditions

Under a determination made by the ACA, since March 2000 carriage service
providers that formulate a standard form of agreement relating to the supply to
an ordinary customer of designated goods and services have been required to
provide customers with concise summaries of the terms and conditions on which
customers acquire their goods and services. We provide these summaries to
existing and new customers.

Hong Kong Telecommunications Regulatory Information

We own 50% of REACH which, through its wholly owned subsidiaries including REACH
Networks Hong Kong Ltd (REACH Networks), conducts a wholesale connectivity
business from Hong Kong. REACH Networks operates a network for the carriage of
traffic to and from Hong Kong.

We also own CSL which conducts a cellular mobile business in Hong Kong. CSL
holds a Public Radiocommunication Service licence which covers the
establishment, maintenance and operation of a cellular network in Hong Kong. CSL
also holds a third generation mobile services licence.

Below is a brief outline of the Hong Kong telecommunications regulatory regime
and the key regulatory requirements with which REACH Networks and CSL must
comply.

Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong)

The legislative framework governing the provision of telecommunication services
and facilities in Hong Kong is principally contained in the Telecommunications
Ordinance (Chapter 106 of the Laws of Hong Kong).

The Telecommunications Ordinance regulates the licensing and control of
telecommunications services and telecommunications apparatus and equipment,
including fixed wireline and wireless services, public mobile telephone services
and certain aspects of internet services.

The Telecommunications Authority (TA) is the principal telecommunications
regulator in Hong Kong and is responsible for administering the
Telecommunications Ordinance. The Office of the Telecommunications Authority
(OFTA) was established in 1993 as an independent Government department and its
key functions are to assist the TA in administering and enforcing the provisions
of the Telecommunications Ordinance. The TA's powers include:

     .  issuing licences;
     .  making rules and determinations in relation to the provision of
        telecommunications network services by licensees, including setting
        interconnection charges on particular routes;
     .  requiring a licensee to comply with the terms of its licence and any
        applicable legislation; and
     .  to suspend or revoke licences as enforcement measures or for the
        protection of the public interest.

Competition provisions

The telecommunications market in Hong Kong is almost fully liberalised and is
now one of the most competitive markets in the world. Unlike many countries,
Hong Kong does not have a general competition law. Anti-competitive behaviour is
regulated through industry specific legislation as well as in various licence
conditions.

On 9 July 2003, the Telecommunications (Amendment) Bill 2002 was passed by the
Legislative Council of the Hong Kong Special Administrative Region. The purpose
of the Bill is to regulate merger activity in some aspects of the
telecommunications industry through empowering the TA to issue binding
directions to carrier licensees when certain changes in the ownership of, or the
control of, a carrier licensee occur which, in the TA's opinion, have or are
likely to have the effect of substantially lessening competition in a
telecommunications market.

54

<PAGE>


                             Telstra Corporation Limited and controlled entities


Competition and Regulation
--------------------------------------------------------------------------------

New Zealand Telecommunications Regulatory Information

On 9 April 2003, Telstra acquired full ownership of TelstraClear Limited, the
second largest full service carrier in New Zealand. Below is a brief outline of
the New Zealand telecommunications regulatory regime.

Telecommunications Act 2001

Throughout the 1990s, the telecommunications sector in New Zealand was subject
to a "light-handed" regulatory regime. Unlike most other OECD countries, no
industry-specific regulatory authority was established in New Zealand to
regulate and monitor telecommunications competition and to promote the entry of
new competitors into the market on an efficient and sustainable basis. That
approach finally changed with the introduction of the Telecommunications Act
2001.

The Telecommunications Act 2001 provides the principal framework for the
regulation of telecommunications in New Zealand. The Act introduces a number of
functions for the New Zealand Commerce Commission (Commission) to perform an
expanded telecommunications sector-specific regulatory role. In summary, these
functions are to:

     .  make determinations on disputes between the access seeker and the access
        provider over access obligations of designated and specified services
        and also on price in the case of designated services;
     .  determine the net cost and apportionment (amongst industry players) of
        Telecommunications Service Obligations and monitor the
        Telecommunications Service Provider's (Telecom) compliance with its
        Telecommunications Service Obligations (broadly, a USO);
     .  recommend to the Minister the desirability of regulating additional
        services where considered necessary; and
     .  propose and approve telecommunications access codes relating to
        designated and specified services for the telecommunications industry.

Determinations by the Commission under the Telecommunications Act 2001

To date the Commission has made two interim determinations under the
Telecommunications Act 2001. They are for interconnection between Telecom and
TelstraClear's PSTN network and for wholesale (resale) of a range of Telecom's
business retail services. Telecom and TelstraClear have both sought price review
determinations as a follow-on to those interim determinations and these are
proceeding.

The Commission is in the process of making a draft determination on residential
resale (for TelstraClear) and wholesaling (for CallPlus). The Commission has
also decided to determine the apportionment of costs in implementing local and
mobile number portability in response to a joint application (from TelstraClear,
WorldxChange, CallPlus, Compass and iHug).

Licensing Regime

New Zealand has no licensing regime for telecommunications carrier. The
Telecommunications Act of 1987 and 2001 enable a registered network operator to
enjoy certain rights of access to public land to install telecommunications
equipment. Registration is not mandatory.

Competition Provisions

The Commerce Act 1986 is New Zealand's generic competition legislation outlawing
anti-competitive conduct in all industries and is enforceable by the Commission
and by market participants.

                                                                              55

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

The following discussion should be read in conjunction with the annual
consolidated financial statements, including the notes to those financial
statements, which are included with this annual report. Those financial
statements have been prepared in accordance with Generally Accepted Accounting
Principles in Australia (AGAAP), which differs in certain respects from
Generally Accepted Accounting Principles in the United States (USGAAP). A
discussion of the principal differences between AGAAP and USGAAP as they relate
to us and a reconciliation of the net income and shareholders' equity to USGAAP,
is provided in note 30 to our financial statements.

This section includes statements of future expectations and forward-looking
statements that are based on management's current views and assumptions and
involve known and unknown risks and uncertainties that could cause actual
results, performance or events to differ materially from those in the
forward-looking statements. A discussion of some of the principal risks that
could affect our business is presented in this annual report under the heading
"Key Information - Risk factors". Also refer to "Key Information - Cautionary
statement regarding forward-looking statements".

In this section, we refer to our fiscal years ended 30 June 2001, 30 June 2002
and 30 June 2003 as fiscal 2001, fiscal 2002 and fiscal 2003, respectively, and
we have referred to the three fiscal years ended 30 June 2003 as the "three-year
period".

Application of critical accounting policies

Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Australia. Our significant
accounting policies are more fully described in note 1 to our financial
statements. The preparation of our financial statements requires management to
make estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities. We continually evaluate our estimates and judgements including
those related to customer incentives, bad debts, inventories, investments,
intangible assets, income taxes, financing activities, restructuring costs,
retirement benefits, contingencies and litigation. We base our estimates and
judgments on historical experience and on various other assumptions we believe
to be reasonable under the circumstances. This forms the basis for making
judgements about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates in the event that the scenario on which our assumptions are based
proves to be different.

Our accounting policies have been developed over many years as the
telecommunications industry and Generally Accepted Accounting Principles or
"GAAP" have evolved. As our financial statements are prepared under AGAAP our
accounting policies are necessarily compliant with all aspects of AGAAP.

In developing accounting policies, in addition to AGAAP requirements, we also
consider telecommunications industry practice in other countries. Further to
this, where there is no conflict with AGAAP we also align our accounting
policies with USGAAP. This reduces the number of AGAAP/ USGAAP reconciliation
differences required to be adjusted in note 30 to our financial statements.

In all material respects our accounting policies are applied consistently across
the Telstra group of companies. To the extent that the accounting policies of
entities we account for under the equity accounting method differ materially
from ours, adjustments are made to the results of those entities to align them
with our accounting policies. The critical accounting policies discussed below
generally apply to all segments of the Company.

The following are the critical accounting policies we apply in producing our
AGAAP financial statements.

56

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Carrying value of investments, goodwill and other intangible assets

We assess the carrying value of our investments in controlled entities,
associates, partnerships and other investments, including acquired goodwill and
other intangible assets, for impairment at least bi-annually based on their
recoverable amount. Our assessments vary depending on the nature of the
particular investment concerned and generally include methodologies such as
discounted cash flow analysis, review of comparable entities' revenue or
earnings multiples, or in the case of listed investees, monitoring of share
prices. These methodologies sometimes rely on factors such as forecasts of
future performance and long-term growth rates of the investee, selection of
discount rates and appropriate risk weightings, and determination of appropriate
comparable entities and multiples. If these forecasts and assumptions prove to
be incorrect or circumstances change, we may be required to write down the
carrying value of our investments.

The carrying value of goodwill was A$2,018 million at 30 June 2003, A$2,063
million at 30 June 2002 and A$1,548 million at 30 June 2001.

The carrying value of our investments in joint ventures and associated entities
and other listed and unlisted entities was A$255 million at 30 June 2003,
A$1,302 million at 30 June 2002 and A$1,402 million at 30 June 2001. The
reduction in the value of our investments in fiscal 2003 reflects the impact of
the write down of our investment in REACH.

The carrying value of our patents, trade marks and licences, brand names and
customer bases was A$1,146 million at 30 June 2003, A$1,358 million at 30 June
2002 and A$1,464 million at 30 June 2001.

Based on our most recent assessment of recoverable amount, we believe that as at
30 June 2003 our investments, goodwill and other intangible assets are
recoverable at the amounts at which they are stated in our financial statements.

Capitalisation of costs

When we incur costs, we classify them as either operating expenses or capital
costs. We expense operating expenses to the statement of financial performance
as they are incurred. We only capitalise costs where we consider that they will
generate future economic benefits. Capital costs are recorded as assets and
shown in our statement of financial position based on the asset class considered
most appropriate to those costs. Management judgement is used in determining
costs to be capitalised in relation to the following major asset categories:

     .  Deferred expenditure

        We defer significant items of expenditure to the extent that they are
        recoverable from future revenue and will contribute to our future
        earning capacity. Expenditure is not deferred if it only relates to
        revenue that has already been recorded. We amortise this deferred
        expenditure over the average period in which the related benefits are
        expected to be realised (5 years). Each year we also review expenditure
        deferred in previous periods to determine the amount, if any, that is no
        longer recoverable. The amount of deferred expenditure that is no longer
        recoverable is written off as an expense in the statement of financial
        performance. Our deferred expenditure after amortisation, including
        deferred mobile handset subsidies, was A$796 million at 30 June 2003,
        A$819 million at 30 June 2002 and A$863 million at 30 June 2001.

                                                                              57

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  Capitalisation of software assets developed for internal use

        We capitalise direct costs associated with the development of network
        and business software for internal use where we regard the success of a
        project to be probable. Management applies judgement to assess this
        probability.

        We capitalise costs such as external direct costs of materials and
        services consumed, payroll and direct payroll-related costs for
        employees and contractors directly associated with a project and
        borrowing costs incurred while developing the software.

        Our capitalised software assets for internal use, after amortisation,
        were A$2,001 million at 30 June 2003, A$1,804 million at 30 June 2002
        and A$1,625 million at 30 June 2001. If management has incorrectly
        assessed the probability of the success of a project we may be required
        to write down the value of the software assets we have recorded.

     .  Indirect overheads and borrowing costs related to construction
        activities

        The cost of our constructed property, plant and equipment includes
        purchased materials, direct labour, direct and indirect overheads and
        borrowing costs. Indirect overheads are generally attributable to the
        construction of assets and do not usually vary with construction
        activity volumes. Examples of indirect costs include planning and design
        of construction projects and the management of construction contracts.
        Where the role of a part of the work force is predominantly management,
        design and construction of communication assets, we allocate all
        indirect overheads associated with the operations and management of that
        work force to the projects undertaken by them. Where some projects
        undertaken by an organisational area do not relate to capital projects,
        indirect overheads are only allocated to capital projects based on the
        proportion that capital projects make up of the total costs of that
        organisational area. The remaining costs of that work force are expensed
        as incurred.

        Borrowing costs are capitalised on all assets constructed. We do not
        specifically borrow to fund construction of assets due to the constant
        nature of our construction process. As a result the allocation of
        borrowing costs to these assets is general and does not reflect funds
        specifically borrowed for each asset.

        Refer to "Operating and Financial Review and Prospects - Critical
        accounting policies applied in our USGAAP reconciliation" for discussion
        on amounts capitalised under USGAAP which have not been historically
        capitalised under AGAAP.

Carrying value and depreciation of property, plant and equipment assets and
software assets developed for internal use

Property, plant and equipment assets made up 65% of our total assets in fiscal
2003, 62% in fiscal 2002 and 61% in fiscal 2001. We therefore consider our
accounting policies around the carrying value and depreciation of these assets
to be critical. We have adopted the cost basis of recording our property, plant
and equipment, rather than the fair value basis. We assess the recoverable
amounts of our fixed assets biannually, based on expected future net cash flows
discounted to their net present value. Where a group of assets can be shown to
be working together to generate net cash flows, this assessment is performed
over the group of assets, rather than individually. If our estimates of future
cash flows prove to be incorrect we may be required to write down assets in the
future. In applying this policy we have not written down significant amounts of
property, plant and equipment assets during the past three years.

58

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

In addition, we assess the appropriateness of the service lives of our property,
plant and equipment assets on an annual basis. This includes a comparison
against our service life estimates and international trends for other
telecommunications companies. In relation to communications assets, this
assessment includes a determination of when the asset may be superseded
technologically. If our assessments of useful lives prove to be incorrect we may
incur either higher or lower depreciation charges in the future or, in certain
circumstances, be required to write down these assets.

Software developed for internal use is an exception to the above annual revision
of service lives. With reference to global industry practice it was judged that
for administrative simplicity, internally developed software would, on average,
have a useful life of 6 years. This has been increased from 5 years in fiscal
2002 and 2001 because of reassessed useful lives for some major software assets.

Valuation of Receivables

We maintain provisions for doubtful debts based on an estimate of the inability
of our customers to pay amounts due to us for services rendered to them. These
provisions are based on historical trends and management's assessment of general
economic conditions. If the financial condition of our customers deteriorates
these provisions may not be sufficient and may lead to an increase in bad and
doubtful debt expenses. We have no reason to believe that the provisions we have
raised will not sufficiently cover bad debts arising out of the receivables we
currently have on hand.

Our provision for doubtful debts was A$199 million at 30 June 2003, A$221
million at 30 June 2002 and A$192 million at 30 June 2001. Trade debtors before
any provision for doubtful debts were A$2,436 million at 30 June 2003, A$2,535
million at 30 June 2002 and A$2,799 million at 30 June 2001.

Revenue Recognition

We recognise revenues when they are earned through the delivery of a product or
service. Telecommunications revenues are recorded at amounts billed plus an
appropriate accrual for calls made since the last billing date. Revenues that
relate to more than one period, such as installation and connection fees, are
deferred and amortised into sales revenue over the expected period of benefit in
accordance with SAB 101. The majority of our deferred revenue relates to the
Telstra Consumer and Marketing business unit. Deferred revenue comprises
deferral of revenue from Sensis relating to White Pages(R) and Yellow Pages(R)
products, deferral of connection fees over the period of service and deferral by
our billing system of telephone rental paid in advance.

Accrued revenue comprises mainly the recognition of unbilled amounts relating to
telephone usage, service and maintenance. Our billing system generates most of
the accrued revenue and automatically accrues revenue for billing cycles that
remain unbilled at the end of each month.

Critical accounting policies applied in our USGAAP reconciliation

We disclose our AGAAP/USGAAP reconciliation differences in detail in note 30 to
our financial statements. The adjustments that we believe have the most
significant impact on the USGAAP reconciliation are as follows.

Capitalisation of indirect overheads and borrowing costs before 1 July 1996 for
property, plant and equipment

Under AGAAP we did not capitalise indirect overheads and borrowing costs pre 1
July 1996. However under USGAAP we were required to retrospectively reflect the
policy as if we had always capitalised indirect overheads and borrowing costs.
This involved the use of estimation techniques and the reconstructing of records
as far back as 1980. Due to the fact that we used estimation techniques to
reconstruct the balances,

                                                                              59

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

the actual balance may have been greater or less than the adjustment calculated.
This impacts the addition to property, plant and equipment adjustment made each
year and the resulting annual amortisation expense.

As at 30 June 2003, property, plant and equipment with a net book value of A$659
million has been capitalised for USGAAP purposes, which was not capitalised
under AGAAP.

Defined benefit plan prepaid pension asset and retirement benefit gain

We engage an actuary to assist in the determination of our prepaid pension asset
and retirement benefit gain. The following assumptions are used to calculate the
adjustment:

     .  discount rate;

     .  rate of increase on salary levels; and

     .  expected long-term rate of return on assets.

These assumptions have a significant impact on the calculations and adjustments
made and are disclosed in note 30(f) to our financial statements.

There is no requirement under AGAAP to recognise these assets or gains.

Use of Telstra applicable yield curves for the purposes of calculating the fair
value of our derivative financial instruments

We are not required to recognise the fair value of our derivative financial
instruments in the statement of financial position for AGAAP. Under USGAAP we
are required to recognise the fair value of our derivative financial instruments
in the statement of financial position. We calculate fair value using market
adjusted yield curves to take into consideration the cost of funding for
Telstra. We adjust the base curves (which are sourced directly from the market
via Reuters) to reflect Telstra's borrowing margins. Telstra's borrowing margins
for each currency and maturity are derived from secondary market trading levels
of our bonds issued in domestic and offshore markets. Where our bonds are not
widely traded the borrowing margin is derived using advice from market dealers
who are close to the market and can estimate the level at which Telstra could
currently borrow. If market yield curves were applied which did not adjust for
Telstra's borrowing margin, this would result in different fair values being
recognised.

Use of certain estimates and assumptions concerning the calculation of
compensation expense relating to remuneration based share plans

Under AGAAP we only expense options and employee shares when it is certain that
there is a cost that will be realised by Telstra. Under AGAAP we do not expense
the fair value of our executive option plans or employee share plans, however we
do expense the fair value of our employee share plans and executive option plans
for USGAAP purposes each year. For fiscal 2003, this did not result in any
additional expenditure. However, for USGAAP purposes we expensed an additional
A$41 million in fiscal 2002 and A$9 million in fiscal 2001. The reason for not
expensing an additional amount in fiscal 2003 was that the cost incurred and
recognised under AGAAP equated to the expense determined under USGAAP.

Our compensation expense is calculated by using various assumptions and
variables. For example:

     .  risk free rates;

     .  dividend yield;

     .  expected stock volatility;

     .  expected life of the options;

60

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  probability that performance hurdles will be met; and

     .  estimated forfeiture.

These assumptions have a significant impact on the calculations and adjustments
made and are disclosed in note 30(m) to the financial statements.

Changes in accounting policies

Australian Accounting Standard AASB 1012 "Foreign Currency Translation" was
changed from fiscal 2002 to fiscal 2003 and now requires us to separately report
cross currency swaps designated as hedges of our foreign denominated borrowings
as financial assets and financial liabilities. Previously the swap balance was
reported as part of borrowings. This change reflects the fact that the swap
contracts, although specifically hedging our borrowings, are made with different
counterparties and as such are separate financial assets and liabilities in
their own right. The individual swap contracts are still netted where the right
of set-off legally applies.

The change in accounting policy has no impact on our statement of financial
performance or our net asset position. However, as at 30 June 2003, we reported
cross currency swap receivables of A$283 million and cross currency swap
liabilities of A$426 million that would previously have been reported as a net
liability of A$143 million.

In fiscal 2001 we adopted US Securities Exchange Commission Staff Accounting
Bulletin No.101 (SAB 101) "Revenue Recognition in Financial Statements", the
effect of which is described below in "Results of operations", "Operating
revenue" and "Operating expenses".

Further information regarding the changes in our accounting policies is provided
in note 1.2 to our financial statements.

Overview of key factors affecting our business and financial performance

During the three-year period, we have increased our revenues from mobile
telecommunications and value-added services. We are continuing to implement
operational changes to improve our productivity and operating efficiency. We
have also increased our focus on wireless data and broadband applications and
content.

Most of our revenues are generated from basic access, fixed and mobile call
charges, data and internet services, directory services and intercarrier
services. Our controlled entities contributed 9.0% of our total sales revenue in
fiscal 2003, 9.9% in fiscal 2002 and 7.2% in fiscal 2001.

Looking forward we are focusing on three areas as opportunities to increase our
revenues:

     .  Domestic retail operations: Growth in our revenue from this market has
        been limited by competition. This market remains our main focus and is
        the most significant part of our company, providing us with the cash
        flow to continue to invest and develop our business. We are improving
        our marketing and our customer service in this area by:

        .  offering a broad range of product packages that includes traditional
           products packaged with new products;

        .  re-balancing our prices to reduce per call charges, while increasing
           basic access fees;

        .  providing high speed internet access products;

        .  continuing to increase the number of mobile service users; and

        .  providing more products on our mobile networks.

                                                                              61

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  Applications and content: We have continued to grow our White Pages(R)
        and Yellow Pages(R) OnLine directory businesses. As telecommunications,
        computing and media technologies converge, we intend to focus on
        enhancing our capabilities to provide new and innovative application and
        content services and to expand further into these converged markets. We
        intend to enhance our capabilities across a number of content services
        and access and delivery technologies to position ourselves to take
        advantage of opportunities in these new markets as they unfold.

     .  International expansion: We intend to expand our business and grow
        revenues and profits outside Australia, particularly in the Asia-Pacific
        region. We will focus on improving returns from our existing
        international investments in REACH, CSL and TelstraClear. We will also
        continue to explore other selected international investment, acquisition
        and alliance opportunities.

In recent years, we have devoted substantial capital to upgrade our
telecommunications networks, eliminate components that were no longer useful and
improve the systems used to operate our networks. As an example, in fiscal 2001
we closed our analogue mobile network and in fiscal 2002 continued the rollout
of our CDMA mobile network.

We have also focused on our operating efficiency, our efforts have included:

     .  streamlining our systems and processes, including the adoption of the
        Six Sigma management tools and techniques;

     .  improving work practices; and

     .  systematically reviewing our cost structures and the way we deliver
        service to our customers.

So far these initiatives have allowed us to achieve cost efficiencies in many
areas, while at the same time improving customer services. They have also
resulted in a substantial reduction in the number of our full-time employees.

During the three-year period, we reduced the number of our domestic full-time
employees from 44,874 in fiscal 2001 to 37,169 in fiscal 2003. Domestic
full-time employees do not include employees in our offshore entities or part
time and casual employees, but include expatriate staff in overseas controlled
entities. We refer to the total of our domestic and offshore full- time, casual
and part-time employees as full-time employees and equivalents. During the
three-year period full-time employees and equivalents reduced from 48,317 to
42,064. This came at a cost of A$281 million in redundancy and restructuring
expenses for fiscal 2003.

We are committed to continuing our review of areas of the business where cost
efficiencies can be gained, while simultaneously maintaining or improving
customer service. Opportunities to achieve this include:

     .  obtaining better value from our capital expenditure;

     .  rationalising our various IT and network platforms;

     .  improving network efficiency; and

     .  managing total labour costs more efficiently.

In February 2001, we sold our global wholesale business to REACH, our 50% owned
Asian joint venture with PCCW. Revenue from this business is now recorded by
REACH. At the same time, we acquired a 60% interest in CSL which is one of Hong
Kong's leading wireless businesses. In June 2002 we acquired an additional 40%
in CSL and now own 100% of the CSL group. In fiscal 2003, CSL performed well
despite difficulties in the Hong Kong market such as a mobile price war and SARS
epidemic. However, we wrote down our investment in

62

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

REACH to nil due to its operating in a difficult environment with falling voice
and data rates and not achieving a sufficient return on investment.

Our other major acquisition in the three-year period has been TelstraClear, the
second largest full service carrier in New Zealand. Details of our acquisition
are available under 'International Business Ventures'. This investment has
demonstrated revenue growth over fiscal 2002 and 2003, and while it is currently
in a loss position, margins are improving and the business is focussing on
achieving operational efficiencies.

Outlook

We expect our financial results in fiscal 2004 and future years to be affected
by the following principal factors:

     .  continuing rapid changes to our competitive environment as competition
        intensifies and our regulators amend the applicable laws and regulations
        to continue opening the markets in which we compete;

     .  actions taken by our regulators and by the Commonwealth Government to
        control our prices and mandate services that we are required to provide;

     .  our ability to introduce new value-added products and services to
        compensate for lower prices and volumes in our traditional product
        lines;

     .  the ongoing results of our investments in REACH, CSL and TelstraClear;

     .  our ongoing efforts to control our costs and improve our productivity;
        and

     .  economic conditions globally and in Australia.

Throughout the three-year period the Federal Government has reiterated its
commitment to the sale of the Commonwealth's remaining share in Telstra. The
full privatisation of Telstra will depend upon the passing of appropriate
legislation through Parliament. If approved and implemented, the full
privatisation of Telstra would be expected to reduce current restrictions, such
as our ability to raise equity capital and use our equity for acquisition
opportunities. See "The Commonwealth as shareholder" under "Major shareholders
and related parties".

Through our revenue growth and expense containment initiatives, we expect to
maintain strong cash flows from our operating activities. We expect that we will
be able to fund planned ongoing operational capital requirements in our networks
and systems through our operating cash flows. We are actively considering ways
to use the strong cash flows that we generate and to this end we will:

     .  continue to consider strategic acquisitions, alliances and other
        investment opportunities, some of which may be substantial, although we
        intend to maintain a conservative net debt to total capital financing
        ratio of 40-45% and strong interest to EBITDA cover of 10 times; and

     .  consider returning capital to our shareholders.

                                                                              63

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Competitive and Regulatory Environment

Refer to the "Competition and Regulation" section of the annual report for
information regarding the competitive and regulatory environments in which we
operate.

Results of operations

Table 1 - Results of operations
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                                  Year ended 30 June
                                                                2003/    2002/
                                        2003    2002    2001    2002     2001
                                           (in A$ millions)      (% change)
                                       ----------------------  ---------------
<S>                                    <C>     <C>     <C>        <C>      <C>
Sales revenue........................  20,495  20,196  18,679     1.5%     8.1%
Other revenue........................   1,121     606   4,304    85.0%   (85.9%)
                                       ----------------------
Total operating revenue (excluding
 interest revenue)...................  21,616  20,802  22,983     3.9%    (9.5%)
Operating expenses (excluding
 interest expense, depreciation
 and amortisation)...................  11,421  11,238  12,966     1.6%   (13.3%)
Share of net equity accounted
 losses..............................   1,025      81     183  1165.4%   (55.7%)
                                       ----------------------
Earnings before interest, income
 tax expense, depreciation and
 amortisation (EBITDA)/(1)/..........   9,170   9,483   9,834    (3.3%)   (3.6%)
Depreciation and amortisation........   3,447   3,267   2,871     5.5%    13.8%
                                       ----------------------
Earnings before interest and
 income tax expense (EBIT)/(1)/......   5,723   6,216   6,963    (7.9%)  (10.7%)
Net borrowing costs..................     795     770     666     3.2%    15.6%
                                       ----------------------
Profit before income tax expense.....   4,928   5,446   6,297    (9.5%)  (13.5%)
 Income tax expense..................   1,534   1,796   2,236   (14.6%)  (19.7%)
                                       ----------------------
Net profit...........................   3,394   3,650   4,061    (7.0%)  (10.1%)
Outside equity interests in net
 profit)/loss........................      35      11      (3)  218.2%  (466.7%)
                                       ----------------------
Net profit available to Telstra
 Entity shareholders.................   3,429   3,661   4,058    (6.3%)   (9.8%)
                                       ======================
<FN>
----------
<F1>/(1)/ Earnings before interest, income tax expense, depreciation and
      amortisation (EBITDA) reflects the Company's net profit prior to including
      the effect of interest revenue, borrowing costs, income taxes,
      depreciation and amortisation. Earnings before interest and income tax
      expense (EBIT) reflects the Company's net profit prior to including the
      effect of interest revenue, borrowing costs and income taxes. The Company
      believes that EBITDA and EBIT are relevant and useful financial measures
      used by management to measure the Company's operating profit. The
      Company's management uses EBITDA and EBIT, in combination with other
      financial measures, primarily to evaluate the Company's operating
      performance before financing costs, income tax and non-cash capital
      related expenses in consideration of the capital intensive nature of the
      Company's business. EBITDA is a useful supplement to net income in
      understanding cash flows generated from operations that are available for
      income taxes, debt service and capital expenditures. EBITDA and EBIT are
      not USGAAP measures of income or cash flow from operations and should not
      be considered as an alternative to net income as an indication of the
      Company's financial performance or as an alternative to cash flow from
      operating activities as a measure of the Company's liquidity. In addition,
      the Company believes that EBIT and EBITDA are useful to investors because
      analysts and other members of the investment community largely view EBITDA
      and EBIT as key and widely recognised measures of operating performance.
</FN>
</TABLE>

Over the three-year period our operating results were impacted by a number of
one-off items which have given rise to movements in the overall net profit
before income tax expense. These items include:

     .  the sale of our global wholesale business and certain controlled
        entities to REACH in February 2001. We recognised 50% of the profit on
        this sale in February 2001 (A$852 million) and deferred the balance, to
        be recognised over 20 years. We recognised A$18 million of this deferred
        profit for 5 months in fiscal 2001 and A$43 million in fiscal 2002 and
        fiscal 2003;

     .  our fiscal 2001 results include net profit before income tax expense of
        A$160 million from our global wholesale business for the 7 months to 31
        January 2001. The results of this business are now recorded by REACH and
        we equity account our share of the results of REACH;

64

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  effective February 2001 we acquired a 60% controlling interest in CSL.
        We have consolidated the operating results from CSL in our results from
        this date. Based on an independent valuation of our interest in CSL, we
        recognised a decline in its value by writing down our investment in CSL
        by A$999 million in June 2001;

     .  on 28 June 2002, we increased our share of CSL to 100%. The transaction
        involved our acquisition of the remaining 40% interest in CSL that we
        did not previously own and the issue of a US$190 million mandatorily
        converting secured note by PCCW, in exchange for the redemption of the
        US$750 million convertible note previously issued by PCCW. Prior to
        redemption, we valued this convertible note on a yield to maturity basis
        at US$750 million and adjusted the value in our financial statements
        accordingly. The reduction in value of the note of A$96 million was
        expensed in fiscal 2002;

     .  the redemption of the US$190 million PCCW convertible note in fiscal
        2003, to the value of US$143m, and the use of the proceeds to enter a
        capacity prepayment agreement with REACH;

     .  the one-time benefit of A$725 million in other revenue in fiscal 2001
        arising from the release from our obligations under the Telstra
        Additional Contributions agreement to the Telstra Superannuation Scheme;

     .  we began applying SAB101 revenue recognition rules in the second half of
        fiscal 2001. This change in accounting policy decreased our net profit
        before taxation by A$219 million in fiscal 2001 (A$204 million related
        to periods prior to fiscal 2001). This was made up of:

        .  a decrease in operating revenue of A$779 million as shown in each of
           our products affected by the change, in "Operating revenue"; and

        .  a decrease in operating expenses of A$560 million, as discussed
           further in "Operating expenses";

     .  substantial restructuring expenses were incurred over the three-year
        period, A$281 million in fiscal 2003, A$289 million in fiscal 2002 and
        A$44 million in fiscal 2001;

     .  in December 2001 we increased our ownership interest in TelstraSaturn
        Limited (TelstraSaturn) and began consolidating its results. At the same
        time TelstraSaturn acquired CLEAR Communications Limited (CLEAR
        Communications) and its name was changed to TelstraClear Limited
        (TelstraClear). In fiscal 2001, our equity accounted share of
        TelstraSaturn's loss for the year ended 30 June 2001 was A$85 million.
        The consolidated net loss before taxation in relation to TelstraClear
        for the 7 months ended 30 June 2002 was A$110 million, with an equity
        accounted share of TelstraSaturn's loss for the 5 months to December
        2001 of A$75 million, including A$48 million in relation to our share of
        restructuring costs. In fiscal 2003, TelstraClear generated a loss
        before and after tax of A$123 million;

     .  we included a profit on sale of investments in Computershare Limited of
        A$245 million in fiscal 2001;

     .  we wrote down our investment in REACH during fiscal 2003 resulting in a
        charge to profit and loss of A$965 million as strong competition and
        excess capacity in the market has impacted the recoverability of our
        investment, refer to 'International Business Ventures' for more detail;
        and

     .  we sold a number of buildings during fiscal 2003 which contributed A$131
        million to profit.

Telephony products have historically generated most of our operating profit and
have been more profitable than our non-telephony products such as data.
Following strong growth in fiscal 2001 data and internet services revenue
declined in fiscal 2002 in a softer overall market, but displayed signs of
stabilisation in fiscal 2003.

                                                                              65

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Telstra is required to deliver the USO and DDSO. Our ongoing requirement to
deliver the USO and DDSO to all Australians continues to impact adversely on our
profitability. Delivery of the USO and DDSO involves significant expenditures
which would otherwise not be incurred. The Government has limited the amounts we
can charge our customers for these services and hence a significant shortfall
arises each year. This shortfall is to be funded by participants in the
telecommunications industry. However, the Government has limited the
contributions we may receive from the other participants towards the net cost of
providing the USO and DDSO. See "Competition and Regulation - Regulation" for
more detail.

As competition has intensified during the three-year period, the volume of
telecommunications services purchased in Australia has increased and the range
of products and services offered has continued to expand. We have greater
opportunity to increase wholesale revenue by providing services to other
carriers and carriage service providers. However, we expect to continue to lose
market share in some of our retail markets as a result of increasing
competition.

Refer to "Income tax expense" for discussion on our income tax expense over the
three-year period.

Operating revenue

In the following discussion, we analyse revenue for each of our major products
and services. The principal areas of strong operating revenue growth over the
three-year period were:

     .  mobile services;

     .  fixed-to-mobile;

     .  advertising and directories; and

     .  revenue from various controlled entities.

Over the three-year period, we have continued our program of price re-balancing
which commenced in fiscal 2000. We increased basic access charges and reduced
local, national and international long distance call charges. At the same time,
competition has continued to intensify during the three-year period and we have
lost market share in some of our retail products as a result of this. We have
seen a continued shift in growth from our traditional retail operations to
services such as mobiles and new data and internet products.

We expect that there will be continued competitive pressure in some of our
traditional product areas, as competition becomes more intense in the future.
This is reflected in our overall revenues in fiscal 2003 being relatively flat.
However, the volume of telecommunications services purchased in Australia has
increased and the range of products and services offered continues to expand and
we expect our operating revenue to continue to benefit from this.

66

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Table 2 - Operating revenue by product and service category, including
percentage of total operating revenue contributed by each product and service
category

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                    Year ended 30 June
                                          2003             2002             2001
                                       (in millions, except percentage of revenue)
                                      A$     %/(2)/    A$     %/(2)/    A$     %/(2)/
-------------------------------------------------------------------------------------
<S>                                 <C>      <C>     <C>      <C>     <C>      <C>
Basic access......................   3,091       14   2,880       14   1,955        8
Local calls.......................   1,567        7   1,643        8   1,915        8
PSTN value added services.........     272        1     261        1     263        1
National long distance............   1,162        5   1,216        6   1,267        5
Fixed-to-mobile...................   1,517        7   1,419        7   1,287        6
International direct..............     307        1     336        1     338        1
Mobile services...................   3,227       15   3,242       16   2,906       13
Mobile handsets...................     381        2     226        1     213        1
Data..............................   1,053        5   1,051        5   1,192        5
ISDN (access and calls)...........     951        4   1,037        5   1,094        5
Internet and IP Solutions.........     802        4     605        3     425        2
Sensis (advertising and
 directories).....................   1,217        6   1,135        5     909        4
Customer premises equipment.......     202        1     220        1     274        1
Intercarrier services.............   1,170        6   1,124        5   1,132        5
Inbound calling products..........     494        2     562        3     657        3
Solutions management..............     487        2     477        2     428        2
Various controlled entities.......   1,836        9   2,001       10   1,342        6
Other sales and services..........     759        4     761        4   1,082        5
                                    -------------------------------------------------
Sales revenue.....................  20,495       95  20,196       97  18,679       81
Other revenue/(1)/(excluding
 Interest income).................   1,121        5     606        3   4,304       19
                                    -------------------------------------------------
Total operating revenue (excluding
 interest income).................  21,616      100  20,802      100  22,983      100
                                    =================================================
----------
<FN>
<F1>
/(1)/  Other revenue includes revenue from sale of assets/investments, dividends
       received/receivable and miscellaneous revenue. Interest received/
       receivable is included in net interest. Refer Table 25.
<F2>
/(2)/  Represents percentage of total operating revenue contributed by each
       product and service category.
</FN>
</TABLE>

Accounting policies - SAB 101

In fiscal 2001, we adopted SAB 101 "Revenue Recognition in Financial Statements"
in our Australian financial statements to ensure that we have consistent revenue
recognition policies. SAB 101 provides more detailed guidance to the timing of
revenue recognition than AGAAP. As a result of the adoption of SAB 101 we
reviewed our revenue streams and determined that we needed to change our revenue
recognition policies for basic access, mobiles and directories. We now only
recognise revenue when a service has been provided. We have also deferred the
costs we incur in providing the services relating to this revenue. We were
required to review the revenue and expenses deferred or recognised in prior
periods and determine the effect of adopting SAB 101 on periods prior to fiscal
2001 and the effect in fiscal 2001.

In accordance with Australian Accounting Standards the effect of the adoption of
SAB 101 was brought to account in fiscal 2001. The effect on the revenue and
expenses from these products is discussed below in the section relating to each
product and in "Operating expenses". For more information on the effect of this
change in accounting policy see note 1.2 to our financial statements.

                                                                              67

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Categorisation of our operating revenue

We categorise revenue from the products and services we sell to wholesale
customers depending on the nature of the product or service. For example, we
categorise operating revenue from interconnect and CDMA resale services as
intercarrier services revenue. On the other hand, we categorise operating
revenue from other resale services according to the product or service resold.

We are actively promoting alternative access services that are faster and have
more capabilities than our basic access service. As more of our customers
purchase these alternative services, operating revenue will move from one
category to another. For example, as our customers switch from buying basic
access services to buying other forms of access services, such as ISDN and ADSL,
operating revenue from some customers will shift from the basic access category
to the data and internet services category.

The rates we charge our customers are subject to regulated price caps

The rates we charge our retail customers for most of our telephony products are
subject to price controls. These controls impose caps based on annual increases
in the consumer price index for the previous year less, in some cases, a
specified percentage. If the annual increase in the consumer price index is less
than the percentage specified we must reduce our prices. The retail price
controls that apply from fiscal 2003 to fiscal 2005 include a cap of CPI less
4.5% on a group of local calls, long distance calls, international calls and
fixed to mobile calls. In addition, as we reduce our average local call prices
in areas where competition exists or is likely to exist, we are required by
regulation to reduce local call prices in other areas of Australia in the
following year. In addition, our local call prices in all areas of Australia
must not exceed the current A$0.22 (GST included) per call price cap, except for
calls from payphones which are capped at A$0.40 (GST included) per call, or in a
plan for which the line rental is lower than standard.

In recent years we have reduced prices for a number of our products and services
ahead of the rate of reduction required under the regulations.

Amendments to the price control regulations in fiscal 2000 allowed us to
re-balance our access and calling charges, which we did in March 2000 and
continued with the introduction of a number of calling plan options during the
three-year period.

Basic access

Our basic access revenue includes monthly rental fees, installation charges and
connection charges, from telephone service connections between a customer's
premises and our PSTN network. It excludes our internal charges to calling
products for the use of our network. Basic access revenues are affected by:

     .  housing growth;

     .  general economic conditions;

     .  competition;

     .  demand for telephone services and additional lines;

     .  customers moving to our other higher value access services, such as ADSL
        and ISDN; and

     .  pricing changes.

68

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
-------------------------------------------------------------------------------

Table 3 - Basic access revenue
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                Year ended 30 June
                                                                  2003/   2002/
                                     2003      2002      2001     2002    2001
                                           (in millions)           (% change)
---------------------------------------------------------------  --------------
<S>                                   <C>       <C>       <C>       <C>    <C>
Retail...........................     2,677     2,521     1,634     6.2    54.3
Domestic wholesale...............       414       359       321    15.3    11.8
                                   ----------------------------
Basic access revenue.............  A$ 3,091  A$ 2,880  A$ 1,955     7.3    47.3
                                   ============================
Basic access lines in service
at year end/(1)/
   Residential...................      6.15      6.35      6.27    (3.1)    1.3
   Business......................      2.60      2.72      2.83    (4.4)   (3.9)
                                   ----------------------------
   Sub-total.....................      8.75      9.07      9.10    (3.5)   (0.3)
   Domestic wholesale............      1.56      1.33      1.36    17.3    (2.2)
                                   ----------------------------
Total access lines in service....     10.31     10.40     10.46    (0.9)   (0.6)
                                   ============================

<FN>
<F1>
----------
Note: statistical data represents management's best estimates.
/(1)/  Excludes basic access lines for our internal use.
</FN>
</TABLE>

Our basic access revenue in fiscal 2001 included a negative adjustment of A$539
million to reflect the effect of SAB 101 on periods prior to fiscal 2001. The
adjustment reflected the deferral of revenue associated with new connections and
in-place services for our retail customers. Under SAB 101 this revenue is
recognised over the average life per customer account for access to our network,
which is 5 years. Excluding this negative adjustment from fiscal 2001, our basic
access revenue for fiscal 2001 would have been A$2,360 million.

Our operating revenue from basic access services (excluding the impact of SAB
101) increased in both the retail and domestic wholesale markets over the
three-year period, primarily as a result of access price re-balancing, first
introduced in March 2000. The increases in our basic access fees were generally
offset by lower local call charges and some capped long distance calls. Under
the new basic access pricing structure we introduced pricing packages. We charge
our residential and business customers different basic access rates depending on
the package chosen. For the most part wholesale customers receive the standard
(unpackaged) basic access service rates (with the "business" and "residential"
differentiation still applying).

Our operating revenue from basic access services and our basic access lines in
service during the three-year period was also affected by competition. While
these competitive forces have resulted in a shift from retail to wholesale
access lines in fiscal 2001, we acquired a number of retail customers in June
2001 following the collapse of one of our competitors, One.Tel, which partially
offset this impact and resulted in our number of lines in fiscal 2001 being
relatively high. In fiscal 2002 the number of residential basic access lines
increased in response to attractive packaging and growth in the housing sector.
However, in fiscal 2003, strong competition and migration to alternative
products, such as internet and mobiles, resulted in a decline in the number of
residential lines in service. The increase in business access revenue in fiscal
2003 was primarily due to price rebalancing.

Retail basic access lines increased in fiscal 2001 and decreased in fiscal 2002
and fiscal 2003. The increase in fiscal 2001 related to our acquisition of
One.Tel's customers, after its collapse in May 2001. The decreases in fiscal
2002 and 2003 reflected some business customers switching to direct connections
with our competitors and others migrating to other Telstra products.

Domestic wholesale basic access revenue increased during the three-year period,
reflecting the increased penetration of our competitors in the basic access
market.

                                                                              69

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

During the three-year period our basic access revenues have also been affected
by increased penetration of pricing packages. We have introduced various basic
access packages, which have had a positive effect on our basic access revenue
growth, despite an overall decrease in basic access lines in service. Some of
these price initiatives include:

     .  introduction of Telstra HomeLine(TM) Options in February 2001;

     .  introduction of Telstra BusinessLine(TM) packaging in June 2001;

     .  increases in Telstra HomeLine(TM) access prices and new Telstra
        BusinessLine(TM) customer access prices from September 2001; and

     .  increases in existing Telstra BusinessLine(TM) customer access prices
        from February 2002.

The bundling of products encourages customers to review their choices and may
encourage them to either stay with us as their sole service provider or come
back into our retail base of customers.

Local calls

Our local call revenue comes from our local call charges and from billable
value-added services such as voicemail, call waiting, call forwarding, call
conferencing and our call return feature. For the most part we charge for local
calls without a time limit. Our operating revenue from local calls generally
varies with changing general economic conditions, the number of basic access
lines in service, customer choice of product and price changes. Our local call
revenue is also affected by customers moving from our basic access service to
our enhanced access services, such as ISDN, and increasing their use of internet
services. It is also impacted by customers migrating usage to mobile and
fixed-to-mobile calling.

Table 4 - Local calls
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                Year ended 30 June
                                                                  2003/   2002/
                                     2003      2002      2001     2002    2001
                                           (in millions)           (% change)
---------------------------------------------------------------  --------------
<S>                                   <C>       <C>       <C>      <C>    <C>
Local call revenue
   Retail........................     1,348     1,413     1,643    (4.6)  (14.0)
   Domestic wholesale............       219       230       272    (4.8)  (15.4)
                                   ----------------------------
   Sub-total.....................     1,567     1,643     1,915    (4.6)  (14.2)

Retail...........................       240       230       231     4.3    (0.4)
Domestic wholesale...............        32        31        32     3.2    (3.1)
                                   ----------------------------
Sub-total........................       272       261       263     4.2    (0.8)
                                   ----------------------------
Total local call revenue.........   A$1,839  A$ 1,904  A$ 2,178    (3.4)  (12.6)
                                   ============================
Number of local calls............     9,794    10,269    10,696    (4.6)   (4.0)
</TABLE>

----------
Note: statistical data represents management's best estimates.

Retail revenue for local calls has been negatively affected by price decreases,
primarily as a result of price re-balancing between our products. In addition,
competition through local call resale has also impacted our revenues. Over the
three-year period we have decreased local call prices as an offset to higher
basic access fees. During fiscal 2003, reduced rate neighbourhood calls were
eliminated for Telstra BusinessLine(TM) Complete, Telstra Homeline(TM) Complete
and Telstra Homeline(TM) Plus customers, and regular local call charges were
reduced from 22c to 20c for Telstra Homeline(TM) Complete customers. Generally
call volumes have continued to fall over the three-year period, reflecting the
impact of customers migrating to other products, such as mobile and
fixed-to-mobile calling and internet-based products. This is highlighted by the

70

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

fact that SIO's have decreased by only 0.9% over fiscal 2003, while local call
revenue decreased by 4.6%, as did the number of local calls made.

Our revenue from value added services has increased in the retail area due
particularly to services such as Call Return, which allows customers to listen
to the number of their last unanswered call, and Call Number Display, which
enables customers to see the number of the caller on a display screen on their
telephone handset. Call Return averages between 11 million and 13 million usages
per month and the cost of the service to customers was increased in August 2002.
Call Number Display subscription costs (single or package) were also increased
during 2003. In addition there has been greater growth than forecasted in SIOs
on packages since December 2002 due to further emphasis of product in sales and
promotional activities.

National long distance calls

Our operating revenue from national long distance calls consists of revenue from
national long distance calls made from our PSTN network to a fixed network.

We generally charge for national long distance calls based on the time of day,
day of week, destination and duration of the call, but packages are also offered
on a capped price basis. A variety of promotions and pricing options are offered
to encourage our customers to use our service and to inform them about the price
and value of our service, such as the "1c Saturday" promotion where calls to
long distance locations are capped at 1c per minute. The majority of our
operating revenue from national long distance calls comes from our residential
and small business customers.

General economic conditions and customer perceptions about the cost and value of
our service, relative to competitor alternatives, largely drive our national
long distance call revenue. Falling prices and price rebalancing has enabled us
to maintain a reasonably consistent level of volume in minutes of calls. However
competitive activity continues to negatively affect our national long distance
call revenue, directly through override and preselection, and indirectly through
competition for access lines.

Table 5 - National long distance calls
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                               Year ended 30 June
                                                                  2003/   2002/
                                     2003      2002      2001     2002    2001
                                          (in millions)            (% change)
---------------------------------------------------------------  --------------
<S>                                   <C>       <C>       <C>      <C>     <C>
Retail...........................     1,156     1,208     1,252    (4.3)   (3.5)
Domestic wholesale...............         6         8        15   (25.0)  (46.7)
                                   ----------------------------
National long distance call
revenue..........................   A$1,162   A$1,216   A$1,267    (4.4)   (4.0)
                                   ============================
National long distance call
minutes..........................     9,161     9,170     9,082    (0.1)    1.0
</TABLE>
----------
Note: statistical data represents management's best estimates

Our operating revenue from national long distance calls declined during the
three-year period, primarily due to:

     .  capping of prices for some national long distance calls, as part of our
        price rebalancing strategy. Capped call prices decreased in each of the
        last three fiscal years, which was partially offset by an increase in
        the long distance call connection cost;

     .  increased take up of rebalanced packages with capped calls by customers;

     .  increased levels of pensioner discounts offered;

                                                                              71

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  loss of customers through increased competition in the local call market
        as customers who change their provider for local call services tend to
        select the same provider for long distance services; and

     .  customers using alternative products, such as fixed-to-mobile, mobile
        and internet- based products.

To address competition we have introduced competitively priced packages.
However, with the continued strong growth of mobiles in the Australian market,
we expect national long distance call revenue to continue to be negatively
impacted by customer migration to mobile services and increased fixed-to-mobile
calls. This revenue will also continue to be impacted by further price
rebalancing.

Fixed-to-mobile calls

Our fixed-to-mobile revenue is generated by calls made on our PSTN network to a
mobile network. The growth of the Australian mobile telecommunication market has
driven revenue growth in this product category.

Table 6 - Fixed-to-mobile calls
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                               Year ended 30 June
                                                                  2003/   2002/
                                     2003      2002      2001     2002    2001
                                           (in millions)           (% change)
---------------------------------------------------------------  --------------
<S>                                   <C>       <C>       <C>       <C>    <C>
Retail...........................     1,501     1,401     1,261     7.1    11.1
Domestic wholesale...............        16        18        26   (11.1)  (30.8)
                                   ----------------------------
Fixed-to-mobile call revenue.....   A$1,517   A$1,419   A$1,287     6.9    10.3
                                   ============================
Fixed-to-mobile call minutes.....     3,944     3,691     3,268     6.9    12.9
</TABLE>
----------
Note: statistical data represents management's best estimates

On 1 October 1999, fixed-to-mobile preselection was introduced, whereby the
carriage service provider selected by a customer for national long distance
calls automatically became the customer's provider for fixed-to-mobile calls.

In fiscal 2002, our fixed-to-mobile revenue showed strong growth, due largely to
the increased number of mobile services in the Australian market. This has
continued, but to a lesser extent, in fiscal 2003, as growth in the mobile
market slows. Minutes of use of our fixed- to-mobile product has grown by 12.9%
in fiscal 2002 and 6.9% in fiscal 2003. This strong growth reflects increased
use of fixed-to-mobile calls in line with growth in the total mobile market.
Although prices are still subject to competitive pressure, reductions have not
been as significant as those surrounding the preselection period. Reduced per
minute prices for fixed-to-mobile calls in fiscal 2002 and 2003 were mostly
offset by increased call connection.

Fixed-to-mobile revenue may also be negatively affected if we lose market share
in local calls. This is because, generally, customers will choose the same
carriage service provider for fixed-to-mobile calls as they do for local calls.

72

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

International telephone services

Over the three-year period our operating revenue from international telephone
services included operating revenue we generated from:

     .  international calls made from Australia to a destination outside
        Australia (outbound);

     .  operator-assisted international calls;

     .  the fees we charged overseas telecommunications companies for
        transmitting and terminating international calls made from outside
        Australia to a destination in Australia (inbound); and

     .  the fees we charged overseas telecommunications companies for the use of
        our network for international calls originating outside of Australia
        that were destined for another country (transit).

Effective February 2001, we completed the sale of our global wholesale business
to REACH. Fiscal 2001 international telephone services revenues reflected
revenue from inbound calls and transit traffic of A$361 million for the period 1
July 2000 to 31 January 2001, which are now recorded by REACH. As we account for
REACH under the equity method of accounting revenues from our global wholesale
business are no longer consolidated.

Our operating revenue from international outgoing calls is largely driven by
general economic conditions, customer perceptions about the cost and value of
our service, competition, promotion and advertising. Competition and price
rebalancing has affected our international telephone services business and this
is expected to continue.

Our customers are able to select between different pricing packages. These are
generally based on destination, duration, time of day and day of week of the
call, but may also include flexible features, such as allowing customers to make
overseas calls that are charged in 30 minute blocks of time.

Table 7 - International direct
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                              Year ended 30 June
                                                                  2003/   2002/
                                     2003      2002      2001     2002    2001
                                           (in millions)          (% change)
---------------------------------------------------------------  --------------
<S>                                 <C>       <C>       <C>        <C>     <C>
International direct ............     A$307     A$336     A$338    (8.6)   (0.6)
                                   ============================
International direct
minutes/(1)/ ....................       740       781       693    (5.2)   12.7
</TABLE>
----------
Note: statistical data represents management's best estimates.
/(1)/  International direct minutes for international settlement purposes also
       include international outgoing minutes from mobile telephone service,
       ISDN and public payphones operated by us.

Our revenue from international telephone services continued to decline over the
three-year period principally as a result of competitive pricing pressures,
price rebalancing and migration of customers to other products such as ISDN,
internet and mobiles.

We have introduced packages, such as HomeLine(TM) Plus, as part of our price
rebalancing strategy and in response to competitive pressures. These packages
encourage our customers to stay with us and provide our customers with options
to select pricing structures to suit their telephony spending patterns.
Approximately 3.1 million customers have now taken up the HomeLine(TM) Plus
package option. These packages reduced our rates for calling some countries by
up to 30% and consequently our outbound international revenue decreased over the
three-year period.

                                                                              73

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

During the three-year period our outgoing volumes were affected by:

     .  increasing competition in the market;

     .  the introduction of our 0018 Easy 1/2 Hour(R) option from April 2001 and
        10 minute capped calls option from September 2001;

     .  the acquisition of approximately 189,000 customers following the
        collapse of one of our competitors, One.Tel in May 2001;

     .  call connection charge increases that occurred in September 2001 and
        August 2002 as part of our price rebalancing initiative; and

     .  migration to other products such as ISDN, internet and mobiles (being a
        significant contributing factor in the decline in minutes in fiscal
        2003).

Mobile goods and services

The mobile telecommunications market has continued its strong growth during the
three-year period, stimulated by the introduction of low access fee plans and
the increasing popularity of prepaid offerings. However, the rate of market
growth has declined and the global mobile industry is entering a new phase.
Voice traffic remains the core of the business and with competition
intensifying, technology will become a source of differentiation and competitive
advantage. Further growth is expected to be achieved through data/SMS usage and
improvement of customer retention.

In fiscal 2000, we rolled out a new mobile network with national coverage based
on digital technology known as CDMA. This CDMA network complements our existing
GSM digital network and provides coverage in all areas previously covered by our
analogue network. CDMA now has a substantial base of retail customers, as well
as resale customers. New customers are increasingly connecting to our CDMA
network and it is one of the fastest growing areas of our mobiles business.

In fiscal 2003, we launched Australia's first 3G mobile service which is based
on 1xRTT technology on our CDMA network and provides high speed data capability.
We also launched Telstra Mobile Loop(R) on 1xRTT to customers which features
downloadable games and ringtones, e-mail access and picture messaging.

74

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Table 8 - Mobile goods and services data
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                              Year ended 30 June
                                                             2003       2002       2001     2003/2002   2002/2001
                                                          (in millions except statistics)          (% change)
-----------------------------------------------------------------------------------------   ---------------------
<S>                                                      <C>          <C>        <C>        <C>         <C>
Access fees and call charges .........................        2,570      2,734      2,567        (6.0)        6.5
Value-added services:
   International roaming .............................          153        143        121         7.0        18.1
   Mobile MessageBank(R) .............................          166        149         96        11.4        55.2
   Mobile data .......................................          338        216        122        56.5        77.0
                                                         --------------------------------
Total value-added services ...........................          657        508        339        29.3        49.9
                                                         --------------------------------
Total Mobile services revenue ........................        3,227      3,242      2,906        (0.5)       11.6
Mobile handset sales .................................          381        226        213        68.6         6.1
                                                         --------------------------------
Mobile goods and services revenue/(1)/ ...............      A$3,608    A$3,468    A$3,119         4.0        11.2
                                                         ================================
Mobile telephone minutes/(2)/ ........................        6,335      5,780      5,277         9.6         9.5
Average minutes per SIO per month ....................           84         87         95        (3.4)       (8.4)

                                                                  (in thousands)
                                                         --------------------------------
Mobile services in operation (SIO)/(5)/ ..............
   GSM ...............................................        5,812      5,346      4,712         8.7        13.5
   CDMA ..............................................          757        596        464        27.0        28.4
                                                         --------------------------------
Total mobile SIO .....................................        6,569      5,942      5,176        10.6        14.8
                                                         ================================
Prepaid mobile SIO ...................................        2,288      1,880      1,212        21.7        36.5
Postpaid mobile SIO ..................................        4,281      4,062      3,964         5.4         2.5
                                                         --------------------------------
Total mobile SIO .....................................        6,569      5,942      5,176        10.6       10.43
                                                         ================================
Market penetration/(7)/ ..............................           72%        64%        58%          8         6.0
Deactivation rate/(8)/ ...............................         18.4%      14.7%      17.3%        3.7        (2.6)

                                                         (in A$ per Service In Operation)
                                                         --------------------------------
Average revenue per SIO per month/(3)/ ...............        42.99      48.60      52.47       (11.5)       (7.4)
Average prepaid revenue per SIO per month/(4)/ .......        13.78      10.05      13.24        37.1       (24.1)
Average postpaid revenue per SIO per month/(3)/ ......        57.59      63.16      61.26        (8.8)        3.1
Average mobile data revenue per SIO per month/(6)/ ...         4.51       3.24       2.21        39.2        49.8

----------
<FN>
<F1>
Note: statistical data represents management's best estimates.
<F2>
/(1)/ Excludes revenue from:
      .  call termination charges, including calls from our fixed network which
         we categorise as fixed-to-mobile;
      .  resale of analogue and CDMA services to other carriers, which is
         included in intercarrier services revenue; and
      .  CSL which is recognised as various controlled entities revenue - see
         table 17.
<F3>
/(2)/ Outbound minutes based on calling party pays billing, excluding minutes
      used by Telstra internal mobile services.
<F4>
/(3)/ Based on mobile services revenue.
<F5>
/(4)/ Based on mobile services revenue for fiscal 2003 and on voice only revenue
      for fiscal 2001 and 2002. Average prepaid revenue per SIO per month based
      on mobile services revenue is A$13.01 for fiscal 2002. This data is not
      available for fiscal 2001.
<F6>
/(5)/ Excludes mobile SIOs used internally.
<F7>
/(6)/ Mobile data revenue per SIO is included in average revenue per SIO and
      average postpaid revenue per SIO.
<F8>
/(7)/ Estimate of total market mobile SIOs divided by total population of
      Australia, based on population information available from the Australian
      Bureau of Statistics.
<F9>
/(8)/ Deactivation rate excludes transfers of account names, services between
      Telstra's GSM and CDMA networks, and services between prepaid and
      postpaid.
</FN>
</TABLE>

                                                                              75

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Mobile services revenue increased during the three-year period, principally due
to strong continuing growth in the number of mobile telephone customers and
minutes of use, together with increases in revenue from Mobile Value Added
Services (mobile data, messaging and roaming). There has been a notable change
in customer mix, with volumes and SIO's increasing across the board, but with
far greater percentage increases in new customers connecting to prepaid
services. Generally, prepaid customers have lower usage patterns than postpaid
customers. At 30 June 2003, prepaid SIOs comprised approximately 35% of total
SIOs, up from 29% as at 30 June 2002 and 23% at 30 June 2001. As a result of
these factors, average revenue per SIO per month has shown a downward trend with
an 11.5% decrease in fiscal 2003 compared to fiscal 2002 and a 5.4% decrease in
fiscal 2002 compared to fiscal 2001.

Average revenue per SIO for postpaid connections decreased by 8.8% in fiscal
2003 due to loyalty programs rewarding users for long term commitments to
Telstra. Also the average revenue per SIO for postpaid connection has been
impacted by customers using to a greater extent the calls that are included in
the price of their monthly connection fee. Average revenue per postpaid SIO
connections increased by 3.1% in fiscal 2002 due to increased usage of value
added services, particularly mobile data.

During the three-year period, revenue growth was supported by strong growth in
value-added services such as:

     .  international roaming;

     .  increased usage of SMS, reported under mobile data, due to increased
        customer awareness and ease of use; and

     .  growth in CDMA service usage in response to marketing campaigns and new
        program offers.

Revenue from MessageBank(R), our voice message service, has increased over the
three-year period. In fiscal 2001, the increase was due to growth in the usage
of this product, however growth levels flattened in fiscal 2002. The increase in
fiscal 2002 was primarily due to a reclassification of revenue previously
included in access fees and call charges. In fiscal 2003, charges have not
changed but the number of SIOs with message bank activated has increased,
causing the 11.4% increase in MessageBank(R) revenue.

Revenue from handset sales increased over the three-year period. In fiscal 2002,
revenue from handset sales increased under our "More 4 you" and "More 4
business" offerings, as we began to charge customers higher prices for handsets
sold via our direct channels. In fiscal 2003, our continued phasing out of
handset subsidies contributed to the high revenue. This change in our mobiles
business model restructures handset purchase arrangements so that customers
either purchase their handsets outright, or pay for them over a contract period
under our Mobile Repayment Option (MRO). Our revenue from handset sales has also
increased as the average cost of handsets has increased due to technological
advancements.

Our deactivation rate increased to approximately 18.4% in fiscal 2003, up from
14.7% in fiscal 2002. Our deactivation rate is influenced by a number of
factors, the most significant of which is competition from other carriers. Other
factors influencing deactivation rate include customers' payment defaults and
short-term disconnections.

In fiscal 2001, we decreased our mobile services revenue by A$34 million to
reflect the effect of the adoption of SAB 101. Under SAB 101 we now recognise
revenue on some services, such as upfront connection fees and some prepaid
services, over the average SIO life rather than at the point of sale. A portion
of this deferred revenue was recognised in fiscal 2002 and the balance in fiscal
2003.

76

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Data and internet services

Our operating revenue from data and internet services is driven primarily by:

     .  demand for capacity to support business networking;

     .  the increased use of data services by small and medium-sized
        enterprises;

     .  the introduction of new products to meet customer needs;

     .  the increased use of the internet by businesses and consumers;

     .  the movement of our customers from basic access and associated calling
        products to other access services, such as ISDN and ADSL; and

     .  demand for greater bandwidth services such as frame relay and broadband.

While the data and internet markets have been experiencing growth, competition
has put pressure on our prices. We expect that these trends will continue.

Tables 9, 10 and 11 show information about our data and internet services.

Table 9 - Data
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                        Year ended 30 June
                         2003        2002        2001     2003/2002  2002/2001
                                 (in millions)                  (% change)
------------------------------------------------------------------------------
<S>                     <C>       <C>          <C>             <C>      <C>
Data revenue.......    A$1,053    A$1,051       A$1,192         0.2      (11.8)
                       ================================
</TABLE>

Data revenue is comprised mainly of revenue from our frame relay service. Frame
relay offers high-speed data transmission to customers connecting any number of
sites to other national or international locations and digital data/leased line
services. Digital data/leased line services provide high quality, leased line
digital data transmission in a range of speeds and may be used for
communications between all major capital cities and most regional and country
areas in Australia.

Data revenues fell in fiscal 2002 with the decline in older generation products
and an excess capacity in the market for leased lines with multiple market
participants. In fiscal 2003, revenues were in line with fiscal 2002 with
customers moving from older digital data and leased line services, to newer
technologies with greater bandwidth such as frame relay.

Table 10 - ISDN
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                        Year ended 30 June
                         2003        2002       2001      2003/2002  2002/2001
                       (in millions, except access lines
                                 in thousands)                  (% change)
------------------------------------------------------------------------------
<S>                    <C>          <C>         <C>       <C>         <C>
Access............        390          452         461      (13.7)      (2.0)
Calls.............        561          585         633       (4.1)      (7.6)
                       -------------------------------
ISDN revenue......      A$951      A$1,037     A$1,094       (8.3)      (5.2)
                       ===============================

ISDN access lines
 (basic access line
 equivalents).....        1,213        1,268       1,235       (4.3)       2.7
</TABLE>
----------
Note: statistical data represents management's best estimates.

ISDN is a digital service providing switched and dedicated integrated access to
voice, data and video.

                                                                              77

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

ISDN revenues were high in fiscal 2001 due to the staging of the Sydney 2000
Olympics in September 2000. This flattened in the second half of 2001 and
declined in fiscal 2002, mainly due to the impact of price rebalancing.

In fiscal 2003, access revenues decreased due to migration of customers to
products such as frame relay, wholesale and DSL, and changes to the pricing
structure of products, resulting in certain access fees to now be recognised as
call revenue.

Call revenues also decreased over the three-year period due to migration of
customers to products such as Direct Internet Access Service and Telstra Private
Internet Provider Solutions. The overall decrease in ISDN call revenue was
partly offset by an increase in voice call revenue. This increase was mainly due
to charging for 30 minute blocks, rather than on a per minute basis, together
with a greater proportion of customers using ISDN for voice instead of data.

Table 11 - Internet and IP Solutions
-------------------------------------------------------------------------------
                                         Year ended 30 June
                          2003        2002        2001     2003/2002  2002/2001
                         (in millions, except subscriber
                              numbers in thousands)             (% change)
-------------------------------------------------------------------------------
Internet direct.......        120         111         133        8.1      (16.5)
IP solutions..........        120          84          67       42.9       25.4
Online broadband......        253         143          58       76.9      146.6
Online narrowband.....        297         252         167       17.9       50.9
Other.................         12          15          --      (20.0)        --
                        ---------------------------------
Internet and
 IP solutions.........      A$802       A$605       A$425       32.6       42.4
                        =================================
Narrowband
 subscribers/(1)(2)/..      1,158       1,056         864        9.7       22.2
Broadband
 subscribers/(3)/.....        361         169          78       76.5      112.8
                        ---------------------------------
Total online
 subscribers...........     1,519       1,225         942       23.9       30.0
                        =================================

----------
Note: statistical data represents management's best estimates.

/(1)/ Includes subscribers to our BigPond(TM) Home and BigPond(TM) Business
      services.
/(2)/ Narrowband subscriber comparatives for fiscal 2002 have been restated to
      exclude Family Mail users in BigPond(TM) Home and Active Mail users in
      BigPond(TM) Business.
/(3)/ Includes subscribers to our BigPond(TM) ADSL, BigPond(TM) Cable Modem,
      BigPond(TM) Satellite, HyperConnect, ISP Connect and Flexstream(R)
      services.

During the three-year period our revenue from internet and ISP services has
continued to grow strongly, even though we have reduced our prices due to
competition. The subscriber base for our narrowband products, Telstra
BigPond(TM) Home and Business, continued to grow during fiscal 2002 and 2003, as
has the subscriber base for our broadband services. However, despite the higher
volumes, our revenue per subscriber decreased in 2002 due to the lower prices
that occurred in this highly competitive market.

In 2003, in addition to increased subscribers, our revenue increased due to:

     .  introduction of excess usage billing for BigPond(TM) broadband
        customers;

     .  focus on acquisition and retention of subscribers in a maturing dial-up
        market with pricing strategies such as providing BigPond(TM) Business
        customers with a price reduction with increased hours of use and a
        reduced additional hourly rate charged for each plan; and

     .  growth in Telstra Internet Direct due to simplified packages offering
        customers integrated internet and connectivity solutions, flexibility
        with access to connection types and pricing campaigns that encourage
        customers to upgrade both access and speed.

78

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Our IP Solutions portfolio of products is performing strongly in an extremely
competitive market. This market is in a growth phase and we are succeeding
through aggressive pricing strategies.

Sensis

Our operating revenue from Sensis is derived primarily from directory
advertising, both print and online, non-directory advertising and other business
services.

Table 12 - Sensis (Advertising and Directories)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                        Year ended 30 June
                          2003        2002        2001     2003/2002  2002/2001
                                (in millions)                   (% change)
-------------------------------------------------------------------------------
<S>                     <C>          <C>         <C>              <C>       <C>
Sensis revenue........   A$1,217      A$1,135       A$909        7.2       24.9
                        =================================
</TABLE>

Sensis revenue in fiscal 2001 included a negative adjustment of A$204 million to
reflect the effect of SAB 101 on periods prior to fiscal 2001. Under SAB 101 we
now recognise revenue when the Yellow Pages(R) directory has been published and
delivered. Revenue from online directories is recognised over the life of
service agreements, which is on average one year. Voice directory revenues are
also recognised over the life of the service agreement (normally one year) while
the associated call revenues are recognised at the time of providing the service
to customers.

Over the three-year period we experienced steady growth in White Pages(R)
directory revenue, mainly through the introduction of new advertising features,
aggressive sales campaigns and the introduction, during 2002, of a new format
segregating residential and business listings in metropolitan books.

In a market environment where revenues from most forms of advertising,
especially print advertising, declined in fiscal 2002, our Yellow Pages(R) print
advertising revenue grew marginally, at 0.2%. In fiscal 2003, our Yellow
Pages(R) revenue grew by 3.6% due to the launch of new advertising features
including Colour in Column, creative advertising options (eg. cover and spine
advertising) and full/half page advertisements.

Our online and electronic advertising, non-directories advertising and
information services also experienced considerable growth over the three-year
period, largely driven by the introduction of new listing features and enhanced
functionality in both our Yellow Pages(R) OnLine and White Pages(R) OnLine
sites, the launch of Sensis WebWorks(TM), the expansion of our location and
navigation services and the acquisition of CitySearch(R).

Intercarrier services

Our operating revenue from intercarrier services consists of revenue from
providing telecommunications services to other carriers or carriage service
providers, including REACH from February 2001. Our operating revenue from resale
activity is categorised according to the product or service resold.

This is a highly regulated area of the Australian telecommunications market. Due
to regulated prices in this area and competitive pressures on some parts of our
intercarrier services business, such as terminating calls, we do not expect
significant revenue growth rates from this product in future years.

Table 13 - Intercarrier services revenue
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                        Year ended 30 June
                           2003       2002        2001     2003/2002  2002/2001
                                (in millions)                   (% change)
-------------------------------------------------------------------------------
<S>                      <C>        <C>         <C>              <C>       <C>
Intercarrier
 services revenue....    A$1,170    A$1,124      A$1,132         4.1       (0.7)
                         ===============================
</TABLE>


                                                                              79

<PAGE>


Telstra Corporation Limited and controlled entities

Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

In fiscal 2002 our operating revenue from intercarrier services declined
marginally compared to fiscal 2001 principally due to:

     .  the collapse of One.Tel in May 2001 and other reductions in wholesale
        SIOs;

     .  the progressive reduction of interconnect rates of up to 60% for
        PSTN/ISDN originating and terminating, local call interconnect and
        mobile originating and terminating through commercial negotiations with
        our wholesale customers. These rate reductions are consistent with the
        industry trend of lower interconnect rates; and

     .  mostly offset by increased volumes in both mobiles and PSTN/ISDN
        originating and terminating access.

In fiscal 2003, our intercarrier revenue growth was driven by:

     .  increase in volumes across both mobiles and PSTN/ISDN originating and
        terminating access due to increased volumes from certain major
        customers; and

     .  increase in SMS interconnect revenues driven by increasing volumes.

However, the benefit of these volume increases were offset by lower rates on our
wholesale transmission products due to strong price competition in the market,
with some competitors selling below cost.

Our volumes from intercarrier services during the three-year period were
affected by:

     .  the impact of competition in the retail market in the provision of basic
        access, local calls, national long distance calls and mobile services.
        These services are now also provided by other carriers, many of which
        use our intercarrier services to deliver their services to their
        customers;

     .  an increase in the number of carriers in the Australian
        telecommunications market and increased demand from other carriers for
        the use of our facilities. This has occurred particularly in:

        .  mobile towers, where we allow other carriers to install their
           equipment and share our transmission facilities; and

        .  our exchanges, where other carriers co-locate their equipment needed
           for the provision of ULL and ADSL.

Our operating revenue from intercarrier services in fiscal 2002 includes revenue
from REACH of A$76 million. For the 5-month period to 30 June 2001, intercarrier
services revenue from REACH was A$53 million. In January 2002, we renegotiated
the prices we are charged by REACH to lower levels, in line with current market
prices.

In addition, our intercarrier services revenue in fiscal 2001 included A$29
million of revenue generated by our global wholesale business, which we have
sold to REACH.

The wholesale market has slowed over the past year with declining yields from
oversupply of transmission infrastructure. We are not expecting any significant
change in this state of affairs, but Telstra will continue its strategic focus
to maintain revenues and control costs in this area.

80

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Inbound calling products

Our operating revenue from inbound calling products consists principally of:

     .  subscription and call charges for inbound calling services, such as
        Freecall(TM) 1800, Freecall(TM) One8, Priority(R) 1300 and Priority(R)
        One3; and

     .  revenue from enhanced call centre products using network voice
        processing, which provides access to advanced call-handling
        capabilities, without customers having to purchase and maintain their
        own networks.

The revenue for inbound calling services refers to:

     .  the fees we charge our business customers for the provision of the
        inbound calling numbers; and

     .  for Freecall(TM)1800 and Freecall(TM) One8 the cost of the call.

Under Priority(R) 1300 and Priority(R) One3 the calling party from a PSTN
service incurs a cost of 25 cents (including GST) from anywhere in Australia,
which is recorded in local call revenue. The other components of the call
charges, as applicable, are charged to the service owner. Calls made from a PSTN
service under the Freecall(TM)1800 and Freecall(TM) One8 service are all charged
to the party called, with no cost incurred by the caller. Different charges
apply for calls made from ISDN, mobiles and payphones.

Table 14 - Inbound calling products revenue
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                               Year ended 30 June
                                  2003     2002     2001   2003/2002  2002/2001
                                      (in millions)             (% change)
---------------------------------------------------------  --------------------
<S>                               <C>      <C>      <C>        <C>        <C>
Inbound calling products
revenue.......................    A$494    A$562    A$657      (12.1)     (14.5)
                                =========================
Inbound calling product
minutes.......................    2,655    3,345    3,871      (20.6)     (13.6)
</TABLE>
----------
Note: statistical data represents management's best estimates.

Revenue from inbound calling products has declined over the three-year period.
Volumes were up in fiscal 2001 as usage of our inbound calling products went
through a period of growth prior to the introduction of INP on 30 November 2000.
INP allows customers to switch providers of this service without changing the
telephone number for the service rendered. This created a more competitive
environment, having a negative impact on prices and volumes.

While the impact of INP on volumes was minimal in fiscal 2001, we started
reducing prices during this period in response to increased competition. INP and
competition has continued to impact fiscal 2002 and 2003 revenues as we have
continued price reductions and volumes have continued to decrease. We lost one
of our major customers in fiscal 2002, which also impacted our revenues and
volumes.

In fiscal 2003, INP had a large impact on revenue derived from Freecall(TM) 1800
and Priority(R) One3 and Priority(R) 1300 products, pushing our revenues and
calling minutes down.

Solutions management

Our operating revenue from our Managed Solutions(TM) product is derived from
managing all or part of a customer's IT or telecommunications services,
including managing:

     .  our network-based enhanced voice and data switching products and virtual
        private network products and the provision of related professional
        services;

                                                                              81

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  our core data products including ATM, frame relay, ISDN, ADSL and
        dedicated data network equipment;

     .  a customer's call or contact centre, including network services,
        equipment, third party hardware and applications and professional
        services;

     .  mobile phone networks and new wireless based technologies such as
        wireless LANs;

     .  IT based products and services, including firewalls, desktops,
        peripheral services and application service products; and

     .  complex once off or whole of business solutions incorporating a range of
        the above services.

Table 15 - Solutions management revenue
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                               Year ended 30 June
                                  2003     2002     2001   2003/2002  2002/2001
                                      (in millions)             (% change)
---------------------------------------------------------  ---------------------
<S>                               <C>      <C>      <C>       <C>       <C>
Solutions management revenue...   A$487    A$477    A$428     2.1       11.4
                                =========================
</TABLE>

During fiscal 2002, our solutions management revenue increased due to increased
demand from the banking and financing sector and strong growth in our Telstra
managed services business.

In fiscal 2003, growth flattened out because, even though we saw further growth
in our Telstra managed services revenue which was primarily due to a combination
of once off exit penalties charged to customers, the renewal of long-standing
customer contracts and an increase in the number of small to medium corporate
hosting services there was a decline in managed radio services revenue due to
the completion of major customer contracts in fiscal 2002.

Various controlled entities' revenue

Some of our controlled entities' operating revenue is included in the product
categories to which they relate, including the following:

     .  Sensis operating revenue is included in Directories revenue; and

     .  Telstra Enterprise Services' (TES') operating revenue is included in
        Solutions Management revenue.

Table 16 - Various controlled entities' sales revenue
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                  Year ended 30 June
                                    2003     2002      2001     2003/2002   2002/2001
                                         (in millions)               (% change)
-------------------------------------------------------------  ----------------------
<S>                               <C>       <C>       <C>       <C>         <C>
Sales revenue (100%) of:
   CSL ........................       908     1,080       492       (15.9)     1195.1
   NDC.........................       159       175       259        (9.1)      (32.4)
   TelstraClear ...............       548       294        --        86.4          --
   Other controlled entities...       221       452       591       (51.1)      (23.5)
                                  ---------------------------
Total various controlled
entities' sales revenue........   A$1,836   A$2,001   A$1,342        (8.2)       49.1
                                  ===========================
</TABLE>
Our consolidated revenue from various controlled entities grew from fiscal 2001
to fiscal 2002 due to the inclusion of revenues from:

     .  CSL from February 2001;

     .  TelstraClear from December 2001; and

82

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  Keycorp Limited (Keycorp) from January 2001 until June 2002, which
        includes Tran$end and Argent (reporting systems used for EFTPOS)
        revenue, previously included in data and internet services revenue.
        Keycorp was equity accounted from the start of fiscal 2003 which meant
        the increases attributed to Keycorp in the 2002 fiscal year were
        reversed, contributing to the decline in revenues in 2003.

The increases in revenue in 2002 were moderated by:

     .  the sale of certain other minor controlled entities (included in "Other
        controlled entities above") as part of the sale of our global wholesale
        business to REACH in February 2001. These entities recorded revenue of
        A$144 million for the 7 months to 31 January 2001;

     .  the scale down of the operations of the Vietnam and Cambodia Business
        Co-operation Contract (BCC). This was wound up in fiscal 2003,
        contributing to the decline in revenues that occurred in fiscal 2003;
        and

NDC's revenue decreased in fiscal 2002 due to the general slow down of network
construction activity undertaken by NDC following a period of increased activity
from new technology companies. This decline continued in 2003 in line with
general reductions in telecommunications industry capital expenditure levels.

In addition to the wind up of our Vietnam and Cambodia contract and reduction in
NDC's contribution, in fiscal 2003, CSL reported a decline in revenue due to the
economic downturn in Hong Kong and the effect of the SARS epidemic. Further
revenue decline is attributed to the sale of our Mobitel business in Sri Lanka
in October 2002.

Refer to "Operating and Financial Review and Prospects - International business
ventures" for further discussion on CSL and TelstraClear.

Other sales and services

The principal components of operating revenue we record in other sales and
services are:

     .  payphones;

     .  operator-assisted services; and

     .  other minor revenue items, including voicemail for fixed lines, recorded
        services, commercial works and other enhanced call products and radio
        services.

Table 17 - Other sales and services revenue
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                             Year ended 30 June
                                2003     2002      2001    2003/2002  2002/2001
                                     (in millions)             (% change)
-------------------------------------------------------  --------------------
<S>                            <C>      <C>     <C>        <C>         <C>
Payphones...................     148      154       166       (3.9)      (7.2)
Telstra information and
connection services.........     128      144       160      (11.1)     (10.0)
Other minor items...........     483      463       749        4.3      (38.2)
                               ------------------------
Other sales and services
revenue.....................   A$759    A$761   A$1,082       (0.2)     (29.7)
                               ========================
Number of payphones
(in thousands)..............      68       71        75       (5.6)      (5.3)
</TABLE>
----------
Note: statistical data represents management's best estimates.

                                                                              83

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Over the three-year period our payphones business revenue has continued to
decrease, impacted by substitution of other products, particularly mobiles. This
is reflected in the number of payphones in operation.

In fiscal 2002 and fiscal 2003 operator assisted services volumes fell due to
customers using alternative products, such as White Pages(R) and Yellow Pages(R)
OnLine and Telstra call connect.

Decreases in other minor items have occurred mainly due to decreasing demand for
products that have a mature market or are being substituted by other more modern
products, such as our Virtual Private Network, which is being overtaken by
migration to ISDN and IP based products.

Other revenue

Table 18 - Other revenue by category
<TABLE>
<CAPTION>
---------------------------------------------------------------------
                                              Year ended 30 June
                                           2003      2002      2001
                                                (in millions)
---------------------------------------------------------------------
<S>                                     <C>         <C>      <C>
Other revenue
   Dividends received/receivable .....          1        1         16
   Miscellaneous revenue .............        261      303        985
                                        -----------------------------
Sub-total other revenue ..............        262      304      1,001

Revenue from sale of:
   Property, plant and equipment .....        811      246        288
   Controlled entities ...............         17       --        120
   Investments in listed securities
   and other corporations ............          7       22        603
   Patents, trademarks and licences ..         --        1         14
   Businesses ........................          4       33      2,273
   Associates ........................         17       --         --
   Joint Ventures ....................          3       --          5
                                        -----------------------------
Total revenue from sale of assets             859      302      3,303
                                        -----------------------------
Total other revenue/(1)/                  A$1,121    A$606    A$4,304
                                        =============================
</TABLE>
----------
/(1)/   Interest revenue received/receivable is now included in net interest.
        Refer Table 25.

Over the three-year period the following one off transactions have impacted our
other revenue from the sale of assets:

     .  the disposal of our global wholesale business and certain controlled
        entities in February 2001 to REACH for A$2,372 million;

     .  the sale of our 15% interest in Computershare for A$546 million in
        fiscal 2001; and

     .  sale of seven commercial properties around Australia in fiscal 2003
        contributing gross proceeds of A$570 million to the total of A$811
        million.

Dividends received in fiscal 2002 and 2003 were lower compared with fiscal 2001
due to dividends paid by Intelsat in fiscal 2001 under contractual obligations
while it was a satellite consortium. Since incorporation on 18 July 2001,
Intelsat has not declared a dividend.

Fiscal 2001 miscellaneous revenue included the writeback of A$725 million of
superannuation contributions, due to the release of our obligation to continue
to pay contributions to the Telstra Superannuation Scheme.

84

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
-------------------------------------------------------------------------------

Our miscellaneous revenue in fiscal 2002 increased (compared to fiscal 2001
exclusive of the superannuation write back) mainly due to Government subsidies
we received for work under the Extended Zone Untimed Local Call tender, as part
of the Rural Telecommunications Infrastructure Fund. This was offset in part by
lower USO levy receipts.

In fiscal 2003, our miscellaneous revenue was impacted by lower Government
tender revenue.

Operating expenses

We categorise our operating expenses into labour expense, goods and services
purchased, depreciation and amortisation and other expenses. Interest expense is
not included in operating expenses. Refer to "Net interest".

Table 19 - Operating expense and share of net equity accounted losses data
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                     Year ended 30 June
                                     2003        2002        2001     2003/2002  2002/2001
                                             (in millions)                 (% change)
--------------------------------------------------------------------  --------------------
<S>                                <C>         <C>         <C>        <C>        <C>
Labour expense..................       3,204       3,240       3,122       (1.1)       3.8
Goods and services purchased ...       3,615       3,933       3,083       (8.1)      27.6
Other expenses..................       4,602       4,065       6,761       13.2      (39.9)
                                  ----------------------------------
Sub total.......................      11,421      11,238      12,966        1.6      (13.3)
Share of net equity accounted
losses..........................       1,025          81         183     1165.4      (55.7)
                                  ----------------------------------
Sub total.......................      12,446      11,319      13,149       10.0      (13.9)
Depreciation and amortisation ..       3,447       3,267       2,871        5.5       13.8
                                  ----------------------------------
Total operating expenses and net
equity accounted losses             A$15,893    A$14,586    A$16,020        9.0       (9.0)
                                  ==================================
</TABLE>

During the three-year period, our operating expenses were affected by a number
of significant events, including:

     .  restructuring and redundancy costs of A$281 million in fiscal 2003,
        A$289 million in fiscal 2002 and A$44 million in fiscal 2001;

     .  a reduction of A$560 million in goods and services purchased in fiscal
        2001, reflecting the cumulative effect of the application of SAB 101 on
        recognition of operating expenses;

     .  Other operating expenses in fiscal 2001 included A$1,520 million in
        relation to the cost of sale and deferral of 50% of the profit on sale
        of our global wholesale business and certain controlled entities to
        REACH;

     .  Write down of our investment in CSL in fiscal 2001 amounting to $999
        million, reflected in 'other operating expenses';

     .  A$301 million cost of sale of our shares in Computershare in fiscal
        2001, reflected in 'other operating expenses';

     .  A$965 million for the write down of our investment in REACH in fiscal
        2003, reflected in 'share of net equity accounted losses'; and

     .  A$662 million being the book value of assets sold during fiscal 2003,
        compared with A$307 million in fiscal 2002 and A$429 million in fiscal
        2001, reflected in 'other operating expenses'.

                                                                              85

<PAGE>


Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

In addition to these events, our operating expenses have also been impacted by:

     .  the consolidation of the operating expenses of our new business ventures
        CSL and TelstraClear, from February 2001 and December 2001 respectively,
        and deconsolidation of expenses for Keycorp in fiscal 2003;

     .  the removal of operating expenses, including depreciation and
        amortisation, associated with our global wholesale business after its
        sale to REACH effective February 2001;

     .  growth in our communications plant asset base and capitalised software
        development which increased our depreciation expense;

     .  increased goodwill amortisation expense as a result of our acquisition
        of CSL and TelstraClear; and

     .  the benefit of ongoing cost control and cost containment programs.

The following tables provide more detailed information about expenses from each
of our expense groupings.

Labour expense

Labour expense includes:

     .  salary and wages and related on-costs, including employer contributions
        to superannuation funds, workers' compensation, leave entitlements and
        payroll tax;

     .  costs of engaging contractor labour and agency costs; and

     .  restructuring costs, including redundancy.

Our domestic full-time employees include domestic full-time staff, domestic
fixed-term contracted staff and expatriate staff in overseas controlled
entities. Domestic full-time employees does not include persons involved in work
undertaken through outsourcing arrangements for work previously performed by
employees or a full-time equivalent measure of part-time and casual staff,
overtime worked, full and part-time contracted staff or a measure of overseas
local hires.
<TABLE>
<CAPTION>

Table 20 - Labour expense
-------------------------------------------------------------------------------
                                            Year ended 30 June
                             2003       2002       2001    2003/2002  2002/2001
                          (millions, except staff numbers
                                 in whole numbers)              (% change)
---------------------------------------------------------  --------------------
<S>                     <C>          <C>       <C>               <C>    <C>

Labour expense..........    A$3,204    A$3,240    A$3,122       (1.1)       3.8
                          ===============================
Domestic full-time
employees/(1)/..........     37,169     40,427     44,874       (8.1)      (9.9)
Full-time employees and
equivalents/(2)/........     42,064     44,977     48,317       (6.5)      (6.9)
</TABLE>
----------
/(1)/   Includes domestic full-time staff, fixed term contracted staff and
        expatriate staff working in overseas controlled entities.
/(2)/   Includes full-time, part-time and casual domestic and offshore
        employees, including employees of controlled entities.

Since 30 June 2001, we have reduced the number of domestic full-time employees
from 44,874 to 37,169 as part of our cost reduction strategy. We have incurred
redundancy expenditure over the three-year period of A$44 million in fiscal
2001, A$289 million in fiscal 2002 and A$281 million in fiscal 2003.

Excluding the redundancy and restructuring costs provided for or expensed,
during the three- year period labour expense decreased from A$3,078 million in
fiscal 2001 to A$2,951 million in fiscal 2002 and A$2,923 million in fiscal
2003.

86

<PAGE>


                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

This decrease reflects:

     .  lower aggregate labour expenses as our full time staff and equivalents
        reduce;

     .  a decline in contractor agency costs due to diversion of some call
        centre activities to outsourcers; and

     .  a reduction in overtime due to continued focus on cost reductions and
        process improvement initiatives.

This decrease has been partly offset by:

     .  the use of employment agency staff in preference to full-time staff in
        order to manage costs more closely, better utilise staff as a variable
        resource in peaks and troughs and to satisfy specialised needs;

     .  increased labour rates across most areas of the business through award
        increases and the higher demand for the retention of high calibre staff;
        and

     .  additional labour expense associated with the consolidation of:

        .  CSL from February 2001, which had 1,281 full-time employees and
           equivalents at 30 June 2001; and

        .  TelstraClear from December 2001, which had 1,189 full-time employees
           and equivalents at 30 June 2002.

Based on the latest actuarial advice provided on the financial position of the
Telstra Superannuation Schemes as at 30 June 2000, we have a surplus in the
superannuation fund. As a result, employer contributions were not required over
the three-year period. We are expecting this surplus to continue, however it
will depend on the performance of the fund. There has been a reduction in the
value of the assets of the fund over the three-year period due to the decline in
financial markets over the period. We are therefore closely monitoring this
situation in the light of the current financial market performance.

Goods and services purchased

The largest component of our goods and services purchased is payments we make to
other carriers to terminate international and domestic outgoing calls and
international transit traffic. Other significant components of our goods and
services purchased over the three-year period related to costs of mobile
handsets, mobile handset subsidies, dealer bonuses, commissions paid to indirect
distribution channels, external construction and directory publishing costs.
These are core costs to our business and vary according to business activity.

Table 21 - Goods and services purchased
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                               Year ended 30 June
                                   2003      2002      2001    2003/2002  2002/2001
                                          (in millions)             (% change)
-------------------------------------------------------------  --------------------
<S>                              <C>       <C>       <C>       <C>        <C>
Goods and services purchased...  A$ 3,615  A$ 3,933  A$ 3,083       (8.1)      27.6
                                 ============================
</TABLE>

Our goods and services purchased was impacted in fiscal 2001 by a once off A$560
million adjustment to reflect the effect of SAB 101. Under SAB 101, we now defer
the recognition of some revenue and the goods and services purchased associated
with that revenue. The nature of these deferrals is described above in
"Operating revenue". See also "Changes in accounting policies".

                                                                              87

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Excluding the impact of this, our goods and services purchased increased from
A$3,643 million in fiscal 2001 to A$3,933 million in fiscal 2002. This increase
was primarily due to:

     .  the consolidation of the goods and services purchased of CSL from
        February 2001 and TelstraClear since December 2001; and

     .  increased network payments which comprised 41% of our goods and services
        purchased in fiscal 2002.

In fiscal 2002 network payments were impacted by the sale of our global
wholesale business to REACH. This business recorded goods and services purchased
of A$223 million for the 7 months ended 31 January 2001. Amounts REACH charged
us for terminating outgoing calls in fiscal 2001 were higher than the charges we
had previously paid to other international carriers. This increased our network
payments in fiscal 2001. In fiscal 2002, network payments decreased compared to
fiscal 2001, mainly as a result of decreasing interconnect rates. This was
offset in part by increased volumes and an increase in terminating traffic
caused by:

     .  increased mobile voice, data (SMS) and international roaming traffic
        terminating on other carrier's networks; and

     .  higher volumes in international direct.

We have also incurred additional costs in relation to the increased use of our
wholesale Global Linx product. Our revenue from this product increased by A$79
million in fiscal 2002.

Our costs for handset subsidies and incentives and commissions paid to dealers
has declined in fiscal 2002 compared to fiscal 2001, largely due to:

     .  the progressive removal of handset subsidies, except where mobiles are
        sold to corporate clients; and

     .  lower commission rates, as we now internally manage some MobileNet(R)
        customers who were previously managed externally.

In fiscal 2003, our goods and services purchased decreased by 8.1%. This was
attributed to:

     .  goods and services purchased relating to Keycorp were consolidated for
        the 2002 fiscal year but were not included for the 2003 fiscal year as
        we now equity account for Keycorp;

     .  lower activity in the Hong Kong mobile market and exchange pressures on
        the Hong Kong dollar; and

     .  reclassification of costs associated with international network payments
        and certain costs relating to FOXTEL.

These decreases were partially offset by increased costs of mobiles sold through
handset offerings under the 'more4you' and 'more4business' promotions and the
increased costs associated with more technologically advanced handsets such as
colour screens, MMS and polyphonic ring tones. In addition, CDMA is increasing
as a percentage of the product mix, with CDMA phones having a higher cost per
handset than the older technology phones.

Network payments decreased in fiscal 2003 due to reductions in international
call volumes and reductions in charges from REACH for international network
connections following the commencement of a new pricing structure from January
2003. Additional benefit came from a more favourable A$/US$ exchange rate. This
was partially offset by costs associated with increases in mobile and SMS call
volumes.

88

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Other operating expenses

Our other operating expenses include such costs as:

     .  service contracts and agreements for outsourced activities such as IT,
        cleaning services and warehousing and distribution;

     .  promotion and advertising;

     .  property costs, including rent, maintenance, municipal rates, land tax
        and power;

     .  network maintenance materials;

     .  travel costs;

     .  lease expense on operating leases;

     .  bad and doubtful debts;

     .  the carrying value of assets and investments disposed of; and

     .  write-downs of investments and assets to recoverable amount.

Table 22 - Other operating expenses
-------------------------------------------------------------------------------
                                           Year ended 30 June
                               2003      2002      2001    2003/2002  2002/2001
                                    (in millions)               (% change)
-------------------------------------------------------------------------------
Other operating expenses.... A$ 4,602  A$ 4,065  A$ 6,761       13.2      (39.9)
                             ============================

In fiscal 2002 and 2003, we did not sell any of our significant investments or
businesses. Expenses relating to investment and asset sales in fiscal 2001 are
the main reason for the significantly larger operating expenses balance in 2001
compared to 2002 and 2003. Investments sold in fiscal 2001 include:

     .  the cost of sale of our global wholesale business and certain controlled
        entities to REACH of A$1,520 million;

     .  the cost of sale of our investment in Computershare of A$301 million;

     .  the cost of sale of our midrange IT equipment of A$107 million; and

     .  the cost of sale of our interest in Extant Inc. of A$36 million.

We assess the recoverable amount of our investments at each reporting date and
where we consider that the recorded amount is not recoverable we write the
investment down to recoverable amount. For more detail refer to "Application of
Critical Accounting Policies".

In fiscal 2001, we wrote down our investment in CSL by A$999 million. We also
wrote down our investments in SMS Management and Technology Limited (formerly
Sausage Software), Commander Communications Ltd and other smaller investments,
by a total of A$66 million. In fiscal 2002, we wrote down a number of minor
investments totalling A$26 million.

As part of our negotiations with PCCW in relation to our purchase of an
additional 40% of CSL in June 2002, we reduced the value of the convertible note
issued to us by PCCW in February 2001 by A$96 million. We now own 100% of CSL.
Refer to "New Business Ventures".

                                                                              89

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

In fiscal 2003, we sold a number of fixed assets, including seven commercial
properties around Australia. The book value of fixed assets sold was A$638
million in fiscal 2003, compared with A$250 million in fiscal 2002 and A$281
million in fiscal 2001.

Our other operating expenses were also impacted by the following over the
three-year period:

     .  bad debts in the consumer market increased in fiscal 2002 and in fiscal
        2001 we incurred bad debts in relation to the collapse of One.Tel. Bad
        debts in fiscal 2003 decreased due to lower provision requirements,
        partially offset by Mobile Repayment Option (MRO) debt provisions;

     .  in fiscal 2002, there was in increase in rental expense for our
        operating leases, in particular for increased leased motor vehicles and
        for leased computers, as a result of the sale and leaseback of our
        midrange IT equipment. In fiscal 2003, rental costs increased further
        after the sale and leaseback of seven commercial properties. However,
        this increase in fiscal 2003 was moderated by a reduction in rental
        expense associated with CSL due to substantial rent reductions in the
        Hong Kong property market and a reduction in the number of rented
        properties;

     .  an increase in expenses relating to service contracts and other
        agreements, which include network maintenance, fault repairs,
        pre-provisioning and activation work from A$1,400 million in fiscal 2001
        and fiscal 2002 to A$1,706 million in fiscal 2003. This increase was
        attributable to increases in the number of service contracts and
        prices,as well as issues such as:

        .  an increase in maintenance costs for the CDMA network as these costs
           were previously covered by warranties;

        .  increased use of outsourcing agreements, particularly in relation to
           IT, call centre and professional services, in preference to using
           full-time employees. These increases were offset by decreases in
           labour and consultancy costs;

        .  embarking on several new projects and implementing changes in the
           scope and pricing of our network platform; and

        .  we now recognise FOXTEL's customer sales and service centre costs in
           'Other expenses' whereas these were previously recognised in goods
           and services purchased;

     .  continuing decreases of A$97 million in fiscal 2002 in our marketing,
        general and administration and other operating expenses as a result of
        our focus on cost reduction, partially reversed by increased marketing
        costs in 2003 due to sponsorships and high numbers of new initiatives to
        market (Loop(TM), SMS, Xgen, Telstra Home Messages 101(TM));

     .  IT expenses of A$49 million for the implementation of GST in fiscal
        2001; and

     .  increased currency conversion costs in fiscal 2003 due to currency gains
        on the Australian dollar in relation to dividends and current account
        hedging costs.

Share of net equity accounted losses

Table 23 - Share of net losses of associates and joint venture entities
-------------------------------------------------------------------------------
                                            Year ended 30 June
                               2003      2002      2001    2003/2002  2002/2001
                                    (in millions)                (% change)
-------------------------------------------------------------------------------
Share of net losses of
associates and joint
venture entities............ A$ 1,025  A$    81  A$   183     1165.4      (55.7)
                             ============================

90

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Our share of net losses of associates and joint ventures includes both profits
and losses from our equity accounted investments. Details of our equity
accounted investments are included in note 24 to our financial statements.

In fiscal 2001, we wrote down our investments in Solution6 Holdings Ltd,
myinternet.com.au Pty Ltd and Xantic B.V. by a total of A$102 million.

In fiscal 2002, our net equity accounted losses were impacted by:

     .  increased profits from our investment in REACH. Equity accounting for
        REACH was for 5 months in fiscal 2001 and for a full year in fiscal
        2002;

     .  increased losses from our investment in FOXTEL;

     .  increased losses from our investment in Australia-Japan Cable Holdings
        Ltd, due to the commencement of depreciation following the completion of
        the network in December 2001;

     .  decreased losses from our investment in Solution 6, including an
        adjustment to reflect the dilution in our shareholding; and

     .  decreased losses from our investment in TelstraSaturn. In December 2001,
        we increased our ownership interest in TelstraSaturn and began
        consolidating its results. At the same time TelstraSaturn acquired CLEAR
        Communications and the company's name was changed to TelstraClear.

In fiscal 2003, the vast majority of the equity accounted loss relates to the
write down of our investment in REACH of A$965 million. In addition to this, we
incurred the following:

     .  decreased contribution from REACH, which recorded a loss of A$47 million
        in fiscal 2003, compared with a profit of A$53 million in fiscal 2002.
        Equity accounting for REACH was suspended on 31 December 2002 when the
        carrying value of the investment was written down to nil;

     .  increased losses or reduced profits from Xantic B.V., PT Mitra Global
        Telekomunikasi Indonesia, and Solution 6 (which has now been sold);

     .  ceasing recognition of Australia Japan Cable losses as the carrying
        value of the investment has been written off (carrying value of A$34
        million as at June 2002); and

     .  we ceased equity accounting for Dynegy since its sale in August 2001,
        final settlement was received in April 2003.

Depreciation and amortisation

Our depreciation and amortisation expense has been and will remain a major
component of our cost structure, reflecting our capital investments.

Table 24 - Depreciation and amortisation
--------------------------------------------------------------------------------
                                            Year ended 30 June
                                2003      2002      2001    2003/2002  2002/2001
                                      (in millions)              (% change)
--------------------------------------------------------------------------------
Depreciation................     2,703     2,612     2,402        3.5        8.7
Amortisation
(excl. goodwill)............       628       568       426       10.6       33.3
Amortisation of goodwill....       116        87        43       33.3      102.3
                              ----------------------------
Total depreciation and
amortisation................  A$ 3,447  A$ 3,267  A$ 2,871        5.5       13.8
                              ============================

                                                                              91

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

During the three-year period, the increase in depreciation and amortisation,
excluding goodwill, was mainly attributable to:

     .  growth in our communications plant asset base and capitalised software
        development, which is consistent with our level of capital expenditure
        activity; and

     .  the consolidation of the depreciation expenses of CSL in fiscal 2002 and
        TelstraClear in fiscal 2003.

Partially offsetting these factors were:

     .  the removal of the depreciation associated with the assets of our global
        wholesale business which were sold to REACH in fiscal 2002; and

     .  lower depreciation for land and buildings due to the sale of seven
        commercial properties and the general downsizing of owned vehicles in
        fiscal 2003.

We capitalise expenditure incurred in the development and enhancement of
computer systems as business software. Software developed for internal use is
amortised over a six-year service life. The increase in amortisation (excluding
goodwill) during the three-year period reflects the growth in capitalised
software assets.

Our analogue network was fully depreciated as of December 1999 and ceased
operating altogether as of October 2000. We commenced depreciation of our CDMA
network during fiscal 2001, from the date that components of this network were
completed. In fiscal 2002, our depreciation expense reflects the first full year
of depreciation of the CDMA network.

Over the three-year period goodwill amortisation increased mainly due to the
amortisation of goodwill from our acquisition of 60% of CSL in fiscal 2001 and
the additional 40% we acquired at the end of June 2002.

Net interest

Table 25 - Net Interest
--------------------------------------------------------------------------------
                                            Year ended 30 June
                                 2003     2002      2001    2003/2002  2002/2001
                                      (in millions)              (% change)
--------------------------------------------------------------------------------
Gross interest expenses.......     984     1,011       877       (2.7)      15.3
Less capitalised interest.....    (105)     (115)     (108)      (8.7)       6.5
                               ---------------------------
Interest expense..............     879       896       769       (1.9)      16.5
Interest received/receivable..      84       126       103      (33.3)      22.3
                               ---------------------------
Net interest expense.......... A$  795  A$   770  A$   666        3.2       15.6
                               ===========================

Our borrowing costs are influenced by:

     .  the level of our debt;

     .  interest rates;

     .  the length of our debt maturity profile; and

     .  our level of investments in financial assets (affects net debt).

Our level of debt increased by A$4 billion in mid February 2000 as a result of
the settlement of the PCCW transactions. This impacted fiscal 2001 for 5 months
and fiscal 2002 for the whole year. In December 2001, we increased our
shareholding in TelstraSaturn (now TelstraClear) to 58.43% from 50%, resulting
in consolidation from December 2001 onwards. The NZ$600 million of bank debt
held by TelstraClear at 30

92

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

June 2002 is therefore included in our group results. In September 2002, this
debt was refinanced by a loan from Telstra and the bank debt repaid.

On 28 June 2002, we acquired the remaining 40% of CSL. As consideration for
these shares the US$750 million convertible note issued to us by PCCW in
February 2001 was redeemed and replaced by a new mandatorily converting secured
note of US$190 million issued by PCCW. This change in convertible/converting
note resulted in an increase in net debt of almost A$1 billion.

Our interest expense increased in fiscal 2002, mainly due to:

     .  interest for a full year on the borrowings we incurred to invest in our
        Asian ventures in fiscal 2001, compared with interest on these
        borrowings for 5 months in fiscal 2001; and

     .  a lengthening of the maturity profile of our debt portfolio.

This was partially offset by reductions in interest rates generally.

Our gross interest expense decreased marginally in fiscal 2003, despite higher
short-term rates, due to an overall decrease in the level of interest bearing
liabilities. This reduction was tempered by the inclusion of a full year of
consolidated interest from TelstraClear and costs incurred in closing out
certain interest rate swaps at TelstraClear early due to the refinancing of its
bank loans in September 2002.

In April 2003, there was a further redemption of the PCCW converting note,
bringing the value to US$54 million. In fiscal 2002, interest was received on
the US$750 million convertible note, whereas in fiscal 2003, we received
interest on a US$190 million converting note until April 2003 when the note was
reduced to US$53 million. This has resulted in a reduction in our interest
received in fiscal 2003 compared to fiscal 2002.

Income tax expense

In fiscal 2003, our income tax expense decreased 14.6% from A$1,796 million in
fiscal 2002 to A$1,534 million in fiscal 2003. Income tax expense was impacted
by a 9.5% decrease in profit before income tax expense, as well as a decrease in
the effective tax rate from 33.0% in fiscal 2002 to 31.1% in fiscal 2003.

The 1.9% decrease in effective tax rate was mainly due to a once off benefit of
A$201 million relating to our election to form a tax consolidation group from 1
July 2002. Under the tax consolidation legislation, certain tax values of
subsidiaries assets are reset according to set allocation rules. This once off
benefit reflects the increase in future income tax benefits arising from the
reset of these tax values.

Our income tax expense decreased in fiscal 2002, down 19.7% from A$2,236 million
in fiscal 2001 to A$1,796 million in fiscal 2002. This was impacted by a 13.5%
decrease in profit before income tax expense, as well as a decrease in the
effective tax rate from 35.5% in fiscal 2001 to 33.0% in fiscal 2002.

The decrease in the effective tax rate in fiscal 2002 was mainly due to the
reduction in the Australian company income tax rate from 34% of taxable income
in fiscal 2001 to 30% in fiscal 2002, together with a reduction in the level of
investment write-downs that are not tax deductible. The reductions were partly
offset by the impact of the sale of our global wholesale business in fiscal
2001, an increase in non-deductible write downs, mainly relating to REACH, the
non-deductible write-down of the convertible note issued to us by PCCW and the
decrease in our share of associates' net losses.

International business ventures

As part of our strategy to expand our operations outside Australia, we invested
in new ventures in the Asia-Pacific region during fiscal 2001 and fiscal 2002.

                                                                              93

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

REACH

In February 2001, we sold our global wholesale business, including certain
offshore controlled entities, to REACH in exchange for 50% ownership in REACH
and cash of US$375 million (A$680 million). We obtained an independent valuation
of our global wholesale business as at 31 January 2001 which resulted in a fair
value of US$1.3 billion (A$2.37 billion) being placed on this business.

We achieved a profit on the sale of US$935 million (A$1,704 million). Under
AGAAP, 50% of the profit, or A$852 million, was deferred to be recognised in the
share of net profits (losses) of associates and joint venture entities line in
our statement of financial performance over 20 years. The profit impact of the
sale, after taxation, was A$875 million in fiscal 2001.

REACH has been operating in a difficult environment for a sustained period of
time. Prices for international voice and data carriage have been falling at a
rapid rate but growth in usage has not been sufficient to compensate for the
loss in revenue caused by price reductions. Consequently, in December 2002 we
made a non-cash write down of our investment in REACH of A$965 million, reducing
the carrying value to nil. Equity accounting was suspended at this date.

Under AGAAP REACH's loss in fiscal 2003 was A$47 million, compared with a profit
of A$255 million in fiscal 2002, and a profit of A$161 million in fiscal 2001.
Table 26 details our equity accounted profits/(losses) in relation to REACH
during the three-year period.

Table 26 - Equity accounted profit of REACH
--------------------------------------------------------------------------------
                                            Year ended 30 June
                                 2003     2002      2001    2003/2002  2002/2001
                                      (in millions)              (% change)
--------------------------------------------------------------------------------
REACH net loss after tax
(AGAAP)......................      (47)      255       161      (55.2)      58.4
                               ===========================
Telstra 50% share/(1)/.......       57       129        80      (55.8)      61.2
Goodwill amortisation........      (60)     (119)      (50)     (49.6)     138.0
Recognition of deferred
profit.......................       22        43        18      (48.8)     138.9
Non-cash write-down..........     (965)       --        --         --         --
                               ---------------------------
REACH equity accounted
share of profit/(loss).......  A$ (946) A$    53  A$    48     1884.9       10.4
                               ===========================

----------
/(1)/ Fiscal 2003 only includes REACH's net profit after tax until suspension of
      equity accounting. Our share of profit up until suspension was A$57
      million.

REACH implemented a number of changes during the second half of fiscal 2003 to
improve its performance, including:

     .  a change of CEO and replacement of a number of senior executives;

     .  re-negotiation of its US$1.5 billion bank loan, which was successfully
        concluded in April 2003; and

     .  implementation of a cost reduction program with staff redundancies to
        further reduce overheads and rebalance the work force.

Historically, Telstra has been a substantial acquirer of cross border
connectivity services from REACH and we expect this to continue. These services
are important in supporting our growth in domestic businesses, particularly in
areas of data and internet and the broadband rollout.

Refer to "Related Parties" for discussion regarding our dealings with REACH.

94

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

CSL

In February 2001,we acquired a 60% ownership interest in CSL. We paid US$1,694
million (A$3,085 million), including incidental acquisition costs, to acquire
this controlling interest.

Upon completion, in accordance with Australian Accounting Standards, a valuation
was undertaken to determine the fair value of our investment. The independent
valuation of CSL was US$1,900 million (A$3,477 million), placing a value of our
60% share at US$1,140 million (A$2,086 million). The difference between the
valuation obtained as at 31 January 2001 and the purchase price valued at
October 2000 is principally due to the movement in global telecommunication
asset prices between the signing of the agreements and completion. This resulted
in a write-down of our investment in CSL by A$999 million in fiscal 2001.

On consolidation of CSL, we recognised goodwill on acquisition of A$1,461
million, to be amortised over 20 years. On acquisition, other intangibles
recognised included CSL's brands of A$212 million, a customer base of A$468
million and spectrum licences of A$79 million, which we are amortising over
their estimated useful lives.

CSL operates in the highly competitive Hong Kong mobile market and has delivered
a solid performance despite an adverse operating environment. Hong Kong is
currently experiencing one of its worst economic downturns in decades with this
situation worsened by the outbreak of SARS in March 2003. Furthermore, in
February 2003, one of CSL's competitors initiated an aggressive price reduction
to attract new subscribers. CSL elected not to participate in the price war,
rather competed on quality of service. As a result of these factors, CSL has
seen its revenue decline by 4% in fiscal 2003 when compared to fiscal 2002,
following a 10% decline in fiscal 2002 when compared to fiscal 2001. Revenue in
fiscal 2003 decreased to HK$4,224 million from HK$4,433 million in fiscal 2002,
and HK$4,917 million in fiscal 2001.

CSL's capital expenditure decreased by 9% in fiscal 2003 to HK$320 million (A$68
million), from HK$323 million (A$70 million) in fiscal 2002. This follows a 34%
decrease in capital expenditure in fiscal 2002 when compared to fiscal 2001.

Convertible/converting notes issued by PCCW

In February 2001, we purchased a convertible note from PCCW for US$750 million
(A$1,372 million).

In June 2002 this note was redeemed as part of our acquisition of the remaining
40% of CSL. Prior to redemption, we valued this convertible note on a yield to
maturity basis at US$750 million and adjusted its value in our financial
statements accordingly. The reduction in value of the note of A$96 million was
charged as an expense in fiscal 2002.

On redemption we acquired a US$190 million (A$337 million) mandatorily
converting secured note issued by PCCW. This note has a three-year term and an
interest coupon compounding at a rate of 5% per annum. PCCW's obligations under
the note are secured by an equitable mortgage of shares over all of PCCW's 50%
shareholding in REACH. In April 2003 this US$190 million note was partially
redeemed to fund the REACH capacity prepayment of US$143 million (A$230
million). The prepayment earns compounding interest equivalent to the three
month US LIBOR rate plus an additional 2.5% and provides us the right to receive
future carriage and related services capacity equivalent to the amount of the
prepayment and accrued interest. We have classified the capacity prepayment as a
non-current receivable as no draw down is expected until fiscal 2007. The
prepayment is considered to be fully recoverable over the agreement period.

TelstraClear

TelstraClear, the second largest full service carrier in New Zealand, has been
operating in its current form since December 2001. December 2001 saw the merger
of our 50% owned joint venture, TelstraSaturn and

                                                                              95

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

CLEAR Communications, to form TelstraClear. As part of this transaction, we
acquired an additional 8.43% interest in the merged entity and consolidated its
results from that date for the 7 months to 30 June 2002. TelstraClear's revenue
for this period was A$296 million and the consolidation of TelstraClear
decreased our net profit before tax by A$110 million. In April 2003, we acquired
the remaining 42% interest in TelstraClear for A$25 million and we now
consolidate 100% of TelstraClear's results. Revenue for the full year in fiscal
2003 was A$548 million and TelstraClear made a loss for fiscal 2003 of A$123
million.

TelstraClear improved its revenues in fiscal 2003, particularly in data and
voice products and has realised operational efficiencies, achieved merger
benefits and gained favourable regulatory outcomes with regards to wholesale
purchasing.

New Zealand is a strategically important market for our trans-Tasman customers
and this acquisition enables TelstraClear and Telstra to work together to
provide customers on both sides of the Tasman with seamless communication and
information technology solutions. The ability to do so was instrumental in
winning a 5 year contract in fiscal 2002 with the National Australia Bank and
Bank of New Zealand to provide outsourcing solutions of this nature.

Liquidity and capital resources

Capitalisation

Table 27 shows our capitalisation in accordance with Australian GAAP as at 30
June 2003.

Table 27 - Capitalisation
-------------------------------------------------------------------------------
                                                             As at 30 June 2003
                                                               (in millions)
                                                                A$     US$/(1)/
-------------------------------------------------------------------------------
Cash......................................................     1,300        871
                                                             ------------------
Short-term debt/(2)/......................................     1,313        880
                                                             ------------------
Long-term debt
   Telecom/Telstra bonds (unsecured)......................     2,403      1,610
   Loans(unsecured).......................................     8,403      5,630
                                                             ------------------
Total long-term debt......................................    10,806      7,240
                                                             ------------------
Shareholders' equity
   Ordinary shares (12,866,600,200 fully paid
    ordinary shares issued)/7/............................     6,433      4,310
   Reserves...............................................      (150)      (101)
   Retained earnings/(6)/.................................     9,137      6,122
   Minority interests/(3)/................................         2          2
                                                             ------------------
Total shareholders' equity/(4)/...........................    15,422     10,333
                                                             ------------------
Total capitalisation/(5)/.................................    27,541     18,452
                                                             ==================

/(1)/  Translated at the noon buying rate on 30 June 2003 of A$1.00 = US$0.67.
/(2)/  Includes the current portion of long-term debt.
/(3)/  Minority interests are not classified as shareholders' equity under
       USGAAP.
/(4)/  Total shareholders' equity under USGAAP is A$18,025 million. Refer to
       note 30 of the financial statements.
/(5)/  Total capitalisation consists of short-term debt, long-term debt and
       shareholders' equity, including minority interests.
/(6)/  On 28/th/ August 2003, we declared a dividend of A$0.12 per ordinary
       share payable on 31 October 2003.
/(7)/  On 24/th/ November 2003, the Company announced the successful completion
       of its A$1 billion off-market share buy-back. A total of 238,230,580
       shares were bought back at A$4.20 per share, representing 3.71 per cent
       of the Company's non Commonwealth owned issued capital. The A$4.20
       buy-back price comprised a fully franked dividend of A$2.70 and a capital
       component of A$1.50 per share bought back. As a result of the buy-back,
       the number of shares outstanding has reduced to 12,628,369,620. The
       Commonwealth did not participate in the buy-back.

96

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Cash and cash equivalents at 30 June 2003 were A$1,300 million, compared with
A$1,070 million at 30 June 2002 and A$1,077 million at 30 June 2001. At 30 June
2003, our total interest bearing liabilities (debt) was A$12,555 million, with
net debt of A$10,295 million, after deducting cash, other interest bearing
financial assets and loans to employees.

Approximately 25% of our total debt consisted of domestic borrowings with the
balance sourced from a variety of offshore markets. Our current interest bearing
liabilities that mature in less than 12 months amounted to A$1,323 million,
approximately 11% of our total debt. This comprised three main components,
namely bills of exchange and commercial paper of A$643 million, loans of A$449
million and A$210 million of Telstra bonds maturing within the 2003 fiscal year.
For a summary of the maturity profile of our debt, see note 16 to our financial
statements.

We have access to A$550 million and US$200 million of committed standby bank
lines. These comprise bilateral arrangements with 7 banks which fall due for
renewal at various times throughout the year. In addition, we have undrawn
committed syndicated bank loan facilities of A$1.25 billion and US$0.6 billion
available until September 2005. We have 4 commercial paper programs with a total
borrowing capacity of A$2 billion, US$4 billion, Euro 4 billion and NZ$0.25
billion (the NZ$ facility is technically unlimited but a practical limit is
around NZ$0.25 billion due to the small size of the New Zealand market). In each
case, we issue commercial paper through dealers on a best endeavours basis. Our
commercial paper facilities are not committed and do not provide guaranteed
access to funds. As at 30 June 2003, we had drawn down A$643 million of our
commercial paper facilities.

Other than borrowings in foreign currency specifically held as hedges against
foreign currency assets, foreign currency borrowings are fully hedged at
drawdown to A$ equivalents using cross currency swaps. Our foreign currency
exchange risk is managed centrally by our treasury department, which is part of
our Finance & Administration business unit. For additional information regarding
our foreign currency position and the management of our foreign currency
exchange risk, see "Quantitative and Qualitative Disclosure about Market Risk"
and note 29 to our financial statements.

We had negative working capital of A$77 million at 30 June 2003, A$1,855 million
at 30 June 2002 and A$3,026 million at 30 June 2001.

In fiscal 2003, our negative working capital decreased largely due to a change
in Australian Accounting Standards relating to provisions. In fiscal 2002, we
provided A$1,415 million for dividends relating to that year but were declared
after the 30 June reporting date. Under revised Australian Accounting Standards,
we are unable to provide for dividends until they are declared, which occurs
after the end of the fiscal year. Going forward, our final dividend payment is
likely to always be made post year-end, so will affect working capital in
October rather than June of each fiscal year.

In fiscal 2002, negative working capital decreased due to reductions in current
borrowings and a reclassification of 7 commercial properties (land and
buildings) to current assets, as they were held for sale at 30 June 2002.

Our current liabilities are typically in excess of our current assets, in common
with most international telecommunications companies. We believe that our
negative working capital position does not create a liquidity risk because we
can delay the timing of our discretionary capital expenditure should cash
inflows from our diverse customer base diminish at any point in time. Also, our
standby bank lines and commercial paper programs provide us with additional
sources of liquidity should the need arise.

                                                                              97

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Cash flow information

Table 28 provides information regarding our cash flows and liquidity during the
three-year period.

Table 28 - Cash flow
-------------------------------------------------------------------------------
                                               Year ended 30 June
                                  2003     2002     2001   2003/2002  2002/2001
                                       (in millions)             (% change)
-------------------------------------------------------------------------------
Net cash provided by
operating activities..........     7,057   7,098    6,599       (0.6)       7.6
Net cash used in investing
activities....................    (2,492) (3,258)  (6,370)     (23.5)     (48.9)
Net cash (used in) provided
by financing activities.......    (4,317) (3,817)      94       13.1   (4,160.6)
                                -------------------------
Net increase in cash..........  A$    24  A$  23  A$   32      978.3      (92.9)
                                =========================

Net cash provided by operating activities

Our primary source of liquidity is cash generated from our operations. Net cash
provided by operating activities includes interest paid and received.

During fiscal 2003, net cash provided by operating activities has decreased
marginally compared to fiscal 2002. This is because in fiscal 2002 net cash from
operating activities was impacted by higher interest payments from the early
swap closeouts associated with early repayment of TelstraClear's bank debt and
the restructure of some of Telstra's corporate debt.

Growth in revenue receipts from customers in fiscal 2003 was offset by increased
supplier, employee and tax payments.

Increased receipts from customers in fiscal 2002 were partially offset by higher
payments to suppliers and an increase in tax and interest payments. In fiscal
2001, an extra tax instalment of A$274 million was paid as a result of the
introduction of the new tax system. Additionally, we incurred increased interest
payments relating to the funding of our investments in CSL and the PCCW
convertible note. These increased cash outflows and increased payments to
suppliers and employees largely offset the increased receipts from customers in
fiscal 2001 compared to fiscal 2002.

Net cash used in investing activities

Net cash used in investing activities represents amounts paid for capital
assets, trademarks, licences and investments, offset by cash receipts from the
sale of capital assets and investments. During the three-year period we
committed a substantial amount of capital and other resources to upgrade and
rationalise our network infrastructure and improve a number of our systems.
However, the level of capital expenditure has declined over the three-year
period.

We also invested resources in investments during the three-year period,
particularly in fiscal 2001, when we acquired 60% of CSL.

98

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Table 29 - Net cash used in investing activities

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                      Year ended 30 June
                                                      2003       2002       2001     2003/2002   2002/2001
                                                            (in millions)                 (% change)
----------------------------------------------------------------------------------------------------------
<S>                                                 <C>        <C>        <C>        <C>         <C>
Switching........................................        376        661        735       (43.1)      (10.1)
Transmission.....................................        378        416        429        (9.1)       (3.0)
Customer access network..........................        959        929       1004         3.2        (7.5)
Mobile telecommunications networks...............        449        255        390        76.1       (34.6)
International infrastructure.....................        193        233        172       (17.2)       35.5
Capitalised software.............................        555        559        737        (0.7)      (24.2)
Other items......................................        454        553        677       (17.9)      (18.3)
                                                    ------------------------------
Sub total capital expenditure....................      3,364      3,606      4,144        (6.7)      (13.0)
Less: Capitalised interest.......................       (105)      (115)      (108)       (8.7)        6.5
                                                    ------------------------------
Capital expenditure (excluding capitalised
interest)........................................      3,259      3,491      4,036        (6.6)      (13.5)
Add: patents, trademarks and licences
(including 3G spectrum)..........................          2         --        332          --
Add: investments.................................         71        171      3,236       (58.5)      (94.7)
                                                    ------------------------------
Capital expenditure (excluding capitalised
interest) and investments........................      3,332      3,662      7,604        (9.0)      (51.8)
Sale of capital equipment, investments and
other property, plant and equipment..............       (840)      (404)    (1,234)      107.9       (67.3)
                                                    ------------------------------
Net cash used in investing activities............   A$ 2,492   A$ 3,258   A$ 6,370       (23.5)      (48.9)
                                                    ==============================
Capital expenditure (including interest and
patents, trademarks and licences) and
investments......................................   A$ 3,437   A$ 3,777   A$ 7,712        (9.0)      (51.0)
                                                    ==============================
</TABLE>

In fiscal 2003, our capital expenditure decreased in most areas compared to
fiscal 2002, with the exception of expenditure on our mobile telecommunications
network. The general decrease is due to our continued tight control over capital
expenditure programs as a result of improved processes. The key areas of
movement in capital expenditure for fiscal 2003 compared to fiscal 2002 were:

     .  lower domestic switching expenditure due to productivity gains from the
        use of higher capacity equipment installed to reduce unit costs together
        with reduced demand for traditional switched network services as
        customers shift to newer broadband related products; and

     .  lower international capital expenditure due to the expiration of our
        Vietnam BCC contract in fiscal 2003.

These were partially offset by:

     .  increased expenditure from the continuing rollout of new CDMA into all
        Australian capital cities;

     .  increased expenditure on Government sponsored programs such as untimed
        local call tender and expansion in the coverage of the GSM network; and

     .  increased Customer Access Network (CAN) expenditure for the ADSL rollout
        and for the establishment of a proactive rehabilitation program for the
        minor rural segment.

In fiscal 2003, we made fewer payments for investments, with our primary
expenditure being on equity injections into FOXTEL of A$50 million and the
acquisition of the remaining 42% of TelstraClear for A$25 million. We also did
not receive any significant receipts for sales of investments, with the majority
of our proceeds of A$840 million coming from the sale of commercial properties.

                                                                              99

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

In fiscal 2002, our capital expenditure and investment spending decreased
significantly following an increase in fiscal 2001. The key movements in fiscal
2002 compared to fiscal 2001 were:

     .  our investment in CSL in fiscal 2001;

     .  continued decreases in capital expenditure, as the level of activity on
        rehabilitation of our customer access network declined from its peak in
        fiscal 2000, and the rollout of our CDMA digital mobile network neared
        completion. This trend has continued over the three-year period;

     .  our purchase of a 3G spectrum licence for A$302 million in fiscal 2001;
        and

     .  increased spending on capitalised software in fiscal 2001, reflecting
        the higher level of activity on systems to support new products and
        services, such as ADSL.

Our proceeds on sale of capital assets and investments was impacted in fiscal
2001 by:

     .  the sale of our global wholesale business and certain controlled
        entities to REACH. We received cash and shares in REACH as consideration
        for the sale;

     .  the sale of our shares in Computershare; and

     .  the sale and leaseback of our midrange IT equipment.

Over the three-year period our principal cash investments included:

     .  A$25 million equity contribution to TelstraSaturn (later combined with
        CLEAR Communications and renamed TelstraClear), followed by A$40 million
        for the acquisition of an additional 8.43% interest in TelstraClear in
        fiscal 2002, compared to A$39 million in fiscal 2001;

     .  additional investments in FOXTEL of A$50 million in fiscal 2003, A$42
        million in fiscal 2002 and A$46 million in fiscal 2001;

     .  A$17 million to acquire 100% of CitySearch(R) in fiscal 2002;

     .  net A$3,045 million to acquire a 60% interest in CSL in fiscal 2001. We
        acquired the remaining 40% in a non-cash transaction in June 2002; and

     .  A$40 million equity contribution to Australia-Japan Cable in fiscal
        2002, compared to A$11 million in 2001.

We expect to incur future capital expenditure in the following areas:

     .  meeting on-going customer demand for existing products and services,
        whilst ensuring service levels are maintained or improved;

     .  developing new products and services to meet the changing needs of our
        customers;

     .  asset lifecycle management;

     .  providing additional coverage and depth on our digital GSM and CDMA
        mobile networks including further 1xRTT rollout;

     .  upgrading our customer access network;

     .  further developing of our broadband and online infrastructure to meet
        future growth;

100

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

     .  providing telecommunications services to rural and remote areas;

     .  internal business support infrastructure to ensure continued
        productivity improvements, operational efficiencies and customer
        relationship process improvements; and

     .  investment in or acquisition of enterprises that complement and fit with
        our growth strategies.

We expect that our cash flow from operating activities and available borrowings
will be sufficient to meet our anticipated capital expenditure and investment
requirements.

Net cash provided by (used in) financing activities

In fiscal 2003 and 2002, we experienced net outflows from financing activities
of A$4.3 billion and A$3.8 billion respectively, compared with an inflow from
financing activities of A$94 million in fiscal 2001.

In fiscal 2003 and 2002, we utilised operating cash flows to reduce the level of
our external borrowings, which had increased in fiscal 2001 to fund our
investments in Asia. Refer to the 'Capital resources' section below for details
of our financing and debt balances.

Contractual obligations and commercial commitments

Expenditure commitments

In the ordinary course of business we enter into long-term agreements for the
supply of products and services to support our business needs. Whilst the
liability under these agreements only arises on supply, we have a commitment to
acquire the particular products and services.

Table 30 - Expenditure commitments at 30 June 2003
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                Amount of commitment expiration per period
                                               Total                              Within
                                              Amounts    Within      Within     2 - 3 years      Within      Within      After
                                             Committed   1 year   1 - 2 years  (in millions)  3 - 4 years  4 - 5 years  5 years
--------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>       <C>          <C>            <C>          <C>          <C>
Capital commitments in relation to:
Software developed for internal use........        553       157          129            127          140           --        --
Other capital expenditure..................        248       209           39             --           --           --        --
                                             -----------------------------------------------------------------------------------
Total capital expenditure commitments......        801       366          168            127          140           --        --
Expenditure commitments in relation to:
Non-cancellable operating leases...........      1,300       251          174            144          130          114       487
Finance leases.............................         20        20           --             --           --           --        --
FOXTEL Minimum Subscriber Guarantees.......      2,209       193          194            174          163          133     1,352
Information technology services............      1,310       399          306            297          308           --        --
Other expenditure commitments..............        722       328           82             50           44           23       195
                                             -----------------------------------------------------------------------------------
Total expenditure commitments, including
capital expenditure commitments............  A$  6,362  A$ 1,557  A$      924  A$        792  A$      785  A$      270  A$ 2,034
                                             ===================================================================================
</TABLE>

Our software development expenditure commitments predominantly relate to a
two-part agreement for a period of 10-years from 30 June 1998 entered into with
our previously associated entity, IBM GSA, in relation to amounts to be spent on
the development of software assets for our internal use. The total remaining
commitment as at 30 June 2003 under this agreement was A$507 million.

The other part of the IBM GSA agreement relates to the acquisition of
information technology services from them. The total remaining commitment as at
30 June 2003 under this agreement was A$1,089 million, which is included in
total Information Technology services commitments shown above.

                                                                             101

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

On 5 September 2003, we completed the sale of our interest in IBM GSA (see
"Related Party Transactions - IBM GSA" for further details). As part of the sale
agreement, we have been released from our commitment to IBM GSA of A$1,596
million at a cost of A$130 million.

Other capital expenditure commitments predominantly relate to expenditure to
which we have committed with external parties for building and improving our
networks and enhancing our network software.

Our non-cancellable operating lease commitments relate to lease agreements we
have entered into for the following purposes:

     .  rental of land and buildings, over an average term of 7 years, in
        particular entering into operating leases over 7 commercial properties
        sold during fiscal 2003;

     .  rental of motor vehicles, caravan huts and trailers and mechanical aids
        over an average term of between 4 and 12 years, depending on the type of
        vehicle; and

     .  rental of personal computers and related equipment over an average term
        of 3 years.

In addition to these non-cancellable operating leases, we also have commitments
under cancellable operating leases of A$471 million. These leases relate mainly
to the lease of IT equipment, motor vehicles and leased assets used in the
supply of desktop services to our customers by TES.

Our finance lease commitments relate to:

     .  leases of communications exchange equipment, with an average term of 13
        years; and

     .  leases of computer mainframes and associated equipment, with an average
        term of 3 years.

The FOXTEL minimum subscriber guarantee expenditure commitments relate to our
50% share of the FOXTEL partnership's commitment to acquire subscription
television programming that is subject to minimum subscriber guarantee levels.
These minimum subscriber payments fluctuate in accordance with price
escalation/reduction formulas contained in the agreements.

The FOXTEL minimum subscriber guarantee commitments increased in fiscal 2002,
largely due to an arrangement entered into by FOXTEL under which it has
increased its minimum subscriber guarantee commitments under a new perpetual
subscription television programming agreement for Foxsports. The effect of this
has been to increase our share of the FOXTEL minimum subscriber guarantee
commitments by approximately A$44 million per annum over the next 25 years from
2002.

On 1 December 2002, FOXTEL entered an unconditional content supply agreement
with Optus that allowed Optus to provide a number of FOXTEL pay TV channels over
the Optus cable network. Under this agreement, FOXTEL assumes some of Optus'
financial obligations under its movie and other content arrangement. This added
A$160 million to our commitments.

We have also undertaken commitments of an extra A$419 million in fiscal 2003
relating to increased satellite capacity to meet growing digital television
requirements.

Due to the joint and several nature of the FOXTEL partnership agreements, we are
contingently liable to the extent of our FOXTEL partners' share of these
commitments should FOXTEL and/or the other FOXTEL partners default on their
payment obligations under these agreements.

102

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Our other expenditure commitments include the following items:

     .  expenditure commitments of A$249 million over the next 14 years in
        relation to CSL's acquisition of a new 3G spectrum license in October
        2001;

     .  commitments for general maintenance and other expenditure in our
        wireless and wireline area of A$320 million;

     .  guaranteed commissions payable to mobile phone dealers until December
        2004 of A$50 million; and

     .  commitments relating to naming rights of A$40 million.

Off Balance Sheet Arrangements

Indemnities, performance guarantees and financial support

As at 30 June 2003, we have provided a number of indemnities, performance
guarantees and financial support through the Telstra Entity. The features and
counterparties involved in these are disclosed in detail in note 21 to our
financial statements.

Derivative contracts

We maintain a portfolio of derivative contracts to enable us to manage risks of
the business, the nature of which are interest rate swaps, interest rate futures
and cross currency swaps.

The nature, business purpose and importance of these contracts is discussed in
note 29 to our financial statements.

Share Trusts

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation
of Variable Interest Entities". FIN 46 requires a beneficiary to consolidate a
variable interest entity if it is the primary beneficiary of that entity. The
primary beneficiary is defined as having a variable interest in a variable
interest entity that will absorb a majority of the entity's expected losses if
they occur, receive a majority of the entity's expected residual returns if they
occur, or both.

We own 100% of the equity of Telstra ESOP Trustee Pty Ltd and Telstra
Growthshare Pty Ltd, the corporate trustees for the Telstra Employee Share
Ownership Plan Trust (TESOP97), the Telstra Employee Share Ownership Plan Trust
II (TESOP99) and the Telstra Growthshare Trust. Under AGAAP we do not
consolidate or equity account these trusts as we do not control or significantly
influence the trusts. Refer to note 1 and note 24 to our financial statements
for further information.

TESOP97, TESOP99 and the Telstra Growthshare Trust are considered to be variable
interest entities under FIN 46. Our maximum potential exposure to loss as a
result of our involvement with TESOP97, TESOP99 and the Telstra Growthshare
Trust at 30 June 2003 is $88 million. We are currently determining whether we
are the primary beneficiary of the trusts. We are also still in the process of
considering other potential variable interest entities. Management have not yet
determined the full impact, if any, the adoption of FIN 46 on 1 July 2003 will
have on our financial position, results of operations or cash flows.

Superannuation Commitments

Please refer to note 22 to our financial statements for our commitments and
exposures in regard to superannuation schemes held for our employees in
Australia and internationally.

                                                                             103

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Property Leases

Seven commercial properties were sold during fiscal 2003 for sales proceeds of
A$570 million. Operating leases were taken out over those properties, see table
30 Expenditure Commitments.

Related party transactions

The following discussion summarises our significant transactions with related
parties, other than our controlled entities. For further discussion refer to
note 27 to our financial statements.

REACH

In February 2001, we formed REACH, a 50:50 joint venture with PCCW, which merged
our respective international infrastructure assets. REACH provides wholesale
voice, data and internet connectivity services in the Asia-Pacific region. On
the sale of our global wholesale business, including certain controlled
entities, to REACH in fiscal 2001 we recognised 50% of the profit on the sale
(A$852 million) and the balance was deferred to be recognised over 20 years.

Upon the formation of the REACH joint venture, we and PCCW entered into
contractual arrangements with REACH for the provision of voice, data and
internet connectivity services. We use these services primarily in connection
with our retail international telecommunications business. Under these
arrangements, we agreed to purchase these services for an initial period as
required, based on prices determined before the venture commenced.

PCCW and we have been substantial acquirers of cross-border connectivity
services supplied by REACH. We expect to continue to require these services to
support our domestic businesses. Without access to these services we would
potentially have short to medium term vulnerability.

PCCW and we have focused on expanding the market and product opportunities for
bandwidth and have entered into further arrangements whereby we have committed
to substantial outgoing purchase levels to the end of December 2007.

On 15 April 2003, we and PCCW entered into capacity prepurchase arrangements
with REACH and certain of its subsidiaries whereby we and PCCW each contributed
US$143 million for the prepurchase of capacity to be used in the future. The
payments (which will be compounded to reflect the time value of money) are to be
applied against the cost of the services and capacity supplied to us and PCCW by
REACH as and when REACH has available surplus cash in accordance with a
prescribed formula. Until REACH has such available surplus cash, Telstra will
continue to purchase capacity from REACH as required for its operations. REACH's
prices under these arrangements have been adjusted to levels we believe are in
line with current market prices. These arrangements have regard to our future
capacity needs and opportunities for growth.

During the three-year period, our purchases from REACH were A$506 million in
fiscal 2003, A$788 million in fiscal 2002, and A$311 million for 5 months in
fiscal 2001. These amounts were for both the purchase of, and entitlement to,
capacity and connectivity services. These purchases were made on normal
commercial terms and conditions. We made sales to REACH for international
inbound call termination services, construction and consultancy of A$109 million
in fiscal 2003, A$115 million in fiscal 2002 and A$75 million for the 5 months
ended 30 June 2001.

In fiscal 2003, we wrote down our investment in REACH by A$965 million to nil
and suspended equity accounting. The write down occurred due to depressed
conditions in the global market for international internet capacity resulting in
high levels of excess capacity, intense price competition and lower than
expected traffic volumes.

104

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

FOXTEL

FOXTEL, our 50% owned subscription television joint venture, uses capacity on
our HFC cable network. As part of the partnership arrangements, we are the
exclusive long-term supplier of cable distribution services for FOXTEL's
subscription television services in our cabled areas and we receive a share of
FOXTEL's cable subscription television revenues. Further details about our
arrangements with FOXTEL are included in the "Information on the Company"
section of this annual report under the heading of "Subscription television".

IBM GSA

We held a 22.6% interest in IBM GSA over the three-year period. On 5 September
2003, we completed the sale of our interest to IBM for A$153.5 million. For the
period of our ownership, we outsourced our data centre operations and a
proportion of our applications maintenance and enhancement activities to IBM
GSA. Revenue from the sale of our investment in IBM GSA amounted to A$154
million resulting in a net profit before income tax expense of A$149 million
which will be recognised in fiscal 2004. We also modified a 10 year contract
with IBM GSA to provide information technology services. The modification will
result in an expense of A$130 million being recognised in fiscal 2004.

Research and development

Our research and development activities cover diverse areas of our business and
focus on developing new competitive products for our customers.

Licensed telecommunications carriers in Australia have a responsibility for
maintaining and implementing plans for the development of the Australian
telecommunications supply and information industries. This annual plan is
referred to as the Industry Development Plan and includes our planned research
and development activities. Each year, the amount we report to the Government
under our Industry Development plan includes amounts expensed in the statement
of financial performance and amounts capitalised into software and
infrastructure assets. Items reported include:

     .  research and development carried out directly by Telstra in our research
        laboratories;

     .  research and development expenditure contracted out by Telstra, for
        which the resultant IP is owned by the contractor;

     .  research and development expenditure incurred in the development of
        certain software; and

     .  support and other research and development expenditures.

For the purposes of this annual report, we estimate the amount of research and
development expenditure incurred over the past year. The amount of the actual
spending is not determined until the following December of each fiscal year. For
fiscal 2001 spending based on the above classification was estimated to be A$217
million and the actual amount determined in December 2001 was consistent with
this. For fiscal 2002, we estimated spending of A$160 million, which later was
determined to be A$170 million. For fiscal 2003, we are estimating we have spent
A$187 million.

We included research and development operational expenses in our statement of
financial performance of A$41 million in fiscal 2003, A$28 million in fiscal
2002 and A$29 million in fiscal 2001. These amounts do not include items we
capitalise to software developed for internal use and include only expensed
amounts.

                                                                             105

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Segment information

Our business is organised and managed by business unit as described under
"Information on the Company - Organisational structure".

As at 30 June 2002, the following qualified as reportable segments under
Australian Accounting Standard AASB 1005 "Segment Reporting" and US Statement of
Financial Accounting Standards No. 131:

     .  Telstra Retail;
     .  Telstra Mobile;
     .  Telstra International;
     .  Infrastructure Services; and
     .  Telstra Wholesale.

During fiscal 2003, we re-organised our business and restructured several of our
reportable segments - Telstra Retail, Telstra Mobile and Telstra Country Wide.
The scope of Telstra Country Wide was increased and two new groups were formed -
Telstra Consumer and Marketing and Telstra Business and Government. We also
established a new group called Telstra Broadband & Media Group. This is not yet
a reportable segment as defined in AASB 1005, so is included in "Other". Our
reportable segments at 30 June 2003 were:

     .  Telstra Consumer and Marketing;
     .  Telstra Country Wide;
     .  Telstra Business and Government;
     .  Telstra International;
     .  Infrastructure Services; and
     .  Telstra Wholesale.

Our analysis of results by segment

There has been extensive changes made to our customer base with all of the
customers from the former Telstra Retail and Telstra Mobile segments reorganised
into Telstra Business and Government, Telstra Consumer and Marketing and Telstra
Country Wide. For these segments we are unable to reconstruct our segment
reporting for fiscal 2002 and 2001 to be on the same basis as our reporting for
fiscal 2003. We are also unable to reconstruct our segments for fiscal 2003 to
be on the same basis as for fiscal 2002 and 2001. We have therefore discussed
the performance of each new segment separately. Telstra International,
Infrastructure Services and Telstra Wholesale have, for the most part, remained
consistent and can be meaningfully compared year on year. A detailed discussion
and analysis of the changes in our operating revenue in each of our major
product groups and our principal operating expense categories, is provided in
"Operating revenue" and "Operating expenses" respectively.

106

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Table 31 provides a summary of our revenue and earnings or loss before interest
and income tax for each of our business segments. For more information on our
business segment results, including intersegment revenues, see note 5 to our
financial statements.

Table 31 - Segment summary data
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                                  Year ended 30 June
                                                            2003          2002          2001      2003/2002   2002/2001
                                                                     (in millions)                     (% change)
------------------------------------------------------------------------------------------------  ---------------------
<S>                                                      <C>         <C>            <C>           <C>         <C>
Sales revenue from external customers
Telstra Consumer and Marketing.......................         5,514             --            --          --         --
Telstra Country Wide.................................         5,031             --            --          --         --
Telstra Business and Government......................         4,520             --            --          --         --
Telstra Retail.......................................            --         12,560        11,620          --        8.1
Telstra Mobile.......................................            --          3,501         3,144          --       11.4
Telstra International................................         1,471          1,497         1,208        (1.7)      23.9
Infrastructure Services..............................           256            253           282         1.2      (10.3)
Telstra Wholesale....................................         2,370          2,334         2,410         1.5       (3.2)
Other/(2)/...........................................         1,333             67            67      1889.6         --
Eliminations.........................................            --            (16)          (52)         --       69.2
                                                         ---------------------------------------
Total sales revenue..................................      A$20,495       A$20,196      A$18,679         1.5        8.1
                                                         ---------------------------------------
Earnings (loss) before interest and
income tax expense (EBIT)/(1)/
Telstra Consumer and Marketing/(3)/..................         3,096             --            --          --         --
Telstra Country Wide/3)/.............................         4,931             --            --          --         --
Telstra Business and Government/(3)/.................         3,440             --            --          --         --
Telstra International................................          (955)           (56)           25      1605.4     (324.0)
Telstra Retail.......................................            --          7,278         6,747          --        7.9
Telstra Mobile.......................................            --          1,542         1,329          --       16.0
Infrastructure Services..............................        (1,220)        (1,371)       (1,209)       11.0      (13.4)
Telstra Wholesale....................................         1,628          2,076         2,119       (21.6)      (2.0)
Other/(2)/...........................................        (3,403)        (4,275)       (2,765)      (19.2)     (54.6)
Eliminations.........................................        (1,794)         1,022           717      (270.5)      42.5
                                                         ---------------------------------------
Total earnings before interest and income
tax expense (EBIT)...................................    A$   5,723  A$      6,216  A$     6,963        (7.9)     (10.7)
                                                         ---------------------------------------
----------
<FN>
<F1>
/(1)/  Most internal charges between business segments are charged on a direct
       cost recovery basis. EBIT reflects both internal and external charges.
<F2>
/(2)/  Other sales revenue includes primarily revenue earned by Telstra
       Broadband and Media Group and proceeds from the sale of seven office
       properties. Other EBIT result mainly includes, in addition to these,
       Telstra Technology and the Asset Accounting Group which centrally manages
       all of the Telstra Entity's fixed assets, including network assets.
<F3>
/(3)/  These segment results do not reflect actual segment results achieved due
       to the majority of costs of goods and services associated with sales
       revenues for all three of these segments being allocated totally to the
       Telstra Consumer and Marketing segment. This allocation reflects
       management's accountability framework and internal reporting system.
</FN>
</TABLE>

Telstra Consumer and Marketing

In fiscal 2003, Telstra Consumer and Marketing was created. It is made up of
parts of the former Telstra Retail segment and parts of the former Telstra
Mobile segment. Telstra Consumer and Marketing is responsible for serving
metropolitan consumer and small business customers with our full range of
products and services including fixed, wireless and data, the overall management
of Telstra's brands, advertising and sponsorships, the management of fixed and
mobile products and implementing our product bundling initiatives.

                                                                             107

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Telstra Consumer and Marketing reported revenue of A$5,514 million and earnings
before interest and tax of A$3,096 million (subject to footnote 3 of table 31
above) in fiscal 2003. As this is a new segment, we are unable to compare
revenue and earnings before interest and tax to prior years.

Telstra Country Wide

In fiscal 2003, the Telstra Country Wide segment was created from its original
basis as part of the former Telstra Retail segment and added parts of the former
Telstra Mobile and Telstra Retail segments. Telstra Country Wide is responsible
for providing telecommunications services to customers in outer metropolitan,
regional, rural and remote parts of Australia.

Sales revenue in fiscal 2003 comprised revenue from basic access, local calls,
national and international long distance, fixed to mobile calls, data and text
services, inbound calling products and internet and web hosting products for
Telstra Country Wide customers.

Telstra Country Wide revenues and earnings cannot be compared to that of fiscal
2002 due to significant changes in the composition of the segment, however over
the fiscal 2003 period Telstra Country Wide achieved strong fixed to mobile
revenue, STD revenue and in BigPond(TM) Home revenue.

Telstra Business and Government

Telstra Business and Government, which has been formed out of part of the former
Telstra Retail segment and part of the Telstra Mobile segment, is responsible
for serving our corporate, medium enterprise and Government customers with the
full range of Telstra products and services of interest to this group of
customers. It also includes Customer Care and product management groups.

Sales revenue for Telstra Business and Government totalled A$4,520 million in
fiscal 2003 and was made up of revenue basic access, local calls, PSTN value
added services, national long distance calls, fixed-to-mobile calls,
international telephone services, mobile services & terminals, data and internet
services, internet and IP solutions, ISDN access and calls, solutions
management, inbound calling products, and customer premises equipment (CPE).
Earnings before interest and tax for Telstra Business and Government for fiscal
2003 was A$3,440 million (subject to footnote 3 of table 31 above). As this is a
new segment we are unable to compare revenue and earnings before interest and
tax to prior years.

Telstra Retail

In fiscal 2001 and 2002, Telstra Retail was responsible for our residential,
business and Government customers, other than wholesale services which were and
continue to be provided by Telstra Wholesale and mobile services which were
provided by Telstra Mobile. This segment no longer exists and has been divided
into the three new segments.

Telstra Retail sales revenue was made up of revenue from basic access, local
calls, national long distance calls, fixed-to-mobile calls, international
telephone services, data and internet services, solutions management, inbound
calling products, CPE and directory services. In fiscal 2001, we reduced Telstra
Retail sales revenue by A$745 million to reflect the adoption of SAB 101. In
addition to the impact of re-balancing initiatives and competition Telstra
Retail sales revenue in fiscal 2001 was also impacted by the absorption of the
impact of GST on some of our local call prices following its introduction in
July 2000.

Excluding these one-off items we achieved modest revenue growth in Telstra
Retail sales revenue in fiscal 2002, following a slight decrease in fiscal 2001,
in an environment of ongoing price re-balancing initiatives and competition. Our
basic access revenue has increased and our local call revenue, national long
distance call revenue and international telephone services revenue has
decreased.

108

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Over the fiscal 2001 and fiscal 2002 period we achieved solid growth in
fixed-to-mobile revenue, due to increased call volumes and growth in the number
of users of mobile phones and continued growth in Telstra BigPond(TM) internet
related revenue.

Telstra Retail earnings before interest and income tax expense increased in
fiscal 2002 and decreased in fiscal 2001. In fiscal 2001 earnings before
interest and tax in this segment was impacted by:

     .  the SAB 101 net cumulative adjustment of A$205 million recorded in
        fiscal 2001; and

     .  the profit on sale of our investment in Computershare Limited, of A$245
        million.

Telstra Mobile

In fiscal 2001 and 2002, Telstra Mobile was responsible for our mobile and
wireless networks and associated systems within Australia and all mobile retail
sales and after sales support, mobile customer service, mobile product
development and mobile pricing. This segment no longer exists and has been
divided into the three new segments.

Telstra Mobile sales revenue included revenue from mobile goods and services.
This segment is separately discussed in "Operating revenue - Mobile goods and
services".

In fiscal 2001, we reduced Telstra Mobile sales revenue by A$34 million to
reflect the adoption of SAB 101. Mobile services revenue has increased during
the three-year period, driven by:

     .  increases in the number of mobile SIOs;

     .  increased minutes of use; and

     .  solid growth in value-added services, such as international roaming and
        mobile data, such as our SMS.

We achieved strong sales revenue growth in this segment in fiscal 2002, despite
lower average airtime charges and a higher percentage of new customers
connecting to prepaid services. Generally prepaid customers have lower usage
patterns.

Telstra Mobile earnings before interest and income tax expense grew by 16% in
fiscal 2002, with solid growth in sales revenue, yet lower expense growth. Our
expenses decreased with the reduction in handset subsidies, however this was
offset in part by increases in:

     .  charges associated with mobile calls terminating on other carriers'
        networks, due to increased traffic; and

     .  higher labour costs driven by increased staff numbers, in response to
        increasing SIOs and wage increases.

Fiscal 2001 earnings before interest and income tax expense grew by 9.9% after
revenue growth was partly offset by increased costs, including:

     .  directly variable costs associated with service contracts;

     .  labour costs driven by increased staff in response to growth in SIO and
        increasing specialised product development needs; and

     .  payments to other carriers associated with increased international
        roaming activity.

                                                                             109

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Telstra International

Telstra International is responsible for evaluating offshore business
opportunities to enhance Telstra's long term growth as well as managing our
existing investments overseas.

Telstra International sales revenue declined 1.7% for fiscal 2003 due mainly to
adverse currency movements as well as our exit from a number of offshore
controlled entities and operations including Mobitel, East Timor and the
Business Co-operation Contract in Vietnam. This was partly offset by the effect
of consolidating TelstraClear's operating result for the first full fiscal year.
In fiscal year 2002, Telstra's reported results in respect of TelstraClear
comprised the equity accounted result of TelstraSaturn for the 5 months to
November 2001 and the consolidated result of TelstraClear for the remaining 7
months. This was one of the major reasons for the 23.9% increase in sales
revenue from fiscal 2001 to 2002, along with inclusion of a full year of
consolidated revenue from CSL, compared with only 5 months in fiscal 2001.

Telstra International earnings before interest and income tax expense declined
in fiscal 2003 due mainly to the decision to write down the carrying value of
our investment in REACH to zero effective 31 December 2002. As a consequence, we
have suspended equity accounting of REACH's operating result in Telstra's
accounts. The net loss of A$946 million reflects our share of REACH's equity
accounted result for the 6 months to December 2002 and the net accounting effect
of the write down in the investment.

Excluding REACH, fiscal 2003 earnings before interest and taxes improved by A$47
million largely due to a solid result from CSL as well as a strong performance
from TelstraClear which was consolidated for the full fiscal 2003 year. Despite
the adversity of the Hong Kong mobile price war and the outbreak of SARS, CSL
reported a favourable increase in fiscal 2003 earnings before interest and taxes
through taking prompt actions to reduce variable and discretionary costs to
address the revenue shortfall. Its result also included a favourable currency
gain. Strong financial discipline around cost and capital expenditure has
facilitated the improvement in TelstraClear's overall performance.

In fiscal 2002, earnings before interest and taxes benefited from improved
performance from CSL and other international entities, however this was offset
by restructuring costs incurred in the merger of our New Zealand joint venture
TelstraSaturn with CLEAR Communications in December 2001.

Earnings before interest and taxes in fiscal 2001 were impacted by the sale of
our global wholesale business to REACH in February 2001. Fiscal 2001 earnings
before interest and tax included 5 months of profits from our global wholesale
business, compared with a full year in fiscal 2000. In fiscal 2002 we have
recorded our share of the equity accounted profits of REACH, which now owns this
business.

In fiscal 2001, this segment was also impacted by the profit on sale of our
global wholesale business of A$852 million and the write-down of our investment
in CSL by A$999 million.

Infrastructure Services

Infrastructure Services is responsible for planning, design, construction and
operation of our domestic fixed communication networks and associated systems to
deliver technology solutions, our products, services and customer support,
including customer service installation and repairs.

During fiscal 2002, NDC was added to this segment. NDC competes for some of our
annual network expenditure against other suppliers and also performs
construction activities for others, including other telecommunications
companies.

110

<PAGE>

                             Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Infrastructure Services sales revenue increased marginally in 2003 after it fell
by 10.3% in fiscal 2002. Sales revenue principally includes consolidated
revenues from NDC that have been affected by a generally weaker market for
construction activity. In fiscal 2003, the effects of the weak market were
offset by an improvement in cable recovery and maintenance related to non-NDC
activity. Sales revenue was heavily impacted by the weak market in 2002 without
much effect of such mitigating improvements in other areas of the business.

Infrastructure Services earnings before interest and income tax expense is
negative as this segment does not recover all costs it incurs on behalf of other
segments. In fiscal 2002 NDC restructuring costs and lower revenues, offset in
part by cost containment efforts, impacted earnings before interest and tax.
Labour expense excluding restructuring costs have been reduced, commercial
contract costs have fallen with the weaker market for construction activity and
discretionary spending is lower due to improved cost management. In fiscal 2003,
there were further decreases in labour costs, and operating expenses due to
reduced activity. There was also a decrease in charges from other parts of the
business due to a change in the way costs are recovered.

Telstra Wholesale

During fiscal 2002, Telstra Wholesale was separated from the fiscal 2001 segment
Infrastructure Services and Wholesale. Telstra Wholesale provides wholesale
products and services to the Australian domestic market. It provides a wide
range of products and services including fixed, wireless, data and internet,
transmission and IP, interconnection, access to our network facilities and
retail/rebill products.

Telstra Wholesale sales revenue is made up of revenue from our intercarrier
services, wholesale broadband, data and internet services, basic local services,
national long distance call revenue and mobile services revenue. Wholesale
revenue increased by 1% in fiscal 2003. It should be noted that this increase is
attributed to the migration of approximately 550 ISPs from Telstra Retail to the
wholesale channel during the year. Excluding the impact of this transfer,
external revenue was flat year on year which is generally indicative of the
current telecommunication industry and the wholesale market in particular.

Fiscal 2003 saw a continuation of re-balancing initiatives and commercial
negotiations which reduced prices across all wholesale revenue categories,
whilst increasing basic access revenues.

Wholesale intercarrier services revenue grew by 4% in fiscal 2003. Continued SMS
interconnect revenue growth and mobile interconnection volumes, driven by mobile
substitution and growth in the overall mobile market, was partially offset by
reduced yields for these products. Revenue streams from a number of other
transmission products were significantly impacted by aggressive price
competition as we now face a period of excess capacity resulting from the
infrastructure over-build that occurred in prior years.

Broadband, data and internet services revenue showed quite explosive growth
driven by wholesale DSL offerings. The number of wholesale services in operation
grew from 25,000 at the start of fiscal 2003 to in excess of 120,000 by
year-end.

In fiscal 2002, continued implementation of re-balancing initiatives and
commercial negotiations reduced prices across all wholesale revenue categories,
whilst increasing basic access revenues. Combined with re-balancing initiatives,
the collapse of One.Tel contributed to lower local call resale, national long
distance, international and inbound calling revenues in this segment in fiscal
2002.

Wholesale intercarrier services revenue remained relatively flat in fiscal 2002.
Continued mobile and SMS interconnect revenue growth, driven by mobile
substitution and growth in the overall mobile market, was offset by lower
revenues from other products. Wholesale data and internet services revenue also
remained relatively flat in fiscal 2002 as a result of the introduction of more
market driven pricing and offerings.

                                                                             111

<PAGE>

Telstra Corporation Limited and controlled entities


Operating and Financial Review and Prospects
--------------------------------------------------------------------------------

Telstra Wholesale earnings before interest and income tax expense fell by 21.6%
in fiscal 2003. This reduction was attributable to a change in relation to inter
business unit transfer pricing. Until fiscal 2003 Telstra Wholesale transferred
Intercarrier termination payments to the retail business units to match to their
customer revenue streams. This practice was discontinued in fiscal 2003 with the
expense remaining in Telstra Wholesale accounts.

Excluding the impact of this treatment, Telstra Wholesale earnings before
interest and taxes actually improved by 4%. With revenue flat year on year, this
improvement was predominantly due to the reduction in carrier outpayments in
fiscal 2003. These price reductions were commercially negotiated and in line
with the regulators pricing principles and undertakings.

Earnings before interest and taxes fell by 2% in fiscal 2002, largely due to the
reduction in sales revenue in this segment.

In fiscal 2001, earnings before interest and taxes was impacted by increased
network payments to other carriers, as a result of higher volumes of outgoing
calls terminating on other carriers' networks and increased interconnect rates.
These increased payments were somewhat reversed in fiscal 2002 by decreasing
interconnect rates, with network payments decreasing in fiscal 2002 compared to
fiscal 2001.

112

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Directors

As at 10 December 2003, our directors were as follows:

--------------------------------------------------------------------------------
                                                      Year of
                                                      initial       Year last
Name                        Age      Position       appointment  re-elected/(1)/
--------------------------------------------------------------------------------
Robert C Mansfield           52  Chairman              1999           2002
John T Ralph                 71  Deputy Chairman       1996           2003
Zygmunt E Switkowski/(2)/    55  Chief Executive
                                 Officer and
                                 Managing Director     1999             --
Samuel H Chisholm            64  Director              2000           2002
Anthony J Clark              64  Director              1996           2002
John E Fletcher              52  Director              2000           2003
Belinda J Hutchinson         50  Director              2001             --
Catherine B Livingstone      48  Director              2000           2002
Charles Macek                56  Director              2001             --
Donald G McGauchie           53  Director              1998           2003
William A Owens              63  Director              2001             --
John W Stocker               58  Director              1996           2003

----------
/(1)/  Other than the Chief Executive Officer, one third of directors are
       subject to re-election by rotation each year.
/(2)/  On 27 August 2003, the Telstra board of directors re-appointed the Chief
       Executive Officer, Zygmunt E Switkowski, for a further term until 31
       December 2007.

A brief biography for each of the directors as at 10 December 2003 is presented
below.

Robert C Mansfield - AO, BCom, FCPA
Age 52
Chairman
Director since November 1999 and Chairman since January 2000

Chairman, CDS Technologies Pty Ltd and AAV Limited; Director, Dimension Data
Holdings plc, Westfield Management Limited and Westfield America Management
Limited; formerly Chief Executive Officer of McDonald's Australia Ltd, Wormald
International Limited, Optus Communications Limited and John Fairfax Holdings
Limited.

John T Ralph - AC, FCPA, FTSE, FAICD, FAIM, FAusIMM, Hon LLD (Melbourne &
Queensland), DUniv (ACU)
Age 71
Deputy Chairman
Director and Deputy Chairman since October 1996

Chairman, Commonwealth Bank of Australia and Australian Foundation for Science;
Member, Board of Melbourne Business School. Mr Ralph was formerly Chief
Executive and Managing Director of CRA Limited and Director of BHP Billiton Ltd
and BHP Billiton plc.

Zygmunt E Switkowski - BSc (Hons), PhD, FAICD
Age 55
Chief Executive Officer and Managing Director
Chief Executive Officer and Managing Director since March 1999

Director of FOXTEL, Reach Ltd and the Businesss Council of Australia. Formerly
Chief Executive Officer of Optus Communications Ltd and Chairman and Managing
Director of Kodak (Australasia) Pty Ltd.

                                                                             113

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Samuel H Chisholm
Age 64
Director since November 2000

Chairman, FOXTEL (FOXTEL Management Pty Ltd, FOXTEL Cable Television Pty Ltd,
Customer Services Pty Ltd) and Chairman of the Macquarie Radio Network.
Director, Australian Wool Services Ltd and Victor Chang Cardiac Research
Institute. Mr Chisholm was the Chief Executive and Managing Director of British
Sky Broadcasting and Executive Director of The News Corporation (1990-1997). For
17 years previously he was Chief Executive and Managing Director of the Nine
Network Australia Limited.

Anthony J Clark - AM, FCA, FAICD
Age 64
Director since October 1996

Chartered Accountant; formerly Managing Partner KPMG NSW (1992-1998); Chairman,
Maritime Industry Finance Company Ltd and Cumnock Coal Limited; Deputy Chairman,
Australian Tourist Commission; Director, Amalgamated Holdings Ltd Group, Ramsay
Health Care Ltd and Carlton Investments Ltd.

John E Fletcher - FCPA
Age 52
Director since November 2000

Managing Director and Chief Executive Officer of Coles Myer Ltd from 10
September 2001. Formerly Chief Executive and Managing Director of Brambles
Industries Ltd (retired 1 August 2001). Mr Fletcher was employed by Brambles in
various management positions for 27 years including an assignment in Europe.

Belinda J Hutchinson - BEc, FCA
Age 50
Director since November 2001

Director, Energy Australia Limited, TAB Ltd, QBE Insurance Group Limited, Crane
Group Ltd, St Vincent's and Mater Health Sydney Ltd and State Library of NSW.
Consultant, Macquarie Bank Limited. Ms Hutchinson has a long association with
the banking industry and has been associated with the Macquarie Bank since 1993.
Ms Hutchinson was an Executive Director of Macquarie Bank and was previously a
Vice President of Citibank Ltd.

Catherine B Livingstone - BA (Hons), FCA, FTSE
Age 48
Director since November 2000

Chairman, CSIRO and the Australian Business Foundation; Director, Rural Press
Ltd and the Sydney Institute; Member, Department of Accounting, Finance Advisory
Board Macquarie University and Business Council of Australia's Chairmen's Panel
and Xavier College School Council. Formerly Managing Director of Cochlear Ltd
and Director of Goodman Fielder Ltd until 19 March 2003.

114

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Charles Macek - BEc, MAdmin, FSIA, FAICD, FCPA, FAIM
Age 56
Director since November 2001

Chairman, Sustainable Investment Research Institute Pty Ltd, Financial Reporting
Council (FRC) and Centre for Eye Research Australia Ltd; Director, Famoice
Technology Pty Ltd and Wesfarmers Ltd; Victorian Councillor, Australian
Institute of Company Directors. Former roles include 16 years as Founding
Managing Director and Chief Investment Officer and subsequently Chairman of
County Investment Management Ltd. He was also Chairman and Director of IOOF
Holdings Ltd. Mr Macek has had a long association with the finance and
investment industry.

Donald G McGauchie
Age 53
Director since September 1998

Chairman, Rural Finance Corporation of Victoria and Telstra Country Wide
Advisory Board; Deputy Chairman, Ridley Corporation Ltd; Director, Reserve Bank
of Australia, National Foods Limited and James Hardie Industries NV. Mr
McGauchie has had extensive commercial and public policy experience, having
previously held several high level advisory positions to Government including
the Prime Minister's Supermarket to Asia Council, the Foreign Affairs Council
and the Trade Policy Advisory Council. Mr McGauchie was Chairman of Woolstock
Australia Limited from 1999-2002 and President of the National Farmers
Federation from 1994-1998. He is a partner in C&E McGauchie - Terrick West
Estate.

William A Owens - BS Maths, BA, MA, MBA (Hons)
Age 63
Director since November 2001

Chairman and Chief Executive Officer, Teledesic LLC; Vice-Chairman, ICO Global
Communications (Holdings) Ltd; Director, Polycom Inc, Viasat Inc, Daimler
Chrysler AG, Symantec Inc, Metal Storm Ltd, BAT Ltd, Biolase Inc, Cray Inc,
Nortel Networks, IDT Inc, WFI Networks Inc and TIBCO Inc. Former roles include
President and Chief Operating Officer, Science Applications International
Corporation (SAIC); Vice Chairman, US Joint Chiefs of Staff; Deputy Chief, US
Naval Operations; Commander, US Sixth Fleet. Mr Owens has had a strong history
in corporate management of broadband telecommunications, information technology
and internet applications.

John W Stocker - AO, MB, BS, BMedSc, PhD, FRACP, FTSE
Age 58
Director since October 1996

Chairman, Grape and Wine Research and Development Corporation and Sigma Company
Ltd; Director, Cambridge Antibody Technology Group plc, Circadian Technologies
Ltd and Nufarm Ltd; Principal, Foursight Associates Pty Ltd. Formerly Chief
Scientist, Commonwealth of Australia.

                                                                             115

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Senior management

As at 10 December 2003, the executive officers who are not directors are:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                 Year appointed to   Year appointed to
Name               Position                                                       a GMD position          Telstra
----------------------------------------------------------------------------------------------------------------------
<S>                <C>                                                           <C>                 <C>
Bruce Akhurst      Group Managing Director, Telstra Wholesale and Telstra
                   Broadband & Media and Group General Counsel                         1999                1996
Douglas Campbell   Group Managing Director, Telstra Country Wide                       1992                1989
David Moffatt      Group Managing Director, Telstra Consumer and Marketing and
                   President, International                                            2001                2001
Ted Pretty         Group Managing Director, Telstra Technology Innovation and
                   Products                                                            2000                1997
Michael Rocca      Group Managing Director, Infrastructure Services                    2002                1968
Bill Scales        Group Managing Director, Regulatory, Corporate and Human
                   Relations and Chief of Staff                                        2002                2000
John Stanhope      Group Managing Director, Finance & Administration and Chief
                   Financial Officer                                                   2003                1967
David Thodey       Group Managing Director, Telstra Business and Government            2001                2001
</TABLE>

A brief biography of each of the executive officers who are not directors as at
10 December 2003 is as follows:

Bruce J Akhurst - BEc (Hons), LLB

Mr Akhurst joined Telstra as General Counsel in 1996 and became Group Managing
Director, Legal & Regulatory in 1999. He assumed responsibility for Telstra
Wholesale in 2001. In January 2003, Mr Akhurst became Group Managing Director,
Telstra Wholesale and Telstra Broadband & Media. Mr Akhurst's portfolio includes
the nationwide wholesale network of Telstra Wholesale; Australia's biggest
internet service provider, BigPond(TM); the company's interest in subscription
television provider FOXTEL; and the wholly-owned advertising and directory
business, Sensis. Mr Akhurst is also Group General Counsel and a member of the
boards of Hong Kong mobile carrier CSL and FOXTEL. Prior to his role at Telstra,
Mr Akhurst was managing partner of a national law firm.

Douglas C Campbell - BEng, FAICD

Mr Campbell has 30 years experience in the telecommunications industry. He has
previously served in a number of Group Managing Director positions including
Wholesale & International and Network and Technology. He was appointed Group
Managing Director, Telstra Country Wide in June 2000 and added the position of
Group Managing Director, Telstra Technology to his portfolio in August 2002 to
October 2003. He has also been the Deputy Managing Director of Telecom and
President of Canadian National Communications. He is a Fellow of the Australian
Institute of Company Directors.

David Moffatt - BBus (Mgt), FCPA

Mr Moffatt joined Telstra in February 2001 as Group Managing Director, Finance &
Administration and Chief Financial Officer. In September 2003 Mr Moffatt was
appointed Group Managing Director, Telstra Consumer and Marketing and President,
International. Prior to joining Telstra, Mr Moffatt was Chief Executive Officer,
General Electric - Australia and New Zealand. Prior to that, he was CEO, GE
Capital - Australia and New Zealand where he planned and managed GE Capital's
entry into Australia and New Zealand.

116

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Ted N Pretty - BA, LLB (Hons)

Prior to joining Telstra, Mr Pretty was a director of Optus Communications and
an adviser to BellSouth Corporation. Mr Pretty was previously a partner in one
of Australia's leading telecommunications, regulatory and media law firms. Mr
Pretty was initially appointed to the position of Managing Director of the
International Division of Telstra, responsible for Telstra's investments and
operations worldwide, then appointed Group Managing Director, Convergent
Business and later Group Managing Director, Telstra Retail and Group Managing
Director, Telstra Consumer and Marketing prior to his current appointment in
September 2003.

Michael Rocca - DipEng, MBA, AICD

Mr Rocca was appointed to the position of Group Managing Director,
Infrastructure Services in 2002, responsible for the strategic management of
Telstra's service delivery to more than 10 million customers nationwide. Prior
to his current assignment Mr Rocca held a range of posts during his 34 year
career with Telstra including being managing director of a number of engineering
and service organisations within the Company.

Bill Scales - AO, BEc, FIPAA

Mr Scales joined Telstra in November 2000 as Managing Director, Human Resources
and Chief of Staff. He was appointed Group Managing Director, Corporate and
Human Relations on 1 August 2002 responsible for the management of human
resources, corporate and political relations, employee communications and Chief
of Staff to the CEO. In December 2002, Mr Scales took on additional
responsibilities for regulatory affairs and was appointed Group Managing
Director, Regulatory, Corporate and Human Relations and Chief of Staff.

Prior to joining Telstra, Mr Scales was Secretary of the Victoria Department of
Premier and Cabinet. He was for 6 years Chairman and CEO of the Industry
Commission and prior to that Chairman and CEO of the Automotive Industry
Authority. Prior to his involvement with Governments, Mr Scales held general
management positions in the manufacturing sector.

John Stanhope

In September 2003, Mr Stanhope was appointed to the role of Chief Financial
Officer and Group Managing Director, Finance and Administration. He is
responsible for finance, treasury, risk management and assurance, productivity
and corporate services, credit management and business planning. Mr Stanhope
previously served as Director, Finance. In this role, which he assumed in 1995,
he contributed to T1 and T2, cost reduction programs, growth strategies, debt
raising, capital management and organisational restructures. Since joining
Telstra in 1967, Mr Stanhope has held a range of senior financial management
positions in Telstra.

In 2003, Mr Stanhope was elected as National President to the Group of 100 for a
two year period. He was also appointed as a member of the CPA Australia's
Professional Education Board for a three year term and is the newly appointed
Chairman of the Business Coalition for Tax Reform. Mr Stanhope is a Director of
TelstraClear Limited, Sensis Pty Limited and Telstra Super.

David Thodey - BA

Mr Thodey joined Telstra in April 2001 as Group Managing Director, Telstra
Mobile. He was appointed to the position of Group Managing Director, Telstra
Business and Government in January 2003 and is now responsible for the company's
corporate, Government, large and small business customers. Before joining

                                                                             117

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Telstra, Mr Thodey was Chief Executive Officer of IBM Australia/New Zealand and
previously held several senior executive marketing and sales positions within
IBM.

Mr Thodey is the Chairman of TelstraClear in New Zealand and is also the
Chairman of the IT Skills Hub (incorporating the IT & Titab). He holds a
Bachelor of Arts in Anthropology and English from Victoria University in New
Zealand. Mr Thodey attended the Kellogg Post-Graduate School General Management
Program at Northwestern University in Chicago.

In July 2002 Gerry Moriarty, former Group Managing Director, Infrastructure
Services completed service with us and in February 2003 Dick Simpson, former
President, International completed service with us.

Business address

The business address for the Company and each of the above directors and
officers is:

c/- the Company Secretary
Telstra Corporation Limited
Level  41,  242 Exhibition Street
Melbourne Vic 3000
Australia
Ph: +61(3) 9634 6400 or +61(8) 8308 1721 (Telstra Switch Board)

Compensation of directors and officers

For fiscal 2003, the aggregate amount of remuneration earned by the directors
and executive officers as a group was A$13.12 million. Executive officers refers
to not only those who hold these positions as at 28 August 2003, but also those
who completed their service with us during the year, as described under
"Directors" and "Senior management".

This amount consists of:

     .  A$0.79 million that has been set aside or accrued during fiscal 2003 to
        provide pension and retirement benefits; and

     .  A$12.33 million representing remuneration, other than amounts for
        pension and retirement benefits.

Our senior managers, as shown under "Directors, Management and Employees -
Senior management", participate in the Manager Incentive Plan (MIP) and any
amounts paid and accrued under this plan for fiscal 2003 are included in the
abovementioned figures.

Emoluments for board members and senior executives

Non-executive directors' remuneration

Telstra directors are remunerated in accordance with the Company's constitution
which provides for the aggregate limit for directors' fees to be set and varied
by approval of a resolution at the annual general meeting of shareholders. The
constitution of the Company provides that the allocation of fees among the
directors within the pool limit shall be determined by the board. The actual
fees paid are disclosed below. The current pool approved by shareholders is
A$1,150,000. Directors are required to take at least 20% of their fees in shares
which are purchased on market.

Directors receive reimbursement for reasonable travelling, accommodation and
other expenses incurred in travelling to or from meetings of the board or
committees or when otherwise engaged on the business of the Company in
accordance with board policy. We also provide directors with telecommunications
and other services and equipment to assist directors in performing their duties.
From time to time we also make

118

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

products and services available to directors without charge to allow directors
to familiarise themselves with the Company's products and services and recent
technological developments. To the extent the Company considers that this
provides a personal benefit to a director, this is included in the "other
benefits" column in the table below.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                            Other
                                                Base fee   DirectShare   benefits/(1)/     Total
Name                           Position            A$           A$            A$             A$
--------------------------------------------------------------------------------------------------
<S>                            <C>              <C>        <C>           <C>               <C>
Robert C Mansfield...........  Chairman          197,374        53,333          24,000     274,707
John T Ralph.................  Deputy Chairman   106,667        26,667           6,340     139,674
Samuel H Chisholm/(2)/.......  Director               --            --              --          --
Anthony J Clark..............  Director           65,252        17,667          11,481      94,400
John E Fletcher..............  Director           55,440        10,600          11,150      77,190
Belinda J Hutchinson.........  Director           60,905        15,949          11,582      88,436
Catherine B Livingstone......  Director           56,221        15,000          11,133      82,354
Charles Macek................  Director           65,252        17,667          10,696      93,615
Donald G McGauchie/(3)/......  Director           49,976        22,000          63,518     135,494
William A Owens/(4)/.........  Director           66,000        24,000          50,691     140,691
John W Stocker...............  Director           55,203        48,531           8,540     112,274

----------
<FN>
<F1>
/(1)/  Other benefits include superannuation, the value of the personal use of
       products and services and fees for services other than as a director.
<F2>
/(2)/  Fee declined by director.
<F3>
/(3)/  Other benefits include $50,000 for chairing of the Telstra Country Wide
       Advisory Board. This fee is for services other than as a director.
<F4>
/(4)/  Mr Owens, a US based director, received management consultancy fees (paid
       in US dollars). This fee is for services other than as a director.
</FN>
</TABLE>

DirectShare

As part of the overall remuneration strategy and to encourage a longer term
perspective, directors are required to receive a minimum of 20% of their
remuneration by way of restricted Telstra shares through the DirectShare Plan.
The shares are purchased on market and allocated to the participating director
at market price. The shares are held in trust for a period of 5 years unless the
participating director ceases earlier with the Telstra Group.

In accordance with the ASX Principles of Good Corporate Governance, directors
are restricted from entering into arrangements which effectively operate to
limit the economic risk of their security holdings in those shares allocated
under the DirectShare Plan during the period the shares are held in trust.

As from 1 January 2003, directors may state a preference to increase their
participation in the DirectShare Plan. Where this occurs, Telstra may provide a
greater percentage of directors' fees in Telstra shares.

Superannuation

The directors may state a preference to increase the proportion of their fees
taken as superannuation. Where this occurs, Telstra may provide a greater
percentage of the director's fees as superannuation contributions subject to
normal legislative requirements in order to meet superannuation guarantee and
other statutory obligations.

Retirement benefits

In addition to their annual fees, directors also become eligible for retirement
benefits on ceasing with the Company. Directors who have served 9 years or more
are entitled to receive a maximum amount equal to their total emoluments in the
preceding 3 years. Directors who have served less than 9 years but more than 2
years are entitled to receive a pro-rated amount based on the number of months
served as a director.

                                                                             119

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

During fiscal 2003, Telstra discontinued this practice for new appointments to
the Telstra board. In order to fully represent the current remuneration
liabilities to Telstra, the following table displays the estimated retirement
benefit each eligible director would receive had they retired as a director of
Telstra as at 30 June 2003.

--------------------------------------------------------------------------------
                                                                     Estimated
                                                                     Retirement
                                                                     Benefit as
                                                      Increase in    at 30 June
                                                         year           2003
Name                               Position               A$             A$
--------------------------------------------------------------------------------
Robert C Mansfield...............  Chairman                99,101        314,484
John T Ralph.....................  Deputy Chairman         69,066        292,839
Samuel H Chisholm/(1)/...........  Director                    --             --
Anthony J Clark..................  Director                44,279        175,950
John E Fletcher..................  Director                66,437         66,437
Belinda J Hutchinson.............  Director                    --             --
Catherine B Livingstone..........  Director                66,854         66,854
Charles Macek....................  Director                    --             --
Donald G McGauchie...............  Director                46,209        114,369
William A Owens..................  Director                    --             --
John W Stocker...................  Director                81,963        208,456

----------
/(1)/  No estimated retirement benefits as an annual fee has been declined by
       the director.

Chief Executive Officer and senior executive remuneration

Our Chief Executive Officer (CEO) and senior executives remuneration strategy
provides competitive remuneration aimed at:

     .  aligning managers' rewards with generation of shareholder value;

     .  supporting business plans and corporate strategies; and

     .  rewarding superior performance.

The CEO and senior executives who report to the CEO participate in a semi-annual
performance review process that assesses the individual's performance against
set key business accountabilities. Performance against these accountabilities
impacts directly on their annual incentive payments and salary movements.

CEO and senior executive remuneration components

Telstra's senior executive remuneration strategy adopts a total remuneration
approach which includes the senior executives' fixed remuneration and their "at
target" short term incentive. Additionally, there are medium and long term
remuneration elements to ensure ongoing individual performance is aligned to
performance metrics that drive shareholder value.

Total Cash Remuneration for the senior executive team consists of fixed cash
remuneration and short term variable cash components as follows:

     .  Fixed cash remuneration

        Fixed cash remuneration is made up of salary, company superannuation
        contributions and benefits, including fringe benefits tax.

     .  Short-term cash incentive

        The MIP rewards the senior executive team for meeting or exceeding
        specific key annual business objectives linked to the annual business
        plan at the corporate, business unit and individual level.

120

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

        The actual incentive for fiscal 2003 for members of this team range
        between 18.5% and 32.6% of their total cash remuneration depending on
        the senior executives performance and accountabilities. These incentive
        payments represent a range of 52.7% to 93.4% of the targeted incentive
        payment. Measures and targeted achievement levels are reviewed each year
        to reflect changes in the business. For fiscal 2003, the target
        achievement of the Company performance measures were designed to
        contribute 50% of the incentive payment, target achievement of the
        business unit performance measures were designed to contribute 20% of
        the incentive and fully satisfactory performance of individual
        performance results would contribute 30% of the plan. The measures
        include financial, customer service, employee opinion and individual
        measures that support our key business objectives.

        The Company and business unit measures for the fiscal 2003 MIP contain
        minimum threshold targets for each individual measure which must be
        achieved before any payment is made. Similarly, significant stretch
        targets for each measure are included which, if achieved, return
        increased outcomes for senior executives. Each measure is capped which
        limits the payment to double the target incentive payment.

        The CEO's short term incentive payment is approved by the Telstra board
        based on total Company performance metrics and the achievement of
        individual performance objectives. The actual MIP payment for the CEO
        for fiscal 2003 was 35.6% of his total cash remuneration (the
        calculation of the MIP payment does not include the values of deferred
        remuneration and long tem incentives).

Deferred Remuneration

During fiscal 2003, Telstra introduced a deferred remuneration plan where the
CEO and senior executives are provided part of their annual fixed remuneration
in the form of rights to Telstra shares through the Telstra Growthshare Trust.
The deferred remuneration plan supports Telstra's operational and strategic
plans through linking an element of CEO's and senior executive remuneration with
sustained improvements in shareholder value.

A deferred share is a right to acquire a share in Telstra subject to satisfying
certain employment requirements. As deferred shares are allocated as annual
fixed remuneration they have no performance hurdle. In broad terms, if the CEO
or senior executive continues to be employed on the 3rd anniversary of the
effective allocation date, the deferred shares will vest. The CEO and senior
executives may exercise their vested deferred shares at the nominal exercise
price of A$1.00 for all the deferred shares exercised on a particular day,
irrespective of the number of deferred shares exercised.

Upon resignation by the CEO or a senior executive, all deferred shares which
have not vested to them will lapse. If the CEO or a senior executive retires,
the deferred shares may be vested. Where the CEO or a senior executive ceases
employment for any other reason, the number of the deferred shares that may vest
may be adjusted taking into account the reduced period of service.

Long-term incentive

The CEO and senior executives participate in the long-term incentive plan based
on equity administered through the Telstra Growthshare Trust. The allocation for
the September 2002 and March 2003 was in the form of performance rights
(allocation of options under the equity plan have been suspended with the last
allocation in fiscal 2002), the right to exercise performance rights vests when
a specified performance hurdle is achieved.

For fiscal 2003, the performance hurdle to achieve 50% of vesting entitlement of
performance rights is that the Telstra 30 day average total shareholder return
(TSR) must exceed the 50th percentile of the 30 day

                                                                             121

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

average TSR performance of the companies comprising the ASX 200 industrials
("Peer Group") at allocation date between the third and fifth anniversary of
allocation.

Performance rights vest on a performance scale. In order to achieve 100% of
vesting entitlement of the performance rights, the TSR must exceed the 75th
percentile of the Peer Group in Quarter 1 of the performance period or at least
the 50th percentile in Quarter 1 and obtaining the 75th percentile in any of the
remaining seven quarters. If the 50th percentile is not achieved in Quarter 1,
no vesting above the 50% allocation is available.

Offers to participate in the deferred remuneration plan and the long term
incentive plan are made to senior executives at the discretion of the board. For
fiscal 2003, 43% of the CEO's total reward and 34% of the senior manager's
potential total reward were delivered through these plans.

As Telstra is not able to issue new equity, Telstra Growthshare purchases shares
on market in accordance with the allocation of performance rights and deferred
shares and forward liabilities for all allocations, past and present. Telstra
funds the proportion of shares that are purchased to underpin the allocation of
performance rights and deferred shares and treats these funds as an expense by
the Company. Cumulatively, over a five year period the total number of shares
and options over shares delivered through Telstra Growthshare is not expected to
exceed 1% of shares on issue.

In previous equity plans, where options have been issued, Telstra provides a
loan to Telstra Growthshare to fund the purchase of shares to underpin the
options which are allocated. This loan is treated as a receivable on the
statement of financial position. The Telstra Growthshare trustee pays interest
to Telstra on the loan balance and may repay capital from time to time. If
options are exercised the senior executive pays the original exercise price to
the Telstra Growthshare trustee and the loan is repaid. As a result, there is no
direct cash expense incurred by Telstra.

Telstra employee share ownership plans

All employees, including our senior managers, who were classed as "eligible
employees" at 20 September 1997 and again on 27 August 1999, were eligible to
participate in the Telstra employee share ownership plans, TESOP97 and TESOP99.
The terms and conditions of participation in these plans for senior managers
were the same as for all other employees.

Telstra OwnShare

To facilitate increasing employee shareholding in Telstra, Telstra operates a
restricted share plan (Telstra OwnShare) through which employees may state a
preference to take part of their remuneration as Telstra shares. The shares are
purchased on market and allocated at market value and held in trust for either a
three or five year period (unless the employee leaves the Telstra Group
earlier).

Senior executive emoluments

The Australian Corporations Act 2001 requires disclosure of the details of the
nature and amount of each element of the emolument of each director and each of
the five executives of the Company receiving the highest emoluments. The
information for the CEO, who is also a director, and the five other officers
currently employed who received the highest emoluments during fiscal 2003 is
provided in the following table:

122

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                   Remuneration of Chief Executive Officer and the five highest paid Executives
                                                               Cash Value
                                       Fixed      Short Term    of Other                 Deferred    Total Cash &
                                    Remuneration  Incentive     benefits   Total Cash  Remuneration    Deferred
                                      (1)&(5)        (2)          (3)       Payment        (4)       Remuneration
Name & Position                         A$            A$           A$          A$           A$            A$
-----------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>          <C>         <C>         <C>           <C>
Zygmunt Switkowski
Director and
Chief Executive Officer                1,354,500     750,000        8,551   2,113,051       299,920     2,412,971
David Moffatt
Group Managing Director, Finance &
Administration and Chief Financial
Officer                                  948,750     371,000      400,000   1,719,750        91,866     1,811,616
Ted Pretty
Group Managing Director, Telstra
Consumer and Marketing                 1,000,000     291,000      221,583   1,512,583        95,117     1,607,700
Douglas Campbell
Group Managing
Director, Telstra Country Wide and
Telstra Technology                       823,500     426,000        2,123   1,251,623        80,549     1,332,172
Bruce Akhurst
Group Managing Director, Telstra
Wholesale and Telstra Broadband &
Media and Group General Counsel          823,500     356,000          835   1,180,335        80,549     1,260,884
David Thodey
Group Managing Director, Telstra
Business and Government                  723,500     212,000        1,806     937,306        71,037     1,008,343

----------
<FN>
<F1>
/(1)/  Fixed Remuneration is the sum of salary, benefits and all superannuation
       contributions and fringe benefits tax.
<F2>
/(2)/  Short Term Incentive relates to performance for the year ended 30 June
       2003 and is based on actual performance for Telstra and the individual.
<F3>
/(3)/  Includes the benefit of interest free loans under TESOP97 and TESOP99,
       the value of the personal use of products and services related to Telstra
       employment as well as special contractual payments.
<F4>
/(4)/  The value of deferred remuneration relates to the number of Telstra
       shares issued under the Deferred Remuneration Plan through Telstra
       Growthshare. The remuneration value is calculated by applying valuation
       simulation methodologies consistent with assumptions that apply under the
       binomial and modified Black-Scholes methods. The value of the instruments
       is then amortised over the relevant vesting period. The value included in
       remuneration relates to the current year amortised value of the
       instruments that are yet to vest. For further detail on the assumptions
       used in our valuation methodologies, refer to note 19 to our financial
       statements.
<F5>
/(5)/  Where Telstra terminates the CEO's or a senior executive's employment
       prior to the expiration of their employment contract for reasons other
       than misconduct, they are entitled to 6 months notice or payment in lieu
       and an amount equal to 12 months pay. Both elements are calculated on
       fixed remuneration at time of termination.
</FN>
</TABLE>

                                                                             123

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Senior executives - remuneration values of all equity based instruments
outstanding as at 30 June 2003

--------------------------------------------------------------------------------
  Chief Executive Officer and the five highest paid executives - remuneration
             values of Long Term Incentive equity based instruments
--------------------------------------------------------------------------------
                                   Number of Long Term       Amortisation of
                                  Incentive Performance         Long Term
                                    Rights allocated      Incentive equity based
Name                             during fiscal 2003/(1)/     instruments/(2)/
--------------------------------------------------------------------------------
                                           2003                2003       2002
                                            A$                  A$         A$
--------------------------------------------------------------------------------
Z. Switkowski..................                  498,200    1,356,276    973,457
T. Pretty......................                  158,000      599,396    194,412
D. Moffatt.....................                  152,600      672,918    577,032
D. Campbell....................                  133,800      580,374    451,248
B. Akhurst.....................                  133,800      556,752    427,626
D. Thodey......................                  118,000      357,516    119,053

----------
/(1)/  September 2002 Growthshare allocations of performance rights. The number
       of performance rights allocated has been determined based on the market
       price of a Telstra share at the date of allocation. The price at this
       date was A$4.87. In determining the fair value of each performance right
       to be included in remuneration, a simulation methodology consistent with
       assumptions that apply under the binomial and modified Black-Scholes
       methods was used. This returned a fair value of A$2.99 per performance
       right. The number of performance rights disclosed represent the number of
       instruments that have been allocated and may potentially vest if the
       relevant performance hurdle is achieved.
/(2)/  The value of equity based instruments relate to options, restricted
       shares, performance rights issued since the commencement of the long-term
       incentive plan. The value of each instrument is determined by applying
       option valuation simulation methodologies consistent with assumptions
       that apply under the binomial and modified Black-Scholes methods. The
       value of the instruments is then amortised over the relevant vesting
       period. The value included in remuneration relates to the current year
       amortised value of the instruments that are yet to vest. The valuations
       used in detemining the component of remuneration derived from the issue
       of equity based instruments has differed from the values disclosed in
       prior fiscal periods. The valuations used in the current year disclosures
       are based on the same underlying assumptions as the prior year apart from
       the exclusion of adjustments for the possible non-retention of staff and
       the effect of non-transferability of the instruments. For further detail
       on the assumptions used in our valuation methodologies, refer to note 19
       to our financial statements.

124

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
   Chief Executive Officer and the five highest paid executives - all equity based instruments
                               outstanding as at 30 June 2003
------------------------------------------------------------------------------------------------
                                                         Telstra Growthshare/(1) & (5)/
                                                ------------------------------------------------
                                                                                      Deferred
                                                         Long Term                  Remuneration
                                                      Incentive Plans                   Plans
                                                ------------------------------------------------
                                                Performance
                                                  Rights/
                                                 Restricted                           Deferred
Name and Position                                 Shares            Options            Shares
------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>              <C>
Zygmunt Switkowski                                   50,000 /(2)/    300,000 /(2)/       249,100 /(8)/
Director and                                         96,000 /(3)/    464,000 /(3)/
Chief Executive Officer                             258,000 /(6)/  2,692,000 /(6)/
                                                    498,200 /(8)/
Ted Pretty                                           21,000 /(2)/    120,000 /(2)/        79,000 /(8)/
Group Managing Director, Telstra Consumer           136,000 /(7)/  1,602,000 /(7)/
and Marketing                                       158,000 /(8)/
David Moffatt                                        40,000 /(7)/    150,000 /(7)/        76,300 /(8)/
Group Managing Director, Finance &                  142,000 /(4)/  1,480,000 /(4)/
Administration and Chief Financial Officer          152,600 /(8)/
David Thodey                                        102,000 /(6)/  1,068,000 /(6)/        59,000 /(8)/
Group Managing Director                             118,000 /(8)/
Telstra Business and Government
Douglas Campbell                                     26,000 /(2)/    160,000 /(2)/        66,900 /(8)/
Group Managing Director, Telstra Country Wide        42,000 /(3)/    203,000 /(3)/
and Telstra Technology                              118,000 /(6)/  1,234,000 /(6)/
                                                    133,800 /(8)/
Bruce Akhurst                                        21,000 /(2)/    120,000 /(2)/        66,900 /(8)/
Group Managing Director, Telstra Wholesale           39,000 /(3)/    188,000 /(3)/
and Telstra Broadband & Media and Group             118,000 /(6)/  1,234,000 /(6)/
General Counsel                                     133,800 /(8)/
</TABLE>

<TABLE>
<CAPTION>
Details of equity holdings of all managers under Telstra Growthshare as at 30 June 2003
-------------------------------------------------------------------------------------------------------------------
                         Total Options/
                          Performance                                                                 Market price
                        Rights/Deferred        Eligible      Exercise                                 at allocation
                            Shares             managers        price       Expiry       Allocation        date
Instrument           allocated/(1) & (5)/    participating      A$          date           date            A$
-------------------------------------------------------------------------------------------------------------------
<S>                  <C>                     <C>             <C>        <C>            <C>            <C>
Options                          1,533,722        21             8.02   13 Sept 2009   13 Sept 1999            8.02
                                 3,370,660        96             6.28    8 Sept 2010    8 Sept 2000            6.28
                                   150,000         1             6.55    16 Mar 2011    16 Mar 2001            6.55
                                32,416,945        147            4.90    6 Sept 2011    6 Sept 2001            4.90
                                 1,854,000         3             5.63    14 Mar 2012    14 Mar 2002            5.63
Restricted shares                  260,278        21              n/a   13 Sept 2004   13 Sept 1999            8.02
                                   697,960        96              n/a    8 Sept 2005    8 Sept 2000            6.28
                                    40,000         1              n/a    16 Mar 2006    16 Mar 2001            6.55
Performance Rights               3,098,155        147             n/a     6 Dec 2006    6 Sept 2001            4.90
                                   149,000         3              n/a    14 Jun 2007    14 Mar 2002            5.63
                                 4,034,226        166             n/a     5 Dec 2007    5 Sept 2002            4.87
                                    44,200         4              n/a     7 Jun 2008     7 Mar 2003            4.11
Deferred shares                  2,022,498        166             n/a    5 Sept 2007    5 Sept 2002            4.87
                                    22,100         4              n/a     7 Mar 2008     7 Mar 2003            4.11

</TABLE>
----------
/(1)/ For allocations prior to September 2001, an option or restricted share
      represents a right to own a share in Telstra. Generally, options or
      restricted shares may only be converted to Telstra shares if a performance
      hurdle is satisfied in the performance period and in the case of options,
      a payment of the exercise price is made. The performance hurdle for
      options and restricted shares allocated prior to September 2001 is that
      the 30 day average

                                                                             125

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

      Telstra Accumulation Index must exceed the 30 day average S&P/ASX 200
      Industrials Accumulation Index (replacing the superseded All Industrials
      Accumulation Index) any time during the stated performance period - that
      is, between the third and fifth anniversary of allocation. If the
      performance hurdle is satisfied in the performance period, options may be
      exercised at any time before the tenth anniversary of allocation,
      otherwise they will lapse. If the performance hurdle is satisfied in the
      performance period, restricted shares may be exercised at any time before
      the fifth anniversary of allocation, otherwise they will lapse. The market
      value was calculated as the weighted average price at which Telstra's
      ordinary shares were traded on the ASX during the 5 days prior to and
      including the allocation date.
/(2)/ September 1999 Growthshare allocations of options and restricted shares.
      The number of restricted shares allocated has been determined based on the
      market price of a Telstra share at the date of allocation. The price at
      this date was A$8.02 which is also the exercise price of an option
      applicable to this allocation. In determining the fair value of each
      option and restricted share to be included in remuneration, a simulation
      methodology consistent with assumptions that apply under the binomial and
      modified Black-Scholes methods was used. This returned a fair value of
      A$1.38 per option and A$5.64 per restricted share. The number of
      restricted shares and options disclosed represent the number of
      instruments that have been allocated and may potentially vest if the
      relevant performance hurdle is achieved.
/(3)/ September 2000 Growthshare allocations of options and restricted shares.
      The number of restricted shares allocated has been determined based on the
      market price of a Telstra share at the date of allocation. The price at
      this date was A$6.28 which is also the exercise price of an option
      applicable to this allocation. In determining the fair value of each
      option and restricted share to be included in remuneration, a simulation
      methodology consistent with assumptions that apply under the binomial and
      modified Black-Scholes methods was used. This returned a fair value of
      A$1.59 per option and A$3.62 per restricted share. The number of
      restricted shares and options disclosed represent the number of
      instruments that have been allocated and may potentially vest if the
      relevant performance hurdle is achieved.
/(4)/ March 2001 Growthshare allocations of options and restricted shares. The
      number of restricted shares allocated has been determined based on the
      market price of a Telstra share at the date of allocation. The price at
      this date was A$6.55 which is also the exercise price of an option
      applicable to this allocation. In determining the fair value of each
      option and restricted share to be included in remuneration, a simulation
      methodology consistent with assumptions that apply under the binomial and
      modified Black-Scholes methods was used. This returned a fair value of
      A$1.53 per option and A$3.77 per restricted share. The number of
      restricted shares and options disclosed represent the number of
      instruments that have been allocated and may potentially vest if the
      relevant performance hurdle is achieved.
/(5)/ For allocation after fiscal 2001, an option or perfromance right
      represents a right to own a share in Telstra. Generally, options or
      performance rights may only be converted to Telstra shares if a
      performance hurdle is satisfied in the performance period and, in the case
      of options, a payment of the exercise price is made. The performance
      hurdle for options and performance rights allocated in fiscal 2002 is that
      the Telstra 30 day average total shareholder return 'TSR' must exceed the
      50th percentile of the 30 day average TSR performance of the companies
      comprising the ASX 200 Industrials ("Peer Group") at allocation date
      between the third and fifth anniversary of allocation. Options and
      performance rights vest on a performance scale. If the 50th percentile
      ranking is achieved 50% of the allocation will vest. If at least the 50th
      percentile ranking is achieved in the first quarter of the performance
      window, additional options and performance rights may vest on a sliding
      scale where a higher ranking is achieved up to 75th percential ranking.
      The full allcoation (ie 100%) will vest if the 75th percentile ranking is
      achieved. If the 50th percential ranking is not achieved in the first
      quarter of the performance period, half of the maximum allocation will
      have a A$nil value and will lapse. If the performance hurdle is satisfied
      in the performance period, options may be exercised at any time before the
      tenth anniversary of allocation, otherwise they will lapse. If the
      performance hurdle is satisfied in the performance period, performance
      rights may be exercised at any time before the fifth anniversary plus 90
      days of allocation, otherwise they will lapse. The market value was
      calculated as the weighted average price at which Telstra's ordinary
      shares were traded on the ASX during the 5 days prior to and including the
      allocation date.
/(6)/ September 2001 Growthshare allocations of options and performance rights.
      The number of options and performance rights allocated has been determined
      based on the market price of a Telstra share at the date of the
      allocation. The price at this date was A$4.90 which is also the exercise
      price of an option applicable to this allocation. In determining the fair
      value of each option and performance right to be included in remuneration,
      a simulation methodology consistent with assumptions that apply under the
      binomial and modified Black-Scholes methods was used. This returned a fair
      value ofA$1.13 per option and A$2.86 per performance right. The number of
      performance rights and options disclosed represent the number of
      instruments that have been allocated and may potentially vest if the
      relevant performance hurdle is achieved.
/(7)/ March 2002 Growthshare allocations of options and performance rights. The
      number of options and performance rights allocated has been determined
      based on the market price of a Telstra share at the date of allocation.
      The price at this date was A$5.63 which is also the exercise price of an
      option applicable to this allocation. In determining the fair value of
      each option and performance right to be included in remuneration, a
      simulation methodology consistent with assumptions that apply under the
      binomial and modified Black-Scholes method was used. This returned a fair
      value of A$1.19 per option and A$3.08 per performance right. The number of
      performance rights and options disclosed represent the number of
      instruments that have been allocated and may potentially vest if the
      relevant performance hurdle is achieved.
/(8)/ September 2002 Growthshare allocations of performance rights and deferred
      remuneration. The number of performance rights and deferred shares
      allocated has been determined based on the market price of a Telstra share
      at the date of allocation. The price at this date was A$4.87. In
      determining the fair value of each performance right and deferred share to
      be included in remuneration, a simulation methodology consistent with
      assumptions that apply under the binomial and modified Black-Scholes
      methods was used. This returned a fair value of A$2.99 per performance
      right and A$4.41 per deferred share. The number of performance rights and
      deferred shares disclosed represent the number of instruments that have
      been allocated and for performance rights, the number of instruments which
      may potentially vest if the relevant performance hurdle is achieved.

126

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Directors' and senior management's shareholdings in Telstra

As at 12 December 2003:

Directors

--------------------------------------------------------------------------------
                                                    Number of shares held
                                               Direct       Indirect
                                              Interest   Interest/(1)/    Total
--------------------------------------------------------------------------------

R C Mansfield..............................     20,000          72,938    92,938
J T Ralph..................................      1,000          71,871    72,871
Z E Switkowski/(2)(3)/.....................     46,520          89,130   135,650
S H Chisholm...............................         --              --        --
A J Clark..................................     10,000          10,486    20,486
J E Fletcher...............................         --          43,814    43,814
B J Hutchinson.............................     37,111          26,138    63,249
C B Livingstone............................     10,400          14,024    24,424
C Macek....................................         --          37,445    37,445
D G McGauchie..............................         --          29,440    29,440
W A Owens..................................         --          10,459    10,459
J W Stocker................................        800          72,728    73,528

----------
/(1)/ Shares in which the director does not have a relevant interest, including
      shares held by director related entities, are excluded from indirect
      interests.
/(2)/ Includes :
      .    400 shares acquired with an interest free loan and 200 free shares
           under the terms of the Telstra Employee Share Ownership Plan 1999;
      .    2,000 shares acquired with an interest free loan plus 500 free shares
           under the terms of the Telstra Employee Share Ownership Plan 1997 and
           200 loyalty shares obtained under the "one for ten loyalty offer"
           available to all employees who participated in the 1997 public offer;
           and
      .    80 loyalty shares received under the "one for ten loyalty offer"
           available to all employees who participated in the 1999 public offer.
/(3)/ During fiscal 2003, Dr Switkowski was granted 498,200 performance rights
      (ie. 100% of allocation) and 249,100 deferred shares under the terms and
      conditions of the Telstra Growthshare Trust Deed. These shares are in
      addition to the above.

Senior management
--------------------------------------------------------------------------------
                                                        Number of shares held
                                                     Direct    Indirect
                                                    Interest   Interest   Total
--------------------------------------------------------------------------------
Bruce Akhurst....................................      7,780     22,220   30,000
Douglas Campbell.................................      9,700         --    9,700
David Moffatt....................................        600      3,100    3,700
Ted Pretty.......................................      2,000     50,000   52,000
Michael Rocca....................................      4,700      2,120    6,820
Bill Scales......................................         --         --       --
John Stanhope....................................      6,980         --    6,980
David Thodey.....................................        400     18,400   18,800

Employees

As a full service communications company, we continue to be one of Australia's
largest employers.

--------------------------------------------------------------------------------
                                                      As at 30 June
                                       2003     2002     2001     2000     1999
--------------------------------------------------------------------------------
Full-time employees                   37,169   40,427   44,874   50,761   52,840

                                                                             127

<PAGE>

Telstra Corporation Limited and controlled entities


Directors, Management and Employees
--------------------------------------------------------------------------------

Our full-time employees include full-time staff, fixed-term contracted staff and
expatriate staff in overseas controlled entities. The figures do not include a
full-time equivalent measure of part-time and casual staff, overtime worked,
full and part-time contracted staff or a measure of overseas local hires. If we
were to include these elements the number of full-time equivalent staff for the
Telstra Group would be 42,064 (2002 - 44,977). These figures do not include
persons involved in work undertaken through outsourcing arrangements for work
previously performed by employees. For these reasons, and due to the full
service nature of our business, we believe that these measures of full-time
employees may not be directly comparable with other telecommunications
companies.

As at 30 June 2003, the total number of full-time staff in the Telstra Group was
39,639 (2002 - 43,179) and includes full-time staff employed in our offshore
entities. This number does not include a full-time equivalent number for
part-time and casual staff, overtime worked or contractors. As at 30 June 2003,
Telstra Group staff were employed in the following geographical areas:

     .  Australia - 37,169;
     .  New Zealand - 1,250;
     .  Asia - 1,171; and
     .  Other - 49.

The Company continued to reduce full-time staff numbers during fiscal 2003 from
40,427 to 37,169. This was achieved through a range of significant company and
business unit initiatives such as:

     .  the formation of the Telstra Business and Government business unit to
        address the competition in the corporate and medium business customer
        segments and to re-focus our efforts in the Government areas;

     .  improvement initiatives using the Six Sigma methodology;

     .  the consolidation of NDC into our core business;

     .  the continuing rationalisation of our call centres and the integration
        of our fixed and mobile customer service and sales areas;

     .  the rationalisation of our warehouse and distribution centres;

     .  improvements in the effectiveness and the rationalisation of our IT
        resources; and

     .  field force productivity initiatives.

The majority of our Australian employees receive superannuation benefits mainly
through the Telstra Superannuation Scheme and, in the case of some employees who
were employed prior to 1990, the Commonwealth Superannuation Scheme.

Labour relations

Fiscal 2003 saw Telstra negotiate with its staff associations a new redundancy
agreement and six separate business unit enterprise agreements. The agreements
provide improved operating efficiencies for both management and staff and
provide a firm basis for future productivity improvements and an increased
ability to respond to our customers needs.

As provided for in the agreements, the staff covered by these agreements
received a 2% salary increase in January 2003. A further four 2% salary
increases will be paid every six months effective from July 2003.

These agreements are due to expire in June 2005 and implementation plans are
presently underway towards realising the benefits provided for by these
agreements.

128

<PAGE>

                             Telstra Corporation Limited and controlled entities


Major Shareholders and Related Parties
--------------------------------------------------------------------------------

Major shareholders

The following table shows the number of unlisted and listed shares on issue at
12 December 2003. The table also shows, as a group, the shareholdings of our
directors and officers:

--------------------------------------------------------------------------------
Title of
class      Identity of person or group          Amount owned          % of class
--------------------------------------------------------------------------------
Shares     The Commonwealth                     6,446,207,123 /(1)/         50.1
Shares     Listed shareholders                  6,182,162,497               49.9
                                               --------------         ----------
                                               12,628,369,620              100.0
                                               ==============         ==========
Shares     Directors and officers as a group          732,304 /(2)/

----------
/(1)/ All shares held by the Commonwealth are unlisted, except for 211,629
      listed shares.
/(2)/ Refers to direct and indirect holdings.

The shareholdings of each person known by us to be the owner of more than 5% of
our voting securities, as at 10 December 2003, is shown in the table titled
"Twenty largest shareholders as at 10 December 2003". As at 10 December 2003, we
are not aware of any individual shareholder, other than the Commonwealth, whose
shares represent more than 5% of the issued and outstanding shares. The
Commonwealth has equal voting rights with all other shareholders.

Distribution of shares

The following table summarises the distribution of our public listed shares as
at 12 December 2003:
--------------------------------------------------------------------------------
                                         Number of
                                     shareholders/(1)/          Shares/(2)/
Size of holding                        Number       %         Number         %
--------------------------------------------------------------------------------
1 - 1,000.........................   1,045,228    59.77     646,506,249    10.46
1,001 - 2,000.....................     335,134    19.16     522,195,305     8.45
2,001 - 5,000.....................     262,457    15.01     825,386,579    13.35
5,001 - 10,000....................      70,502     4.03     505,560,360     8.18
10,001 - 100,000..................      34,709     1.98     696,820,848    11.27
100,001 and over..................         841     0.05   2,985,904,785    48.30
                                     -------------------------------------------
Total.............................   1,748,871   100.00   6,182,374,126   100.00
                                     ===========================================
----------
/(1)/ Number of shareholders holding less than a marketable parcel of shares was
      7,393 shareholders who held 572,635 shares.
/(2)/ Not including those shares held by the Commonwealth, except for 211,629
      listed shares which are held by the Commonwealth.

As at 12 December 2003, we had 1,371 shareholders who were resident in the US.
This does not include ADS holders.

                                                                             129

<PAGE>

Telstra Corporation Limited and controlled entities


Major Shareholders and Related Parties
--------------------------------------------------------------------------------

Twenty largest shareholders as at 12 December 2003

The following table sets out the top 20 shareholders other than the Commonwealth
when multiple holdings are grouped together:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                                                 % of
                                                                 Number         issued
Shareholders                                                   of shares      shares/(1)/
------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>
1   JP Morgan Nominees Australia Limited                        561,583,082           9.08
2   Westpac Custodian Nominees Limited                          434,751,059           7.03
3   National Nominees Limited                                   432,202,595           6.99
4   RBC Global Services Australia Nominees Pty Ltd              231,436,843           3.74
5   CitiCorp Nominees Pty Ltd                                   203,731,169           3.30
6   Queensland Investment Corporation                           111,806,920           1.81
7   Cogent Nominees Pty Ltd                                      94,419,570           1.53
8   AMP Life Limited                                             88,270,749           1.43
9   ANZ Nominees Limited                                         71,110,239           1.15
10  Telstra ESOP Trustee Pty Ltd                                 65,303,325           1.06
11  NRMA Nominees Pty Ltd                                        28,107,393           0.45
12  Government Superannuation Office                             25,673,836           0.42
13  HSBC Custody Nominees                                        23,983,772           0.39
14  Australian Foundation Investment Company Limited             21,250,909           0.34
15  Westpac Financial Services Limited                           20,507,308           0.33
16  Victorian Workcover Authority                                18,664,134           0.30
17  Bond Street Custodians Limited                               17,903,113           0.29
18  Transport Accident Commision                                 14,943,261           0.24
19  Telstra Growthshare Pty Ltd                                  14,389,235           0.23
20  Suncorp Custodian Services Pty Ltd                           13,851,315           0.22
                                                              ----------------------------
                                                       Total  2,493,889,827          40.33
                                                              ============================
----------
<FN>
<F1>
/(1)/  Not including those shares held by the Commonwealth.
</FN>
</TABLE>

Substantial shareholders

As at 12 December 2003, other than the Commonwealth of Australia, we did not
have any substantial shareholders.

Relationship with the Commonwealth of Australia

We have a number of distinct relationships with the Commonwealth, including as
shareholder, regulator and customer. The Commonwealth is our controlling
shareholder and has special rights and privileges under the Telstra Act. Our
relationship with all of our shareholders (including the Commonwealth) is, in
general, regulated by the Australian Corporations Act, the ASX Listing Rules and
our constitution. Commonwealth departments and independent agencies are also
responsible for the regulation of the telecommunications industry generally and
Telstra in particular under the Telstra Act, the TPA, the Telecommunications Act
and the Telecommunications (Consumer Protection and Service Standards) Act.

130

<PAGE>

                             Telstra Corporation Limited and controlled entities


Major Shareholders and Related Parties
--------------------------------------------------------------------------------

The Commonwealth as shareholder

At the end of fiscal 2003, the Commonwealth owned approximately 50.1% of our
shares. The Telstra Act precludes any reduction in the Commonwealth's voting
rights, paid-up capital or rights to distributions of capital or profit, if any,
below a 50.1% interest without amending legislation. The effect of this is that
we cannot introduce a dividend reinvestment plan or raise new equity capital in
a way that would reduce the Commonwealth's ownership below this level. There can
be no assurance that the Commonwealth would be willing to subscribe for
additional shares in us and our ability to raise additional equity capital could
be constrained as a result.

In June 2003, the Commonwealth Government announced its intention to proceed
with the introduction of legislation to sell the Commonwealth's remaining 50.1
per cent interest in Telstra. Telstra's board and management have consistently
supported full privatisation of the Company and welcomed the announcement.

We are required under the Telstra Act to provide the Commonwealth with certain
information that we would not generally be required to disclose concurrently, if
at all, to other shareholders. This information includes:

     .  annual provision of our three-year corporate plan;

     .  interim financial statements, if requested by the Communications
        Minister; and

     .  reports regarding significant proposed events, including corporate
        restructurings, acquisitions and divestitures or joint venture and
        partnership activities.

We are also required to keep the Communications Minister and the Minister for
Finance and Administration generally informed about our operations and to give
them such information about our operations as they require. Our management is
required to appear before and, with limited exceptions, provide information to
Parliamentary committees.

The Communications Minister has the power under the Telstra Act to give us,
after consultation with our board of directors, such written directions as
appear to the Communications Minister to be necessary in the public interest. To
date, no directions have been issued under this power. Our board of directors
must ensure that we comply with any such direction. The Communications Minister
may not give such directions in relation to the amounts to be charged for work
done, or services, goods or information supplied by us. The Communications
Minister, however, has some discretionary powers in relation to charges. The
Communications Minister also has the power to direct us under the
Telecommunications (Consumer Protection and Service Standards) Act.The Telstra
Act deems the Commonwealth Auditor-General to have been appointed as our auditor
for the purposes of the Australian Corporations Act. The Auditor-General cannot
be removed without legislative amendment.

The Commonwealth has the ability to control us. This includes the power to pass
any resolution at a shareholders' meeting requiring a simple majority, which
includes the appointment and removal of directors, with the exception of matters
upon which the Commonwealth is not permitted to vote under the Australian
Corporations Act or applicable listing rules.

The Commonwealth has a set of general policies which apply to partially owned
Government business enterprises, which provide significant commercial freedoms
in the conduct of their business, subject to the oversight of appropriate
Ministers. These general policies are applied principally through the Telstra
Act, the Commonwealth Authorities and Companies Act 1997 (Cwth) and our
constitution.

                                                                             131

<PAGE>

Telstra Corporation Limited and controlled entities


Major Shareholders and Related Parties
--------------------------------------------------------------------------------

The Commonwealth as regulator

We are currently regulated by the Commonwealth and its departments and
independent agencies under a number of statutes including:

     .  the Telstra Act;

     .  the Telecommunications (Consumer Protection and Service Standards) Act
        1999;

     .  the TPA; and

     .  the Telecommunications Act.

The Commonwealth's role as regulator is independent and distinct from its role
as shareholder. Like other regulatory regimes, it is unlikely that the current
regime will remain static. It will change over time in light of experience and
new developments in the industry.

We are also subject to a range of other Commonwealth legislation, some of which
does not apply to our competitors. This legislation covers a wide range of areas
including administrative law, environmental law and employment related law.

The Commonwealth as customer

The Commonwealth is a major user of our services and we estimate its expenditure
on our services in fiscal 2003 was approximately A$400 million. The
Commonwealth, as a result of telecommunications liberalisation, is increasingly
seeking to take advantage of open competition when purchasing telecommunications
services. This has resulted, and may continue to result, in a reduction of
business being awarded to us.

Related party transactions

A discussion of our related party transactions is contained in "Operating and
Financial Review and Prospects - Related party transactions".

132

<PAGE>

                             Telstra Corporation Limited and controlled entities


Listing Information
--------------------------------------------------------------------------------

Markets in which our shares are traded

We are listed, and those of our shares that are not held by the Commonwealth are
quoted, on the ASX and on the New Zealand Stock Exchange (NZSE). ADSs, each
representing five shares, have been issued by the Depositary and are listed on
the New York Stock Exchange (NYSE).

The stock market operated by the ASX is the principal stock exchange in
Australia. The exchange operates by way of the Stock Exchange Automated Trading
System (SEATS) which is a fully computerised system.

Trading on SEATS takes place each business day between the hours of 10:00am and
4:05pm, Australian Eastern Standard Time or Australian Eastern Standard Summer
Time. At 4:05pm each day, the ASX subsequently matches any buy and sell orders
in the system that satisfy both buyers and sellers. The prices of all listed
shares are continuously quoted while the market is open and the system
prioritises orders first by price and second by time of placement in the system.
Exchange participants can cross stock between buying and selling orders, at the
buy or sell quote provided those quotes are no more than one marketable bid
apart and can cross outside this range in amounts of A$1 million or more.
Transactions on the ASX are settled on the third business day following the
trade date.

Our securities were initially listed on 17 November 1997. This followed the sale
by the Commonwealth of 33.3% of its shares in Telstra. Subsequently on 18
October 1999, the Commonwealth sold an additional 16.6% of its shares in
Telstra.

Price history of our securities

The following tables give the price history of our securities.

Table A shows the high and low closing prices for shares and ADSs:

     .  highest and lowest closing sale prices for shares as derived from the
        daily official list of the ASX; and
     .  highest and lowest closing sale prices of ADSs quoted on the NYSE.

Table A (1) - High and low closing price for shares and ADSs - on an annual
basis - for a period of five years or time of trading if less than five years
---------------------------------------------------------------------
                                      A$ per share   US$ per ADS/(1)/
Period                                High    Low     High      Low
---------------------------------------------------------------------
Fiscal 2000.......................    9.16    6.50    29.69     18.38
Fiscal 2001.......................    7.44    5.31    22.00     13.85
Fiscal 2002.......................    5.68    4.48    14.85     12.10
Fiscal 2003.......................    5.04    3.96    15.25     11.84
----------
/(1)/ Prior to 23 August 1999, each ADS represented 20 ordinary shares. Since
      then each ADS represents 5 ordinary shares.

                                                                             133

<PAGE>

Telstra Corporation Limited and controlled entities


Listing Information
--------------------------------------------------------------------------------

Table A (2) - High and low closing price for shares and ADSs - on a quarterly
basis for the two most recent full financial years
---------------------------------------------------------------------
                                      A$ per share   US$ per ADS/(1)/
Period                                High    Low     High      Low
---------------------------------------------------------------------
2001
1 January - 31 March..............    7.19    6.28    19.81     15.61
1 April - 30 June.................    6.92    5.31    17.55     13.85
1 July - 30 September.............    5.42    4.67    13.90     12.10
1 October - 31 December...........    5.54    4.83    14.20     12.25
2002
1 January - 31 March..............    5.68    5.16    14.85     13.47
1 April - 30 June.................    5.37    4.48    14.57     12.60
1 July - 30 September.............    5.04    4.65    13.88     12.51
1 October - 31 December...........    4.85    4.38    13.60     12.33
2003
1 January - 31 March..............    4.68    3.96    13.80     11.84
1 April - 30 June.................    4.53    4.09    15.25     12.30
----------
/(1)/ Prior to 23 August 1999, each ADS represented 20 ordinary shares. Since
      then each ADS represents 5 ordinary shares.

Table B shows for the most recent six months, the high and low market prices for
each month.

Table B - High and low market prices for the most recent six months
---------------------------------------------------------------------
                                      A$ per share   US$ per ADS/(1)/
Period                                High    Low     High     Low
---------------------------------------------------------------------
2003
June..............................    4.53    4.40    15.25     14.58
July..............................    4.83    4.45    16.16     14.87
August............................    5.02    4.66    16.45     15.20
September.........................    5.15    4.71    17.07     16.05
October...........................    4.99    4.71    17.20     16.40
November..........................    4.94    4.72    17.98     16.78
----------
/(1)/ Each ADS represents 5 ordinary shares

There were 6,420,604,706 shares issued and available for trading on the market
as at 30 June 2003. This includes 211,629 shares held by the Commonwealth and
listed for trading. At that date, 5,426,116 ADSs (equivalent to 27,130,580
shares) were held by 32 record holders and 2,545,810 ordinary shares were held
by 1,381 US record holders.

On 24 November 2003, we announced the successful completion of our A$1 billion
off-market share buy-back. A total of 238,230,580 shares were bought back at
A$4.20 per share, representing 3.71 per cent of the Company's non-Commonwealth
owned issued capital. The A$4.20 buy-back price comprised a fully franked
dividend of A$2.70 and a capital component of A$1.50 per share bought back.

134

<PAGE>

                             Telstra Corporation Limited and controlled entities


Listing Information
--------------------------------------------------------------------------------

Before the buy-back, the Company had 12,866,600,200 shares outstanding,
including those held by the Commonwealth. As a result of the buy-back, the
number of shares outstanding has reduced to 12,628,369,620 and the number of
shareholders has reduced from approximately 1.845 million to 1.815 million. The
Commonwealth did not participate in the buy-back.

The buy-back does not impact our ability to maintain foreseeable capital
investment, undertake appropriate acquisitions or fund other growth initiatives.

The closing price for our shares on the ASX on 10 December 2003 was A$4.83 and
the closing price for our ADSs on the New York stock exchange was US$17.90.

                                                                             135

<PAGE>

Telstra Corporation Limited and controlled entities


Legal Proceedings
--------------------------------------------------------------------------------

We are involved in routine litigation. Governmental authorities and other
parties frequently threaten us with legal proceedings.

In November 2002, Seven Network Limited and C7 Pty Limited ("Seven") commenced
litigation against us and various other parties in relation to the contracts and
arrangements between us and some of those other parties relating to the right to
broadcast Australian Football League and National Rugby League, the contract
between FOXTEL and us for the provision of broadband HFC cable services (the
Broadband Co-operation Agreement) and other matters. Seven seeks unspecified
damages and other relief, including that these contracts and arrangments are
void. Seven also seeks orders which would, in effect, require a significant
restructure of the subscription television/sports rights markets in Australia.
The matter is proceeding before the courts but is unlikely to have any material
effect on our overall business or financial position.

We do not consider that there are any other current proceedings which could
materially adversely affect our overall business or financial position.

136

<PAGE>

                             Telstra Corporation Limited and controlled entities


Constitution and Documents on Display
--------------------------------------------------------------------------------

Our constitution

The following provides information on the material provisions of our
constitution. Our constitution describes many of the rights of a shareholder.

We may issue further shares but the Commonwealth must hold at least 50.1% of our
shares

The directors may issue shares at their discretion. They must, however, act in
accordance with our constitution, the Corporations Act, the Telstra Act, ASX
Listing Rules, any special rights conferred on holders of any shares and any
direction from the Company in general meeting where shareholders have been
requested to authorise an issue of shares. However, under the Telstra Act, the
Commonwealth must hold at least 50.1% of our issued shares. The Commonwealth may
hold less than 50.1% of our issued shares only if legislation is passed
permitting it to do so.

Calls

Our directors may only make calls on shareholders in respect of money unpaid on
their shares. Our shareholders have no other liability to further capital calls.

Restrictions on foreign ownership

Our constitution contains provisions designed to enable us to monitor and
enforce the foreign ownership restrictions contained in the Telstra Act. We have
adopted rules to implement these provisions which bind all shareholders. These
are outlined in the "Exchange Controls and Foreign Ownership" section in this
annual report.

Alteration of rights

The rights attaching to our shares may only be varied or abrogated with the
written consent of the holders of three-quarters of the issued shares of that
class or with the approval of a special resolution passed at a separate meeting
of the holders of the issued shares of that class. Currently we have only one
class of ordinary shares.

Borrowing powers

Our directors may exercise all of our borrowing powers in their absolute
discretion. This power may only be varied by amending our constitution which
would require a special resolution to be passed by our shareholders at a general
meeting.

Shareholders' approval required

The management of the business and affairs of Telstra is vested in our
directors. However, the approval of shareholders is required for certain
important matters, such as the election of directors and the sale or disposal of
our main undertaking. As the Commonwealth holds at least 50.1% of our issued
shares, it has the power to control most decisions made by shareholders.

Directors and shareholders may call a meeting

The directors may call a general meeting at their discretion. The directors must
also call and arrange to hold a general meeting on the request of:

     .  shareholders who hold at least 5% of the votes that may be cast at the
        general meeting; or
     .  at least 100 shareholders who are entitled to vote at the general
        meeting.

                                                                             137

<PAGE>

Telstra Corporation Limited and controlled entities


Constitution and Documents on Display
--------------------------------------------------------------------------------

General meeting attendance and notice

All shareholders are notified of and may attend all general meetings. We send a
notice of the meeting to all shareholders at least 28 days before the meeting.

Voting rights

Shareholders (whether residents or non-residents of Australia) may vote at a
meeting of shareholders in person, by proxy, attorney, or representative,
depending on whether the shareholder is an individual or a company.

Three shareholders (one of whom must be the Commonwealth) must be present in
person or by proxy, attorney or representative to form a quorum. If there is no
quorum present at a meeting 15 minutes after the time set for the start of the
meeting, then:

     .  if the meeting was called by a shareholder or shareholders, the meeting
        is adjourned to the same day, time and place in the next week or to such
        other day, time and place as the shareholder or shareholders who called
        the meeting appoint by notice to shareholders and others entitled to
        notice of the meeting; or
     .  in any other case, the meeting is adjourned to the same day, time and
        place in the next week or to such other day, time and place as the
        directors appoint by notice to shareholders and others entitled to
        notice of the meeting.

At the adjourned meeting, the quorum is two shareholders present in person or by
proxy, attorney or representative. One shareholder must be the Commonwealth,
unless the Commonwealth received written notice of the original meeting and did
not attend that meeting. The adjourned meeting is dissolved if this quorum is
not present within 15 minutes after the time specified for the meeting.

Shareholders must vote on a show of hands unless a poll is called. A poll may be
called either before a vote is taken or before or immediately after the voting
results on a show of hands are declared. A poll may be called by:

     .  the chairman of the meeting;
     .  not less than five shareholders who may vote on the resolution; or
     .  a shareholder or shareholders who together hold at least 5% of the votes
        that may be cast on the resolution on a poll.

If the demand for a poll is withdrawn, the vote is decided on a show of hands.

Subject to any rights or restrictions attaching to our shares, on a show of
hands each shareholder present in person or by proxy, attorney or representative
has one vote and on a poll, has one vote for each fully paid share held.
Presently, we have only one class of fully paid ordinary shares and these do not
have any voting restrictions. If shares are not fully paid, the number of votes
attaching to the shares is pro-rated accordingly.

An ordinary resolution is passed:

     .  on a show of hands, by a majority of shareholders present in person or
        by proxy, attorney or representative voting in favour of the resolution;
        and
     .  on a poll, by shareholders present in person or by proxy, attorney or
        representative holding at least a majority of the votes cast in favour
        of the ordinary resolution.

138

<PAGE>

                             Telstra Corporation Limited and controlled entities


Constitution and Documents on Display
--------------------------------------------------------------------------------

A special resolution is passed:

     .  on a show of hands, by at least 75% of shareholders present in person or
        by proxy, attorney or representative voting in favour of the resolution;
        and
     .  on a poll, by shareholders present in person or by proxy, attorney or
        representative that represent at least 75% of the votes cast in favour
        of the special resolution.

Dividends

Subject to any special rights attaching to our shares and to the terms of any
issue of shares to the contrary, shareholders receive dividends according to the
number of shares held and the amount paid up on those shares. Currently, no
special rights attach to any of our shares.

Rights to profits

The power to declare dividends, pay dividends and fix the time for their payment
is vested in the board of directors. Our directors may, before declaring or
paying a dividend, set aside out of our profits any amount that they think
should be applied as a reserve. Our directors may also carry forward profits
which they consider should not be distributed as a dividend, without
transferring those profits to a reserve.

A declaration by our directors as to the amount of the profits available for
dividend is conclusive and binding on all shareholders.

Documents to be sent to shareholders

Shareholders will receive a copy of any financial statements or other documents
which we must send to shareholders under our constitution, the Corporations Act
and the ASX Listing Rules. We also offer shareholders the opportunity to receive
electronic copies of these documents via e-mail as an alternative to receiving
hard copies.

Winding-up

If Telstra is wound up, our surplus assets must be applied first in the
repayment of paid up capital (including credited as paid). Any remaining surplus
assets will then be distributed to shareholders in the following order:

     .  to any shareholders with special rights attaching to their shares
        (presently, there are none); and
     .  to other shareholders in proportion to the capital paid up (including
        credited as paid) or which ought to have been paid up (including
        credited as paid) at the commencement of the winding-up on their shares.

Number of directors

At all times, we must have between 3 and 13 directors on the board of directors.
Shareholders may vote to increase the maximum number of directors.

Directors' share qualification

Our directors do not require a share qualification.

Retirement of directors

Our directors (other than the CEO) may not retain office for more than three
years without offering themselves for re-election. At the annual general meeting
(AGM) in each year, at least one-third of our directors (other than the CEO)
must retire from office. The directors to retire by rotation at each AGM are
those who have been longest in office.

                                                                             139

<PAGE>

Telstra Corporation Limited and controlled entities


Constitution and Documents on Display
--------------------------------------------------------------------------------

In addition, our board has adopted a policy that requires our directors to:

     .  retire at the AGM following their 72nd birthday. Persons over the age of
        72 may be appointed or re-appointed as directors but only if approved by
        shareholders passing a special resolution at a general meeting; and
     .  ensure that the maximum tenure of non-executive directors is 12 years
        (usually four terms of three years).

Directors' interests

A director who has a material personal interest in a proposal, arrangement or
contract that is being considered at a meeting of our directors has a limited
right to be present at the relevant meeting and to vote on the matter.

The power to be present and vote only exists in certain circumstances prescribed
by the Corporations Act. These are:

     .  when the board has passed a resolution that identifies the director and
        his/her interest and states that the other directors are satisfied that
        the interest should not disqualify the director from voting or being
        present; or

     .  where the Australian Securities & Investments Commission (ASIC) makes a
        declaration or class order that the director may be present and vote
        notwithstanding his/her material personal interest.

The directors' power to vote compensation to themselves in the absence of an
independent quorum is limited. If there are not enough directors to form a
quorum because interested directors are disqualified, the directors must:

     .  call a general meeting to consider a resolution to deal with the matter;
        or

     .  seek a declaration from ASIC allowing the interested director to vote
        and be included in the quorum. Note, however, that ASIC will only
        exercise this power when the matter needs to be dealt with urgently and
        cannot be dealt with in a general meeting.

Officers' indemnity and insurance

Our constitution provides for us to indemnify each officer, to the maximum
extent permitted by law, against any liability incurred as an officer provided
that:

     .  the liability is not owed to us or a related body corporate;

     .  the liability is not for a pecuniary penalty or compensation order made
        by a court under the Corporations Act; and

     .  the liability does not arise out of conduct involving a lack of good
        faith.

Our constitution also provides for us to indemnify each officer, to the maximum
extent permitted by law, for legal costs and expenses incurred in successfully
defending civil or criminal proceedings.

If one of our officers or employees is asked by us to be a director or alternate
director of a company which is not related to us, our constitution provides for
us to indemnify the officer or employee out of our property for any liability he
or she incurs. This indemnity only applies if the liability was incurred in the
officer's or employee's capacity as a director of that other company. It is also
subject to any corporate policy made by our CEO. Our constitution also allows us
to indemnify employees and outside officers in some circumstances. The terms
"officer", "employee" and "outside officer" are defined in our constitution.

140

<PAGE>

                             Telstra Corporation Limited and controlled entities


Constitution and Documents on Display
--------------------------------------------------------------------------------

We may pay an insurance premium insuring a person who is or has been a director,
secretary or executive officer of Telstra or of one of our related bodies
corporate against certain liabilities incurred by that person in such a
capacity. The insurance will not cover liabilities which arise out of conduct
involving a wilful breach of that person's duty to us or a breach of their duty
not to improperly use their position or company information.

Dividend policy

It is our current policy to declare ordinary dividends of at least 60% of
operating profit attributable to shareholders, subject to taking into
consideration a number of commercial factors including the interests of
shareholders, cash requirements for future capital expenditure and investments
and relevant industry practice.

Documents on display

It is possible to read and copy documents referred to in this annual report that
have been filed with the SEC at the SEC's public reference room located at 450
Fifth Street, NW, Washington DC 20549. Please contact the SEC at 1-800-SEC- 0330
for further information.

                                                                             141

<PAGE>

Telstra Corporation Limited and controlled entities


Exchange Controls and Foreign Ownership
--------------------------------------------------------------------------------

Absence of exchange controls

We will remit dividends, interest or other payments to holders of our
securities, unless we are prohibited from doing so.

There are no general restrictions on moving money in or out of Australia.
However, Australian foreign exchange and other controls are implemented from
time to time against certain countries, entities and persons. Without prior
approval of the Reserve Bank of Australia, we are currently prohibited from
making payments to (or relating to) specified supporters of the former Milosevic
regime of the Federal Republic of Yugoslavia and specified ministers and senior
officials of the Government of Zimbabwe. Further, we are currently restricted
from giving assets to the Taliban, Usama bin Laden, the Al- Qaida organisation
and other persons and entities identified as terrorists or sponsors of terrorism
without the permission of the Australian Government. We are also currently
prohibited from transferring the assets of the previous Government of Iraq,
Saddam Hussein, other senior officials of his regime and their immediate
families other than to a development fund established to aid Iraq's
reconstruction and rehabilitation.

Restrictions on foreign ownership

Telstra Act

The Telstra Act provides that an "unacceptable foreign-ownership situation" will
exist in relation to Telstra if all "foreign persons" and their associates hold,
in total, a "particular type of stake" in us of more than 35% of shares held by
persons other than the Commonwealth (Aggregate Limit) or if any foreign person
and its associates hold a "particular type of stake" in Telstra of more than 5%
of shares held by persons other than the Commonwealth (Individual Limit).
"Foreign person", "associate", "group", "particular type of stake", "direct
control interest" and "interest" in a share are all defined in the Telstra Act
and are summarised below under "Definitions".

Where an acquisition of shares or interests in shares in any company results in:

     .  an "unacceptable foreign-ownership situation" in relation to Telstra;

     .  an increase in the total of any type of stake held by any group of
        foreign persons in Telstra where there exists a breach of the Aggregate
        Limit; or

     .  an increase in any type of stake in Telstra held by any foreign person
        who is already in breach of the Individual Limit,

and the person acquiring the shares knew or was reckless as to whether the
acquisition would have that result, that person is guilty of an offence
punishable on conviction by a fine not exceeding A$40,000.

The Communications Minister or Telstra may apply to the Federal Court for
remedial orders where an unacceptable foreign ownership situation exists,
including orders requiring the disposal of shares, restricting the exercise of
rights attaching to shares or prohibiting or deferring receipt of sums due on
shares. In addition, we are required under the Telstra Act to take all
reasonable steps to ensure that an unacceptable foreign ownership situation does
not exist in relation to us.

Our constitution contains provisions to enable us to monitor and enforce the
foreign ownership restrictions. We have adopted rules to implement these
provisions, which bind all shareholders. These are outlined below. They may be
amended at any time by resolution of our board of directors.

142

<PAGE>

                             Telstra Corporation Limited and controlled entities


Exchange Controls and Foreign Ownership
--------------------------------------------------------------------------------

On or after registration of a transfer or transmission application for a share,
when the acquirer first becomes a shareholder, the acquirer must generally
notify us whether it is either:

     .  a person with an interest in a share who is either a foreign person or
        an associate of a foreign person; or

     .  a person who holds a share in which a foreign person or an associate of
        a foreign person has an interest (foreign holder).

The information derived from these notifications will be reflected in a register
by means of a foreign coding.

Systems have been established for shares traded on the ASX so that notifications
are given by brokers as part of routine provision of ASX settlement information
(ASX systems). The ADR custodian under the ADR facilities is automatically
treated as a foreign holder for the purposes of the constitution, as are all
holders of shares on the New Zealand share register. In the case of other
transfers or transmission applications, the onus is on the acquirer to notify us
if it is a foreign holder.

All shares held by foreign holders will be treated as foreign unless the holder:

     .  notifies that some of its shares are ones in which a foreign person or
        associate of a foreign person has an interest (foreign shares) whereas
        others are not and either:

        .  divides its holding into separate Holder Identification Numbers or
           Security Holder Reference Numbers under the ASX's CHESS* system, one
           for foreign shares and one for shares which are not foreign; or

        .  agrees to provide bi-monthly notices indicating the breakdown of its
           holding into foreign and non-foreign shares.

The constitution and rules also contain provisions permitting us to send notices
to registered holders of shares with a view to determining whether they are
foreign holders or not and requesting details of any foreign persons or
associates of foreign persons having interests in the relevant shares and any
other information relating to foreign ownership which may be requested. Such
notices must be answered within 30 days.

If we determine, as a result of information obtained from the notifications and
responses to notices referred to above, that an unacceptable foreign ownership
situation exists in relation to us, there is power under our constitution to
require divestment of shares to remedy this situation. In exercising this
divestment power, we are entitled to rely on foreign codings in the relevant
register and upon the notifications and responses to notices referred to above.
We will notify the ASX, NZSE and NYSE if the level of foreign codings comes
within five percentage points of the Aggregate Limit and after that at one
percentage point intervals. The divestment powers are broadly framed and we and
our directors are not liable to shareholders for the manner of their exercise.

If we believe that the Individual Limit has been breached, we may require that
any shareholder whose shares are believed to form part of the contravening
"stake" be divested within 30 days of the date a notice requiring divestment
(disposal notice) is given.

If we believe the Aggregate Limit has been breached, the rules currently provide
that disposal notices will be given to all holders whose foreign shares became
registered in their names or which became coded as "foreign" on the day that the
aggregate number of foreign coded registrations on the relevant register
exceeded the limit and on each succeeding day whilst the limit is exceeded.

                                                                             143

<PAGE>

Telstra Corporation Limited and controlled entities


Exchange Controls and Foreign Ownership
--------------------------------------------------------------------------------

The recipient of a disposal notice is required to divest the shares that are the
subject of the notice before the divestment date specified in the notice. The
divestment date will be the fifth business day of the month next following the
month in which the disposal notice was issued, unless that would be less than 30
days after the date of issue of the notice, in which case the divestment date
will be the fifth business day of the next month.

No divestment will be required on a divestment date if foreign shares, as shown
on the relevant register on that date, do not exceed the Aggregate Limit. If a
disposal notice is not complied with, the constitution contains provisions
empowering us to sell the relevant shares on behalf of the holder on or after
the relevant divestment date. The holder will lose the ability to transfer the
shares itself after that date.

Transfers among foreign holders and ADR holders

Special arrangements apply to certain transfers from one foreign holder to
another.

Disposal notices will not be given in respect of:

     .  foreign shares acquired from the international underwriters on closing
        of the international offerings in 1997 and 1999;

     .  foreign shares acquired under a particular form of ASX "special
        crossing" for transfers among foreign holders. Shares can only be
        transferred under such a special crossing if they are not, and are not
        liable to become, the subject of a disposal notice; or

     .  shares registered on the New Zealand branch share register or
        represented by ADRs, though shares may only be transferred onto the New
        Zealand branch share register or ADR program if they are not, and are
        not liable to become, the subject of a disposal notice.

NZSE trading is only in shares registered on the New Zealand branch register.

All shares deposited in the ADR facility will be treated as foreign. Holders of
ADRs are subject to the Individual Limit and must notify the Depositary, as
applicable, if any of the ADRs they hold form part of a "stake" which breaches
the Individual Limit. Where the Individual Limit is breached, the Depositary may
be required to divest the relevant shares and the corresponding ADRs may be
cancelled. The deposit agreement contains provisions permitting the Depositary
to obtain and supply to us information relevant in monitoring and enforcing the
foreign ownership limits.

The above summary is not complete and is subject to, and qualified by, reference
to the constitution and current rules and procedures that have been adopted by
us for the administration of the foreign ownership provisions in the Telstra
Act. Copies of the constitution, the rules and the Telstra Act, are available
for inspection through the Company Secretary, Telstra Corporation Limited, 242
Exhibition Street, Melbourne, Victoria 3000, Australia during normal working
hours.

Definitions

"Foreign person" is defined in the Telstra Act as:

     .  a foreign citizen (defined in the Telstra Act as a non-Australian
        citizen) not ordinarily resident in Australia (a "foreign citizen");

     .  a company where a foreign citizen or a foreign company (defined in the
        Telstra Act as an overseas incorporated company) holds a particular type
        of stake in the company of more than 15%;

     .  a company where a group of two or more persons, each of whom is either a
        foreign citizen or a foreign company holds, in total, a particular type
        of stake in the company of more than 40%;

144

<PAGE>

                             Telstra Corporation Limited and controlled entities


Exchange Controls and Foreign Ownership
--------------------------------------------------------------------------------

     .  the trustee of a trust estate in which a foreign citizen or a foreign
        company holds a substantial interest (essentially a 15% beneficial
        interest, including such foreign citizen's or foreign company's
        associates' interests); or

     .  the trustee of a trust estate in which two or more persons, each of whom
        is either a foreign citizen or a foreign company, hold an aggregate
        substantial interest (essentially a 40% beneficial interest including
        each such foreign citizen's or foreign company's associates' interests).

A "particular type of stake" in any company held by any person is defined as the
aggregate of the "direct control interests" of that type in that company held by
that person and that person's associates.

An "associate" of a person is defined to include:

     .  a wide range of direct and indirect relationships such as relatives,
        partners, employees and employers of the person;

     .  if the person is an employee of an individual, other employees of the
        individual;

     .  if the person is a company, an officer of the company and, if the person
        is an officer of a company, the company and other officers of the
        company;

     .  the trustee of a discretionary trust where the person or an associate of
        the person is a beneficiary;

     .  a company whose directors are accustomed, or under an obligation, to act
        in accordance with the wishes, directions or instructions of the person;

     .  a company where the person is accustomed, or under an obligation, to act
        in accordance with the company's wishes, directions or instructions;

     .  a company in which the person has a particular type of stake of at least
        15% or, if the person is a company, a person who holds a particular type
        of stake of at least 15% in it; and

     .  an associate of an associate of the person.

For purposes of determining foreign ownership of any company, a person's
associates also include any other person with whom the person has an arrangement
enabling the person to jointly exercise voting power or certain types of power
over, or over the appointment of, the board of directors of such company.

"Group", in relation to the foreign ownership limits, includes one person alone
or a number of persons, even if they are not in any way associated with each
other or acting together.

A "direct control interest" of any person in any company is defined as the
equivalent percentage of:

     .  the total paid up share capital of the company in which the person holds
        an interest;

     .  the voting power in the company that the person is in a position to
        control;

     .  the total rights to distributions of capital or profits of the company
        to its shareholders on a winding up held by the person;

     .  the total rights to distributions of capital or profits of the company
        to its shareholders, other than on a winding up, held by the person; and

     .  traced interests held via interposed entities.

                                                                             145

<PAGE>

Telstra Corporation Limited and controlled entities


Exchange Controls and Foreign Ownership
--------------------------------------------------------------------------------

"Interest in a share" is defined to include:

     .  legal or equitable interests in a share;
     .  certain rights under a contract to purchase a share;
     .  options to acquire a share or an interest in a share;
     .  a right to have a share transferred to the person's order; and
     .  an entitlement to acquire a share or an interest in a share or to
        exercise or control the exercise of a right attached to the share.

However, certain interests in shares are disregarded, including:

     .  certain interests of lenders under or following enforcement of security
        arrangements;

     .  interests of a trustee or manager of, or a custodian for, a unit trust
        or certain Australian complying or exempt superannuation funds, if such
        trustee, manager or custodian reasonably believes that foreign persons
        hold beneficial interests in less than 40% of the capital and income in
        the trust or fund;

     .  interests held by an Australian registered life insurance company or a
        custodian for it, in respect of a statutory fund, if the company
        reasonably believes that less than 40% of policy holder liabilities of
        the fund are owed to foreign persons;

     .  interests held by nominees, custodians or depositaries, or brokers
        acting on clients' instructions in the ordinary course of business,
        provided in each case the holder has no beneficial interest or
        discretionary voting authority in respect of the underlying shares;

     .  certain interests held by the international underwriters and their
        related corporations;

     .  shareholder interests in companies other than us, which are not "foreign
        persons" under the Foreign Acquisitions and Takeovers Act 1975 (Cwth);

     .  interests held by persons who are not foreign persons and do not have
        any substantive foreign associates (that is, persons who directly or
        indirectly control them, with whom they act in concert or in accordance
        with whose wishes, instructions or directions they are obliged or
        accustomed to act);

     .  interests held by any person to the extent that, after such interests
        have been included in the "stake" of that person and any of its
        substantive foreign associates, such interests would also be included in
        the stake of a non-substantive associate of the person; and

     .  interests held by any person who is not a foreign person to the extent
        that, in determining the total of the stakes of a group of foreign
        persons, such interests would be counted more than once for that
        purpose.

References to "interests" in shares exclude disregarded interests.

146

<PAGE>

                             Telstra Corporation Limited and controlled entities


Exchange Controls and Foreign Ownership
--------------------------------------------------------------------------------

Foreign Acquisitions and Takeovers Act 1975 (Cwth)

The Foreign Acquisitions and Takeovers Act 1975 (Cwth) applies to any
acquisition of an interest in the shares of an Australian company with total
assets of A$50 million or more which results in the acquisition of or addition
to a substantial interest in the Australian company. A "substantial interest" is
defined to be any single foreign person and its associates controlling 15% or
more, or two or more foreign persons and their associates in aggregate
controlling 40% or more, of shares or voting power. Any proposed acquisition
which would result in these thresholds being exceeded should be notified to the
Federal Treasurer and a statement of no objection issued (with or without
conditions) in advance of completion of the acquisition. When assessing the
proposed acquisition, the Federal Treasurer will have regard to the limits
prescribed by the Telstra Act which are also reflected in Australia's Foreign
Investment Policy.

Foreign ownership status

At 12 December 2003, the number of Telstra shares recorded as foreign on the
Telstra register was 6.4717% of the total number of issued Telstra shares.

                                                                             147

<PAGE>

Telstra Corporation Limited and controlled entities


Taxation
--------------------------------------------------------------------------------

Australian taxation

The Australian Taxation Office has provided an indicative opinion confirming the
Australian income taxation implications of investment in shares and ADSs as
summarised in the following discussion.

The tax profile of each investor will determine the applicable Australian income
taxation implications for that investor. For example, some investors (such as
financial institutions) may hold their investments on income account rather than
on capital account, in which case the comments below concerning capital gains
implications will not be applicable. Certain tax non-residents may, irrespective
of whether the assets they dispose of are capital gains tax assets that have the
necessary connection with Australia (for the purpose of these discussions, these
assets are referred to as "taxable Australian assets"), be liable to tax in
respect of a profit on a dealing in the asset as ordinary income.

This discussion is based on the law in force at the date of this annual report.
In 1999, the Government conducted a review of business taxation in Australia and
received an independent report setting out recommendations for consideration.
Many of the recommendations have now been enacted. Other recommendations are
currently before Parliament where both the House of Representatives and the
Senate would need to pass appropriate legislation to give effect to the policy
adopted. Some of the recommendations have been agreed to "in principle" by the
Commonwealth Government, some have been rejected and some of the recommendations
are still being considered. The legislation finally passed may have an effect on
individual investors. There is a risk that changes to Australian business
taxation may adversely affect us.

One of the recommendations which has been enacted during fiscal 2003 is
legislation which enables the Telstra Entity and its Australian resident wholly
owned entities to be treated as a single entity for income tax purposes. The
Telstra Entity has elected to form a tax consolidated group from 1 July 2002.

Treatment of shares

Taxation of dividends

An imputation system operates in Australia in respect of company income tax. In
the absence of an exemption or concession, Australian resident companies are
liable for Australian income tax on their taxable income at the corporate rate
which is currently 30%. The payment of Australian income tax by Australian
companies generates a franking credit which, when the company pays a dividend to
shareholders, generally flows through to Australian resident shareholders.

At present, it is expected that we will be able to fully frank declared ordinary
dividends out of fiscal 2004 earnings. However, no assurance can be given as to
the level of franking of ordinary dividends in the future. This is because it
depends upon, amongst other factors, our earnings, Government legislation and
our taxation position.

A tax off set equivalent to the franking credit (known as a "franking rebate")
may be available to certain Australian resident shareholders.

Under certain rules, there are circumstances where an investor may not be
entitled to the benefit of franking credits. The application of these rules
depends on the investor's own circumstances including the period for which the
shares are held and the extent to which the investor, if a resident, is "at
risk" in relation to their investment.

Fully franked dividends paid to non-resident shareholders are not subject to
dividend withholding tax (DWHT). Dividends to the extent that they are not fully
franked are generally subject to DWHT at the rate of 30% (unless reduced by a
double tax treaty). In the case of US tax residents who hold less than 10% of
the

148

<PAGE>

                             Telstra Corporation Limited and controlled entities


Taxation
--------------------------------------------------------------------------------

voting power in Telstra, provided that the shares are not effectively connected
with a permanent establishment or a fixed base of a tax non-resident in
Australia through which the tax non-resident carries on business in Australia or
provides independent personal services, the rate is reduced under the double tax
treaty to 15%.

Accordingly, dividends paid by us to tax non-residents to the extent to which
they are franked will not be subject to DWHT. The unfranked part of any
dividends paid by us to tax non-residents will be subject to DWHT. We deduct
DWHT and the tax non-resident receives dividends on the shares net of DWHT.

Fully franked dividends paid to tax non-residents and dividends that have been
subject to DWHT are not subject to any further Australian income tax.

Taxation of capital gains

Tax non-residents will be liable for income tax under the capital gains
provisions on the gains (in certain circumstances after an allowance for
inflation in Australia or a capital gains tax discount) realised on the disposal
of certain assets which are "taxable Australian assets". Taxable Australian
assets include a share (or interest in a share) in a public company where at any
time in the preceding five years the non-resident's holding (together with the
holding of associates) in the public company is 10% or more.

Tax non-residents who, together with their associates, hold less than 10% of our
shares (or an interest in a share) will, on disposal of the shares, not be
subject to any Australian income tax on capital gains. Restrictions on the
extent of foreign ownership in Telstra should ensure that tax non-resident
investors qualify for this exemption.

Certain tax non-residents may, irrespective of whether the assets they dispose
of are taxable Australian assets, be liable to tax in respect of a profit on a
dealing in the assets, as ordinary income. A double tax treaty between Australia
and the country of residence of the investor may give relief from liability to
pay the Australian income tax on ordinary income.

Generally, the "business profits" articles of Australia's double tax treaties
provide that a resident of a treaty country is not subject to Australian income
tax on "business profits" derived in Australia, unless derived at or through a
permanent establishment in Australia. In the case of residents of the US,
Article 7 (1) of the Convention between Australia and the US for the Avoidance
of Double Taxation (the US Treaty) provides that the business profits of a US
enterprise are only taxable in the US unless the enterprise carries on business
in Australia through a permanent establishment situated in Australia. The term
"permanent establishment" is defined in Article 5 of the US Treaty. In the view
of the ATO, capital gains realised on the disposal of shares would not be
"business profits" and the domestic capital gains tax provisions would apply.
Investors should seek their own independent taxation advice should they wish to
rely on a double tax treaty for relief from liability to pay Australian income
tax upon the disposal of a share.

Investors who incur a liability for Australian income tax will be required to
file an income tax return in Australia.

Treatment of American depositary receipts (ADRs)

Non-resident holders of ADRs evidencing ADSs will be treated for Australian
income tax purposes as the owners of the shares represented by the ADSs.

Taxation of distributions

The Depositary will receive dividends on the shares represented by the ADSs net
of DWHT (where payable). Holders of ADRs will not be subject to any further
Australian income tax on distributions representing fully franked dividends or
dividends that have been subject to DWHT.

                                                                             149

<PAGE>

Telstra Corporation Limited and controlled entities


Taxation
--------------------------------------------------------------------------------

Taxation of capital gains

A disposal of an ADR by a tax non-resident investor will constitute a disposal
by the investor of the Telstra shares represented by the ADS evidenced by that
ADR. Tax non-residents who, together with their associates, hold less than 10%
of the shares or interests in our shares (including through ADSs) will, on
disposal of ADRs, not be subject to any Australian income tax on capital gains.
Restrictions on the extent of foreign ownership in Telstra should ensure that
tax non-resident investors qualify for this exemption.

Certain tax non-residents may, irrespective of whether the assets they dispose
of are taxable Australian assets, be liable to tax in respect of a profit on a
dealing in the assets as ordinary income. A double tax treaty between Australia
and the country of residence of the investor may give relief from liability to
pay the Australian income tax on ordinary income.

As discussed above under "Treatment of Shares - Taxation of capital gains",
generally, the "business profits" articles of Australia's double tax treaties
provide that a resident of a treaty party is not subject to Australian income
tax on "business profits" derived in Australia, unless derived at or through a
permanent establishment in Australia. In the view of the ATO, capital gains
realised on the disposal of ADRs would not be "business profits" and the
domestic capital gains tax provisions would apply. Investors should seek their
own independent taxation advice should they wish to rely on a double tax treaty
for relief from liability to pay Australian income tax upon the disposal of a
share or ADR.

Australian stamp duty

As Telstra is incorporated in the Australian Capital Territory (ACT) the stamp
duty treatment of the transfer of Telstra shares is determined by reference to
the ACT's stamp duty regime.

From 1 July 2001, stamp duty on the transfer of shares which are quoted on a
recognised stock exchange was abolished in the ACT. This covers both the
situation where the transfer of such shares is affected by way of an "on-market"
transfer (ie. through a broker) or by way of an "off-market" transfer.

This abolition also applies to the transfer of ADRs because ADRs are treated in
the same way as shares for stamp duty purposes. Accordingly, from 1 July 2001
the transfer of ADRs is also not subject to stamp duty in the ACT.

United States taxation

This section describes the material US federal income tax consequences to a US
holder (as defined below) of owning shares or ADSs. It applies to investors only
if they hold their shares or ADSs as capital assets for tax purposes. This
section does not apply to investors if they are a member of a special class of
holders subject to special rules, including:

     .  a dealer in securities;
     .  a trader in securities that elects to use a mark-to-market method of
        accounting for securities holdings;
     .  a tax-exempt organisation;
     .  a life insurance company;
     .  a person liable for alternative minimum tax;
     .  a person that actually or constructively owns 10% or more of Telstra's
        voting stock;
     .  a person that holds shares or ADSs as part of a straddle or a hedging or
        conversion transaction; or
     .  a US holder (as defined below) whose functional currency is not the US
        dollar.

150

<PAGE>

                             Telstra Corporation Limited and controlled entities


Taxation
--------------------------------------------------------------------------------

This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations, published rulings and
court decisions, as well as on the US Treaty. These laws are subject to change,
possibly on a retroactive basis. In addition, this section is based in part upon
the representations of the Depositary and the assumption that each obligation in
the deposit agreement and any related agreement will be performed in accordance
with its terms.

An investor is a US holder if it is a beneficial owner of shares or ADSs and it
is:

     .  a citizen or resident of the US;
     .  a domestic corporation;
     .  an estate whose income is subject to US federal income tax regardless of
        its source; or
     .  a trust if a United States court can exercise primary supervision over
        the trust's administration and one or more United States persons are
        authorized to control all substantial decisions of the trust.

Investors should consult their own tax advisors regarding the US federal, state
and local and the Australian and other tax consequences of owning and disposing
of shares and ADSs in their particular circumstances. In general, and taking
into account the earlier assumptions, for US federal income tax purposes, if
investors hold ADRs evidencing ADSs, they will be treated as the owner of the
shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for
shares, generally will not be subject to US federal income tax.

Taxation of distributions on shares or ADSs

Under the US federal income tax laws, if an investor is a US holder, the gross
amount of any dividend we pay out of our current or accumulated earnings and
profits (as determined for US federal income tax purposes) is subject to US
federal income taxation. If an investor is a non-corporate US holder, dividends
paid to them in taxable years beginning after December 31, 2002 and before
January 1, 2009 that constitute qualified dividend income will be taxable to
them at a maximum tax rate of 15% provided that they hold the shares or ADSs for
more than 60 days during the 120-day period beginning 60 days before the
ex-dividend date and meet other holding period requirements. Dividends Telstra
pays with respect to the shares or ADSs generally will be qualified dividend
income.

Investors must include any Australian tax withheld from the dividend payment in
this gross amount even though they do not in fact receive it. The dividend is
taxable to investors when they, in the case of shares, or the Depositary, in the
case of ADSs, receive the dividend, actually or constructively. The dividend
will not be eligible for the dividends-received deduction generally allowed to
US corporations in respect of dividends received from other US corporations. The
amount of the dividend distribution that investors must include in their income
as a US holder will be the US dollar value of the Australian dollar payments
made, determined at the spot A$/US$ rate on the date the dividend distribution
is includible in their income, regardless of whether the payment is in fact
converted into US$. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date they include the dividend payment
in income to the date they convert the payment into US$ will be treated as
ordinary income or loss and will not be eligible for the special tax rate
applicable to qualified dividend income. The gain or loss generally will be
income or loss from sources within the US for foreign tax credit limitation
purposes. Distributions in excess of current and accumulated earnings and
profits, as determined for US federal income tax purposes, will be treated as a
non-taxable return of capital to the extent of their basis in the shares or ADSs
and thereafter as capital gain.

Subject to certain limitations, the Australian tax withheld in accordance with
the US Treaty and paid over to Australia will be creditable against investors'
US federal income tax liability. Special rules apply in determining the foreign
tax credit limitation with respect to dividends that are subject to the maximum
15% tax rate.

                                                                             151

<PAGE>

Telstra Corporation Limited and controlled entities


Taxation
--------------------------------------------------------------------------------

Dividends will be income from sources outside the US, but generally will be
"passive income" or "financial services income" which is treated separately from
other types of income for purposes of computing the foreign tax credit allowable
to investors.

Taxation of capital gains

If an investor is a US holder and it sells or otherwise disposes of its shares
or ADSs, it will recognize capital gain or loss for US federal income tax
purposes equal to the difference between the US dollar value of the amount that
it realizes and its tax basis, determined in US$, in its shares or ADSs. Capital
gain of a non-corporate US holder that is recognized on or after 6 May 2003 and
before 1 January 2009 is generally taxed at a maximum rate of 15% where the
holder has a holding period greater than one year. The gain or loss will
generally be income or loss from sources within the US for foreign tax credit
limitation purposes.

152

<PAGE>

                             Telstra Corporation Limited and controlled entities


Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------------------

The potential for change in the market value of our financial assets and
liabilities is referred to as "market risk". We enter into financial instruments
to manage our exposure to interest rates and foreign currency rates that arise
as part of our normal business operations.

Derivatives are financial instruments such as futures, foreign exchange forwards
and swaps that derive their value from underlying assets, indices, reference
rates or a combination of these factors. We use derivative financial
instruments, in accordance with board approved policies, to hedge the market
risks and volatility of financial outcomes arising from the underlying physical
position.

We are exposed to interest rate risk due to our borrowings

Our borrowings are generally for maturities of up to ten years and we manage our
debt in accordance with targeted interest rate and debt portfolio maturity
profiles. Where the actual interest rate profile on the physical debt profile
differs from our desired target, we use interest rate swaps and futures
contracts to achieve the target profile. Our net debt portfolio therefore
includes both physical borrowings (such as bonds and commercial paper) and
associated derivative instruments (such as interest rate swaps).

Our interest rate risk is calculated as the net of the interest rate esposure on
our total debt portfolio, offset by any holdings of financial assets whose value
is sensitive to interest rates.

The interest rate on a number of our foreign currency and $A borrowings having
an approximate face value equivalent to $A 4.7 billion varies according to our
credit rating from Standard & Poor's or Moody's Investor Service. The interest
rates will increase by up to 0.25% to 0.50% pa if our minimum credit rating
falls to A- (S&P) / A3 (Moodys) or below depending on the particular trigger
points of each borrowing and the extent of the rating change. In some cases, the
interest rate will step-down again if the minimum credit rating was to
subsequently increase above the previously mentioned trigger points.

We have exposure to foreign currency risk due to our normal business operations
and borrowings

Our foreign currency exchange risk arises from:

     .  firm or anticipated transactions for receipts and payments for
        international telecommunications services settled in foreign currencies;

     .  investments denominated in foreign currencies;

     .  purchase commitments for material and supplies with prices dependent on
        foreign currencies; and

     .  borrowings that are denominated in foreign currencies.

We manage the foreign exchange risk on the major component of our borrowings by
effectively converting them to A$ borrowings at drawdown by applying cross
currency swaps. Where foreign currency borrowings are used to specifically hedge
an underlying exposure they are not swapped to A$ (eg. to hedge finanical
investments in foreign exchanges and offshore ventures). The remaining foreign
exchange rate risks are managed principally through the use of forward foreign
currency derivatives.

Our foreign exchange risk is assesed for each individual currency, calculated by
aggregrating the net exposure for that currency.

Our exposure to movements in market risks is assessed and measured on a fair
value basis

Two methods are used to assess our overall estimated market risk namely:

     .  sensitivity analysis; and
     .  value-at-risk or "VaR".

                                                                             153

<PAGE>

Telstra Corporation Limited and controlled entities


Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------------------

These show the potential impacts of adverse movements in the fair value of the
relevant portfolio at the reporting date as below. It should be recognised that
the market rates move in both directions and can be advantageous as well as
adverse. Hedging to protect against a downside risk can, in its establishment,
remove or diminish the potential upside benefits.

Sensitivity analysis

We undertake a sensitivity analysis on our net debt and foreign exchange
exposure portfolios after application of all hedging transactions. This is based
on an instantaneous adverse proportional movement of 10% in interest rates and
exchange rates.

The probability of this occurring is not factored into this sensitivity
analysis. Also, the diverse nature of the portfolios is not taken into account
and concurrent adverse movements in all exchange rates and interest rates is
assumed.

For these reasons, the analysis may be conservative and not represent likely
market volatility since historically it is unlikely that there would be a
concurrent adverse movement across all factors.

Adverse proportional movement of 10% across risk categories
------------------------------------------------------------
                                             As at 30 June
                                            2003      2002
                                                 (A$m)
------------------------------------------------------------
Risk Categories
   Interest rates.......................       186       388
   Foreign currency rates...............        98        10
                                           -----------------
                                   Total       284       398
                                           =================

The foreign currency rate numbers include the translation exposure movements
generated from our overseas investments in CSL and TelstraClear. The
TelstraClear translation exposure has increased from the previous fiscal year
due to a capital restructure undertaken in fiscal 2003 which generated an
increase in the exposure level. The CSL exposure has reduced as a result of
capital restructures undertaken in fiscal 2003. A proportion of both these
exposures is hedged using a combination of foreign currency borrowings and
foreign currency derivatives.

VaR

VaR is used to assess the maximum potential adverse outcome due to market
movements over a defined time horizon and with a specified confidence level
based on historical volatilities.

For the VaR numbers reported below, a one month time horizon and a 99%
confidence level were used. This time horizon differs from many financial
institutions who hedge for trading purposes where a one day period may be more
appropriate.

We consider a one month holding period is appropriate as our hedging activities
are of a non-trading nature.

The monthly figures quoted can be approximately converted to daily assessments
by multiplying by 0.22 or to 12 monthly estimates by multiplying by 3.5. For
example, the VaR result for foreign exchange of $47 million converts to an
annual equivalent of approximately $165 million.

We derive the potential fair value impact by applying historical volatility
measures to the identified market risk. Unlike sensitivity analysis, VaR
analysis takes into account the diversified nature of our net debt and net
foreign exchange exposure portfolios and incorporates historical correlation
between the markets. It should be noted that historical volatility is only an
indication of future volatility and that actual volatility could be
substantially different.

154

<PAGE>

                             Telstra Corporation Limited and controlled entities


Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------------------

We arrived at the VaR numbers by using a Monte Carlo simulation model developed
by our consulting actuaries, William M Mercer Pty Ltd, which uses the
RiskMetrics/#/ methodology and RiskMetrics/#/ data sets. The data sets from
RiskMetrics/#/ comprise:

     .  interest rate and foreign exchange rate volatilities; and
     .  correlations between interest rates and foreign exchange rates.

The simulation model determines the distribution of the fair value of our debt
portfolio and foreign exchange portfolio at future rates. This is undertaken by
simulating interest and foreign exchange movements against our actual
transaction portfolio. In deriving the VaR numbers, 50,000 simulations have been
undertaken to ensure the production of stable, robust results.

The VaR methodology adopted determines the maximum potential adverse outcome on
the fair value with a 99% confidence level (ie. the value for which there is a
1% chance of being exceeded).

VaR /(1)/
------------------------------------------------------------
                                             As at 30 June
                                            2003      2002
One month holding period                         (A$m)
------------------------------------------------------------
Risk categories
   Interest rates.......................       240       276
   Foreign currency rates...............        47        60
                                           -----------------
   Sub-total............................       287       336
Diversification effect /(2)/............       (52)      (50)
                                           -----------------
                                   Total       235       286
                                           =================
----------
/(1)/ For approximate conversions from monthly VaR cost multiply by 0.22 to give
      daily VaR and 3.5 to give twelve monthly VaR. These conversion factors
      assume that the portfolios continue with the same basis profiles, such as
      maturity and debt mix.
/(2)/ Equals the difference between the total monthly VaR and the sum of the
      monthly VaRs for the two risk categories. This effect arises because there
      is a degree of correlation between the two market risk categories.

                                                                             155

<PAGE>

Telstra Corporation Limited and controlled entities


Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------------------

VaR calculations were undertaken for portfolio balances at the end of each
quarter during fiscal 2003. The following table shows the high, low and average
amounts of the portfolio VaR based on these quarterly results. It should be
noted that the portfolio composition changes each quarter and that the high and
low quarters are selected based on the then existing portfolio values. It is
therefore possible that these quarters do not represent the high or low for each
particular component of interest rate and foreign exchange rate movements and
that inter quarter exposures change significantly.

VaR /(1)/ analysis
------------------------------------------------------------------------
                                                As at 30 June 2003
                                             High      Low      Average
One month holding period                              (A$m)
------------------------------------------------------------------------
Risk categories
   Interest rates.......................        301      236         253
   Foreign currency rates...............         55       45          49
                                            ----------------------------
   Sub-total............................        356      281         302
Diversification effect /(2)/                    (36)     (46)        (39)
                                            ----------------------------
                                   Total        320      235         263
                                            ============================
----------
/(1)/ For approximate conversions from monthly VaR cost multiply by 0.22 to give
      daily VaR and 3.5 to give twelve monthly VaR. These conversion factors
      assume that the portfolios continue with the same basis profiles, such as
      maturity and debt mix.
/(2)/ Equals the difference between the total monthly VaR and the sum of the
      monthly VaRs for the two risk categories. This effect arises because there
      is a degree of correlation between the two market risk categories.

Additional information regarding our market risks is provided in note 29 to our
financial statements.

156

<PAGE>

                             Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

The Telstra board aims for best practice in the area of corporate governance.
This section describes the main corporate governance practices in place during
fiscal 2003. Further information regarding our corporate governance and board
practices can be found on our website, www.telstra.com.au/communication/
shareholder.

The board

Telstra directors are accountable to shareholders for the proper management of
Telstra's business and affairs and delegate responsibility for day-to-day
management to the CEO. The board's key responsibilities are to:

     .  establish, monitor and modify Telstra's corporate strategies;
     .  ensure best practice corporate governance;
     .  appoint the CEO and approve succession plans;
     .  monitor the performance of Telstra management;
     .  ensure that appropriate risk management systems, internal control and
        reporting systems and compliance frameworks are in place and are
        operating effectively;
     .  monitor financial results;
     .  approve decisions concerning Telstra's capital, including capital
        restructures and dividend policy; and
     .  comply with the reporting and other requirements of the Telstra Act.

The board has adopted a formal charter and separate operating principles that
detail the role and responsibilities of the board and its members.

Structure of the board

The maximum number of directors provided for by our constitution is 13 and we
currently have 12 directors on the board. A casual vacancy to the board may be
filled or an additional director appointed, up to the maximum number of
directors, either:

     .  by the directors after consulting with the Communications Minister; or

     .  by an ordinary resolution of shareholders.

The CEO is an executive director. The chairman, the deputy chairman and other
members of the board are all non- executive directors and are independent of
management and free of any business or other relationship that could materially
interfere with the exercise of their unfettered and independent judgment.

The tenure of the CEO is linked to his executive office, while one third of all
other directors are subject to retirement by rotation each year. Directors who
retire by rotation may be re-elected. A director appointed by the directors is
subject to re-election at the next AGM. The board's general policy on board
membership for non-executive directors is:

     .  the maximum retirement age is 72 years; and

     .  the maximum tenure is 12 years (ie. usually four terms of three years).

Directors and board committees are able to obtain professional advice
independent of management or Telstra's advisers, at Telstra's cost.

A brief biography for each director, together with details of the year of
initial appointment and re-election (where applicable) of each Telstra director,
is outlined in the "Directors, Management and Employees" section of this annual
report.

                                                                             157

<PAGE>

Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

Meetings of the board

The board meets for both scheduled meetings and on other occasions to deal with
specific matters that require attention between scheduled meetings.

The regular business of the board includes business investments and strategic
matters, governance and compliance, CEO's report, financial reports and, on a
rotational basis, business unit reviews. The board also liaises with senior
management as required and may consult with other Telstra employees and advisers
and seek additional information.

Committees of the board

The board also operates through committees that hold responsibility for
particular areas. The two main committees are the Audit Committee and the
Appointments and Compensations Committee. Each committee operates in accordance
with a written charter, operating principles and Telstra's constitution.

Audit Committee

The Audit Committee is a committee of the board of directors whose primary
functions are to:

     .  assist the board in its oversight of the reliability and integrity of
        accounting policies and financial reporting and disclosure practices;
     .  provide advice to the board on financial statements, due diligence,
        financial systems integrity and business risks to enable the board to
        fulfil its fiduciary and stewardship obligations; and
     .  assist the board in establishing and maintaining processes to ensure
        that there is:
        .   compliance with all applicable laws, regulations and company
            policies; and
        .   an adequate system of internal control, management of business risks
            and safeguard of assets.

Subject to the role of the Auditor-General (as explained below), the Audit
Committee (not management) is also responsible for approving all audit
engagement fees and programs, as well as all non-audit engagements by Telstra's
external auditors.

Membership of the Audit Committee

The Audit Committee is comprised of at least three members who must be
non-executive directors who are independent of Telstra management and free from
any relationship that, in the business judgment of the board, would interfere
with the exercise of their independent judgment as a member of the committee.
Each member must also have a working familiarity with basic finance and
accounting practices.

In addition, the chairman of the Audit Committee must not be the chairman of the
board of directors and no director may serve as a member of the committee if
such director serves on the audit committees of more than two other public
companies.

The members of the Audit Committee during fiscal 2003 were:

     .  John Stocker (Chairman);
     .  John Ralph;
     .  Charles Macek;
     .  Anthony Clark;
     .  Belinda Hutchinson; and
     .  Catherine Livingstone.

158

<PAGE>

                             Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

In February 2003, Belinda Hutchinson resigned as a member of the Audit
Committee. Catherine Livingstone was appointed a member of the Audit Committee
in June 2003. Details of the qualifications of each member of the Audit
Committee are outlined in the "Directors, Management and Employees" section of
this annual report.

Meetings of the Audit Committee

The Audit Committee meets at least four times per year or more frequently as
circumstances require. Board members are entitled to attend Audit Committee
meetings and the committee may ask management, the external auditors and/or
others to attend meetings and provide such input and advice as required. The
committee may also meet separately with the CEO, management, the internal
auditor and the external auditors in relation to matters that it wishes to
discuss privately.

Details of the number of meetings held by the Audit Committee during fiscal 2003
and attendance by the committee members are set out in the Directors' report.

Relationship with the external auditor

In accordance with section 36 of the Telstra Act, it is a legislative
requirement that the Auditor-General of Australia is the auditor of Telstra
Corporation Limited for Australian Corporations Act purposes. The
Auditor-General has appointed an agent, Ernst & Young, to assist in performing
independent external audit duties at Telstra (Ernst & Young has performed this
function since fiscal 2000).

The Audit Committee has the authority and responsibility to select, evaluate
and, where appropriate, replace the external auditor for filings outside of
Australia. Telstra, through the Audit Committee, has appointed Ernst & Young as
its external auditor for filings outside of Australia and in this respect and
for the purposes of these audits, Ernst & Young is responsible for financial
reporting purposes rather than the Auditor-General.

The Auditor-General, as auditor of Telstra, owes duties to Telstra and its
shareholders as a whole. The Auditor-General also owes statutory duties as an
independent officer of the Commonwealth. Ernst & Young, as the external auditor
appointed by Telstra for filings outside Australia, is accountable to the board
of directors, Audit Committee and shareholders.

The Auditor-General and Ernst & Young are authorised to perform all "audit
services", being an examination or review of the financial statements of the
Company in accordance with the laws and rules of each jurisdiction in which
filings are made for the purpose of expressing an opinion on such statements.
The Audit Committee approves the provision of audit services as part of the
annual approval of the audit plan.

The Auditor-General does not provide non-audit services. Telstra does not engage
Ernst & Young to perform any of the following non-audit services:

     .  bookkeeping services and other services related to preparing Telstra's
        accounting records or financial statements;
     .  financial information system design and implementation services;
     .  appraisal or valuation services, fairness opinions, or
        contribution-in-kind reports;
     .  actuarial services;
     .  internal audit services;
     .  management functions or human resources;
     .  broker or dealer, investment adviser, or investment banking services;
        and
     .  legal services or expert services unrelated to the audit.

                                                                             159

<PAGE>

Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

In addition, Ernst & Young does not provide taxation advice of a strategic or
tax planning nature.

All other non-audit services may only be provided by Ernst & Young if the Audit
Committee and the Auditor-General have expressly approved the provision of the
non-audit service and the performance of the non-audit service will not cause
the total annual revenue to Ernst & Young from non-audit work to exceed the
aggregate annual amount of Ernst & Young's audit fees. The Audit Committee must
not approve the provision of a non-audit service by Ernst & Young if the
provision of the service would compromise Ernst & Young's independence.

The Audit Committee expects the Auditor-General and requires Ernst & Young to
submit annually to the Audit Committee a formal written statement delineating
all relationships between the Auditor-General, Ernst & Young and Telstra or any
of its controlled entities. The statement includes a report of all audit and
non-audit fees billed by the Auditor-General and Ernst & Young during the most
recent fiscal year, a statement of whether the Auditor-General and Ernst & Young
are satisfied that the provision of the audit and any non-audit services is
compatible with auditor independence and a statement regarding the
Auditor-General's and Ernst & Young's internal quality control procedures.

The Audit Committee considers whether Ernst & Young's provision of non-audit
services to the Company is compatible with maintaining the independence of Ernst
& Young. The Audit Committee also submits annually to the board a formal written
report describing any non-audit services rendered by Ernst & Young during the
most recent fiscal year, the fees paid for those non-audit services and
explaining why the provision of those non-audit services is compatible with
auditor independence. If applicable, the Audit Committee recommends that the
board take appropriate action in response to the Audit Committee's report to
satisfy itself of Ernst & Young's independence.

Subject to the role of the Auditor-General, the Audit Committee will discuss
with management the timing and process for implementing a five yearly rotation
of the lead audit partner and review partner of Ernst & Young and will consider
whether there should be a rotation of the audit firm itself.

Recurring processes

The Audit Committee, on an annual basis:

     .  reviews its charter and operating principles to determine their adequacy
        for current circumstances and recommends to the board the formal
        adoption of the revised charter and operating principles for future
        operations of the Audit Committee;
     .  meets separately with the internal auditor, the Auditor-General and
        Ernst & Young, with and without management, to discuss the results of
        their audits;
     .  considers any report or other disclosures to be included in the
        Company's annual report or other communications to shareholders on the
        relationships between the Auditor-General, Ernst & Young and the
        Company; and
     .  reviews with management, the Auditor-General and Ernst & Young, the
        financial report to be included in the annual report, including the
        Auditor-General's and Ernst & Young's responsibilities under generally
        accepted auditing standards, significant accounting policies, management
        judgments and accounting estimates and adjustments arising from the
        audit, and discusses the Auditor General's and Ernst & Young's judgments
        about the quality, not just the acceptability, of accounting principles
        as applied in the financial report.

160

<PAGE>

                             Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

Appointments and Compensation Committee

The Appointments and Compensation Committee (A&CC) is a committee of the board
of directors whose primary functions include advising the board on matters
regarding the composition and remuneration of the board, remuneration and
appointment of the CEO and senior management, Telstra remuneration strategies
and practices generally and the performance of the CEO. The A&CC performs the
functions of, and is equivalent to, a nomination committee and a remuneration
committee.

Membership of the A&CC

The A&CC is comprised of at least three members and all members must be
independent non-executive directors, as determined by the board. The members of
the A&CC during fiscal 2003 were:

     .  Robert Mansfield;
     .  John Ralph; and
     .  Donald McGauchie.

In December 2003, Charles Macek was also appointed a member of the A&CC.

Meetings of the A&CC

The A&CC meets at least two times a year or more frequently as required. The
A&CC may request any Telstra employee to attend any meeting as it considers
appropriate. However, if an employee has a material personal interest in a
matter that is being considered at a meeting, he/she must not be present for
consideration of that matter.

Details of the number of meetings held by the A&CC during fiscal 2003 and
attendance by the committee members are set out in the Directors' report.

Performance Evaluation and Remuneration

The board regularly reviews its performance and the performance of its
committees. In fiscal 2003, the board engaged an external consultant to conduct
interviews with each of the directors and selected senior executives to assist
in evaluating the performance of the board and its committees. The external
consultant's report was provided to each director and the participating senior
executives. The external consultant also met with non-executive directors in the
absence of management to discuss the outcomes of the review.

Information regarding performance evaluation of senior executives and emoluments
for board members and senior executives (including information in relation to
remuneration strategy and its relationship to Company performance) can be found
in the "Directors, Management and Employees" section of this annual report.

Business values, code of conduct and other company policies

Telstra has a number of internal operating policies and principles which promote
ethical and responsible decision making and timely and balanced disclosure. The
board is ultimately responsible for ensuring compliance by Telstra officers and
employees with these policies and principles.

                                                                             161

<PAGE>

Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

Telstra Values and Code of Conduct

We provide guidance to our directors, senior management and employees on the
standards of personal and corporate behaviour required of all Telstra officers
and employees and how to deal with business issues through our company values
and code of conduct policies. Through these policies we reinforce the standards
of ethical behaviour we expect from all employees, which are aimed at
understanding and complying with the spirit and letter of legal and regulatory
standards. We have a mandatory ethics training program for all employees to
reinforce these standards. We also provide assistance to employees on the
application and interpretation of the Telstra Values and code of conduct
policies through employee help lines.

Whistleblowers

In June 2003, we introduced the Telstra Whistleblowing Service in accordance
with a new whistleblowing policy. This policy deals with illegal, unethical or
improper business behaviour within Telstra and provides protection for people
who make disclosures, as well as the rights of anyone who may be named or
affected by a report. The new service and the policy are designed to complement
existing policies and procedures such as the Telstra code of conduct policy and
the fair treatment and equal employment opportunity procedures.

Share Trading Policy

We have in place a share trading policy that prohibits directors, senior
management and certain other employees (and their associates) from engaging in
short-term trading of our securities (including the acquisition of derivatives
and financial and other products issued or created over Telstra's shares by
Telstra or any third party). This policy also restricts the buying or selling of
our securities to three "window" periods (between 24 hours and 1 month following
the release of our annual results, the release of our half-yearly results and
the close of our AGM) and at such other times as the board permits. In addition,
directors, senior management and relevant employees must notify the Company
Secretary before they or their close relatives buy or sell our securities.
Changes to the interests of directors in our securities are, as required by law,
notified to the ASX.

Furthermore, as required by law, buying or selling of our securities is not
permitted at any time by any person who possesses price-sensitive information
which is not generally available in relation to those securities.

Conflicts of Interest

The Corporations Act and our constitution require directors to disclose any
conflicts of interest and to generally abstain from participating in any
discussion or voting on matters in which they have a material personal interest.
In addition, the board has developed procedures to be followed by a director who
believes he or she may have a conflict of interest or material personal interest
in a matter.

Continuous disclosure

We have in place a comprehensive continuous disclosure procedure which is
reviewed and updated on a regular basis. The aim of the procedure is to ensure
that we release price-sensitive information in a timely fashion to the various
stock exchanges on which our shares and debt securities are listed. Our
procedure runs as follows:

     .  ultimate management responsibility for continuous disclosure rests with
        the CEO and the Chief Financial Officer (CFO);

162

<PAGE>

                             Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

     .  our Continuous Disclosure Committee (Committee), chaired by the Group
        General Counsel, advises the CFO and the CEO on disclosure matters. The
        Committee is responsible for an internal disclosure system which ensures
        that information that might be disclosable is identified and reviewed
        quickly. The Committee's membership includes the Group General Counsel,
        the Managing Director - Corporate Relations, the General Counsel -
        Finance & Administration, the Director of Finance, the Director of
        Legal, the General Manager - Investor Relations Unit and the Company
        Secretary;
     .  senior management (including the CEO, the CFO, all other Group Managing
        Directors and their direct reports, all group financial controllers and
        all legal and regulatory counsel) must immediately inform the Committee
        of any potentially price-sensitive information or proposal as soon as
        they become aware of it;
     .  a collective recommendation regarding disclosure is then made to the CFO
        and the CEO. If the matter is disclosable, an announcement is prepared
        and immediately sent via the Company Secretary's office electronically
        to all relevant stock exchanges.

We implement several practices internally to reinforce the importance of
Telstra's continuous disclosure obligations and the need to keep the Committee
informed about potentially disclosable matters. These practices are reviewed
regularly and include the following:

     .  every director is made aware of our continuous disclosure obligations
        upon taking office and each member of senior management undertakes
        training with Telstra's General Counsel - Finance and Administration, in
        relation to Telstra's continuous disclosure obligations;
     .  a weekly e-mail is sent to all senior management reminding them to
        notify the Committee immediately if they become aware of any potentially
        price-sensitive information or proposals;
     .  the Committee maintains a list of issues which, although not yet
        disclosable, are monitored in case they become disclosable;
     .  all proposed media releases and external speeches and presentations to
        be made by senior management are reviewed by internal legal counsel to
        determine whether they should be disclosed;
     .  an internal policy is in place governing communications with and
        provision of information to shareholders, brokers, analysts and
        financial media;
     .  the Legal and Regulatory Compliance and Risk Report prepared for the
        Audit Committee every quarter includes reporting on continuous
        disclosure; and
     .  the Office of the Company Secretary maintains a record of all market
        announcements made. The announcements are also posted on our web site
        after market release is confirmed.

Legal and Regulatory Compliance

We are committed to conducting our business in compliance with all of our legal
and regulatory obligations. Compliance with these obligations is not just a
legal requirement but is integral to our commitment to our customers, employees,
shareholders and the community.

Whilst we have always had in place systems to ensure compliance with our legal
and regulatory obligations, we have a more formal compliance program in place.
Under this compliance program, each business unit has a plan setting out how
they intend to achieve legal and regulatory compliance in their operations
through initiatives such as training, dissemination of information and
monitoring of compliance outcomes. A Legal and Regulatory Compliance and Risk
Report is also prepared for the Audit Committee every quarter. This report
provides the Audit Committee with an oversight of the initiatives being taken to
achieve legal and regulatory compliance and information on the significant legal
cases in which Telstra is currently involved.

                                                                             163

<PAGE>

Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

Business risk management

Through our policies on risk oversight and management, we are committed to the
management of risks throughout our operations to protect our employees, the
environment, assets, markets, earnings, reputation and shareholder value. The
Audit Committee provides advice to the board on the status of business risks to
Telstra through an integrated risk management and assurance function.

The risk management and assurance function has promoted a common language and
approach used by business units in identifying, measuring and prioritising
business risks. The Audit Committee receives reports independently prepared by
the Risk Management and Assurance Group, on significant business risks and the
strategies to manage these risks.

In addition, we use risk financing techniques including insurance to reduce the
financial impact of uncontrollable and catastrophic risks. A central treasury
function manages the financial exposures to reduce the volatility of cash flows
and asset values arising from interest rate and exchange rate movements in
accordance with board approved limits.

Evaluation of Disclosure Controls and Procedures

Our management, including our CEO and CFO, have reviewed and evaluated the
effectiveness of our disclosure controls and procedures as of the end of fiscal
2003. Based on that review and evaluation, the CEO and CFO have concluded that
our disclosure controls and procedures are effective in providing them with all
material information required to be disclosed in this annual report on a timely
basis.

In designing and evaluting our disclosure controls and procedures, our
management, including our CEO and CFO, recognised that even well designed,
implemented and monitored disclosure controls and procedures can provide only a
level of assurance of achieving the desired control objectives. As all control
systems have inherent limitations, no evaluation of our controls and procedures
can provide absolute assurance that all control issues and instances of fraud,
if any, within our organisation have been detected.

Shareholder Communications Strategy

We have implemented a number of initiatives to promote effective communication
with our shareholders. These include the following:

     .  maintaining an investor relations website;
     .  placing all relevant announcements made to the market and related
        information on our website;
     .  webcasting certain events such as briefings and our AGM; and
     .  using electronic communications to advise investors of significant
        matters that may be of interest to them.

Other Considerations

While the Commonwealth owns more than 50% of the shares in Telstra, we will
remain subject to various ministerial and other controls to which other publicly
listed companies are not subject. This includes a ministerial power to give us
written directions that the Communications Minister believes are in the public
interest (section 9 of the Telstra Act). Within these constraints, the board
continues to strive to achieve best corporate governance practice.

164

<PAGE>

                             Telstra Corporation Limited and controlled entities


Corporate Governance and Board Practices
--------------------------------------------------------------------------------

Review of Corporate Governance and Board Practices

Telstra is committed to continually reviewing and updating its practices.
Whenever any new corporate governance requirements and guidance notes are issued
by the NYSE, the SEC or the ASX, the board evaluates and, where appropriate,
implements the relevant proposals to ensure that we continue to aim to achieve
best practice in corporate governance.

Adoption of International Accounting Standards

The Financial Reporting Council (FRC) announced in July 2002 that Australia
would adopt International Financial Reporting Standards (IFRS), formerly known
as International Accounting Standards, for financial years beginning on or after
1 January 2005. The adoption of IFRS will first be reflected in Telstra's
financial reporting for the half year ending 31 December 2005 and full year
ending 30 June 2006.

The transition to IFRS could have material impact on Telstra's financial
position and reported results, however it is not possible to quantify the impact
at this time. The company has established a project team to manage the
convergence to IFRS.

                                                                             165

<PAGE>

Telstra Corporation Limited and controlled entities


Directors' report
--------------------------------------------------------------------------------

The directors present their report on the consolidated entity (Telstra Group)
consisting of Telstra Corporation Limited and the entities it controlled at the
end of or during the year ended 30 June 2003.

Principal activity

Telstra's principal activity during the financial year was to provide
telecommunications services for domestic and international customers. There has
been no significant change in the nature of this activity during the year.

Results of operations

Telstra's net profit for the year was A$3,429 million (2002: A$3,661 million).
This was after:

     .  deducting income tax expense of A$1,534 million (2002: A$1,796 million);
        and
     .  allowing for net losses attributable to outside equity interests in
        controlled entities of A$35 million (2002: A$11 million).

Earnings before interest and income tax expense was A$5,723 million,
representing a 7.9% decrease from the prior year's result of A$6,216 million.

Earnings per share decreased by 6.3% from 28.5 cents per share in fiscal 2002 to
26.6 cents per share in the current year. Year on year results have been
impacted by a number of factors as described below.

Review of operations

Profit before income tax expense for fiscal 2003 declined by 9.5% from the prior
year to A$4,928 million primarily due to the write off of the investment in our
50% owned joint venture Reach Ltd (REACH), amounting to A$965 million. The
investment was written down due to depressed conditions in the global market for
international data and internet capacity, resulting in high levels of excess
capacity, intense price competition and lower than expected revenues.

During the year, we continued to develop our full service telecommunications
model and focus on cost control. We have seen growth in many areas of the
business including mobiles, internet and IP products, advertising and
directories and intercarrier services.

Sales revenue increased by A$299 million to A$20,495 million in fiscal 2003. The
increase was mainly due to the inclusion of TelstraClear Limited (TelstraClear)
revenue for the full twelve months, contributing A$548 million to revenue.
TelstraClear was acquired in December 2001 and therefore only seven months of
sales revenue was included in fiscal 2002, amounting to A$294 million.

Total revenue (excluding interest revenue) increased by A$814 million to
A$21,616 million in fiscal 2003, which included revenue from the sale of assets
and investments of A$859 million compared with A$302 million in the prior year.
The sale of assets in fiscal 2003 included revenue from the sale of seven office
properties of A$570 million.

Operating expenses (before borrowing costs and share of net losses of associates
and joint venture entities) increased by A$363 million to A$14,868 million. The
increase was due mainly to:

     .  the inclusion of TelstraClear expenses of A$609 million for a full year,
        compared with A$364 million in the prior year; and
     .  the carrying value of assets and investments sold during the year of
        A$661 million, compared with A$307 million in the prior year.

Net borrowing costs increased by 3.2% to A$795 million in fiscal 2003 primarily
due to reduced interest received from the PCCW converting note. The original
note in fiscal 2002 amounted to US$750 million compared to a US$53 million
converting note we now hold as at 30 June 2003.

166

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors' report
--------------------------------------------------------------------------------

Income tax expense decreased by 14.6% to A$1,534 million in fiscal 2003, giving
an effective tax rate of 31.1%. The income tax expense benefited from the
introduction of tax consolidation legislation from 1 July 2002. The benefit to
income tax expense was A$201 million and resulted from the net increase in the
tax value of tax depreciable assets.

Our free cash flow increased by 18.9% to A$4,565 million as a result of higher
proceeds from asset and investment sales and a decrease in capital expenditure.
Operating capital expenditure declined by 6.6% to A$3,261 million due to tight
control of our capital expenditure program. Proceeds from the sale of property,
plant and equipment increased by A$603 million to A$797 million mainly as a
result of the sale of seven office properties. Investment expenditure amounted
to only A$71 million in fiscal 2003, which included the acquisition of the
remaining 41.6% of share capital in TelstraClear for A$25 million to give us a
100% ownership interest.

Events occurring after the end of the financial year

The directors are not aware of any matter or circumstance that has arisen since
the end of the financial year that, in their opinion, has significantly affected
or may significantly affect in future years Telstra's operations, the results of
those operations or the state of Telstra's affairs other than:

     .  On 28 August 2003, plans were announced to spend between A$800 million
        and A$1,000 million to buy-back a portion of the Telstra Entity's share
        capital, subject to regulatory approval. The share buy-back will be an
        off market buy-back and is the first step of a capital management
        program. The financial effect of the buy-back cannot be reliably
        estimated as yet;

     .  On 27 August 2003, we entered into an agreement to sell our 22.6%
        shareholding in our associated entity IBM Global Services Australia
        Limited (IBM GSA), subject to regulatory approvals. Revenue from the
        sale of this investment amounted to A$154 million resulting in a profit
        before income tax expense of A$149 million. We also modified a 10 year
        contract with IBM GSA to provide information technology services. This
        modification will result in an expense of A$130 million being recorded
        in our fiscal 2004 statement of financial performance and the removal of
        A$1,596 million of expenditure commitments disclosed as at 30 June 2003.
        In fiscal 2004, the net impact on our profit before income tax expense
        of this transaction will be A$19 million; and

     .  On 18 July 2003, we sold our 16.4% remaining interest in Commander
        Communications Limited for A$24 million.

The financial effect of the above events after balance date have not been
recognised in our statements of financial performance, financial position or
cash flows for the year ending 30 June 2003.

Dividends

The directors have declared a final ordinary dividend for the year ended 30 June
2003 of 12 cents per share (A$1,544 million) fully franked. The tax rate at
which the dividend is franked is 30%. The record date for the final dividend
will be 26 September 2003 with payment being made on 31 October 2003.

                                                                             167

<PAGE>

Telstra Corporation Limited and controlled entities


Directors' report
--------------------------------------------------------------------------------

During fiscal 2003, the following dividends were paid:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Dividend                                 Date declared      Date paid         Dividend per share        Total dividend
-------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>               <C>                       <C>
Final ordinary dividend for the year
ended 30 June 2002                         28 August 2002   28 October 2002   11 cents franked to 100%    A$1,415 million
Interim ordinary dividend for the year
ended 30 June 2003                       27 February 2003     30 April 2003   12 cents franked to 100%    A$1,544 million
Interim special dividend for the year
ended 30 June 2003                       27 February 2003     30 April 2003    3 cents franked to 100%      A$386 million
</TABLE>

Under current legislation, it is expected that Telstra will be able to fully
frank declared ordinary dividends out of fiscal 2004 earnings. However, the
directors can give no assurance as to the future level of dividends, if any, or
of franking of dividends. This is because our ability to pay dividends depends
upon, among other factors, our earnings, Government legislation and our tax
position.

Significant changes in the state of affairs

There have been no significant changes in the state of affairs of Telstra during
the financial year other than:

     .  During the first half of fiscal 2003, we wrote off the carrying value of
        our 50% investment in REACH, amounting to A$965 million. This write off
        reduced the value of our investments accounted for using the equity
        method;

     .  On 9 April 2003, we acquired an additional 41.6% interest in
        TelstraClear, giving us 100% ownership of TelstraClear and its
        controlled entities; and

     .  During the year, interest-bearing liabilities decreased by A$1,822
        million due to the net repayment of borrowings from available cash flow.

Likely developments

The directors believe, on reasonable grounds, that Telstra would be likely to be
unreasonably prejudiced if the directors were to provide more information than
there is in this report or the financial report about:

     .  the likely developments in Telstra's operations; or
     .  the expected results of those operations in the future.

Details about directors and executives

There have been no changes to the directors of Telstra Corporation Limited
during the financial year and up to the date of this report.

Information about directors is provided as follows and forms part of this
directors' report:

     .  names of directors and details of their qualifications, experience and
        special responsibilities are given on pages 113 to 115;

     .  number of board and committee meetings and attendance by directors at
        these meetings is provided on page 172;

     .  details of directors' shareholdings in Telstra are shown on page 127;
        and

     .  details of directors' emoluments are given on pages 118 to 120.

168

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors' report
--------------------------------------------------------------------------------

Senior executive emoluments

This information is provided on pages 120 to 125 and forms part of this report.

Share options

Telstra's equity based compensation includes performance rights, restricted
shares, options and deferred shares. Performance rights, restricted shares, and
options have performance hurdles. If the hurdles are not met there is no vesting
entitlement to acquire Telstra shares. From 1 July 2002, Telstra suspended its
option plan and replaced it with a deferred share plan. Generally, deferred
shares will only vest when a specified service period is completed.

Telstra expenses the fair value of all performance rights, restricted shares,
share options and deferred shares in the results reported under United States
generally accepted accounting principles (USGAAP). Consistent with Australian
generally accepted accounting principles (AGAAP), the company only expenses
options and employee shares when it is certain that there is an actual cost that
will be realised by Telstra. When an International Accounting Standard is issued
and adopted as AGAAP, Telstra will apply this standard to the accounting for its
option and employee share plans.

Since inception, A$285 million has been expensed in the company's USGAAP
financial statements in relation to the shares allocated under TESOP97 and
TESOP99. Performance rights, restricted shares, options and deferred shares have
given rise to a further expense of A$78 million in the USGAAP financial
statements since inception. In the AGAAP financial statements, an amount of A$31
million has been expensed in relation to the performance rights and restricted
shares. In fiscal 2003, the company has issued performance rights and deferred
shares, with A$19 million expensed under USGAAP and A$19 million under AGAAP.
Refer to note 19 of the financial statements for an explanation of the option
and employee share plans and the accounting treatment applied to each plan.

The Telstra Corporation Act 1991 (Cth) prohibits the Commonwealth's shareholding
falling below 50.1%. In order to fulfil its obligations under this Act and under
any option or share plan, the trustee of the plan must purchase shares on market
for cash to the extent of the assessed liability, for which Telstra provides
funding to the trustee. Telstra expenses immediately the funding of the purchase
of shares to underpin the allocation of performance rights, restricted shares
and deferred shares. The purchase of shares to underpin options is accounted for
as a receivable in Telstra's balance sheet as funding is provided to the trustee
by Telstra.

Directors' and officers' indemnity

Constitution

Our constitution provides for us to indemnify each officer to the maximum extent
permitted by law for any liability incurred as an officer provided that:

     .  the liability is not owed to us or a related body corporate;

     .  the liability is not for a pecuniary penalty or compensation order made
        by a Court under the Corporations Act 2001; and

     .  the liability does not arise out of conduct involving a lack of good
        faith.

Our constitution also provides for us to indemnify each officer, to the maximum
extent permitted by law, for legal costs and expenses incurred in successfully
defending civil or criminal proceedings.

                                                                             169

<PAGE>

Telstra Corporation Limited and controlled entities


Directors' report
--------------------------------------------------------------------------------

If one of our officers or employees is asked by us to be a director or alternate
director of a company which is not related to us, our constitution provides for
us to indemnify the officer or employee out of our property for any liability he
or she incurs. This indemnity only applies if the liability was incurred in the
officer's or employee's capacity as a director of that other company. It is also
subject to any corporate policy made by our Chief Executive Officer. Our
constitution also allows us to indemnify employees and outside officers in some
circumstances. The terms "officer", "employee" and "outside officer" are defined
in our constitution.

Deeds of indemnity in favour of directors, officers and employees

Telstra has also executed deeds of indemnity in favour of:

     .  directors (including past directors);
     .  executive officers (other than directors) and certain employees
        generally; and
     .  employees (including executive officers other than directors) involved
        in the formulation, entering into or carrying out, of a Telstra Sale
        Scheme (as defined in the Telstra Corporation Act 1991(Cth)).

Each of these deeds provides an indemnity on substantially the same terms as the
indemnity provided in the constitution in favour of officers. The indemnity in
favour of directors also gives directors a right of access to board papers and
requires Telstra to maintain insurance cover for the directors.

The indemnity in favour of employees relating to Telstra Sale Schemes is
confined to liabilities incurred as an employee in connection with the
formulation, entering into or carrying out, of a Telstra Sale Scheme.

Directors' and officers' insurance

Telstra maintains a directors' and officers' insurance policy that, subject to
some exceptions, provides worldwide insurance cover to past, present or future
directors, secretaries or executive officers of the Telstra Entity and its
subsidiaries. The directors' and officers' insurance policy prohibits disclosure
of the premium payable under the policy and the nature of the liabilities
insured.

Environmental regulation and performance

Performance in relation to particular and significant environmental legislation

Telstra's operations are subject to some significant environmental regulation
under Commonwealth, State and Territory law, particularly with regard to:

     .  the impact of the rollout of telecommunications infrastructure;
     .  site contamination; and
     .  waste management.

Telstra has established procedures to monitor and manage compliance with
existing environmental regulations and new regulations as they come into force.

The directors are not aware of any significant breaches of environmental
regulation during the financial year.

Legal and Regulatory Compliance

Telstra is committed to conducting its business in compliance with all of its
legal and regulatory obligations. Compliance with these obligations is not just
a legal requirement but is integral to Telstra's commitment to its customers,
employees, shareholders and the community.

170

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors' report
--------------------------------------------------------------------------------

Whilst we have always had in place systems to ensure compliance with our legal
and regulatory obligations, we now have a more formal compliance program in
place. Under this compliance program each business unit has a plan setting out
how they intend to achieve legal and regulatory compliance in their operations
through initiatives such as training, dissemination of information and
monitoring of compliance outcomes. A Legal and Regulatory Compliance and Risk
Report is also prepared for the Audit Committee every quarter.

This report provides the Audit Committee with an oversight of the initiatives
being taken to achieve legal and regulatory compliance and with information on
the significant legal cases in which Telstra is currently involved.

Tax Consolidation

Effective 1 July 2002, for the purposes of income taxation, Telstra Corporation
Limited and its Australian resident wholly owned subsidiaries have formed a tax
consolidation group. The entities within the tax consolidated group have entered
into a tax sharing agreement. The terms of this agreement specify the methods of
allocating any tax liability in the event of default by the Telstra Entity on
its group payment obligations and the treatment where a subsidiary member exits
the group. The tax liability of the group otherwise remains with the Telstra
Entity.

Rounding of amounts

The Telstra Entity is a company of the kind referred to in the Australian
Securities and Investments Commission class order 98/100, dated 10 July 1998 and
issued pursuant to section 341(1) of the Corporations Act 2001. As a result,
amounts in this report and the accompanying financial report have been rounded
to the nearest million dollars, except where otherwise indicated.

This report is made in accordance with a resolution of the directors.

/s/ Robert C Mansfield
----------------------------------------
Robert C Mansfield
Chairman

/s/ Ziggy Switkowski
----------------------------------------
Ziggy Switkowski
Chief Executive Officer and
Managing Director
28 August 2003

                                                                             171

<PAGE>

Telstra Corporation Limited and controlled entities


Directors' report
--------------------------------------------------------------------------------

Directors' meetings

Each director attended the following meetings and board committees during the
year as a member of the board or relevant committee:

------------------------------------------------------------------------------
                                    Board               Committees
                                                              Appointments and
                                                  Audit         Compensation
                                a          b   a          b   a              b
------------------------------------------------------------------------------
R C Mansfield.................  9          9   -          -   3              3
J T Ralph.....................  9          9   4          4   3              3
Z E Switkowski/(1)/...........  9          9   -          -   2              2
S H Chisholm..................  9          7   -          -   -              -
A J Clark.....................  9          9   4          4   -              -
J E Fletcher..................  9          9   -          -   -              -
B J Hutchinson/(2)/...........  9          9   2          2   -              -
C B Livingstone/(3)/..........  9          9   -          -   -              -
C Macek.......................  9          9   4          4   -              -
D G McGauchie.................  9          9   -          -   3              3
W A Owens.....................  9          8   -          -   -              -
J W Stocker...................  9          9   4          4   -              -
------------------------------------------------------------------------------

----------
Column a: number of meetings held while a member.
Column b: number of meetings attended.
/(1)/  Retired as a member of the Appointments and Compensation Committee on 26
       August 2002.
/(2)/  Retired as a member of the Audit Committee on 17 February 2003.
/(3)/  Appointed as a member of the Audit Committee on 2 June 2003.

172

<PAGE>



                             Telstra Corporation Limited and controlled entities



                 (This page has been left blank intentionally)


                                                                             173

<PAGE>



Telstra Corporation Limited and controlled entities



                  (This page has been left blank intentionally)


174

<PAGE>



                             Telstra Corporation Limited and controlled entities


Telstra Corporation Limited and controlled entities
--------------------------------------------------------------------------------
Australian Business Number (ABN): 33 051 775 556

Financial Report                                                            Page
as at 30 June 2003                                                        Number

Financial Statements

Statement of Financial Performance.........................................  176
Statement of Financial Position............................................  177
Statement of Cash Flows....................................................  178

Statement of Changes in Shareholders' Equity...............................  185

Notes to the Financial Statements

Note 1    - Summary of accounting policies................................   188
Note 2    - Revenue.......................................................   204
Note 3    - Profit from ordinary activities...............................   205
Note 4    - Income tax expense............................................   212
Note 5    - Segment information...........................................   214
Note 6    - Earnings per share............................................   222
Note 7    - Dividends.....................................................   223
Note 8    - Cash assets...................................................   225
Note 9    - Receivables...................................................   226
Note 10   - Inventories...................................................   227
Note 11   - Investments...................................................   228
Note 12   - Property, plant and equipment.................................   230
Note 13   - Intangible assets.............................................   235
Note 14   - Other assets..................................................   236
Note 15   - Payables......................................................   237
Note 16   - Interest-bearing liabilities..................................   238
Note 17   - Provisions....................................................   243
Note 18   - Contributed equity............................................   246
Note 19   - Employee share plans..........................................   247
Note 20   - Expenditure commitments.......................................   260
Note 21   - Contingent liabilities and contingent assets..................   264
Note 22   - Superannuation commitments....................................   266
Note 23   - Investments in controlled entities............................   269
Note 24   - Investments in joint venture entities and associated
            entities......................................................   277
Note 25   - Directors' remuneration - salaries and other benefits.........   285
Note 26   - Executives' remuneration - salaries and other benefits........   286
Note 27   - Related entity transactions...................................   289
Note 28   - Events after balance date.....................................   294
Note 29   - Additional financial instruments disclosures..................   295
Note 30   - United States generally accepted accounting principles
            disclosures...................................................   304

Directors' Declaration.....................................................  327

This financial report combines the disclosure requirements for both
Australian and United States generally accepted accounting
principles.

Independent Audit Reports..................................................  328

                                                                             175

<PAGE>



Telstra Corporation Limited and controlled entities


Statement of Financial Performance
--------------------------------------------------------------------------------
for the year ended 30 June 2003

<TABLE>
<CAPTION>
                                                                         Telstra Group              Telstra Entity
-----------------------------------------------------------------------------------------------   ------------------
                                                                      Year ended 30 June          Year ended 30 June
                                                               2003      2003     2002     2001      2003       2002
                                                      Note       $m      US$m       $m       $m        $m         $m
-----------------------------------------------------------------------------------------------   ------------------
<S>                                                   <C>    <C>      <C>       <C>      <C>       <C>        <C>
Ordinary activities
Revenue
Sales revenue..........................................2,3   20,495    13,732   20,196   18,679    18,628     18,217
Other revenue (excluding interest revenue).............2,3    1,121       751      606    4,304       952        487
                                                             ----------------------------------   ------------------
                                                             21,616    14,483   20,802   22,983    19,580     18,704
                                                             ----------------------------------   ------------------
Expenses
Labour...................................................3    3,204     2,147    3,240    3,122     2,681      2,575
Goods and services purchased (1.27)......................3    3,615     2,422    3,933    3,083     2,730      2,971
Other expenses...........................................3    4,602     3,083    4,065    6,761     6,634      5,088
                                                             ----------------------------------   ------------------
                                                             11,421     7,652   11,238   12,966    12,045     10,634
Share of net losses of associates and joint venture
entities................................................24    1,025       687       81      183        --         --
Depreciation and amortisation............................3    3,447     2,309    3,267    2,871     2,993      2,782
Interest revenue.........................................2       84        56      126      103       202        183
Borrowing costs..........................................3      879       589      896      769       935        913
                                                             ----------------------------------   ------------------
Net borrowing costs.......................................      795       533      770      666       733        730
                                                             ----------------------------------   ------------------
Profit before income tax expense..........................    4,928     3,302    5,446    6,297     3,809      4,558
                                                             ----------------------------------   ------------------
Income tax expense.......................................4    1,534     1,028    1,796    2,292     1,558      1,833
Effect of decrease in tax rates on deferred tax
balances.................................................4       --        --       --      (56)       --         --
                                                             ----------------------------------   ------------------
Total income tax expense..................................    1,534     1,028    1,796    2,236     1,558      1,833
                                                             ----------------------------------   ------------------
Net profit................................................    3,394     2,274    3,650    4,061     2,251      2,725
Outside equity interests in net (profit)/loss.............       35        23       11       (3)       --         --
                                                             ----------------------------------   ------------------
Net profit available to Telstra Entity shareholders.......    3,429     2,297    3,661    4,058     2,251      2,725
                                                             ----------------------------------   ------------------
Other valuation adjustments to equity
Net exchange differences on translation of non-
Australian controlled entities' financial statements......     (161)     (108)     (87)      61        --         --
Reserves recognised on equity accounting our interest
in joint ventures and associates..........................      (18)      (12)      41      (33)       --         --
Fair value reserve recognised on acquisition of
controlling interest in joint venture entity..............       --        --       54       --        --         --
Adjustment to opening retained profits due to a change
in an accounting standard (1.2)...........................    1,415       948       --       --        --         --
                                                             ----------------------------------   ------------------
Valuation adjustments available to Telstra Entity
shareholders and recognised directly in equity............    1,236       828        8       28        --         --
                                                             ----------------------------------   ------------------
Total changes in equity other than those resulting
from transactions with Telstra Entity shareholders
as owners.................................................    4,665     3,125    3,669    4,086     2,251      2,725
                                                             ==================================   ==================
                                                              CENTS   USCENTS    CENTS    CENTS
                                                             ----------------------------------
Basic and diluted earnings per share (cents per share)...6     26.6      18.0     28.5     31.5
                                                             ----------------------------------
Total ordinary dividends per share (cents per share)..7,28     27.0      18.0     22.0     19.0
                                                             ----------------------------------
</TABLE>

The notes following the financial statements form part of the financial report.

176

<PAGE>


                             Telstra Corporation Limited and controlled entities


Statement of Financial Position
--------------------------------------------------------------------------------
as at 30 June 2003

<TABLE>
<CAPTION>
                                                                   Telstra Group        Telstra Entity
-------------------------------------------------------------------------------------   ---------------
                                                                   As at 30 June         As at 30 June
                                                               2003     2003     2002     2003     2002
                                                     Note        $m     US$m       $m       $m       $m
-------------------------------------------------------------------------------------   ---------------
<S>                                                  <C>     <C>      <C>      <C>      <C>      <C>
Current assets
Cash assets..............................................8    1,300      871    1,070    1,152      489
Receivables..............................................9    3,619    2,425    4,063    3,374    5,522
Inventories.............................................10      260      174      204      225      160
Other assets............................................14      578      387    1,038      466      947
                                                             ------------------------   ---------------
Total current assets......................................    5,757    3,857    6,375    5,217    7,118
                                                             ------------------------   ---------------
Non current assets
Receivables..............................................9      877      587    1,005    1,319    1,121
Inventories.............................................10       14        9       20       14        7
Investments - accounted for using the equity method.....11      159      106    1,197       10       34
Investments - other.....................................11       96       64      105    4,204    4,762
Property, plant and equipment...........................12   23,012   15,418   23,421   21,794   21,852
Future income tax benefit................................4       --       --      132       --       --
Intangibles - goodwill..................................13    2,018    1,352    2,063        4        5
Intangibles - other.....................................13    1,146      768    1,358      236      269
Other assets............................................14    2,520    1,688    2,543    2,371    2,399
                                                             ------------------------   ---------------
Total non current assets..................................   29,842   19,992   31,844   29,952   30,449
                                                             ------------------------   ---------------
Total assets..............................................   35,599   23,849   38,219   35,169   37,567
                                                             ------------------------   ---------------
Current liabilities
Payables................................................15    2,525    1,692    2,762    2,030    2,202
Interest-bearing liabilities............................16    1,323      886    1,896    3,327    3,068
Income tax payable.......................................4      660      442      632      614      572
Provisions..............................................17      353      236    1,903      284    1,723
Revenue received in advance...............................      973      652    1,037      798      859
                                                             ------------------------   ---------------
Total current liabilities.................................    5,834    3,908    8,230    7,053    8,424
                                                             ------------------------   ---------------
Non current liabilities
Payables................................................15       51       34      129       48       68
Interest-bearing liabilities............................16   11,232    7,525   12,481   11,232   12,450
Provision for deferred income tax.........................    1,814    1,215    1,987    1,753    1,831
Provisions..............................................17      814      545      848      727      757
Revenue received in advance...............................      432      289      438      418      420
                                                             ------------------------   ---------------
Total non current liabilities.............................   14,343    9,608   15,883   14,178   15,526
                                                             ------------------------   ---------------
Total liabilities.........................................   20,177   13,516   24,113   21,231   23,950
                                                             ------------------------   ---------------
Net assets................................................   15,422   10,333   14,106   13,938   13,617
                                                             ========================   ===============
Shareholders' equity
Telstra Entity
Contributed equity......................................18    6,433    4,310    6,433    6,433    6,433
Reserves..................................................     (150)    (101)      14      277      277
Retained profits..........................................    9,137    6,122    7,661    7,228    6,907
                                                             ------------------------   ---------------
Shareholders' equity available to Telstra Entity
shareholders..............................................   15,420   10,331   14,108   13,938   13,617
Outside equity interests
Contributed equity........................................        1        1      212       --       --
Reserves..................................................       --       --       34       --       --
Retained profits/(accumulated losses).....................        1        1     (248)      --       --
                                                             ------------------------   ---------------
Total outside equity interests............................        2        2       (2)      --       --
                                                             ------------------------   ---------------
Total shareholders' equity................................   15,422   10,333   14,106   13,938   13,617
                                                             ========================   ===============
Expenditure commitments, contingent liabilities
and assets...........................................20,21
</TABLE>

The notes following the financial statements form part of the financial report.

                                                                             177

<PAGE>


Telstra Corporation Limited and controlled entities


Statement of Cash Flows
--------------------------------------------------------------------------------
for the year ended 30 June 2003

<TABLE>
<CAPTION>
                                                                          Telstra Group                  Telstra Entity
----------------------------------------------------------------------------------------------------    ------------------
                                                                       Year ended 30 June               Year ended 30 June
                                                                  2003      2003      2002      2001       2003       2002
                                                         Note       $m      US$m        $m        $m         $m         $m
----------------------------------------------------------------------------------------------------    ------------------
<S>                                                      <C>   <C>        <C>      <C>       <C>        <C>        <C>
Cash flows from operating activities
Receipts from trade and other receivables (inclusive
of goods and services tax (GST)) (c) (1.21)..................   22,511    15,082    22,291    20,912     20,327     20,034
Payments of accounts payable and to employees
(inclusive of GST) (c) (1.21)................................  (11,920)   (7,985)  (11,837)  (11,136)    (9,841)    (9,715)
Interest received............................................       70        47        52        70        140         92
Borrowing costs paid.........................................     (999)     (669)     (897)     (813)    (1,060)      (943)
Dividends received...........................................        7         5        10        16          2          1
Income taxes paid............................................   (1,536)   (1,029)   (1,503)   (1,455)    (1,487)    (1,479)
GST remitted to the Australian Taxation Office (ATO).........   (1,076)     (721)   (1,018)     (995)    (1,019)      (945)
                                                               -------------------------------------    ------------------
Net cash provided by operating activities (a)................    7,057     4,730     7,098     6,599      7,062      7,045
                                                               -------------------------------------    ------------------
Cash flows from investing activities
(Payments)/receipts for:
- property, plant and equipment..............................   (2,704)   (1,812)   (2,958)   (3,259)    (2,662)    (2,778)
- internal use software assets...............................     (555)     (372)     (527)     (706)      (606)      (536)
- patents, trademarks and licences...........................       (2)       (1)       --      (332)        --         --
- deferred expenditure.......................................       --        --        (6)      (71)        --         (3)
                                                               -------------------------------------    ------------------
Capital expenditure (before investments).....................   (3,261)   (2,185)   (3,491)   (4,368)    (3,268)    (3,317)
                                                               -------------------------------------    ------------------
- shares in controlled entities..............................      (25)      (17)      (50)   (3,056)       (25)      (118)
- investment in joint venture and associated
entities.....................................................      (45)      (30)     (107)     (142)         5         --
- shares in listed securities and other investments..........       (1)       (1)      (14)      (38)        --        (13)
                                                               -------------------------------------    ------------------
Investment expenditure.......................................      (71)      (48)     (171)   (3,236)       (20)      (131)
                                                               -------------------------------------    ------------------
Total capital expenditure...................................5   (3,332)   (2,233)   (3,662)   (7,604)    (3,288)    (3,448)
Proceeds from:
- sale of property, plant and equipment......................      797       534       194       288        794        189
- sale of patents, trademarks and licences...................       --        --         1        14         --         --
- sale of shares in controlled entities......................       12         8        --         4         --         --
- sale of joint venture entities and operations..............        3         2        --         3         --         --
- sale of associated entities................................       17        11        --        --          1         --
- sale of listed securities and other investments............        7         5       176       397         --          5
- sale of business...........................................        4         3        33       528          2         29
                                                               -------------------------------------    ------------------
Net cash used in investing activities........................   (2,492)   (1,670)   (3,258)   (6,370)    (2,491)    (3,225)
                                                               -------------------------------------    ------------------
Cash flows from financing activities
Proceeds from:
- borrowings.................................................    5,914     3,962    13,487    23,521      6,521     13,667
- Telstra bonds..............................................       --        --       987        --         --        987
Repayment of:
- borrowings.................................................   (6,315)   (4,231)  (15,441)  (19,193)    (6,527)   (15,941)
- Telstra bonds..............................................     (582)     (390)      (41)     (565)      (582)       (41)
- finance leases principal amount............................      (22)      (15)      (18)      (14)        (8)        (7)
Payments for convertible note................................       --        --        --    (1,366)        --         --
Employee share loans (net)...................................       33        22        40        27         33         40
Dividends paid..............................................7   (3,345)   (2,241)   (2,831)   (2,316)    (3,345)    (2,831)
                                                               -------------------------------------    ------------------
Net cash (used in)/provided by financing activities..........   (4,317)   (2,893)   (3,817)       94     (3,908)    (4,126)
                                                               -------------------------------------    ------------------
Net increase/(decrease) in cash..............................      248       167        23       323        663       (306)
Foreign currency conversion..................................      (18)      (12)      (20)       --         --         --
Cash at the beginning of the year............................    1,070       716     1,067       744        489        795
                                                               -------------------------------------    ------------------
Cash at the end of the year (b)..............................    1,300       871     1,070     1,067      1,152        489
                                                               =====================================    ==================
</TABLE>

The notes following the financial statements form part of the financial report.

178

<PAGE>


                             Telstra Corporation Limited and controlled entities


Statement of Cash Flows (continued)
--------------------------------------------------------------------------------
for the year ended 30 June 2003

<TABLE>
<CAPTION>
                                                                         Telstra Group                Telstra Entity
-------------------------------------------------------------------------------------------------   ------------------
                                                                       Year ended 30 June           Year ended 30 June
                                                                  2003      2003    2002     2001       2003      2002
                                                         Note       $m      US$m      $m       $m         $m        $m
-------------------------------------------------------------------------------------------------   ------------------
<S>                                                      <C>     <C>     <C>       <C>      <C>     <C>          <C>
Cash flow notes

(a) Reconciliation of net profit to net
cash provided by operating activities

Net profit...................................................    3,394     2,274   3,650    4,061      2,251     2,725
Add/(subtract) the following transactions
Depreciation and amortisation...............................3    3,447     2,309   3,267    2,871      2,993     2,782
Accrued interest on notes issued by PCCW.....................      (15)      (10)    (85)     (29)       (15)      (85)
Dividends received from associated entities................24        6         4       9        1         --        --
(Profit)/loss on sale of property, plant and equipment......3     (173)     (115)      4       (7)      (160)        4
(Profit) on sale of patents, trademarks and licences........3       --        --      (1)      (8)        --        --
(Profit)/loss on sale of controlled entities............... 3       (5)       (3)     (3)      (4)        --        --
(Profit)/loss on sale of joint venture and
associated entities.........................................3      (12)       (8)     --       (2)         1        --
(Profit)/loss on sale of listed securities and other
corporations................................................3        2         1       5     (266)        --        (1)
(Profit) on sale of business................................3      (10)       (7)     --     (852)        (8)       --
Borrowing costs included in the cost
of constructed assets.......................................3     (105)      (70)   (115)    (108)      (105)     (115)
Share of joint venture entities' net losses................24    1,015       681      79      128         --        --
Share of associated entities' net losses...................24       10         7       2       55         --        --
Provision for reduction in value of investments.............3       26        17      26    1,065      3,056       445
Provision for reduction in value of convertible note........3       --        --      96       --         --        96
Provision for reduction in value of controlled entity
receivables.................................................3       --        --      --       --       (587)      830
Reduction in value of capitalised software..................3        2         1      --       31          2        --
Net foreign currency conversion differences..................      (37)      (25)    (14)      14         --        --
Writeback of TSS additional contributions...................2       --        --      --     (725)        --        --
(Increase)/decrease in non cash revenue received
in advance...................................................       --        --     225      779         --       (62)
Increase/(decrease) in non cash operating deferred
expenditure..................................................       (8)       (5)     (7)    (560)       (11)       29
Other........................................................       53        35      31       --        (26)        2
Movements in operating assets and liabilities
(Increase)/decrease in trade debtors and other debtors.......        4         3     233     (464)       (99)       67
(Increase)/decrease in inventories...........................      (52)      (35)     94       25        (71)       37
(Increase)/decrease in deferred expenditure and
prepayments..................................................       48        32     (45)       7         77       (15)
(Increase)/decrease in deferred mobile phone handset
subsidies....................................................      (42)      (28)     52      (79)       (42)       52
Increase/(decrease) in accounts payable
and other creditors..........................................     (271)     (181)   (219)     457       (156)       70
Increase/(decrease) in revenue received in advance...........      (66)      (44)   (338)     (15)       (50)        4
Increase in net taxes payable................................        9         6     293      781         70       354
Increase/(decrease) in provisions............................     (161)     (108)   (176)    (583)       (58)     (174)
Movement in foreign currency conversion reserve..............       (2)       (1)     35       26         --        --
                                                                 --------------------------------   ------------------
Net cash provided by operating activities....................    7,057     4,730   7,098    6,599      7,062     7,045
                                                                 ================================   ==================
(b) Reconciliation of cash
Cash at the end of the year as shown in the statement of
cash flows agrees to the net amount of the following
items in the notes to the financial statements:
Cash assets.................................................8    1,300       871   1,070    1,077      1,152       489
Bank overdraft...............................................       --        --      --      (10)        --        --
                                                                 --------------------------------   ------------------
                                                                 1,300       871   1,070    1,067      1,152       489
                                                                 ================================   ==================
</TABLE>

                                                                             179

<PAGE>


Telstra Corporation Limited and controlled entities


Statement of Cash Flows (continued)
--------------------------------------------------------------------------------
for the year ended 30 June 2003

Cash flow notes (continued)

(c) Goods and Services Tax (GST)

Our receipts from trade and other receivables includes estimated GST of $2,072
million (2002: $1,975 million; 2001: $1,888 million) collected by us as agent
for the ATO. Our payments of accounts payable and to employees include estimated
GST payments made by us for goods and services obtained in undertaking both
operating and investing activities. GST paid associated with operating
activities amounted to $639 million (2002: $615 million; 2001: $553 million) and
GST paid relating to investing activities amounted to $356 million (2002: $342
million; 2001: $340 million).

(d) Significant financing and investing activities that involve components of
non cash

Property, plant and equipment

Our property, plant and equipment includes borrowing costs of $77 million (2002:
$83 million; 2001: $77 million) which have been included in the cost of
constructed assets. These amounts are included in borrowing costs paid in our
statement of cash flows.

We acquired plant and equipment with a fair value of $2 million using finance
leases during fiscal 2003 (2002: $9 million; 2001: $14 million). As these
acquisitions did not involve cash, they are not reported in the statement of
cash flows. Our finance lease liability also includes $nil (2002: $1 million;
2001: $3 million) relating to non cash, foreign currency revaluations.

Sale and leaseback transactions

During fiscal 2003, we entered into a sale and leaseback on a portfolio of seven
office properties for $570 million. We entered into operating leases totalling
$518 million in relation to these properties on normal commercial terms of
between five and twelve years. The profit on the sale of this property, plant
and equipment was $131 million before tax. The cash inflow from this sale is
recognised in our proceeds from the sale of property, plant and equipment (refer
note 3 for further information).

There were no significant sale and leaseback transactions entered into during
fiscal 2002.

During fiscal 2001, we entered into a sale and leaseback of non communications
plant, server and mid range IT equipment totalling $110 million. The leaseback
entered into is classified as an operating lease, and the revenue received from
the sale directly offset the retirement expense. The cash inflow from this sale
was recognised in our proceeds from the sale of property, plant and equipment.
During fiscal 2002, there was an additional $23 million sale and leaseback
recognised relating to this same transaction.

Software assets (internal use software assets)

Our software assets include borrowing costs of $28 million (2002: $32 million;
2001: $31 million) which have been included in the cost of constructed assets.
These amounts are included in borrowing costs paid in our statement of cash
flows.

(e) Financing facilities

Details of credit standby arrangements and loan facilities are shown in note 16.

(f) Acquisitions

On 9 April 2003, we acquired an additional 41.6% interest in TelstraClear
Limited (TelstraClear) giving us 100% ownership of this company and its
controlled entities.

Cash consideration for this additional acquisition was $25 million (NZD$26.9
million). As we controlled TelstraClear prior to this transaction, we were
already consolidating their results, financial position and cash flows in to the
Telstra Group.

(g) Disposals and entities deconsolidated

There were no significant disposals of investments during fiscal 2003.

During fiscal 2002 and fiscal 2001 we had the following significant acquisitions
and disposals of businesses:

(h) Acquisition of TelstraClear, CitySearch and the Telstra CSL Group (formerly
known as RWC)

On 12 December 2001, we increased our holding in our joint venture entity
TelstraClear Limited (TelstraClear) by 8.4% to 58.4%. We consequently ceased
equity accounting and consolidated the financial position, financial performance
and cash flows of the TelstraClear Group from 1 December 2001.

Cash consideration for this acquisition was $40 million (NZD$50 million) for
which we received an additional 52,500,000 shares in TelstraClear.

On 23 May 2002, we acquired 100% of the share capital in CitySearch Australia
Pty Ltd (CitySearch). Cash consideration for this acquisition was $17 million.

180

<PAGE>


                             Telstra Corporation Limited and controlled entities


Statement of Cash Flows (continued)
--------------------------------------------------------------------------------
for the year ended 30 June 2003

Cash flow notes (continued)

(h) Acquisition of TelstraClear, CitySearch and the Telstra CSL Group (formerly
known as RWC) (continued)

The amount of cash, other assets and liabilities acquired as a result of
obtaining our increased interest in TelstraClear and our shareholding in
CitySearch was as follows:

----------------------------------------------------------------------
                                                            Year ended
                                                             30 June
                                                              2002
        Acquisition of controlled entities                     $m
----------------------------------------------------------------------
Consideration for acquisitions
Cash.....................................................           56
Costs of acquisition.....................................            1
                                                            ----------
                                                                    57
                                                            ==========
Fair value of assets and liabilities
acquired by major class
Net overdraft held on acquiring control..................           (5)
Receivables..............................................           64
Inventories..............................................           17
Property, plant and equipment............................          777
Identifiable intangible assets...........................          249
Other assets.............................................            8
Payables.................................................          (55)
Borrowings...............................................         (406)
Amounts owed to Telstra Corporation Ltd (a)..............         (367)
Provisions...............................................          (72)
Finance lease liability..................................          (10)
Other liabilities........................................          (80)
                                                            ----------
Fair value of net assets on gaining control..............          120
Outside equity interest relating to TelstraClear.........          (47)
Original 50% interest in fair value of TelstraClear's
net assets prior to obtaining increased shareholding.....          (56)
                                                            ----------
Net assets acquired......................................           17
Goodwill on acquisition (b)..............................           40
                                                            ----------
                                                                    57
                                                            ==========
Outflow of cash on acquisitions
Consideration for acquisition............................          (56)
Net overdraft held by TelstraClear on gaining control....           (5)
Costs of acquisition.....................................           (1)
                                                            ----------
                                                                   (62)
                                                            ==========

(a) Included in our repayment of borrowings line in the statement of cash flows
is a $367 million loan provided to TelstraClear. This funding was used to
facilitate the purchase of the Clear Communications Limited Group.

(b) Included in our goodwill on acquisition is $31 million relating to
TelstraClear. Goodwill recognised from the original acquisition of our 50%
interest in TelstraClear was $49 million as at 1 December 2001. Upon acquisition
of our additional 8.4% controlling interest, the total goodwill relating to
TelstraClear was $80 million.

Telstra CSL Group

On 28 June 2002, we acquired an additional 40% interest in the Telstra CSL Group
giving us 100% ownership of this company and its controlled entities. As
consideration for this acquisition, PCCW Limited (PCCW) redeemed the US$750
million convertible note and issued a new US$190 million mandatorily converting
note. The fair value of consideration for this acquisition amounted to $992
million. As no cash was involved, this transaction is not reflected in our
statement of cash flows. In addition, as we controlled the Telstra CSL Group
prior to this transaction, we were already consolidating their results,
financial position and cash flows in to the Telstra Group. Refer to section (j)
for information on the acquisition of our original 60% interest in the Telstra
CSL Group in fiscal 2001.

                                                                             181

<PAGE>


Telstra Corporation Limited and controlled entities


Statement of Cash Flows (continued)
--------------------------------------------------------------------------------
for the year ended 30 June 2003

Cash flow notes (continued)

(i) Disposals and entities deconsolidated

During fiscal 2002, we deconsolidated our interests in Keycorp Limited (Keycorp)
and Telstra Vishesh Communications Private Limited (Telstra VComm).

We signed a deed poll effective 28 June 2002, which gave up our rights to
appoint a majority of the directors to the board of Keycorp. As a result, we no
longer have the capacity to control the company and have deconsolidated its
statement of financial position as at that date. Refer to section (k) for
information on the original acquisition of our interest in Keycorp.

On 13 May 2002, we sold our ordinary shareholding in Telstra VComm and acquired
non voting preference shares for $11 million on the same date. As a result of
this transaction, we no longer control this company and have deconsolidated its
statement of financial position.

The cash, other assets and liabilities deconsolidated as a result of these
transactions were as follows:

----------------------------------------------------------------------
                                                            Year ended
                                                             30 June
Assets and liabilities                                        2002
deconsolidated by major class                                  $m
----------------------------------------------------------------------
Carrying amounts of assets and liabilities
deconsolidated by major class
Net overdrafts held on deconsolidation...................          (12)
Receivables..............................................           17
Inventories..............................................           24
Property, plant and equipment............................           11
Intangible assets........................................           18
Other assets.............................................            1
Payables.................................................          (27)
Borrowings...............................................          (47)
Provisions...............................................           (3)
                                                            ----------
Net assets deconsolidated................................          (18)
                                                            ==========
Inflow of cash on deconsolidation
Net overdrafts held......................................          (12)
                                                            ==========

The inflow of cash relating to overdrafts held on deconsolidation has been
offset against our payments for shares in controlled entities in the statement
of cash flows.

(j) Telstra's Asian Ventures

In fiscal 2001, we completed our strategic alliance with PCCW. Under these
arrangements, the following acquisitions and disposals took place with effect
from 1 February 2001:

.. Reach Ltd

Reach Ltd (REACH) was formed through the combination of our international
wholesale businesses and certain wholesale assets, together with certain PCCW
assets. In return for the businesses and assets we contributed, we received net
cash of $680 million and a 50% equity interest initially recognised at $1,727
million, including capitalised acquisition costs. REACH operates as a provider
of voice, data and internet connectivity services in the Asia Pacific region.

The businesses we contributed included the global wholesale division of Telstra
Corporation Limited and a number of controlled entities as listed below:

Global wholesale divisions
.. Global Connect (part thereof)
.. Global Wholesale - Australian Point of Presence (PoP)
.. Telstra Inc. (part thereof)
Controlled entities
.. Telstra Global Networks Limited
.. Telstra Japan KK
.. Telstra Korea Limited
.. Telstra Germany GmbH
.. Telstra France SA
.. Telstra Singapore Pte Ltd
.. Telstra International (HK) Holdings Limited
.. Telstra Wholesale Trading Inc.
.. Telstra (UK) Limited
.. Telstra Global Wholesale (NZ) Limited
.. Telstra (Malaysia Holdings) Sdn. Bhd.
.. Australian Network Company Pty Ltd

182

<PAGE>


                             Telstra Corporation Limited and controlled entities


Statement of Cash Flows (continued)
--------------------------------------------------------------------------------
for the year ended 30 June 2003

Cash flow notes (continued)

(j) Telstra's Asian Ventures (continued)

The carrying amounts of cash, other assets and liabilities contributed is
presented in the following table:

----------------------------------------------------------------------
                                                            Year ended
                                                             30 June
       Assets and liabilities contributed by                  2001
                 major class                                   $m
----------------------------------------------------------------------
Proceeds on disposal
Cash.....................................................          680
Issue of shares (excluding associated costs).............        1,692
                                                            ----------
                                                                 2,372
Cash.....................................................           64
Receivables..............................................          142
Property, plant and equipment............................          647
Other assets.............................................           87
Payables.................................................         (403)
Borrowings...............................................          (16)
                                                            ----------
Carrying amount of assets contributed                              521
Other items..............................................           47
Other associated costs (including stamp duty)............          100
                                                            ----------
Book value of businesses and controlled entities
contributed to REACH and associated costs (note 3).......          668
                                                            ----------
Net outflow of cash on contribution......................          (64)
Net inflow of cash as consideration......................          680
                                                            ----------
                                                                   616
                                                            ==========

Refer note 24 for further details on our investment in REACH.

.. Telstra CSL Group

We acquired a 60% controlling interest in the Telstra CSL Group. Consideration
for this acquisition totalled $3,085 million (including capitalised acquisition
costs). The Telstra CSL Group operates as a provider of wireless connectivity
services in the Asia Pacific region.

The fair value of cash, other assets and liabilities consolidated as a result of
the acquisition is presented in the following table:

----------------------------------------------------------------------
                                                            Year ended
                                                             30 June
           Assets and liabilities acquired by                 2001
                      major class                              $m
----------------------------------------------------------------------
Cash.....................................................           40
Receivables..............................................           50
Inventories..............................................           14
Property, plant and equipment............................          430
Identifiable intangible assets...........................          759
Other assets.............................................           49
Payables.................................................         (198)
Provisions...............................................         (103)
                                                            ----------
Fair value of net assets acquired........................        1,041
Telstra share of fair value of net assets acquired.......          625
Goodwill on acquisition..................................        1,461
Write off of acquisition costs...........................          999
                                                            ----------
                                                                 3,085
                                                            ==========
Inflow of cash on acquisition............................           40
Outflow of cash on acquisition...........................        3,085
                                                            ==========

Refer note 23 for further details on our investment in the Telstra CSL Group.

(k) Other acquisitions of businesses

During fiscal 2001, we acquired a 50.9% controlling interest in Keycorp Limited
(Keycorp). As consideration, we sold our EFTPOS payments carriage, installation
and maintenance business to Keycorp for $426 million.

                                                                             183

<PAGE>


Telstra Corporation Limited and controlled entities


Statement of Cash Flows (continued)
--------------------------------------------------------------------------------
for the year ended 30 June 2003

Cash flow notes (continued)

(k) Other acquisitions of businesses (continued)

The amount of cash, other assets and liabilities we acquired as a result of
obtaining our interest in Keycorp is presented in the following table:

----------------------------------------------------------------------
                                                            Year ended
                                                             30 June
          Acquisition of controlled entities and              2001
                        businesses                             $m
----------------------------------------------------------------------
Consideration for acquisition
Sale of EFTPOS payments carriage, installation
and maintenance business.................................          426
Costs of acquisition.....................................           12
                                                            ----------
                                                                   438
Less elimination of goodwill (intercompany transaction)..          426
                                                            ----------
                                                                    12
Outside equity interest (49.1%)..........................           17
                                                            ----------
                                                                    29
                                                            ==========
Fair value of assets and liabilities acquired
by major class
Cash.....................................................            1
Receivables..............................................           40
Inventories..............................................           29
Investments..............................................           20
Property, plant and equipment............................            5
Identifiable intangible assets...........................           19
Other assets.............................................            7
Payables.................................................          (37)
Borrowings...............................................          (47)
Provisions...............................................           (3)
                                                            ----------
Fair value of net assets acquired........................           34
Less discount on acquisition.............................           (5)
                                                            ----------
                                                                    29
                                                            ==========
Inflow of cash on acquisition
Cash held by Keycorp on acquisition......................            1
                                                            ==========

184

<PAGE>


                             Telstra Corporation Limited and controlled entities


Statement of Changes in Shareholders' Equity
--------------------------------------------------------------------------------
for the year ended 30 June 2003

Telstra Group
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      Reserves
                                                   ---------------------------------------------
                                                                  Foreign             Consolid-
                                      Contributed     Asset       currency              ation                Outside
                                        equity     revaluation  translation  General  fair value  Retained   equity
                                          (i)         (ii)         (iii)      (iv)       (v)      profits   interests  Total
                                          $m           $m           $m         $m         $m         $m        $m        $m
                                      ---------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>          <C>      <C>         <C>       <C>        <C>
Balance at 30 June 2000.............        6,433           32          (41)       1          --     5,170          7  11,602
- change in outside equity
interests capital, reserves and
accumulated losses (apart from
interests in net profits)...........           --           --           --       --          --        --        473     473
- net profit........................           --           --           --       --          --     4,058          3   4,061
- reserves recognised on equity
accounting our interest in joint
venture entities and
associates..........................           --           --          (33)       3          --        --         --     (30)
- adjustment on translation of
non-Australian controlled
entities' financial
statements..........................           --           --           61       --          --        --         --      61
- transfer of foreign currency
translation reserve on sale of
controlled entities.................           --           --          (12)      --          --        12         --      --
- dividends (note 7)................           --           --           --       --          --    (2,445)        --  (2,445)
                                      ---------------------------------------------------------------------------------------
Balance at 30 June 2001.............        6,433           32          (25)       4          --     6,795        483  13,722
- change in outside equity
interests capital, reserves and
accumulated losses (apart from
interests in net profit)............           --           --           --       --          --        --       (445)   (445)
- net profit/(loss).................           --           --           --       --          --     3,661        (11)  3,650
- reserves recognised on equity
accounting our interest in joint
venture entities and
associates..........................           --           --           62      (21)         --        --         --      41
- adjustment on conversion of
non-Australian controlled
entities' financial
statements..........................           --           --          (87)      --          --        --         --     (87)
- dilution of outside equity
interest on acquisition of
controlled entity through
additional share issue..............           --           --           --       --          --        29        (29)     --
- fair value adjustment on
acquisition of controlling
interest in joint venture entity               --           --           --       --          54         1         --      55
- transfer of foreign currency
translation reserve on sale of
controlled entities.................           --           --           (5)      --          --         5         --      --
- dividends (note 7)................           --           --           --       --          --    (2,830)        --  (2,830)
                                      ---------------------------------------------------------------------------------------
Balance at 30 June 2002.............        6,433           32          (55)     (17)         54     7,661         (2) 14,106

</TABLE>

(continued over page)

The notes following the financial statements form part of the financial report.

                                                                             185

<PAGE>


Telstra Corporation Limited and controlled entities


Statement of Changes in Shareholders' Equity (continued)
--------------------------------------------------------------------------------

Telstra Group
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      Reserves
                                                   ---------------------------------------------
                                                                  Foreign             Consolid-
                                      Contributed     Asset       currency              ation                Outside
                                        equity     revaluation  translation  General  fair value  Retained   equity
                                          (i)         (ii)         (iii)      (iv)       (v)      profits   interests  Total
                                          $m           $m           $m         $m         $m         $m        $m        $m
                                      ---------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>          <C>      <C>         <C>       <C>        <C>
Balance at 30 June 2002.............        6,433           32          (55)     (17)         54     7,661         (2) 14,106
- adjustment to opening retained
profits due to change in
accounting standards (vi)...........           --           --           --       --         --      1,415         --   1,415
- change in outside equity
interests capital, reserves
and accumulated losses (apart
from interests in net profit).......           --           --           --       --         --         (8)        39      31
- net profit/(loss).................           --           --           --       --         --      3,429        (35)  3,394
- reserves recognised on equity
accounting our interest in joint
venture entities and
associates..........................           --           --          (21)       3         --         --         --     (18)
- adjustment on conversion of
non-Australian controlled
entities' financial
statements..........................           --           --         (161)      --         --         --         --    (161)
- fair value adjustment on
acquisition of controlling
interest in joint venture entity               --           --           --       --         (4)         4         --      --
- transfer of foreign currency
translation reserve and general
reserve on sale of controlled
entities and associates.............           --           --           (3)      22          --       (19)        --      --
- dividends (note 7)................           --           --           --       --          --    (3,345)        --  (3,345)
                                      ---------------------------------------------------------------------------------------
Balance at 30 June 2003.............        6,433           32         (240)       8          50     9,137          2  15,422
                                      =======================================================================================
Balance at 30 June 2003 US$m........        4,310           21         (161)       5          34     6,122          2  10,333
                                      =======================================================================================

</TABLE>

(i) Refer to note 18 for details of the Telstra Group's contributed equity.

(ii) The asset revaluation reserve was previously used to record revaluations in
the value of non current assets. From 1 July 2000, as allowed under AASB 1041:
"Revaluation of Non-Current Assets", we have deemed the carrying value of our
property, plant and equipment assets (refer to note 12) to be cost. As a result,
the asset revaluation reserve may no longer be used to record the writedowns of
these assets to recoverable amount. Any writedowns of these assets to
recoverable amount from 1 July 2000 must be made through the statement of
financial performance (refer note 1.12).

As a consequence of implementing AASB 1041, we have also discontinued our policy
of revaluing property, plant and equipment upwards. The asset revaluation
reserve is no longer able to be used for distribution to shareholders or for
offsetting revaluation decrements due to legal and accounting restrictions.

(iii) The foreign currency translation reserve is used to record exchange
differences arising from the conversion of our self sustaining non-Australian
operations' financial statements into Australian dollars. Conversion of
operations where entities operate on their own are taken to the foreign currency
translation reserve, while conversion for those entities that operate with us
are taken to the statement of financial performance (refer note 1.5).

This reserve is also used to record our percentage share of exchange differences
arising from equity accounting our non-Australian investments in associates and
joint venture entities. The foreign currency translation reserve applicable to
joint venture entities and associated entities is shown in note 24.

(iv) The general reserve represents our share of the capital reserve of joint
venture entities and associated entities as a result of equity accounting. The
amount of reserves applicable to these investments is shown in note 24.

(v) The consolidation fair value reserve represents our share of the fair value
adjustments to TelstraClear Limited net assets upon acquisition of a controlling
interest. The reserve balance is amortised over the useful life of the
underlying revalued assets (average 18 years).

(vi) Due to the first time application of accounting standard AASB 1044:
"Provisions, Contingent Liabilities and Contingent Assets", we have adjusted the
opening balance of retained profits by the amount of the dividend provided at 30
June 2002. Refer to note 1.2 for additional information on this change.

186

<PAGE>


                             Telstra Corporation Limited and controlled entities


Statement of Changes in Shareholders' Equity (continued)
----------------------------------------------------------------------------
for the year ended 30 June 2003

Telstra Entity
----------------------------------------------------------------------------
                                                Reserves
                                               -----------
                                                  Asset
                                  Contributed  revaluation  Retained
                                   equity (i)     (ii)      profits   Total
                                      $m           $m          $m       $m
----------------------------------------------------------------------------
Balance at 30 June 2000..........       6,433          277     4,886  11,596
- net profit.....................          --           --     4,571   4,571
- dividends (note 7).............          --           --    (2,445) (2,445)
                                  ------------------------------------------
Balance at 30 June 2001..........       6,433          277     7,012  13,722
- net profit.....................          --           --     2,725   2,725
- dividends (note 7).............          --           --    (2,830) (2,830)
                                  ------------------------------------------
Balance at 30 June 2002..........       6,433          277     6,907  13,617
- adjustment to opening
retained profits due to change
in accounting standards (iii)....          --           --     1,415   1,415
- net profit.....................          --           --     2,251   2,251
- dividends (note 7).............          --           --    (3,345) (3,345)
                                  ------------------------------------------
Balance at 30 June 2003..........       6,433          277     7,228  13,938
                                  ==========================================

(i) Refer to note 18 for details of the Telstra Entity's contributed equity.

(ii) The asset revaluation reserve was previously used to record revaluations in
the value of non current assets. From 1 July 2000, as allowed under AASB 1041:
"Revaluation of Non-Current Assets", we have deemed the carrying value of our
property, plant and equipment assets (refer to note 12) to be cost. As a result,
the asset revaluation reserve may no longer be used to record the writedowns of
these assets to recoverable amount. Any writedowns of these assets to
recoverable amount from 1 July 2000 must be made through the statement of
financial performance (refer note 1.12).

As a consequence of implementing AASB 1041, we have also discontinued our policy
of revaluing property, plant and equipment upwards. The asset revaluation
reserve is no longer able to be used for distribution to shareholders or for
offsetting revaluation decrements due to legal and accounting restrictions.

(iii) Due to the first time application of accounting standard AASB 1044:
"Provisions, Contingent Liabilities and Contingent Assets", we have adjusted the
opening balance of retained profits by the amount of the dividend provided for
at 30 June 2002. Refer to note 1.2 for additional information on this change.

                                                                             187

<PAGE>


Telstra Corporation Limited and controlled entities


Notes to the Financial Statements
--------------------------------------------------------------------------------

1.   Summary of accounting policies

In this financial report, we, us, our, Telstra and the Telstra Group - all mean
Telstra Corporation Limited, an Australian corporation and its controlled
entities as a whole. Telstra Entity is the legal entity, Telstra Corporation
Limited.

Our financial or fiscal year ends on 30 June. Unless we state differently, the
following applies:

..  year, fiscal year or financial year means the year ended 30 June;
..  balance date means the date 30 June; and
..  2003 means fiscal 2003 and similarly for other fiscal years.

The main accounting policies we used in preparing the financial report of the
Telstra Entity and the Telstra Group are listed below. These are presented to
assist your understanding of the financial reports. These accounting policies
are consistent with those adopted in previous periods, unless a change in
accounting policy has been made and brought to your attention.

1.1  Basis of preparation of the financial report

This financial report is a general purpose financial report prepared in
accordance with:

..  the Australian Corporations Act 2001;
..  Accounting Standards applicable in Australia;
..  other authoritative pronouncements of the Australian Accounting Standards
   Board;
..  Urgent Issues Group Consensus Views; and
..  Australian generally accepted accounting principles (AGAAP).

This financial report is prepared in accordance with historical cost, except for
some categories of investments that are equity accounted. Cost is the fair value
of the consideration given in exchange for net assets acquired.

In preparing this financial report, we have been required to make estimates and
assumptions that affect:

..  the reported amounts of assets and liabilities;
..  the disclosure of contingent assets and liabilities; and
..  revenues and expenses for the period.

Actual results could differ from those estimates.

Note 30 contains a reconciliation of the major differences between our financial
report prepared under Australian generally accepted accounting principles
(AGAAP) and those applicable under United States generally accepted accounting
principles (USGAAP).

United States dollar conversions

This financial report has been prepared using Australian dollars (A$). For the
convenience of readers outside Australia we have converted our statement of
financial performance, statement of financial position, statement of cash flows
and USGAAP disclosures from A$ to US$ for fiscal 2003.

These conversions appear under columns headed "US$m" and represent rounded
millions of US dollars. The conversion has been made using the noon buying rate
in New York City for cable transfers in non-US currencies. This rate is
certified for custom purposes by the Federal Reserve Bank of New York. The rate
on 30 June 2003 was A$1.00 = US$0.67.

These conversions are indicative only and do not mean that the A$ amounts could
be converted to US$ at the rate indicated.

1.2  Change in accounting policies

The following accounting policy changes occurred during fiscal 2003.

Provision for dividends

In previous financial years, our accounting policy was to provide for dividends
in the statement of financial position when that dividend was declared after
reporting date but before the completion of the financial report. Due to the
first time application of accounting standard AASB 1044: "Provisions, Contingent
Liabilities and Contingent Assets", a provision can no longer be raised at
balance date if the dividend is declared after that date.

As a result, we have changed our accounting policy to reflect this position and
we now provide for a dividend in the period in which it is declared. When the
declaration date is after balance date but before completion of the financial
report, we disclose the dividend as an event occurring after balance date.

The transitional provisions of this standard require a write-back of the
provision raised as at 30 June 2002 to opening retained profits in the current
financial year. The effect of the revised policy has been to increase
consolidated retained profits and decrease provisions at the beginning of the
year by $1,415 million. No adjustment has been made to the prior year statement
of financial performance, statement of financial position or cash flows.

188

<PAGE>


                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1.   Summary of accounting policies (continued)

1.2  Change in accounting policies (continued)

Provision for dividends (continued)

The restatement of our retained profits and provisions is disclosed as follows
to show the information as if the new accounting policy had always been applied:

                                      Telstra Group      Telstra Entity
-------------------------------------------------------------------------
                                      As at 30 June      As at 30 June
                                        (Restated)         (Restated)
                                       2003      2002      2003      2002
                                         $m        $m        $m        $m
-------------------------------------------------------------------------
Restatement of retained
profits
Previously reported retained
profits at beginning of year.....     7,661     6,795     6,907     7,012
Reversal of prior year
dividend provided for............     1,415     1,416     1,415     1,416
Profit after income tax
expense..........................     3,429     3,661     2,251     2,725
Other movements in retained
profits..........................       (23)       35        --        --
Dividends - interim
dividend and prior year
final ordinary dividend
paid (refer note 7)..............    (3,345)   (2,831)   (3,345)   (2,831)
                                    -------------------------------------
Restated retained profits
at end of year...................     9,137     9,076     7,228     8,322
                                    =====================================
Restatement of current
provisions
Current provisions at end of
year (refer note 17).............       353     1,903       284     1,723
Adjustment for change in
accounting policy................        --    (1,415)       --    (1,415)
                                    -------------------------------------
Restated current provisions
at end of year...................       353       488       284       308
                                    =====================================

Cross currency swaps

In accordance with AASB 1012: "Foreign Currency Translation" we revalue the
principal of our cross currency swaps to take into account movements in foreign
currency. As these cross currency swaps are designated as hedges, we had
previously included the swap balances with the underlying borrowings in the
statement of financial position.

To give affect to a change to AASB 1012 in relation to the disclosure of our
financial instruments, we have now separated these foreign currency swaps and
recorded them as separate financial assets and liabilities.

This reflects the fact that the swap contracts, although specifically hedging
our borrowings, are made with different counterparties and as such are separate
financial assets and liabilities in their own right.

On a similar basis, we have reviewed the treatment of our interest rate swaps to
ensure that interest receivable and payable are set off only where our dealings
are with the same counterparty and we have a legally recognised right to do so.
Adjustments required for our interest rate swaps have not had a significant
effect on our statement of financial position.

To appropriately assess our price risk from foreign currency borrowings, hedge
receivables and hedge payables arising from cross currency swaps and accruals
arising from interest rate swaps should continue to be viewed in the context of
movements in the underlying borrowings being hedged.

This change in accounting policy has had no impact on our statement of financial
performance or our net assets in the statement of financial position. It has
however resulted in an increase to both total assets and total liabilities. We
have restated our comparative figures to reflect the disclosure in the current
year. Refer note 29 for additional details on our financial instruments
(including derivatives).

The balances relating to cross currency swaps in our asset and liability classes
are as follows:

                                               Telstra Group
---------------------------------------------------------------
                                               As at 30 June
                                                 2003      2002
                                                   $m        $m
---------------------------------------------------------------
Receivables - current......................        10        29
Receivables - non current..................       273       622
                                             ------------------
                                                  283       651
                                             ------------------
Interest-bearing liabilities -non current         426       114
                                             ------------------
Net cross currency swaps separated out
from interest-bearing liabilities..........      (143)      537
                                             ==================

The net position of our other loans after including all cross currency swaps is
included in our note 16 disclosures.

Employee benefits

Revised accounting standard AASB 1028: "Employee Benefits" became applicable
from 1 July 2002. The main changes surrounding this standard were specific
recognition criteria for wages and salaries (including non-monetary benefits),
compensated absences, profit sharing and bonus plans, termination benefits and
some post employment benefits.

                                                                             189

<PAGE>


Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1.   Summary of accounting policies (continued)

1.2  Change in accounting policies (continued)

Employee benefits (continued)

Previously, we measured the provision for employee benefits at remuneration
rates current at balance date. From fiscal 2003, we now measure the provision
for employee benefits on the remuneration rates expected to be current when the
liability is settled. We have assessed the changes in this accounting standard
and determined that there has been no significant impact on our statement of
financial performance or statement of financial position. As a result, there has
been no adjustment required to our opening retained earnings.

There were no accounting policy changes made during fiscal 2002.

The following accounting policy change occurred during fiscal 2001.

Revenue recognition

It is our policy to prepare our financial statements to satisfy both AGAAP and
USGAAP and, in cases where there is no conflict between the two, we ensure that
we incorporate the more detailed requirements in both AGAAP and USGAAP financial
statements.

The US Securities and Exchange Commission (SEC) Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB101) had application to
us for our USGAAP accounts from 1 July 2000.

SAB101 gives the SEC staff's interpretation of existing accounting principles on
the timing of recognition of revenues and associated expenses in the financial
statements. As the underlying accounting principles of revenue recognition are
the same for both AGAAP and USGAAP, we have applied the more detailed SAB101
guidance to the timing of revenue recognition to both AGAAP and USGAAP financial
statements. We accounted for the adoption of SAB101 as a change in accounting
principle effective 1 July 2000.

The major revenue and associated expense items impacted were:

..  basic access installation and connection fees for in place and new services;
..  up-front mobile phone connection fees;
..  commission revenue for our printed directories; and
..  on line directories and voice services.

Installation and connection fees

Consistent with industry practice, certain installation and connection fees were
previously recognised on connection of the service. Under SAB101, these
installation and connection fee revenues are deferred and recognised over the
average estimated customer contract life. For basic access installation and
connections this is an average of five years. Incremental costs directly related
to these revenues are also deferred and amortised over the customer contract
life. Any costs in excess of the revenue deferred are recognised immediately.

Commission revenue for printed directories

Previously, commission revenue for printed directories earned for sale of
directory advertising space was recognised on signing of the advertising
agreements with customers, while the balance of the revenue was deferred until
the directories were published and delivered to customers' premises. Under
SAB101 we have deferred the recognition of all revenue earned for a directory
until the directory is published and delivered to customers' premises.

On line directories and voice services

Previously, revenue for our on line directories and voice services was
recognised when agreements for the service were made with the customer. Revenue
for these services is now deferred over the life of the service agreements,
which is on average one year.

Refer to note 3 for details on items recognised in our statement of financial
performance requiring specific disclosure.

190

<PAGE>


                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1.   Summary of accounting policies (continued)

1.2  Change in accounting policies (continued)

Revenue recognition (continued)

As a result of the change in revenue recognition accounting policy, our net
profit for fiscal 2001 decreased as follows:

                                                         Telstra Group
----------------------------------------------------------------------
                                                          Year ended
                                                           30 June
                                                             2001
                                                              $m
----------------------------------------------------------------------
Sales revenue
Cumulative impact of deferring revenue as at 30 June
2000...................................................            777
Deferral of additional revenues under new policy for
year ended 30 June 2001................................            410
Part release of cumulative impact for the year ended
30 June 2001...........................................           (408)
                                                         -------------
Total impact on sales revenue..........................            779
                                                         -------------
Goods and services purchased
Cumulative impact of deferring expenses as at 30
June 2000..............................................           (573)
Deferral of additional expenses under new policy for
year ended 30 June 2001................................           (191)
Part release of cumulative impact for the year ended
30 June 2001...........................................            204
                                                         -------------
Total impact on goods and services purchased...........           (560)
                                                         -------------
Reduction in profit before income tax expense..........           (219)
Income tax benefit at 34%..............................             74
                                                         -------------
Reduction in net profit after tax for the year ended
30 June 2001...........................................           (145)
                                                         =============

1.3  Recently issued accounting standards to be applied in Australia in future
     periods

The following revised Australian accounting standard and the adoption of
international accounting standards will apply in future financial reports. The
impact of this Australian accounting standard has not yet been determined.

AASB 1020: "Income taxes" is applicable for financial years beginning on or
after 1 January 2005. The revised standard introduces a fundamental shift in the
method of accounting for income taxes. The new method is known as the balance
sheet liability method, while the previous method was known as the income
statement liability method.

The balance sheet method places emphasis upon the determination of tax assets
and liabilities with income tax expense a residual of the process. In
implementing the new method the revised standard:

..  introduces new terminology;
..  is formula based;
..  defines tax assets and liabilities as the product of temporary differences
   that arise between the carrying amount and the tax base of items recognised
   in the statement of financial position; and
..  increases the level of disclosures about income taxation.

Adoption of International Financial Reporting Standards

The Australian Financial Reporting Council (FRC) has determined that Australian
entities must adopt International Financial Reporting Standards (IFRS) from 1
January 2005. This will involve completing a first time set of financial
statements under IFRS for the half-year ended 31 December 2005 and for the
financial year ended 30 June 2006.

Comparatives will also be remeasured under IFRS for the half-year ending 31
December 2004 and the financial years ending 30 June 2005 and 30 June 2004.

It is expected that there will be continuing developments in IFRS up to their
application date of 1 January 2005, and consequently there is still uncertainty
about the impact of IFRS. We are currently evaluating the potential impact of
applying IFRS on our statement of financial position and performance.

1.4  Principles of consolidation

Our consolidated financial report includes the assets and liabilities of the
Telstra Entity and its controlled entities as a whole as at the end of the
financial year and the consolidated results and cash flows for the financial
year. The effect of all intergroup transactions and balances are removed in full
from our consolidated financial report.

Our consolidated financial report includes the assets and liabilities of the
Telstra Entity and its controlled entities as a whole as at the end of the
financial year and the consolidated results and cash flows for the financial
year. The effect of all intergroup transactions and balances are removed in full
from our consolidated financial report.

Where we do not control an entity for the whole year, results and cash flows for
those entities are only included from the date on which control commences, or up
until the date on which there is a loss of control.

                                                                             191

<PAGE>


Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1.   Summary of accounting policies (continued)

1.4  Principles of consolidation (continued)

Our consolidated retained profits include controlled entities' retained
profits/accumulated losses from the time they became a controlled entity until
control ceases. Outside equity interests in the results and equity of controlled
entities are shown separately in our consolidated statement of financial
performance and consolidated statement of financial position.

The financial statements of controlled entities are prepared for the same
reporting period as the Telstra Entity, using consistent accounting policies.
Adjustments are made to bring into line any dissimilar accounting policies.

An entity is considered to be a controlled entity where we are able to dominate
decision making, directly or indirectly, relating to the financial and operating
policies of that entity to enable it to operate with us in achieving our
objectives. Our controlled entities are listed in note 23.

Investments in associated entities and joint ventures are accounted for as set
out in note 1.10.

1.5  Foreign currency translation

(a) Transactions

Foreign currency transactions are converted into Australian currency at market
exchange rates applicable at the date of the transactions. Amounts payable or
receivable in foreign currencies at balance date are converted into Australian
currency at market exchange rates at balance date. Any currency translation
gains and losses that arise are included in our net profit or loss for the year.

Where we enter into a hedge for a specific expenditure commitment or for the
construction of a qualifying asset, currency translation gains and losses and
hedging costs on forward foreign currency contracts are deferred and included
with the expenditure commitment or cost of the asset.

Where we enter into a hedge for general expenditure commitments or for the
construction of a non-qualifying asset, currency translation gains and losses
are recorded in the statement of financial performance in the same period as the
currency translation differences on the underlying transaction being hedged.
Costs on such contracts are amortised over the life of the hedge contract.

Premiums and discounts on forward exchange contracts arising at the time of
entering into the hedge are deferred and amortised over the life of the contract
and included in borrowing costs.

(b) Translation of financial reports of foreign operations

Non-Australian entities that operate with us ("integrated" entities)

Where our non-Australian operations, either directly or indirectly, rely on us
financially and operationally, we translate their financial reports to
Australian dollars using a method known as the temporal method of accounting.

Under this method:

..  monetary statement of financial position items, such as cash and receivables,
   are translated into Australian dollars using market exchange rates at balance
   date;
..  non monetary statement of financial position items (including equity at the
   date of investment) are translated at market exchange rates applicable at the
   date of the transactions (or at the date of revaluation);
..  statements of financial performance are translated into Australian dollars at
   average exchange rates for the year, unless there are significant
   identifiable transactions, which are translated at the exchange rate that
   existed on the date of the transaction; and
..  currency translation gains and losses are recorded in the statement of
   financial performance.

Non-Australian entities that operate on their own ("self-sustaining" entities)

Where our non-Australian operations operate independently of us both financially
and operationally, we translate their financial reports to Australian dollars
using the current rate method of accounting.

Under this method:

..  assets and liabilities are translated into Australian dollars using market
   exchange rates at balance date;
..  shareholders' equity at the date of investment is translated into Australian
   dollars at the exchange rate current at that date. Movements post-acquisition
   (other than retained profits/ accumulated losses) are translated at the
   exchange rates current at the dates of those movements;
..  statements of financial performance are translated into Australian dollars at
   average exchange rates for the year, unless there are significant
   identifiable transactions, which are translated at the exchange rate that
   existed on the date of the transaction; and
..  currency translation gains and losses are recorded in the foreign currency
   translation reserve.

192

<PAGE>


                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.5  Foreign currency translation (continued)

Non-Australian entities that operate on their own ("self sustaining" entities)
(continued)

Exchange differences relating to foreign currency monetary items forming part of
the net investment in a self sustaining foreign entity, together with hedges of
such monetary items and related tax effects, are eliminated against the foreign
currency translation reserve on consolidation of the foreign entity's financial
report.

Upon disposal or partial disposal of a self sustaining entity, the balance of
the foreign currency translation reserve relating to the entity, or the part
disposed of, is transferred to retained profits.

1.6  Cash and cash equivalents (note 8)

Cash includes cash at bank and on hand, bank deposits, bills of exchange and
commercial paper with an original maturity date not greater than three months.

Bank deposits (including those with an original maturity in excess of three
months, which are classified as receivables) are recorded at amounts to be
received and interest revenue is recognised on an effective yield to maturity
basis.

Bills of exchange and commercial paper (including those with an original
maturity in excess of three months, which are classified as receivables) are
valued at amortised cost with interest revenue recognised on an effective yield
to maturity basis.

Statement of cash flows discloses cash net of outstanding bank overdrafts. At
balance date in 2003 and 2002, there were no bank overdrafts.

1.7  Receivables (note 9)

Trade debtors are recorded at amounts to be received. A provision for doubtful
debts is raised based on a general and specific review of outstanding amounts at
balance date. Bad debts which have been specifically provided for in previous
years are recorded against the provision for doubtful debts (the provision is
reduced). In all other cases, bad debts are written off as an expense directly
in the statement of financial performance.

Employee share loans are carried at the amount advanced to each employee, less
after tax dividend repayments and loan repayments. The outstanding principal on
these loans is mainly interest free. The current portion of the loan receivable
is calculated using estimated loan repayments expected to be received from tax
adjusted dividend payments and estimated loan repayments as a result of staff
exiting the employee share plans described in note 19.

1.8  Inventories (note 10)

Our finished goods include goods available for sale, and material and spare
parts to be used in constructing and maintaining the telecommunications network.
We value inventories at the lower of cost and net realisable value.

We allocate cost to the majority of inventory items on hand at balance date
using the weighted average cost basis. For the remaining quantities on hand,
actual cost is used.

Current inventories are inventory items held for resale or items to be consumed
into the telecommunications network within one year.

Non current inventories are items which will be consumed into the
telecommunications network after one year.

1.9  Construction contracts (note 10)

(a) Valuation

We record construction contracts in progress at cost (net of any provision for
foreseeable losses) less progress billings where profits are yet to be
recognised.

Cost includes:

..  both variable and fixed costs directly related to specific contracts;
..  amounts which can be allocated to contract activity in general and which can
   be allocated to specific contracts on a reasonable basis; and
..  costs expected to be incurred under penalty clauses, warranty provisions and
   other variances.

Where a significant loss is estimated to be made on completion, a provision for
foreseeable losses is brought to account and recorded against the gross amount
of construction work in progress.

(b) Recognition of profit

Profit is recognised on an individual project basis using the percentage of
completion method. The percentage of completion is calculated based on estimated
costs of completion (refer to note 1.19(d)).

Profits are recognised when:

..  the stage of contract completion can be reliably determined;
..  costs to date can be clearly identified; and
..  total contract revenues to be received and costs to complete can be reliably
   estimated.

                                                                             193

<PAGE>


Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.9  Construction contracts (note 10) (continued)

(c) Disclosure

The construction work in progress balance is recorded in current inventories
after deducting progress billings (refer note 10). Where progress billings
exceed the balance of construction work in progress the net amount is shown as a
current liability within other creditors.

1.10 Investments (note 11)

(a) Controlled entities

Our investments in controlled entities are valued at cost less any amount
provided for permanent reduction in the investment value.

(b) Joint venture entities and associated entities

(i)  Joint venture entities

A joint venture entity is a contractual arrangement (in the form of an entity)
whereby two or more parties take on an economic activity which is governed by
joint control. Joint control involves the contractually agreed sharing of
control over an entity where two or more parties must consent to all major
decisions. Our interests in joint venture entities that are:

..  partnerships are accounted for using the equity method of accounting in the
   Telstra Group and Telstra Entity financial statements; and
..  not partnerships are accounted for using the equity method of accounting in
   the Telstra Group financial statements and the cost method in the Telstra
   Entity financial statements.

(ii) Associated entities

Where we hold an interest in the equity of an entity and are able to apply
significant influence to the decisions of the entity, that entity is an
associated entity. Associated entities are accounted for using the equity method
of accounting in the Telstra Group financial statements and the cost method in
the Telstra Entity financial statements.

Under the equity method of accounting we adjust the initial recorded amount of
the investment for our share of:

..  net profits or losses after tax since the date of investment;
..  reserve movements since the date of investment;
..  unrealised profits or losses and adjustments to asset values;
..  notional goodwill amortisation;
..  dividends or distributions received; and
..  deferred profit brought to account.

Our share of all of these items, apart from dividends or distributions received
and reserves, is recorded in the statement of financial performance.

Notional goodwill on acquisition of an interest in a joint venture entity or
associated entity is amortised over the expected period of benefit, limited to a
maximum of 20 years from the date of acquisition. This amortisation is recorded
in the share of net profits or losses of associates and joint venture entities
line in the statement of financial performance.

Where we contribute or sell businesses or assets to a joint venture entity or
associate in which we retain an ownership interest, a portion of the profit
arising on contribution or sale is deferred. The amount deferred is determined
with reference to our ownership percentage in the joint venture entity or
associate. The deferred amount is released to the statement of financial
performance through the equity accounted results over a period consistent with
the utilisation of the underlying assets.

We also assess the recoverable amount of our equity accounted investments and
reduce the equity accounted carrying amount to recoverable amount where the
carrying amount exceeds recoverable amount. Where the equity accounted amount of
an investment has been reduced to recoverable amount, we only reverse reductions
to the extent the new recoverable amount at balance date exceeds the carrying
amount at that date.

Where the equity accounted amount of our investment in an entity falls below
zero, we suspend the equity method of accounting and record the investment at
zero. When this occurs, the equity method of accounting does not start again
until our share of profits and reserves exceeds the cumulative prior year share
of losses and reserve reductions.

(c) Joint venture operations

A joint venture operation means a contractual arrangement (that is not a joint
venture entity) whereby two or more parties undertake an economic activity that
is governed by joint control. This usually involves the shared use of assets.
Joint control involves the contractually agreed sharing of control where two or
more parties must consent to all major decisions. Where the investment is
significant, we record assets and liabilities relating to our share in each
asset and liability used in the joint venture operation. We record expenses
based on our percentage ownership interest in the joint venture. We record
revenue from the sale or use of our share of the output as described in our
revenue policy (refer note 1.19).

194

<PAGE>


                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.10 Investments (note 11) (continued)

(d) Listed securities and investments in other corporations

Listed securities and investments in other corporations are valued at cost less
any amount provided for permanent reduction in their value.

Net fair values of our investments are calculated on the following bases:

..  for listed securities traded in an organised financial market we use the
   current quoted market bid price at balance date; and
..  for investments in unlisted securities not traded in an organised financial
   market, fair value is determined by reference to the net assets of the
   unlisted security.

1.11 Recoverable amount of non current assets

Non current assets measured using the cost basis are written down to recoverable
amount where their carrying value exceeds this recoverable amount.

The recoverable amount of an asset is the net amount expected to be recovered
through the cash inflows and outflows arising from its continued use and
subsequent disposal. Where net cash inflows are derived from a group of assets
working together, recoverable amount is determined on the basis of the relevant
group of assets. Any decrement in the carrying value is recognised as an expense
in the statement of financial performance in the reporting period in which the
recoverable amount write down occurs.

The expected net cash flows included in determining recoverable amounts of non
current assets are discounted to their present values using a market determined,
risk adjusted, discount rate.

1.12 Property, plant and equipment (note 12)

(a) Acquisition

Items of property, plant and equipment are recorded at cost and depreciated as
described in note 1.12(c). The cost of our constructed property, plant and
equipment includes:

..  the cost of material and direct labour;
..  an appropriate proportion of direct and indirect overheads; and
..  borrowing costs up to the date the asset is installed ready for use.

Our weighted average capitalisation interest rate for borrowing costs for fiscal
2003 was 7.5% (2002: 7.2%; 2001: 7.9%). Interest revenue is not deducted in the
calculation of borrowing costs included in the cost of constructed assets when
those borrowings are not for a specific asset.

(b) Revaluation

We obtain valuations of all our land and buildings at least once every three
years, or more frequently if necessary, to accord with the note disclosure
requirements in AASB 1040: "Statement of Financial Position". From 1 July 2000,
we applied AASB 1041: "Revaluation of Non-Current Assets" which has seen us
discontinue our policy of revaluing our property, plant and equipment upwards.
Any notional increase in book value as a result of the triennial valuation will
therefore be disclosed in a note to the financial statements but not booked.

As part of the application of AASB 1041, we have also elected to:

..  apply the cost basis of recording property, plant and equipment in our
   financial statements; and
..  deem all our revalued property, plant and equipment carrying amounts as at 30
   June 2000 to be their cost going forward. This means that the asset
   revaluation reserve of $32 million is fixed as at 1 July 2000 and writedowns
   of previously revalued assets may no longer be made through the asset
   revaluation reserve.

We reduce the value of our property, plant and equipment to its recoverable
amount where our carrying amount is greater than recoverable amount. Any
writedown of this type is charged to the statement of financial performance.

The profit or loss on disposal of assets written down to recoverable amount is
calculated as the difference between the carrying amount of the asset at the
time of disposal, and the revenue received on disposal. This is included in the
statement of financial performance in the year of disposal.

The effect of capital gains tax has not been taken into account in calculating
the revalued amounts of property, plant and equipment.

(c) Depreciation and amortisation

Items of property, plant and equipment, including buildings and leasehold
property, but excluding freehold land, are depreciated or amortised on a
straight line basis over their estimated service lives to us. We start
depreciating or amortising assets when they are installed and ready for use.

                                                                             195

<PAGE>


Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.12 Property, plant and equipment (note 12) (continued)

(c) Depreciation and amortisation (continued)

The service lives of our significant items of property, plant and equipment are
listed as follows:

                                               Telstra Group
-------------------------------------------------------------------
                                               As at 30 June
                                            2003           2002
                                        ---------------------------
                                        Service life   Service life
Property, plant and equipment             (years)        (years)
-------------------------------------------------------------------

Buildings - building shell...........             55             55
          - general purpose..........         8 - 40         8 - 40
          - fitout...................        10 - 20        10 - 20
Communication assets
Buildings - building shell...........             55             55
          - network..................         8 - 40         8 - 40
          - fitout...................        10 - 20        10 - 20
Customer premises equipment..........          3 - 8          3 - 8
Transmission equipment...............         4 - 20         5 - 16
Switching equipment..................         2 - 10         3 - 10
Cables...............................         8 - 25         8 - 25
Ducts and pipes - main cables........             40             40
                - distribution.......             30             30
Other communications plant...........         3 - 16         4 - 18
Other assets
Leasehold plant and equipment........         7 - 15         7 - 15
Other plant, equipment and motor
vehicles.............................         3 - 15         3 - 15
-------------------------------------------------------------------

We apply a unit method of accounting to assets where it is practical and
feasible and in line with commercial practice.

A group method of accounting is adopted for certain communication assets. Group
assets are automatically removed from our financial statements on reaching the
group life. Therefore, any individual asset may be physically retired before or
after the group life is attained.

The service lives and residual values (where applicable) of all assets are
reviewed each year.

Our major repairs and maintenance expenses relate to maintaining our exchange
equipment and the customer access network (CAN). We charge the cost of repairs
and maintenance, including the cost of replacing minor items, which are not
substantial improvements, to operating expenses.

1.13 Leased plant and equipment (note 12)

We account for leases in accordance with AASB 1008: "Leases". We distinguish
between finance leases, which effectively transfer substantially all the risks
and benefits incidental to ownership of the leased asset from the lessor to the
lessee, from operating leases under which the lessor effectively retains all
such risks and benefits.

Where we acquire non current assets by using a finance lease, the present value
of future minimum lease payments is disclosed as equipment under finance lease
at the beginning of the lease term. Capitalised lease payments are amortised on
a straight line basis over the shorter of the lease term or the expected useful
life of the assets. A corresponding liability is also established and each lease
payment is allocated between the liability and finance charges.

Operating lease payments are charged to the statement of financial performance
in the periods in which they are incurred. Operating lease rental expense is
disclosed in note 3.

Where we lease properties, costs of improvements to these properties are
capitalised and are disclosed as leasehold improvements and amortised over the
shorter of the useful life of the improvements or the term of the lease.

1.14 Intangible assets (note 13)

Intangible assets are assets that have value but do not have physical
characteristics.

(a) Goodwill

On acquisition of investments, when we pay an amount greater than the fair value
of the net identifiable assets of an entity, this excess is recorded as
goodwill. We calculate the amount of goodwill as at the date of purchasing our
ownership interest in the entity.

When we purchase an entity that we will control, the amount of goodwill is
recorded in intangible assets. Goodwill is amortised on a straight line basis
over the period of expected benefit. This period is subject to a maximum of 20
years from the date of gaining control. The carrying amount of goodwill is
reviewed every six months and adjusted to the extent that future benefits are
not considered probable. The weighted average goodwill amortisation period for
fiscal 2003 was 20 years (2002: 19 years).

196

<PAGE>


                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.14 Intangible assets (note 13) (continued)

(a) Goodwill (continued)

We continually assess whether changes have occurred that would require revision
of the remaining estimated useful life of goodwill, or whether changes will
render the goodwill not recoverable. If such circumstances arise, the
recoverable amount of goodwill is determined based on estimates of the
discounted value of expected future cash flows of the business. Market interest
rates and discount rates are considered when calculating discounted cashflows.

We also calculate goodwill when we acquire joint venture entities and associated
entities. However, for these entities the goodwill amount is included as part of
the cost of the investment and not shown separately as an intangible asset. The
amortisation of this notional goodwill is included in the share of net
profit/(loss) of associates and joint venture entities line in the statement of
financial performance. Refer to note 1.10 for information regarding goodwill for
associates and joint venture entities.

(b) Identifiable intangible assets

Identifiable intangible assets include patents, trademarks and licences
(including network and business software and spectrum licences), brandnames and
customer bases. Where the costs of such assets have a benefit or relationship to
more than one accounting period, these costs are deferred and amortised on a
straight line basis over the period of expected benefit, which averages 15 years
for fiscal 2003 (2002: 13 years). The recoverable amounts of identifiable
intangible assets are reviewed every six months and the carrying amount is
adjusted down where it exceeds recoverable amount. Recoverable amount of
identifiable intangible assets is determined based on estimates of the
discounted value of expected future cash flows to be derived from the use of
those assets.

1.15 Other assets (note 14)

(a) Research and development costs

Research costs are recorded as an expense as incurred. Development costs are
recorded as an expense as incurred, unless future economic benefits are
attainable from the expenditure, in which case they are capitalised (refer to
note 1.15(d) for policy on software assets developed for internal use).

(b) Deferred mobile handset subsidies

Where mobile handsets are sold as part of service contracts lasting two years or
greater, the cost of any associated subsidy is deferred and written off over the
contract term. The provision of any subsidy is contingent upon delivery of the
contracted services and is therefore considered a cost of entering into the
contract with the customer.

As a result, the expense is recognised over the life of the contract, consistent
with the timing of revenue earned.

(c) Deferred expenditure

Deferred expenditure mainly includes upfront payments for basic access
installation and connection fees for in place and new services, and loan
flotation costs.

Significant items of expenditure:

..  are deferred to the extent that they are recoverable from future revenue and
   will contribute to our future earning capacity; and
..  cannot be deferred if they only relate to revenue which has already been
   recorded.

We amortise deferred expenditure over the average period in which the related
benefits are expected to be realised. This period is a weighted average of 5
years for fiscal 2003 (2002: 5 years). Each year we also review expenditure
deferred in previous periods to determine the amount (if any) that is no longer
recoverable. The amount of deferred expenditure that is no longer recoverable is
written off as an expense in the statement of financial performance.

(d) Software assets developed for internal use

We record direct costs associated with the development of network and business
software for internal use as software assets. These amounts are recorded as
software assets where project success is regarded as probable.

Costs included in software assets developed for internal use are:

..  external direct costs of materials and services consumed;
..  payroll and direct payroll-related costs for employees (including
   contractors) directly associated with the project; and
..  borrowing costs incurred while developing the software.

Software assets developed for internal use are amortised on a straight line
basis over their useful lives to us. This period is a weighted average of 6
years for fiscal 2003 (2002: 5 years). Amortisation starts once the software is
ready for use.

The carrying values of these assets are reviewed regularly and at each reporting
date, to ensure they are recoverable. Where such costs are no longer considered
recoverable, they are written off to the statement of financial performance.

1.16 Payables (note 15)

Accounts payable, including accruals, are recorded when we are required to make
future payments as a result of a purchase of assets or services.

                                                                             197

<PAGE>


Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.17 Interest-bearing liabilities (note 16)

Bills of exchange and commercial paper are recorded as borrowings when issued,
at the amount of the net proceeds received. They are carried at amortised cost
until the liabilities are fully settled. Interest is recorded as an expense on a
yield to maturity basis.

Bank loans are carried at cost.

Telstra bonds are carried at cost or adjusted cost. Adjusted cost is the face
value of debt adjusted for any unamortised premium or discount. Interest is
calculated on a yield to maturity basis. Bonds repurchased are cancelled against
the original liability and any gains or losses are recorded in the statement of
financial performance as borrowing costs.

Other loans are carried at cost or adjusted cost. Discounts and premiums are
amortised on a straight line basis over the period to maturity. Interest is
calculated on a yield to maturity basis. Our other loans include both Australian
dollar loans and foreign currency loans. Amounts denominated in foreign currency
are revalued daily. Any exchange gains or losses are taken to the statement of
financial performance.

1.18 Provisions (note 17)

Provisions are recognised when the group has a legal, equitable or constructive
obligation to make a future sacrifice of economic benefits as a result of past
transactions or events, it is probable that a future sacrifice of economic
benefits will arise and a reliable estimate can be made of the amount of the
obligation.

(a) Employee benefits

We accrue liabilities for employee benefits to wages and salaries, annual leave
and other current employee benefits at their nominal amounts. These are
calculated on the remuneration rates expected to be current at the date of
settlement and include related on costs.

Employee benefit on-costs, including payroll tax, are recognised and included in
employee benefit liabilities and costs when the employee benefits to which they
relate are recognised as liabilities.

Telstra Entity employees who have been employed by the Telstra Entity for at
least ten years are entitled to long service leave of three months (or more
depending on the actual length of employment), which is included in other
employee benefits.

We accrue liabilities for other employee benefits not expected to be paid or
settled within twelve months of balance date at the present values of future
amounts expected to be paid. This is based on projected increases in wage and
salary rates over an average of ten years.

We calculate present values using rates based on government guaranteed
securities with similar due dates to our liabilities.

Liabilities for redundancies are recognised when a detailed plan for the
redundancies has been developed and a valid expectation has been created that
the redundancies will be carried out with those employees affected. The
liabilities for redundancies are recognised in payables unless the amount or
timing of the payments in uncertain, in which case they are recognised as
provisions.

(b) Workers' compensation

The Telstra Entity and certain controlled entities self insure their workers'
compensation liabilities. We take up a provision for the present value of these
estimated liabilities, based on an actuarial review of the liability. This
review includes assessing actual accidents and estimating claims incurred but
not reported. Present values are calculated using appropriate rates based on
government guaranteed securities with similar due dates. The majority of our
controlled entities do not self insure, but pay annual premiums to third party
insurance companies for their workers' compensation liabilities.

(c) Restoration Costs

We provide for our future obligations in relation to the fitout of our general
purpose leased buildings when we have a legal, equitable or constructive
responsibility. These costs include our obligations relating to the dismantling,
removal, restoration and other expenditure associated with these fitouts. Our
estimates are based upon a review of lease contracts, legal requirements,
historical information and expected future costs. Any changes to these estimates
are adjusted on a progressive basis as required. Restoration costs associated
with mobile tower communication assets that are situated on land held under
operating leases are expensed in the statement of financial performance when
they become payable as they are insignificant to our financial report.

1.19 Revenue (note 2)

Sales revenue

Our categories of sales revenue listed in note 2 are recorded after deducting
sales returns, trade allowances, duties and taxes. Refer to note 1.2 for details
of changes in our revenue recognition policies in fiscal 2001.

(a) Delivery of services

Revenue from the provision of our telecommunications services includes:

..  telephone calls; and
..  other services and facilities provided such as internet and data.

198

<PAGE>


                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.19 Revenue (note 2) (continued)

Sales revenue (continued)

(a) Delivery of services (continued)

We record revenue earned from:

..  telephone calls on completion of the call; and
..  other services generally at completion, or over the period of service
   provided.

Installation and connection fee revenues are deferred and recognised over the
average estimated customer contract life. For basic access installation and
connections this is an average of five years. For mobile phone connections, this
is an average of two years. Incremental costs directly related to these revenues
are also deferred and amortised over the customer contract life. Any costs in
excess of the revenue deferred are recognised immediately.

(b) Sale of goods

Our revenue from the sale of goods includes revenue from the sale of customer
equipment and similar goods. This revenue is recorded on delivery of the goods
sold.

(c) Rent of network facilities

We earn rent mainly from access to retail and wholesale fixed and mobile
networks and from the rent of dedicated lines, customer equipment, property,
plant and equipment and other facilities. The revenue of providing access to the
network is recorded on an accrual basis over the rental period.

(d) Construction contracts

We record construction revenue on a percentage of contract completion basis. The
percentage of completion of contracts is calculated based on estimated costs to
complete the contract (refer note 1.9 for further information).

Our construction contracts are classified according to their type. There are
three types of construction contracts, these being material intensive, labour
intensive and short duration. Revenue is recognised on a percentage of
completion basis using the appropriate measures as follows:

..  (actual costs / planned costs) x planned revenue - for material intensive
   projects;
..  (actual labour hours / planned labour hours) x planned revenue - for labour
   intensive projects; and
..  short duration projects are those that are expected to be completed within a
   month and revenues and costs are recognised on completion.

(e) Directory services

All of our Yellow Pages and White Pages directory advertising revenues are
recognised on delivery of the published directories using the delivery method.
We consider our directories delivered when they have been published and
delivered to customers' premises. Revenue from online directories is recognised
over the life of service agreements, which is on average one year. Voice
directory revenues are recognised at the time of providing the service to
customers.

Other revenue

(f) Dividend revenue

We record dividend revenue in the statement of financial performance from the
following entities when declared by them:

..  controlled entities;
..  joint venture entities and associated entities (when received by the Telstra
   Entity); and
..  listed investments and other investments.

We record distributions from trusts when the distribution is receivable.

For our consolidated financial statements, dividends and distributions received
from joint venture entities and associated entities are recorded as a reduction
of the balance in the investment account and not as dividend revenue of the
Telstra Group.

(g) Revenue from the sale of non current assets

Revenue from the sale of our non current assets is recorded when all conditions
required to complete the sale have been settled and finalised.

(h) Interest revenue

We record interest revenue on an accruals basis. For financial assets, interest
revenue is determined by the effective yield on the instrument (total return).

Revenue received in advance

Revenue received in advance consists mainly of revenue from providing access to
the fixed and mobile network and directories advertising revenue. This revenue
is initially recorded as a liability and then transferred to earned revenue in
line with the revenue policies described above.

                                                                             199

<PAGE>


Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1. Summary of accounting policies (continued)

1.19 Revenue (note 2) (continued)

Accrued revenue

Accrued revenue represents revenue earned that has not been billed to the
customer. This revenue is recorded in accordance with the revenue policies
described.

1.20 Share of net profits/(losses) of associates and joint venture entities
     (note 24)

We record our share of the net profits/(losses) of associates and joint venture
entities by taking the profit/(loss) after tax, multiplied by our ownership
interest after adjusting for:

..  amortisation of notional goodwill;
..  deferral and subsequent amortisation of unrealised profits after tax arising
   from transactions and the sale of assets from us to our associates; and
..  deferral and subsequent amortisation of unrealised profits after tax arising
   from trading and the sale of assets from our associates to us.

Refer to note 1.10(b) for information regarding deferral of unrealised profits
and amortisation of notional goodwill in relation to associates and joint
venture entities.

1.21 Taxation (note 4)

Income Tax

We apply tax-effect accounting using the liability method to calculate income
tax. Income tax is calculated on accounting profit after allowing for permanent
differences and is recorded as an expense.

Permanent differences are:

..  items of revenue or expense that are included in taxable income but will
   never be included in accounting profit; or
..  items of revenue and expense that are included in accounting profit but will
   never be included in taxable income.

To the extent timing differences occur between the time items are recognised in
the financial statements and when items are taken into account in determining
taxable income, the net related taxation benefit or liability, calculated at
current rates, is disclosed as a future income tax benefit or a provision for
deferred income tax.

The future income tax benefit relating to tax losses is not carried forward as
an asset unless the benefit is virtually certain of being realised.

During fiscal 2003, the Telstra Entity has elected for its resident wholly owned
controlled entities to join it in a tax consolidation group. The Telstra Entity
will recognise all current and deferred tax amounts in relation to its resident
wholly owned controlled entities in its own financial statements in addition to
its current and deferred tax balances arising from its own transactions and
events (refer note 4 for further information).

Goods and Services Tax (GST) (including other value added taxes)

We record our revenue, expenses and assets net of any applicable goods and
services tax (GST), except where the amount of GST incurred is not recoverable
from the Australian Taxation Office (ATO). In these circumstances the GST is
recognised as part of the cost of acquisition of the asset or as part of the
expense item.

Receivables and payables balances include GST where we have either included GST
in our price charged to customers or a supplier has included GST in their price
charged to us. The net amount of GST due, but not paid, to the ATO is included
under payables.

We do not include any estimate for GST in either accrued revenue or accrued
expense balances. Our accruals refer to a combination of items some of which
will be supported by the issue or receipt of a tax invoice at a later time
depending on the nature of the item. In general, no tax invoice has been
received or issued at the time the accrual is recorded.

To accord with Urgent Issues Group Abstract 31 - Accounting for Goods and
Services Tax (GST), which requires cash flows to be determined on a gross basis,
we have completed our cash flow statement in the following manner:

..  we have derived from our accounting records the amounts which we have shown
   in our statement of financial performance and statement of financial
   position, which are on a net GST basis where the GST is recoverable from the
   ATO; and
..  we have estimated the amount of GST that is required to be added to various
   line items in the cash flow statement by reference to our business activity
   statements prepared for the ATO.

Our commitments are recorded net of GST, except where there is non-recoverable
GST (refer note 20).

1.22 Earnings per share (note 6)

Basic earnings per share

Basic earnings per share (EPS) is determined by dividing net profit after income
tax attributable to members of the company, excluding any costs of servicing
equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the year.

200

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS(CONTINUED)
--------------------------------------------------------------------------------

1.   Summary of accounting policies (continued)

1.22 Earnings per share (note 6) (continued)

Diluted earnings per share

Where an entity has on issue potential ordinary shares which are dilutive,
diluted EPS must be calculated. As we do not have any ordinary shares which are
considered dilutive, diluted EPS is the same as basic EPS.

1.23 Superannuation (note 22)

Defined benefit funds

For funding purposes actuarial valuations are required to be performed at least
every three years. In prior years, if there has been a shortfall in the net
market value of scheme assets when compared to members' vested entitlements, we
have provided for the amount to the extent that a present obligation exists to
rectify the financial position of the schemes.

Accumulation schemes

Our commitment to accumulation type benefits is limited to making the
contributions specified in the trust deed in accordance with our minimum
statutory requirements.

All superannuation schemes

Contributions to employee superannuation schemes are recorded as an expense in
the statement of financial performance as the contributions become payable.

1.24 Employee share plans (note 19)

We own 100% of the equity of Telstra ESOP Trustee Pty Ltd, the corporate trustee
for the Telstra Employee Share Ownership Plan Trust (TESOP97) and Telstra
Employee Share Ownership Plan Trust II (TESOP99). We do not control or
significantly influence these trusts as beneficial ownership and control remains
with the employees who participate in the share plans administered by the
trustee on their behalf. As a result, we do not consolidate the operations of
the trust into the Telstra Group.

Telstra incurs expenses on behalf of both the TESOP97 and the TESOP99. These
expenses are in relation to administration costs of the trusts and are recorded
in the statement of financial performance as incurred.

Telstra is precluded from issuing options that gives rise to the issue of new
shares by the Telstra Corporation Act 1991 (Cth). The Telstra Growthshare Trust
was established to allocate options, restricted shares, performance rights,
deferred shares, directshares and ownshares. Options, performance rights, and
restricted shares are subject to performance hurdles. Deferred shares are
subject to a specified period of service.

We own 100% of the equity of Telstra Growthshare Pty Ltd, the corporate trustee
for the Telstra Growthshare Trust (Growthshare). We do not control or
significantly influence the trust as beneficial ownership and control remains
with the employees who participate in the share plans administered by the
trustee on their behalf.

An option, restricted share, performance right or deferred share represents a
right to acquire a share in Telstra.

Telstra provides loans to the Growthshare trustee to enable it to purchase
shares on market to underpin options issued. When exercised, the eligible
employee pays for the shares at the exercise price and the loan is repaid to us.
On the basis that the loan is fully repaid by the employee, there is no expense
associated with the allocation of options. Telstra receives interest on the
loans to the trust. From 1 July 2002, the company has suspended its option plan.

Restricted shares, performance rights and deferred shares are recorded as an
expense to Telstra when we provide funding to the trust to purchase the shares.
The expense recorded in the statement of financial performance represents the
market price of the shares at the time of purchase on market.

Directshare enables non-executive directors to receive up to 20% of their fees
in Telstra shares. Ownshare enables eligible employees to be provided part of
their remuneration in Telstra shares. Telstra purchases shares to meet the
requirements of directshare and ownshare and expenses these costs as part of the
participant's remuneration.

We have also provided funding to the trustee to enable it to meet its other
obligations under the trust deed.

1.25 Derivative financial instruments (note 29)

As we only use derivative financial instruments for our hedging activities, the
gains and losses on our derivatives are accounted for on the same basis as the
underlying physical transactions. Therefore, hedge gains and losses are recorded
in the statement of financial performance when the gains or losses arising from
the related physical exposures are recorded in the statement of financial
performance.

                                                                             201

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1.   Summary of accounting policies (continued)

1.25 Derivative financial instruments (note 29) (continued)

Foreign exchange gains and losses on the principal value of our cross currency
swaps are recorded in the statement of financial performance and determined
through reference to the change in spot rates over the relevant reporting
period. These foreign exchange gains and losses offset the gains and losses
recorded on the underlying hedged transaction.

We account for our interest rate swaps and cross currency swaps that hedge an
underlying physical exposure using the accrual method of accounting.

Interest receivable and payable under the terms of the interest rate swaps and
cross currency swaps are accrued over the period to which the payments or
receipts relate. The interest receivable and payable under the swaps is also
recorded as part of our borrowing costs. Changes to the underlying market value
of the remaining interest rate swap and cross currency swap payments and
receipts are not recorded in the financial statements.

We do not include the principal amounts of our cross currency swaps and interest
rate swaps in our statement of financial position. Where we have a legally
recognised right to set off the financial asset and financial liability and we
intend to settle on a net basis or simultaneously, we record this position on a
net basis in our statement of financial position. Where we enter into master
netting arrangements relating to a number of financial instruments, have a legal
right of set off, and intend to do so, we also include this position on a net
basis in our statement of financial position.

The net position in relation to our cross currency swaps refers to the revalued
component of our foreign currency receivable or payable under the swap contract.
We record this component as a hedge receivable or hedge payable in our statement
of financial position. We do not offset the hedge receivable or hedge payable
with the underlying financial asset or financial liability being hedged as the
transactions are with different counterparties and are generally not settled on
a net basis.

Forward foreign exchange contracts are accounted for as outlined in note 1.5(a).
Gains and losses on forward foreign exchange contracts intended to hedge
anticipated future transactions are deferred and recognised when the anticipated
future transaction occurs.

Net fair values of interest rate swaps, cross currency swaps and forward
exchange contracts are calculated at prices based on amounts quoted on Reuters
to close out existing contracts (both favourable and unfavourable). Net fair
values of interest rate futures are determined at a price equal to the mid point
between the last bid and the last offer price quoted on the Sydney Futures
Exchange at 30 June.

1.26 Insurance

We specifically carry the following types of insurance:

..  property;
..  travel/personal accident;
..  third party liability;
..  directors' and officers' liability;
..  company reimbursement; and
..  other insurance from time to time.

For risks not covered by insurance, any losses are charged to the statement of
financial performance in the year in which the loss is reported.

The Telstra Entity and certain controlled entities are self insured for workers'
compensation. Further details are provided in note 1.18(b).

1.27 Further clarification of terminology used in our statement of financial
     performance

Under the requirements of AASB 1018: "Statement of Financial Performance" we
must classify all of our expenses (apart from any borrowing costs and shares of
net losses of associates and joint venture entities) according to either the
nature (type) of the expense or the function (activity to which the expense
relates). We have chosen to classify our expenses using the nature
classification as it more accurately reflects the type of operations we
undertake.

Our expense categories represent an aggregation of expenses classified by nature
(type). These categories do not include any indirect or fixed costs and
therefore are not identical to their functional expense category. Specifically
this includes:

..  our goods and services purchased; and
..  our marketing expenses and general and administration expenses included
   within the reconciliation of other expenses (refer note 3).

Earnings before interest, income tax expense, depreciation and amortisation
(EBITDA) reflects our net profit prior to including the effect of interest
revenue, borrowing costs, income taxes, depreciation and amortisation. We
believe that EBITDA is a relevant and useful financial measure used by
management to measure the company's operating profit. Our management uses
EBITDA, in combination with other financial measures, primarily to evaluate the
company's operating performance before financing costs, income tax and non-cash
capital related expenses. In consideration of the capital intensive nature of
our business, EBITDA is a useful supplement to net income in understanding cash
flows generated from operations that are available for income taxes, debt
service and capital expenditure.

202

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

1.   Summary of accounting policies (continued)

1.27 Further clarification of terminology used in our statement of financial
performance (continued)

EBITDA is not a USGAAP measure of income or cash flow from operations and should
not be considered as an alternative to net income as an indication of our
financial performance or as an alternative to cash flow from operating
activities as a measure of our liquidity.

In addition, we believe EDITDA is useful to investors because analysts and other
members of the investment community largely view EBITDA as a key and widely
recognised measure of operating performance.

Earnings before interest and income tax expense (EBIT) is a similar measure to
EBITDA, but takes into account the effect of depreciation and amortisation.

When a specific revenue or an expense from ordinary activities is of such a
size, nature or incidence that its disclosure is relevant in explaining our
financial performance for the reporting period, its nature and amount have been
disclosed separately in note 3. For comparative purposes, amounts classified as
unusual in fiscal 2001 have been restated as specific in accordance with the
format of the fiscal 2003 and fiscal 2002 financial statements.

1.28 Rounding

All dollar amounts in this financial report (except where indicated) have been
rounded to the nearest million dollars ($m or A$m) for presentation. This has
been done in accordance with Australian Securities and Investments Commission
(ASIC) Class Order 98/100, dated 10 July 1998 and issued under section 341(1) of
the Corporations Act 2001.

1.29 Comparative figures

Where necessary, we adjust comparative figures to align with changes in
presentation in the current year.

In addition, we have quantified the effect on comparatives of any changes in
accounting policies (refer note 1.2).

                                                                             203

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          Telstra Group           Telstra Entity
-----------------------------------------------------------------------------   ------------------
                                                        Year ended 30 June      Year ended 30 June

                                                       2003     2002     2001     2003       2002
                                              Note      $m       $m       $m       $m         $m
-----------------------------------------------------------------------------   ------------------
<S>                                           <C>    <C>      <C>      <C>      <C>        <C>
2. Revenue
Our revenue from ordinary  operating
activities (including  specific items)
is made up of revenue from the
following activities:
Sales revenue
Delivery of services(1.19(a)) (i).............3(c)   12,451   12,725   11,860   11,275      11,436
Sale of goods (1.19(b))...........................      573      441      417      431         262
Rent of network facilities (1.19(c)) (i)..........    6,108    5,667    5,161    6,086       5,683
Construction contracts (1.19(d))..................      201      236      332       42          61
Directory services (1.19(e))......................    1,162    1,127      909      794         775
                                                     ------------------------   ------------------
                                                     20,495   20,196   18,679   18,628      18,217
                                                     ------------------------   ------------------
Other revenue (excluding interest revenue)
Dividend revenue (1.19(f))
- other entities..................................        1        1       16        1           1
                                                     ------------------------   ------------------
                                                          1        1       16        1           1
                                                     ------------------------   ------------------
Revenue from the sale of non current
assets (1.19(g))
- property, plant and equipment...............3(c)      811      246      288      792         241
- investments in controlled entities..........3(c)       17       --      120       --          --
- investments in joint venture entities...........        3       --        5       --          --
- investments in associated entities..............       17       --       --        1          --
- investments in listed securities and
other corporations............................3(c)        7       22      603       --           5
- patents, trademarks and licences................       --        1       14       --          --
- businesses..................................3(c)        4       33    2,273        2          29
                                                     ------------------------   ------------------
                                                        859      302    3,303      795         275
                                                     ------------------------   ------------------
Other sources of revenue
Rent from property and motor vehicles
(1.19(c)).........................................       33       44       39       33          44
Writeback of Telstra Superannuation
Scheme additional contribution liability......3(c)       --       --      725       --          --
Other revenue.....................................      228      259      221      123         167
                                                     ------------------------   ------------------
                                                        261      303      985      156         211
                                                     ------------------------   ------------------
                                                      1,121      606    4,304      952         487
                                                     ------------------------   ------------------
Revenue from ordinary activities
(excluding interest revenue)......................   21,616   20,802   22,983   19,580      18,704
                                                     ------------------------   ------------------
Interest revenue (1.19(h))
- controlled entities...........................27       --       --       --      124         67
- joint ventures and associated
entities........................................27        2        2        2        2          2
- other entities..................................       82      124      101       76        114
                                                     ------------------------   -----------------
                                                         84      126      103      202        183
                                                     ------------------------   -----------------
Total revenue from ordinary activities............   21,700   20,928   23,086   19,782     18,887
                                                     ========================   =================
</TABLE>

(i) A reassessment of the basic access product has resulted in a
reclassification of basic access revenue of $1,496 million (2002: $1,587
million; 2001: $1,740 million) from delivery of services to rent of network
facilities. As a result, we have also reclassified the comparative data
presented to ensure consistency of presentation. This reclassification has not
affected the total revenue recorded.

204

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                         Telstra Group          Telstra Entity
---------------------------------------------------------------------------   ------------------
                                                       Year ended 30 June     Year ended 30 June
                                                       2003    2002    2001     2003        2002
                                               Note      $m      $m      $m       $m          $m
---------------------------------------------------------------------------   ------------------
<S>                                        <C>        <C>     <C>     <C>     <C>          <C>
3. Profit from ordinary activities
(a) Our profit before income tax expense
(including  items requiring  specific
disclosure) has been calculated after
charging/(crediting) the following items:

Labour
Included in our labour expenses are the following:
Ownership based remuneration schemes...............      23       9       5       23           9
Employee redundancy................................     281     289      44      205         130

Goods and services purchased
Included in our goods and services purchased
and relating to sale of goods is:
Cost of goods sold.................................     556     503     510      432         304

Other expenses
Net book value of assets we have sold:
- property, plant and equipment................3(c)     638     250     281      632         246
- investments in controlled entities...........3(c)      12      (3)    116       --          --
- investments in joint venture entities............      --      --       3       --          --
- investments in associates........................       8      --      --        2          --
- investments in listed securities and other
corporations...................................3(c)       9      27     337       --           4
- patents, trademarks and licences.................      --      --       6       --          --
- businesses...................................3(c)      (6)     33   1,421       (6)         29
                                                      ---------------------   ------------------
                                                        661     307   2,164      628         279
                                                      ---------------------   ------------------
Rental expense on operating leases.................     584     597     496      404         440
Bad debts written off - trade debtors..............     172     185     159      154         186
Movement in provisions - increase/(decrease):
- doubtful debts - trade debtors...................      21      28      (9)       2          --
- reduction in value of inventories
(finished goods)...................................       5       1     (21)       5           2
- reduction in value of investments............3(c)      26      26   1,065    3,056         445
- reduction in value of convertible note
issued by PCCW.....................................      --      96      --       --          96
- reduction in value of amounts owed by
controlled entities........................3(c), 27      --      --      --     (587)        830
- reduction in value of capitalised software.......       2      --      31        2          --
Net foreign currency conversion losses/
(gains)(1.5).......................................     (17)     17     (25)     (14)          6
Auditors' fees.................................3(b)       6       5       4        5           4
Service contracts and other agreements.............   1,706   1,400   1,400    1,606       1,406
Marketing..........................................     316     284     308      255         218
General and administration.........................     790     679     742      584         486
Other operating expenses...........................     330     440     447      534         690
                                                      ---------------------   ------------------
                                                      4,602   4,065   6,761    6,634       5,088
                                                      =====================   ==================
</TABLE>

                                                                             205

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                          Telstra Group         Telstra Entity
---------------------------------------------------------------------------   ------------------
                                                        Year ended 30 June    Year ended 30 June
                                                       2003    2002    2001     2003        2002
                                               Note      $m      $m      $m       $m          $m
---------------------------------------------------------------------------   ------------------
<S>                                            <C>    <C>     <C>     <C>     <C>          <C>
3. Profit from ordinary activities (continued)

(a) Our profit before income tax expense
(including items requiring specific
disclosure) has been calculated after
charging/(crediting) the following items:

Depreciation and amortisation
Depreciation of:
- general purpose buildings......................12      31      45      41       15          42
- communication assets...........................12   2,518   2,452   2,205    2,364       2,209
- other plant, equipment and motor vehicles......12     154     115     156      106          85
                                                      ---------------------   ------------------
                                                      2,703   2,612   2,402    2,485       2,336
Amortisation of:
- equipment under finance lease..................12       7       2       8        2          --
- leasehold improvements.........................12      44      39      15       42          37
- goodwill.......................................13     116      87      43        1           1
- patents, trademarks and licences.................      38      40      55       32          26
- brandnames.......................................      12      12       5       --          --
- customer bases...................................      82      86      34       --          --
- deferred expenditure.............................       1       1      12        1           1
- software assets..................................     444     388     297      430         381
                                                      ---------------------   ------------------
                                                        744     655     469     508          446
                                                      ---------------------   ------------------
                                                      3,447   3,267   2,871   2,993        2,782
                                                      =====================   ==================
Borrowing costs
- controlled entities............................27      --      --      --       80          58
- other entities...................................     983   1,009     875      960         970
- finance charges relating to finance leases.......       1       2       2       --          --
                                                      ---------------------   ------------------
                                                        984   1,011     877    1,040       1,028
- borrowing costs included in the cost of
constructed assets.................................    (105)   (115)   (108)    (105)       (115)
                                                      ---------------------   ------------------
                                                        879     896     769     935          913
                                                      =====================   ==================
Other disclosures
Research and development expenses (before
crediting any grants) (1.15(a))....................      41      28      29       41          27
                                                      =====================   ==================
Net profit/(loss) on the sale of:
- property, plant and equipment................3(c)     173     (4)       7      160          (4)
- investments in controlled entities...........3(c)       5      3        4       --          --
- investments in joint venture entities............       3      --       2       --          --
- investments in associated entities...............       9      --      --       (1)         --
- investments in listed securities and other
corporations...................................3(c)      (2)     (5)    266       --           1
- patents, trademarks and licences.................      --       1       8       --          --
- businesses...................................3(c)      10      --     852        8          --
                                                      ---------------------   ------------------
                                                        198      (5)  1,139      167          (3)
                                                      =====================   ==================
</TABLE>

206

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------   ------------------
                                                          Telstra Group         Telstra Entity
---------------------------------------------------------------------------   ------------------
                                                        Year ended 30 June    Year ended 30 June
                                                       2003    2002    2001     2003        2002
                                               Note      $m      $m      $m       $m          $m
---------------------------------------------------------------------------   ------------------
<S>                                            <C>    <C>     <C>     <C>      <C>         <C>
3. Profit from ordinary activities (continued)

(b) Auditors' fees

The Australian statutory auditor of the Telstra
Entity has charged the following amounts for:

Auditing and reviewing the financial reports (a)...   4.445   3.753   3.257    3.974       3.207
Other services (a).................................      --      --   0.101       --          --

Auditors other than the Australian  statutory
auditor have charged the following amounts for:

Auditing and reviewing the financial reports.......   1.440   1.553   1.041    0.528       0.591
                                                      ---------------------   ------------------
Total auditors' fees...........................3(a)   5.885   5.306   4.399    4.502       3.798
                                                      =====================   ==================

In addition to auditing and assurance activities,
other services have been provided by Ernst & Young
in their own right as follows:

Other services (b).................................   5.334   5.714   4.820
                                                      =====================
</TABLE>

(a) Our Australian statutory auditor is the Australian National Audit Office
(ANAO). The audit and other services provided by the ANAO have been
subcontracted to Ernst & Young (EY) from fiscal 2000.

(b) We have processes in place to maintain the independence of the external
auditor, including the level of expenditure on other services. Fees earned by EY
for non audit work are capped at a maximum of 1.0 times total audit fees. In
addition to the establishment of this cap, there is a requirement for the Audit
Committee to pre-approve all proposals involving the provision of services by
EY. As part of the approval process, an assessment is made by the Audit
Committee on the appropriateness of the services from an independence stand
point. Monthly meetings are held between EY and the Director of Finance to
monitor the process.

EY also has specific internal processes in place to ensure auditor independence.

                                                                             207

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------   ------------------
                                                          Telstra Group         Telstra Entity
---------------------------------------------------------------------------   ------------------
                                                       Year ended 30 June     Year ended 30 June
                                                      2003     2002    2001     2003        2002
                                               Note     $m       $m      $m       $m          $m
---------------------------------------------------------------------------   ------------------
<S>                                            <C>    <C>      <C>   <C>      <C>           <C>
3. Profit from ordinary activities (continued)

(c) Items requiring specific disclosure

The following items form part of the ordinary
operations of our business and whose disclosure
is relevant in explaining the financial
performance of the group.

Our net profit has been calculated after
charging/(crediting) specific revenue and
expense items from our ordinary activities as
follows:

Items included in revenue:
Sales revenue
- revenue recognition accounting policy
change (1.2).......................................     --       --    (779)      --          --
                                                      ------------------------------------------
                                                        --       --    (779)      --          --
- Other revenue (excluding interest revenue)
- proceeds on sale of properties (i)...............    570       --      --      570          --
- sale of global wholesale business and
controlled entities to Reach Ltd (vii)                  --       --   2,372       --          --
- writeback of Telstra Superannuation Scheme
additional contribution liability (viii)...........     --       --     725       --          --
- sale of our investment in Computershare
Limited (ix).......................................     --       --     546       --          --
                                                      ---------------------   ------------------
                                                       570       --   3,643      570          --
                                                      ---------------------   ------------------
Total specific revenue items.......................    570       --   2,864      570          --
                                                      ---------------------   ------------------
Items included in expenses:
Goods and services purchased
- revenue recognition accounting policy
change (1.2).......................................     --       --     560       --          --
                                                      ------------------------------------------
                                                        --       --     560       --          --
Other expenses
- book value on sale of properties (i).............   (439)      --      --     (439)         --
- book value of our global wholesale business
and controlled entities sold to Reach
Ltd (vii)..........................................     --       --    (668)      --          --
- deferral of unrealised profit arising on
sale of businesses and controlled entities
to Reach Ltd (vii).................................     --       --    (852)      --          --
- book value on sale of our investment in
Computershare Limited (ix).........................     --       --    (301)      --          --
- write off of Telstra CSL Group
acquisition costs (vii)............................     --       --    (999)      --          --
- movement in provision for reduction in
value of our controlled entities (iv)                   --       --      --   (2,981)         --
- movement in provision for amounts owed by
controlled entities (v) (vi)27                          --       --      --      570        (855)
                                                      ---------------------   ------------------
                                                      (439)      --  (2,820)  (2,850)       (855)
                                                      ---------------------   ------------------
 Total specific expense items......................   (439)      --  (2,260)  (2,850)       (855)
                                                      ---------------------   ------------------
In our share of net losses of associates and
joint venture entities is:
- write off of the carrying value of our
investment in Reach Ltd (ii).......................   (965)      --      --       --          --
                                                      ---------------------   ------------------
Net specific items.................................   (834)      --     604   (2,280)       (855)
                                                      ---------------------   ------------------
Income tax expense attributable to those items
requiring specific disclosure                          (41)      --    (209)     (41)         --
Effect of reset tax values on entering tax
consolidation (iii)................................    201       --      --      201          --
                                                      ---------------------   ------------------
Net specific items after income tax expense........   (674)      --     395   (2,120)       (855)
                                                      =====================   ==================
</TABLE>


208

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

3. Profit from ordinary activities (continued)

(c) Items requiring specific disclosure (continued)

During fiscal 2003, we recognised the following transactions as requiring
specific disclosure:

(i) Sale of office properties

On 1 August 2002, we sold a portfolio of seven office properties for $570
million. The carrying value of these properties was $439 million at the time of
sale. We entered into operating leases totalling $518 million in relation to
these properties on normal commercial terms of between five and twelve years,
most of which commenced on 19 August 2002.

The profit on the sale of these properties was $131 million before income tax
expense, as shown in the following table:

-------------------------------------------------------------------------------
                                                                     Year ended
                                                                       30 June
                                                                        2003
                                                                         $m
-------------------------------------------------------------------------------
Other revenue
Proceeds on sale of office properties.............................          570
Other expenses
Book value on sale of office properties...........................         (439)
                                                                     ----------
                                                                            131
Income tax expense................................................          (41)
                                                                     ----------
                                                                             90
                                                                     ==========

(ii) Write off of investment in Reach Ltd

We have written off the carrying amount of the investment in our 50% owned joint
venture, Reach Ltd (REACH). The write off occurred due to the depressed
conditions in the global market for international data and internet capacity
resulting in high levels of excess capacity, intense price competition and lower
than expected revenues. This has resulted in a reduction of our investments
accounted for using the equity method in our statement of financial position and
an increase to our share of net losses of associates and joint venture entities
in the statement of financial performance, amounting to $965 million (refer note
24 for further information).

(iii) Effect of reset tax values on entering tax consolidation

During fiscal 2003, legislation was enacted which enables the Telstra Entity and
its Australian resident wholly owned entities to be treated as a single entity
for income tax purposes. The Telstra Entity (or head entity) elected to form a
tax consolidated group from 1 July 2002 (refer to note 4 for further details).

On formation of a tax consolidated group, the head entity has an option to bring
the assets of each subsidiary member into the tax consolidated group by choosing
between two alternative methods, the Allocable Cost Amount (ACA) method or
Transitional Method. We have chosen the ACA method for a number of our
subsidiaries. Under this method, the tax values of a subsidiary's assets are
reset according to certain allocation rules, which consequently impacts future
tax deductions and our deferred tax balances. The once-off benefit of $201
million reflects the increase in future tax deductions arising from these reset
tax values.

(iv) Movement in provision for reduction in value of our controlled entities -
Telstra Entity

Included in our profit before income tax expense for the Telstra Entity was a
movement of $2,981 million relating to a provision for reduction in value of our
investments in two controlled entities. This balance is eliminated on
consolidation for Telstra Group reporting purposes.

(v) Movement in provision for amounts owed by controlled entities - Telstra
Entity

In fiscal 2002, we raised a provision of $855 million in the Telstra Entity for
amounts owed by a controlled entity. During fiscal 2003 the controlled entity
issued additional capital, with the reduction in the amount owed by that entity
representing the consideration. As a result, the $855 million provision was
reversed in the current year statement of financial performance. In addition, we
also raised a provision of $285 million in relation to further funding provided
to this controlled entity.

As a result of the above, the profit before income tax expense of the Telstra
Entity includes a $570 million net gain in relation to the provision for amounts
owed by the controlled entity. This balance is eliminated on consolidation for
Telstra Group reporting purposes (refer note 27 for further information).

During fiscal 2002, we recognised the following transaction as requiring
specific disclosure:

(vi) Provision raised for amounts owed by controlled entities - Telstra Entity

Included in the profit before income tax expense of the Telstra Entity was a
specific charge of $855 million in relation to a provision for amounts owed by a
controlled entity. This balance is eliminated on consolidation for Telstra Group
reporting purposes.

                                                                             209

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

3. Profit from ordinary activities (continued)

(c) Items requiring specific disclosure (continued)

During fiscal 2001, we recognised the following transactions as requiring
specific disclosure:

(vii) Asian Ventures

As detailed in the accompanying notes to our statement of cash flows, on 7
February 2001 we completed our strategic alliance with PCCW. Under these
arrangements, the following items were recognised in the statement of financial
performance:

Reach Ltd (REACH)

-------------------------------------------------------------------------------
                                                                     Year ended
                                                                      30 June
                                                                        2001
                                                                         $m
-------------------------------------------------------------------------------
Other revenue
Sale of global wholesale business and
controlled entities to REACH......................................        2,372
Other expenses
Book value of businesses and controlled entities
sold to REACH and associated costs................................         (668)
                                                                     ----------
                                                                          1,704
Deferral of unrealised profit before tax..........................         (852)
                                                                     ----------
                                                                            852
                                                                     ==========

The other revenue and other expense items represent the fair value of the total
consideration received and book value respectively, relating to the divisions
and controlled entities that we have sold to REACH. The book value also includes
any costs associated with undertaking this transaction.

The deferral of unrealised profit arises to the extent that we retain an
ownership interest in REACH. The amount deferred is brought to account in the
statement of financial performance (through the share of net losses of
associates and joint venture entities) on a straight line basis over a period of
20 years. The deferral of unrealised profit is combined with the net book value
of businesses we have sold for the other expenses disclosure in note 3(a).

Telstra CSL Group

The $999 million that was written off the Telstra CSL Group acquisition costs
related to our acquisition of 60% of Telstra CSL Limited. This item was
recognised as at the date of acquisition and formed part of the reduction in
value of investments in note 3(a).

Net effect of entering our Asian Ventures

The net once-off specific item recognised as a result of our Asian ventures was
a $147 million loss before income tax expense.

(viii) On 29 August 2000 the trustee of the Telstra Superannuation Scheme
(Telstra Super) and the Commonwealth (who guaranteed our payments) released us
from our obligation to contribute $121 million per annum to Telstra Super to 30
June 2011. As part of the terms of the release, we agreed to provide such future
employer contributions to Telstra Super as may be required to maintain the
vested benefits index (VBI - the ratio of fund assets to members vested
benefits) in the range of 100-110%.

The removal of our obligation reduced the assets of Telstra Super and resulted
in the VBI of the defined benefit divisions reducing from approximately 167% at
30 June 2000 to approximately 147% as at 30 June 2001.

The Trustee agreed to the release of the obligation based on actuarial advice
that the removal of these additional contributions, coupled with the employer
contribution commitment from us, will maintain the solvency level of Telstra
Super at a satisfactory level.

The net present value of our commitment to Telstra Super was shown as a
liability on our statement of financial position as at 30 June 2000. This
liability was written back to the statement of financial performance in the year
ended 30 June 2001 and increased our result as follows:

-------------------------------------------------------------------------------
                                                                     Year ended
                                                                      30 June
                                                                        2001
                                                                         $m
-------------------------------------------------------------------------------
Other revenue
Writeback of the Telstra Super additional
contribution liability............................................          725
Tax effect at 34%.................................................         (247)
                                                                     ----------
                                                                            478
                                                                     ==========

210

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

3. Profit from ordinary activities (continued)

(c) Items requiring specific disclosure (continued)

(ix) During fiscal 2001, we sold our investment in Computershare Limited
(Computershare) in two tranches. On 13 July 2000, our controlled entity, Telstra
CB.Com Limited, sold 53.3 million ordinary shares in Computershare at $7.25 per
share, representing 10% of the issued capital. Revenue received from this sale
was approximately $386 million.

On 26 June 2001, Telstra CB.Com Limited sold the remaining balance of 26.6
million shares at $6 per share resulting in revenue of $160 million.

The profit on the sale of this investment was $245 million before tax, as shown
in the following table:

-------------------------------------------------------------------------------
                                                                     Year ended
                                                                      30 June
                                                                        2001
                                                                         $m
-------------------------------------------------------------------------------
Other revenue
Revenue from sale of Computershare................................          546
Other expenses
Book value of investment in Computershare sold....................         (301)
                                                                     ----------
                                                                            245
Tax effect at 34%.................................................          (83)
                                                                     ----------
                                                                            162
                                                                     ==========

                                                                             211

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                          Telstra Group         Telstra Entity
---------------------------------------------------------------------------   ------------------
                                                        Year ended 30 June    Year ended 30 June
                                                       2003    2002    2001      2003      2002
                                                         $m      $m      $m        $m        $m
---------------------------------------------------------------------------   ------------------
<S>                                                   <C>     <C>     <C>      <C>         <C>
4. Income tax expense

Notional income tax expense on profit differs from
actual income tax expense recorded as follows:

Profit before income tax expense...................   4,928   5,446   6,297    3,809       4,558
                                                      =====================   ------------------
Profit/(loss) before income tax expense of
subsidiary companies that form part of the
Telstra Corporation Limited tax consolidation
group(i)...........................................                             (856)        --
                                                                              ------------------
Profit before income tax expense for the tax
consolidated group.................................                            2,953        --
                                                                              ==================
Australian statutory rate of taxation (ii).........      30%     30%     34%      30%         30%
                                                      =====================   ==================
Notional income tax expense on profit calculated
at 30% (2002: 30%, 2001: 34%)......................   1,478   1,634   2,141      886       1,367

Which is adjusted by the tax effect of (iii):
Effect of lower rates of tax on overseas income....     (30)    (13)    (23)      --          --
Research and development concessions...............      (6)     (6)    (12)      (6)         (4)
Share of net losses of associates and joint
venture entities...................................     296       9      49        2          --
(Profit)/loss on sale of non current assets........     (34)     (8)   (355)      52          (8)
Non deductible depreciation and amortisation.......      58      (4)     16       10           2
Reduction in the value of investments and
intercompany receivables...........................      --       4     362      810         390
Rebateable dividends (non taxed dividends).........      (2)     --      --        (2)       --
Assessable foreign source income not included in
accounting profit..................................      43      22      29       43          --
Under/(over) provision of tax in prior years.......     (28)     16       6      (23)         15
Effect of reset tax values on entering tax
consolidation (iv).................................    (201)     --      --     (201)         --
Other adjustments..................................     (40)    142      79      (13)         71
                                                      ---------------------   ------------------
Income tax expense on profit.......................   1,534   1,796   2,292    1,558       1,833
Effect of decrease in tax rates on deferred tax
balances (ii)......................................      --      --     (56)      --          --
                                                      ---------------------   ------------------
Income tax expense.................................   1,534   1,796   2,236    1,558       1,833
                                                      =====================   ==================
Our income tax expense contains the following
items:
Current taxation provision.........................   1,567   1,608   1,475    1,560       1,466
Movement in future income tax benefit..............      16    (240)     (3)      --          --
Movement in deferred income tax liability..........     (21)    412     758       21         352
Under/(over) provision of tax in prior years.......     (28)     16       6      (23)         15
                                                      ---------------------   ------------------
                                                      1,534   1,796   2,236    1,558       1,833
                                                      =====================   ==================

Future income tax benefits as at 30 June not
recorded in the statement of financial position
for:
Income tax losses (v)..............................     187     116       1       --          --
                                                      ---------------------   ------------------
                                                        187     116       1       --          --
                                                      =====================   ==================
</TABLE>

(i) Net of consolidation entries and other applicable adjustments.

(ii) During fiscal 2000, the Commonwealth lowered the income tax rates
applicable to companies from 36% to 30% in two stages. From 1 July 2000, the
income tax rates were lowered from 36% to 34%. From 1 July 2001, the income tax
rate was lowered from 34% to 30%.

As a result we restated our deferred tax balance to the rates applicable when
the timing differences are expected to reverse. This had the effect of lowering
our deferred tax balances by $56 million for the group in fiscal 2001.

212

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

4. Income tax expense (continued)

(iii) For the Telstra Entity, adjustments include those for the tax
consolidation group.

(iv) On formation of a tax consolidated group (refer below for further details),
the head entity in the group may elect to reset the tax values of a subsidiary
member under certain allocation rules. This once-off benefit reflects the
increase in future tax deductions available from these reset values (refer to
note 3 for further information).

(v) Our benefit for tax losses may be used in future years if the following
criteria are met:

..    our controlled entities have sufficient future assessable income to enable
     the tax losses to be offset against that assessable income;
..    our controlled entities continue to satisfy the conditions required by tax
     legislation to be able to use the tax losses; and
..    there are no future changes in tax legislation that will adversely affect
     us in using the benefit of the tax losses.

Our future income tax benefit in the statement of financial position contains
the following tax losses carried forward:

                                              Telstra Group
--------------------------------------------------------------
                                              As at 30 June
                                            2003   2002   2001
                                              $m     $m     $m
--------------------------------------------------------------
Future income tax benefit balance........     --    132    114
                                            ------------------
Amount of future income tax benefit
related to tax losses carried forward....     --      1      2
                                            ==================

                                       Telstra       Telstra
                                        Group        Entity
------------------------------------------------   -----------
                                      As at 30        As at
                                        June         30 June
                                     2003   2002   2003   2002
                                       $m     $m     $m     $m
------------------------------------------------   -----------

Income tax payable

Current Income tax payable (vi)...    660    632    614    572
                                     ===========   ===========

(vi) Under the Pay-As-You-Go (PAYG) transitional rules, we opted to pay part of
the final instalment of income tax for fiscal 2000 over 10 equal quarterly
instalments. The final instalment was made on 21 April 2003.

Tax consolidation

During fiscal 2003, legislation was enacted which enables the Telstra Entity and
its Australian resident wholly owned entities to be treated as a single entity
for income tax purposes. The Telstra Entity has elected to form a tax
consolidated group from 1 July 2002. As a result, the Telstra Entity, as the
head entity in the tax consolidated group, will recognise tax entries for all
entities in the tax consolidated group in addition to its own.

The entities within the tax consolidated group have entered into a tax sharing
agreement. The terms of this agreement specify the methods of allocating any tax
liability in the event of default by the Telstra Entity on its group payment
obligations and the treatment where a subsidiary member exits the group. The tax
liability of the group otherwise remains with the Telstra Entity.

Agreements which formalise the transition of subsidiaries into the tax
consolidated group have also been entered into by group members. These
agreements cover the transfer of deferred tax balances to the Telstra Entity as
at 1 July 2002 and the treatment of any PAYG instalments made in relation to the
current year.

The election to tax consolidate on 1 July 2002 has not had a significant impact
on the assets and liabilities of the Telstra Group, apart from the resetting of
certain tax values (refer to item (iv) above and note 3 for further details
regarding this impact).

                                                                             213

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

5. Segment information

We report our segment information on the basis of business segments as our risks
and returns are affected predominantly by differences in the products and
services we provide through those segments.

Business segments
During the year, three pre-existing business units of Telstra Retail, Telstra
Mobile and Telstra Country Wide were restructured. The scope of Telstra Country
Wide was increased as a result of the restructure and two new groups were
formed, namely Telstra Consumer and Marketing and Telstra Business and
Government. A separate group was established which comprises Telstra's broadband
and online activities, as well as Telstra's directories business, Sensis Pty
Ltd, and Telstra's media activities. This business is now known as Bigpond,
Media Services and Sensis. Those segments not impacted by the restructure are
consistent in their structure to previous years.

Due to this extensive restructure of the customer base, it was impracticable to
restate our comparative information to reflect the position as if the new
business segments and segment accounting policies existed in prior years. In
accordance with applicable accounting standards, for both AGAAP and USGAAP, we
have provided comparatives as they were under the previous organisational
structure, as well as restating those lines that could be restated under the new
structure.

The Telstra Group is now organised along the following segments:

..    Telstra Consumer and Marketing is responsible for:

     .    serving consumer customers with fixed, wireless and data products;
     .    management of Telstra brands, advertising and sponsorship; and
     .    implementing our bundling initiatives.

..    Telstra Country Wide is responsible for:

     .    addressing the telecommunication needs of consumer and business
          customers that reside and operate outside the mainland state capital
          cities and in Tasmania and the Northern Territory; and
     .    the specific needs of customers which are not as readily accessible as
          customers in metropolitan areas.

..    Telstra Business and Government is responsible for:

     .    the provision of the full range of products and services to corporate,
          small to medium enterprises and government customers; and
     .    manages our interests in our North American, Japanese and European
          retail operations.

..    Telstra International manages our interests in:

     .    the Asia-Pacific region, including our operations in Hong Kong, India,
          China and New Zealand.

..    Infrastructure Services responsibilities include:

     .    management and delivery of telecommunications infrastructure and
          related services;
     .    operational service and delivery of the entire fixed and mobile
          networks, along with online products and platforms; and
     .    Network, Design and Construction's capability for end-to-end project
          management, planning, design, construction, integration, operations
          and maintenance of communications networks and systems for Telstra and
          other telecommunications companies.

..    Telstra Wholesale is responsible for:

     .    the provision of domestic wholesale products and services to other
          carriers and carriage service providers.

..    Telstra Technology is responsible for:

     .    the overall planning, design and construction management of our
          domestic fixed communication networks and associated systems to
          deliver technology solutions to support our products, services and
          customer support.

..    Bigpond, Media Services and Sensis is responsible for:

     .    management and growth of Telstra's internet products, services and
          content, for both broadband and narrowband delivery;
     .    management of Telstra's broadband cable network;
     .    management of Telstra's interest in the FOXTEL partnership; and
     .    management and growth of the information, advertising and directories
          business, including print, voice and online products and services.

..    Corporate areas include:

     .    Legal & Regulatory - provides legal services and has responsibility
          for regulatory positioning and negotiation;
     .    Corporate Relations - responsible for managing our relationships and
          positioning with key groups such as our customers, the media,
          governments, industry, community groups and staff;
     .    Human Resources - responsibilities include recruitment, learning and
          development, and human resources management; and

214

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

5. Segment information (continued)

   .  Finance & Administration - encompasses the functions of finance, treasury,
      productivity, risk management and assurance, acquisitions, investments and
      strategic development, investor relations, corporate services, and the
      office of the Telstra Chief Information Officer. It also includes the
      financial management of the majority of the Telstra Entity fixed assets
      (including network assets) through the Asset Accounting Group. Telstra
      Technology manages the annual capital expenditure of these assets on
      behalf of our other business segments.

The Corporate areas, Telstra Technology and Bigpond, Media Services and Sensis
groups are not reportable segments and have been aggregated in the "Other"
segment.

Inter-segment transfers
During the year, all transfer pricing was eliminated and is no longer used
within the group. As such, the current year inter-segment line purely relates to
intercompany revenue.

In the prior year, segment revenues, segment expenses and segment results
included demand driven transfers between business segments. Generally most
internal charges between business segments were made on a direct cost recovery
basis. As the basis for transfers change from year to year depending on the
business structure, we restated our comparatives to reflect the current basis.
Certain regulatory, compliance and strategic functions are not charged to the
reportable segments. We account for all international transactions between
Australian and non-Australian businesses at market value. All internal
telecommunications usage of our own products is also accounted for at market
value.

The Asset Accounting Group does not allocate depreciation expense related to the
use of assets owned at the Corporate level to other business segments.

Segment assets and liabilities
Segment assets and segment liabilities form part of the operating activities of
a segment and can be allocated directly to that segment.

The Asset Accounting Group performs a company wide function in relation to the
financial management of certain assets. These assets are accounted for at the
Corporate level (aggregated in the "Other" segment) and not allocated across
segments.

                                                                             215

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

5. Segment information (continued)

Telstra Group
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                     Telstra              Telstra    Telstra
                                    Consumer   Telstra   Business &  Interna-  Infrastruc-                                Total
                                    & Market-  Country     Govern-    tional       ture      Telstra   Other   Elimina-    all
                                     ing (a)   Wide (a)   ment (a)     (b)      Services    Wholesale  (c)(d)   tions    segments
                                       $m         $m         $m         $m         $m          $m        $m       $m        $m
---------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>        <C>       <C>         <C>       <C>          <C>        <C>     <C>       <C>
Year ended 30 June 2003
Sales revenue from external
customers........................       5,514     5,031       4,520     1,471          256      2,370   1,333        --    20,495
Other revenue from external
customers........................           7       136          33        54           11         --     880        --     1,121
                                    ---------------------------------------------------------------------------------------------
Total revenue from external
customers (excluding
interest revenue)................       5,521     5,167       4,553     1,525          267      2,370   2,213        --    21,616
Less sale of investment/
dividend revenue.................           1        --          19        29           --         --      --        --        49
                                    ---------------------------------------------------------------------------------------------
Segment revenue from
external customers...............       5,520     5,167       4,534     1,496          267      2,370   2,213        --    21,567
Add inter-segment revenue........          --        --          55        33          754        258      86    (1,186)       --
                                    ---------------------------------------------------------------------------------------------
Total segment revenue............       5,520     5,167       4,589     1,529        1,021      2,628   2,299    (1,186)   21,567
                                    =============================================================================================
Segment result under AGAAP              3,093     4,931       3,429        12       (1,220)     1,628  (3,356)   (1,794)    6,723
Less share of equity
accounted net losses/(profits)             (2)       --           6       974           --         --      47        --     1,025
Less net book value of
investments sold.................          --        --           2        22           --         --      --        --        24
Add sale of investment/
dividend revenue.................           1        --          19        29           --         --      --        --        49
                                    ---------------------------------------------------------------------------------------------
Earnings before interest and
income tax expense (EBIT) -
segment result under
USGAAP...........................       3,096     4,931       3,440      (955)      (1,220)     1,628  (3,403)   (1,794)    5,723
                                    =============================================================================================
Earnings has been
calculated after charging/
(crediting) the following:
Depreciation and
amortisation.....................          --        --          19       388           --         --   3,043        (3)    3,447
Non cash expenses excluding
depreciation and
amortisation.....................         (52)       --          11        52           --         --     640        --       651
                                    =============================================================================================
Non current assets acquired
(excluding those acquired on
investment)......................          11        (2)         18       188        1,125         46   1,946        --     3,332
                                    =============================================================================================
As at 30 June 2003
Segment assets (e)...............       2,015       665         877     4,255          641        380  27,920    (1,154)   35,599
Segment assets include:
Investment in joint venture
entities.........................          11        --          --        74           --         --      44        --       129
Investment in associated
entities.........................          --        --           5        25           --         --      --        --        30
Goodwill (net)...................          --        --          43     1,930           --         --      46        (1)    2,018
                                    =============================================================================================
Segment liabilities..............       1,033       213         452       818          974        242  18,976    (2,531)   20,177
                                    =============================================================================================
</TABLE>

216

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

5. Segment information (continued)

(a) These segment results do not reflect actual segment results achieved due to
the majority of costs of goods and services associated with sales revenues for
all three of these segments being allocated totally to the Telstra Consumer and
Marketing segment. This allocation reflects management's accountability
framework and internal reporting system and accordingly no reasonable basis for
allocation to the three segments exist.

(b) Included in the share of equity accounted net losses/(profits) is the write
off of our investment in our 50% owned joint venture, Reach Ltd. Refer note 3
for further information.

(c) Included in other revenue from external customers is the sale of the seven
office properties for $570 million. Refer note 3 for further information.

(d) Sales revenue for the other segment relates primarily to revenue earned by
our subsidiary Sensis Pty Ltd. Telstra Technology and the Asset Accounting Group
are the main contributors to the segment result for this segment.

(e) Segment assets for the other segment includes Telstra Entity fixed assets
(including network assets) managed through the centralised Asset Accounting
Group.

Prior year comparatives
Due to the extensive restructure of the customer base, it was impracticable to
restate our comparative information as if the new business segments and segment
accounting policies had existed in prior years. In accordance with applicable
accounting standards, both AGAAP and USGAAP, the restatement of those lines that
could be restated under the new structure for both 2002 and 2001 is presented
below.

Telstra Group
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                     Telstra              Telstra
                                    Consumer   Telstra   Business &  Telstra   Infrastruc-                                Total
                                    & Market-  Country    Govern-    Interna-     ture       Telstra           Elimina-    all
                                       ing       Wide      ment       tional    Services    Wholesale   Other   tions    segments
                                       $m        $m         $m          $m         $m           $m       $m       $m       $m
---------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>        <C>       <C>         <C>       <C>          <C>        <C>     <C>       <C>
Year ended 30 June
2002
Depreciation and amortisation....          --        --          27       421           --         --   2,823        (4)    3,267
Non cash expenses excluding
depreciation and amortisation....          66        --          36        28           --         --   1,336    (1,018)      448
                                    =============================================================================================
Non current assets acquired
(excluding those acquired on
investment)......................          14         6          15       352          928         50   2,297        --     3,662
                                    =============================================================================================
As at 30 June 2002
Segment assets...................       1,982       613       1,001     6,076          679        414  28,946    (1,492)   38,219
Segment assets include:
Investment in joint venture
entities.........................           9        --          --     1,059           --         --      42        --     1,110
Investment in associated
entities.........................          --        --          26        61           --         --      --        --        87
Goodwill (net)...................          --        --          50     1,963           --         --      50        --     2,063
                                    =============================================================================================
Segment liabilities..............       1,274       174         521     1,648        1,030        250  21,865    (2,649)   24,113
                                    =============================================================================================
</TABLE>

                                                                             217

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

5. Segment information (continued)

<TABLE>
<CAPTION>
Telstra Group
------------------------------------------------------------------------------------------------------------------------------------
                                         Telstra             Telstra
                                        Consumer   Telstra  Business &  Telstra   Infrastruc-                                Total
                                        & Market-  Country   Govern-    Interna-     ture       Telstra           Elimina-    all
                                           ing      Wide       ment      tional    Services    Wholesale   Other   tions    segments
                                           $m        $m         $m         $m         $m          $m        $m       $m        $m
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>      <C>         <C>       <C>          <C>         <C>    <C>       <C>
Year ended 30 June 2001
Depreciation and amortisation.........          2       --          19       188           --         --   2,666        (4)    2,871
Non cash expenses excluding
depreciation and amortisation.........       (591)      --         361     2,528            3         --     319         1     2,621
                                        ============================================================================================
As at 30 June 2001
Investment in joint venture entities..          5       --          --     1,140           --         --      47        --     1,192
Investment in associated entities.....         --       --          53        14           --         --      --        --        67
Goodwill (net)........................         --       --          75     1,431            1         --      42        (1)    1,548
                                        ============================================================================================
</TABLE>

218

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

5. Segment information (continued)

Due to the extensive restructure of the customer base, it was impracticable to
restate our comparative information as if the new business segments and segment
accounting policies existed in prior years. Following are the comparatives for
the 2002 and 2001 years under the structure that existed as at 30 June 2002.

<TABLE>
<CAPTION>
Telstra Group
------------------------------------------------------------------------------------------------------------------------------
                                                                 Telstra   Infrastruc-                                 Total
                                               Telstra  Telstra  Interna-     ture       Telstra            Elimina-    all
                                                Retail   Mobile   tional   Services     Wholesale   Other    tions    segments
                                                 (a)                                                 (b)      (c)
                                                  $m       $m       $m         $m          $m        $m       $m        $m
------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>      <C>      <C>       <C>          <C>         <C>     <C>       <C>
Year ended 30 June 2002
Sales revenue from external customers           12,560    3,501     1,497          253      2,334       67       (16)   20,196
Other revenue from external customers              227       --        34           29         11      305        --       606
                                               -------------------------------------------------------------------------------
Total revenue from external customers
(excluding interest revenue)................    12,787    3,501     1,531          282      2,345      372       (16)   20,802
Less sale of investment/dividend revenue            42       --        14           --         --       --        --        56
                                               -------------------------------------------------------------------------------
Segment revenue from external customers.....    12,745    3,501     1,517          282      2,345      372       (16)   20,746
Add inter-segment revenue...................       447       39         1        1,853      1,001      957    (4,298)       --
                                               -------------------------------------------------------------------------------
Total segment revenue.......................    13,192    3,540     1,518        2,135      3,346    1,329    (4,314)   20,746
                                               ===============================================================================
Segment result under AGAAP..................     7,318    1,542       (22)      (1,371)     2,076   (4,267)    1,022     6,298
Less share of equity accounted net losses           42       --        39           --         --       --        --        81
Less net book value of investments sold             40       --         9           --         --        8        --        57
Add sale of investment/dividend revenue             42       --        14           --         --       --        --        56
                                               -------------------------------------------------------------------------------
Earnings before interest and income tax
expense (EBIT) - segment result under
USGAAP......................................     7,278    1,542       (56)      (1,371)     2,076   (4,275)    1,022     6,216
                                               ===============================================================================
Earnings has been calculated after
charging/(crediting) the following:
Depreciation and amortisation...............        85       --       421           --         --    2,765        (4)    3,267
Non cash expenses excluding depreciation
and amortisation............................        36       45        25           --         --    1,360    (1,018)      448
                                               ===============================================================================
Non current assets acquired (excluding
those acquired on investment)...............       335      110       352        2,740         50       75        --     3,662
                                               ===============================================================================
As at 30 June 2002
Segment assets (d)..........................     4,291    1,098     6,095        1,436        414   26,358    (1,473)   38,219
Segment assets include:
Investment in joint venture entities........        51       --     1,059           --         --       --        --     1,110
Investment in associated entities...........        26       --        61           --         --       --        --        87
                                               ===============================================================================
Segment liabilities.........................     2,763      234     1,671        1,530        252   20,313    (2,650)   24,113
                                               ===============================================================================
</TABLE>

(a) Telstra Retail segment revenue from external customers includes $2,406
million relating to Telstra Country Wide.

(b) Included in the other segment result is a specific charge of $855 million
relating to a provision for amounts owed by a controlled entity (refer note 27).

(c) Included in segment result is an elimination for the specific charge of $855
million relating to a provision for amounts owed by a controlled entity (refer
note 27).

(d) Segment assets for the other segment includes Telstra Entity fixed assets
(including network assets) managed through the centralised Asset Accounting
Group.

                                                                             219

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

5. Segment information (continued)

<TABLE>
<CAPTION>
Telstra Group
------------------------------------------------------------------------------------------------------------------------------
                                                                 Telstra   Infrastruc-                                 Total
                                               Telstra  Telstra  Interna-     ture       Telstra            Elimina-    all
                                                Retail   Mobile   tional   Services     Wholesale   Other    tions    segments
                                               (a)(b)    (c)       (d)                               (e)
                                                 $m       $m        $m         $m          $m        $m       $m        $m
------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>      <C>      <C>       <C>          <C>         <C>     <C>       <C>
Year ended 30 June 2001
Sales revenue from external customers           11,620    3,144     1,208          282      2,410       67       (52)   18,679
Other revenue from external customers              616       13     2,495           51         22    1,108        (1)    4,304
                                               -------------------------------------------------------------------------------
Total revenue from external customers
(excluding interest revenue)................    12,236    3,157     3,703          333      2,432    1,175       (53)   22,983
Less sale of investment/dividend revenue           551       --     2,466           --         --       --        --     3,017
                                               -------------------------------------------------------------------------------
Segment revenue from external customers.....    11,685    3,157     1,237          333      2,432    1,175       (53)   19,966
Add inter-segment revenue...................       328       38       281        2,124        801    1,020    (4,592)       --
                                               -------------------------------------------------------------------------------
Total segment revenue.......................    12,013    3,195     1,518        2,457      3,233    2,195    (4,645)   19,966
                                               ===============================================================================
Segment result under AGAAP..................     6,582    1,329      (773)      (1,205)     2,119   (2,765)      719     6,006
Less share of equity accounted net losses           89       --        94           --         --       --        --       183
Less net book value of investments sold            297       --     1,574            4         --       --         2     1,877
Add sale of investment/dividend revenue            551       --     2,466           --         --       --        --     3,017
                                               -------------------------------------------------------------------------------
Earnings before interest and income tax
expense (EBIT) - segment result under
USGAAP......................................     6,747    1,329        25       (1,209)     2,119   (2,765)      717     6,963
                                               ===============================================================================
Earnings has been calculated after
charging/(crediting) the following:
Depreciation and amortisation...............        84       --       188           19         --    2,584        (4)    2,871
Non cash expenses excluding depreciation
and amortisation............................      (138)     (99)    2,559          144         --      873      (718)    2,621
                                               ===============================================================================
Non current assets acquired (excluding
those acquired on investment)...............       311      150     3,214        3,732         58      139        --     7,604
                                               ===============================================================================
As at 30 June 2001
Segment assets..............................     4,290    1,160     4,437        1,499        479   30,095    (3,957)   38,003
Segment assets include:
Investment in joint venture entities........        52       --     1,140           --         --       --        --     1,192
Investment in associated entities...........        53       --        14           --         --       --        --        67
                                               ===============================================================================
Segment liabilities.........................     2,829      227       567        1,644        247   23,834    (5,067)   24,281
                                               ===============================================================================
</TABLE>

(a) Specific revenue of $546 million from the sale of Computershare Limited
(refer note 3) is included in Telstra Retail revenue. This increased profit by
$245 million.

(b) Telstra Retail segment revenue was reduced by $745 million relating to the
specific SAB101 cumulative adjustment (refer note 3). This specific item
decreased the segment result by $205 million.

(c) Telstra Mobile segment revenue was reduced by $34 million relating to the
specific SAB101 cumulative adjustment (refer note 3). This specific item
decreased the segment result by $14 million.

(d) Telstra International total revenue includes a specific item of $2,372
million from the sale of our global wholesale business to Reach Ltd. Profit
includes specific expenses relating to the book value of our global wholesale
business and controlled entities sold of $1,520 million and the Telstra CSL
Group write off of acquisition costs of $999 million (refer note 3).

(e) Specific revenue of $725 million from the write back of the Telstra
Superannuation Scheme (Telstra Super or TSS) additional contribution liability
(refer note 3) is included in other segment revenue. This increased the other
segment result by $725 million.

220

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS(CONTINUED)
--------------------------------------------------------------------------------

5. Segment information (continued)

                                                          Telstra Group
-----------------------------------------------------------------------------
                                                     Year ended/As at 30 June
                                                         2003    2002    2001
                                               Note        $m      $m      $m
-----------------------------------------------------------------------------
Total segment revenue.............................     21,567  20,746  19,966
Add sale of investment/dividend revenue...........         49      56   3,017
                                                     ------------------------
Total revenue from external customers (excluding
interest revenue).................................2    21,616  20,802  22,983
Add interest revenue..............................         84     126     103
                                                     ------------------------
Total revenue from ordinary activities............2    21,700  20,928  23,086
                                                     ========================
Earnings before interest and income tax expense
(EBIT)............................................      5,723   6,216   6,963
Add interest revenue..............................         84     126     103
Less borrowing costs..............................        879     896     769
                                                     ------------------------
Profit before income tax expense..................      4,928   5,446   6,297
Less income tax expense...........................      1,534   1,796   2,236
                                                     ------------------------
Net profit........................................      3,394   3,650   4,061
                                                     ========================
Information about our products and services
Sales revenue from
Basic access (i)..................................      3,091   2,880   1,955
Local calls.......................................      1,567   1,643   1,915
PSTN value added services.........................        272     261     263
National long distance calls......................      1,162   1,216   1,267
Fixed to mobile...................................      1,517   1,419   1,287
International direct..............................        307     336     338
Mobile goods and services (i).....................      3,608   3,468   3,119
Data and Internet services........................      2,806   2,693   2,711
Sensis (advertising and directories) (i)..........      1,217   1,135     909
Customer premise equipment........................        202     220     274
Payphone..........................................        148     154     166
Intercarrier services.............................      1,170   1,124   1,132
Inbound calling products..........................        494     562     657
Solutions management..............................        487     477     428
Various controlled entities.......................      1,836   2,001   1,342
Other sales and service...........................        611     607     916
                                                     ------------------------
                                                  2    20,495  20,196  18,679
                                                     ========================
(i) Sales revenue for year ended 30 June 2001
includes a specifc debit accounting adjustment of
$779 million for SAB101. This adjustment has been
allocated across our sales revenue as follows:
$540 million (basic access), $205 million
(directory services), and $34 million (mobile
goods and services) (refer note 3).
Information about our geographic operations

Sales revenue from
Customers in Australia............................     19,024  18,699  17,471
Customers in non Australian countries.............      1,471   1,497   1,208
                                                     ------------------------
                                                  2    20,495  20,196  18,679
                                                     ========================
Carrying amount of segment assets
Customers in Australia............................     32,632  32,124  33,036
Customers in non Australian countries.............      2,967   6,095   4,437
                                                     ------------------------
                                                       35,599  38,219  37,473
                                                     ========================
Non current assets acquired (excluding those
 acquired on investment)
Located in Australia..............................      3,144   3,310   4,390
Located in non Australian countries...............        188     352   3,214
                                                     ------------------------
                                                        3,332   3,662   7,604
                                                     ========================

                                                                             221

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                                         Telstra Group
---------------------------------------------------------------------------
                                                       Year ended 30 June
                                                       2003    2002    2001
                                                      CENTS   CENTS   CENTS
---------------------------------------------------------------------------

6. Earnings per share

Basic and diluted earnings per share (cents) (a)       26.6    28.5    31.5
                                                     ----------------------
                                                         $m      $m      $m
                                                     ----------------------
The following reflects the earnings and share
information used in determining our basic and
diluted earnings per share (see note 1.22):

Net profit........................................    3,394   3,650   4,061

Adjustments:
Outside equity interests in net (profit)/loss.....       35      11      (3)
                                                     ----------------------
Earnings used in the calculation of basic and
diluted earnings per share........................    3,429   3,661   4,058
                                                     ======================

                                                        Number of
                                                          shares
                                                        (millions)
                                                     ----------------------
Weighted average number of issued ordinary
shares used in the calculation of basic and
diluted earnings per share (b)(c).................   12,867  12,867  12,867
                                                     ======================

(a) Change in accounting policy

The change in accounting policy for the introduction of SAB101 during fiscal
2001 is described in note 1.2. This change had the effect of decreasing the
earnings per share calculation by 1.1 cents to 31.5 cents in fiscal 2001.

(b) The number of issued and paid up ordinary shares for the last 3 years has
been 12,866,600,200.

(c) There are no potential ordinary shares or dilutive ordinary shares. We are
precluded from issuing instruments that gives rise to the issue of new shares by
the Telstra Corporation Act 1991 (Cth). The Telstra Growthshare Trust was
established to allocate options, restricted shares, performance rights, deferred
shares, directshares and ownshares to executives and employees. The Growthshare
trustee purchases shares on market to underpin the various instruments issued.

222

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                 Telstra Group       Telstra Entity
---------------------------------------------------------------------------------  ------------------
                                                               Year ended 30 June  Year ended 30 June
                                                               2003   2002   2001      2003      2002
                                                    Note         $m     $m     $m        $m        $m
---------------------------------------------------------------------------------  ------------------
<S>                                                           <C>    <C>    <C>       <C>       <C>
7. Dividends

Ordinary shares
Interim dividend paid...................................      1,544  1,415  1,029     1,544     1,415
Interim special dividend paid...........................        386     --     --       386        --
Final ordinary dividend provided for (i)..............17         --  1,415  1,416        --     1,415
                                                           ----------------------  ------------------
Total dividend provided for or paid.....................      1,930  2,830  2,445     1,930     2,830
                                                           ======================  ==================
Dividends per share (cents) provided for or paid              CENTS  CENTS  CENTS
                                                           ----------------------
Interim dividend........................................       12.0   11.0    8.0
Interim special dividend................................        3.0     --     --
Final ordinary dividend (i).............................         --   11.0   11.0
                                                           ----------------------
Total dividend..........................................       15.0   22.0   19.0
                                                           ======================
</TABLE>

Our dividends provided for or paid are fully franked, in aggregate and per
share, to the same amount in the relevant tables above.

(i) Due to the first time application of the new accounting standard AASB 1044:
"Provisions, Contingent Liabilities and Contingent Assets", a difference has
arisen between reporting periods regarding the timing and the recognition of
dividends declared in our statement of financial performance and statement of
financial position. There has been no change in the timing of the dividends
declared by the directors.

Under this new accounting standard, the provision for final ordinary dividend
raised at 30 June 2002 has been reversed to opening retained profits in the
current period statement of financial position (refer to statement of changes in
shareholders equity).

As the final ordinary dividend in fiscal 2003 has not been declared, determined
or publicly recommended as at 30 June 2003, no provision has been raised in the
statement of financial position. The final ordinary dividend is now reported as
an event after balance date (refer note 28) and the provision for final ordinary
dividend is raised at the declaration date.

We have paid dividends as listed in the table below:

                                     Telstra Group
-----------------------------------------------------
                                  Year ended 30 June
                                   2003   2002   2001
                                     $m     $m     $m
-----------------------------------------------------
Dividends paid
Previous year final ordinary
dividend paid in the current
year............................  1,415  1,416  1,287
Interim dividend paid...........  1,544  1,415  1,029
Special interim dividend paid...    386     --     --
                                  -------------------
Total dividends paid............  3,345  2,831  2,316
                                  ===================

Our dividends have been franked as listed in the table below:

                                    Telstra Group
----------------------------------------------------
                                  Year ended 30 June
                                  2003   2002   2001
                                     %      %      %
----------------------------------------------------
C class franking credit
percentages
Interim dividend................   100    100    100
Interim special dividend........   100     --     --
Final ordinary dividend (i).....    --    100    100
                                  ==================

The interim dividend and interim special dividend were franked at a tax rate of
30% (2002: 30%; 2001: 34%). Our final ordinary dividends were franked at a tax
rate of 30% for both fiscal 2002 and fiscal 2001.

                                                                             223

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

7. Dividends (continued)

<TABLE>
<CAPTION>
                                                                       Telstra Group            Telstra Entity
-------------------------------------------------------------------------------------------   ------------------
                                                                    Year ended 30 June        Year ended 30 June
                                                                  2003       2002      2001      2003       2002
                                                                    $m         $m        $m        $m         $m
-------------------------------------------------------------------------------------------   ------------------
<S>                                                              <C>         <C>     <C>      <C>           <C>
The combined amount of exempting and franking credits
available to us for the next fiscal year are:
Combined exempting and franking account balance as at
30 June (i)...............................................         585        530       645       585        457
Franking credits that will arise from the payment
of income tax payable as at 30 June (ii)..................         614        632     1,620       614        572
Franking debits when we pay our final dividend
provided for as at 30 June (iii)..........................          --       (606)   (1,416)       --       (606)
Franking credits and exempting credits that we may be
prevented from distributing in the next fiscal year.......          (1)       (15)     (153)       (1)        --
                                                               ----------------------------   ------------------
                                                                 1,198        541       696     1,198        423
                                                               ============================   ==================
</TABLE>

(i) In fiscal 2002, with the introduction of the Business Tax Reform's
Simplified Imputation System that became effective from 1 July 2002, the Telstra
Entity's and Telstra Group's franking balances as at 30 June 2002 were converted
to reflect the credit balances on a tax paid basis rather than on an after tax
distributable profits basis. The tax paid balances basically represent the
imputation tax credits that are available for distribution.

During fiscal 2003, legislation has been enacted which enables the Telstra
Entity and its Australian resident wholly owned entities to be treated as a
single entity for income tax purposes. The Telstra Entity elected to form a tax
consolidated group from 1 July 2002. On entry into tax consolidation, the
franking credits held in the franking accounts and exempt franking accounts of
the subsidiary members were transferred to the Telstra Entity. Therefore, one
franking account and one exempt franking account is maintained by the Telstra
Entity for the tax consolidated group. We have not restated our comparatives to
reflect this change.

As at 30 June 2003, the Telstra Entity had a combined exempting and franking
account balance of $585 million (2002: $457 million). This balance represents
the tax paid amount and equates to a fully franked distributable dividend of
$1,365 million (2002: $1,067 million).

(ii) Franking credits that arise from the payment of income tax in fiscal 2004
and fiscal 2003 are expressed at the 30% tax rate on a tax paid basis. Franking
credits that arise from the payment of income tax in fiscal 2002 are also
expressed at the 30% tax rate, but on an after tax distributable profit basis.

(iii) The franking debits that arise when we pay our final ordinary dividend
have been expressed as the amount of imputation tax credits that will be
attached to a fully franked distribution.

Due to the first time application of the new accounting standard AASB 1044:
"Provisions, Contingent Liabilities and Contingent Assets", a provision for
dividend can no longer be raised at balance date if the dividend is declared
after that date. As the final ordinary dividend in fiscal 2003 has not been
declared, determined or publicly recommended as at 30 June 2003, no franking
debits arise prior to that date in the franking account. The franking credits
that arose in fiscal 2002 from our final ordinary dividend provided for amounted
to $606 million.

As at 30 June 2003, the Telstra Entity had a surplus in its C class franking
account of $584 million (2002: $457 million; 2001: $466 million) and a surplus
of $0.6 million (2002: $0.1 million; 2001: $0.2 million) in its C class
exempting credit account restated on a tax paid basis.

Additional franking credits will arise when the Telstra Entity pays tax
instalments during fiscal 2004, relating to the fiscal 2003 and 2004 income tax
years.

224

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                            Telstra Group       Telstra Entity
------------------------------------------------------------  ------------------
                                             As at 30 June       As at 30 June
                                              2003      2002      2003      2002
                                                $m        $m        $m        $m
------------------------------------------------------------  ------------------
8. Cash assets
Cash at bank and on hand................       199       311       102       132
Bank deposits, bills of exchange and
commercial paper (a)....................     1,101       759     1,050       357
                                          ------------------  ------------------
                                             1,300     1,070     1,152       489
                                          ==================  ==================

(a) Bank deposits are held in the short term money market. The carrying amount
of bank deposits, bills of exchange and commercial paper is approximately equal
to net fair value due to their short term to maturity.

                                                                             225

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       Telstra Group        Telstra Entity
------------------------------------------------------------------------   ----------------
                                                        As at 30 June        As at 30 June
                                                         2003       2002      2003     2002
                                              Note         $m         $m        $m       $m
------------------------------------------------------------------------   ----------------
<S>                                           <C>      <C>        <C>      <C>       <C>
9. Receivables

Current
Trade debtors (a).................................      2,436      2,535     1,849    1,736
Provision for doubtful debts......................       (199)      (221)     (157)    (162)
                                                     -------------------   ----------------
                                                        2,237      2,314     1,692    1,574

Amounts owed by controlled entities (other
than trade debtors).............................27         --         --       689    3,148
Provision for amounts owed by controlled
entities (other than trade debtors).............27         --         --      (285)    (855)
                                                     -------------------   ----------------
                                                           --         --       404    2,293

Accrued revenue...................................      1,068      1,124     1,036    1,059
Bank deposits, bills of exchange and
commercial paper (b)..............................         --        388        --      388
Share loans to employees (c).................19,27         24         25        24       25
Loans to joint venture entities and
associated entities.............................27         33         16        33       16
Cross currency swap hedge receivable (1.2)......29         10         29        10       29
Other receivables.................................        247        167       175      138
                                                     -------------------   ----------------
                                                        3,619      4,063     3,374    5,522
                                                     ===================   ================
Non current
Amounts owed by controlled entities
(other than trade debtors)......................27         --         --       511      202
Provision for amounts owed by controlled
entities (other than trade debtors).............27         --         --       (69)     (86)
                                                     -------------------   ----------------
                                                           --         --       442      116

Share loans to employees (c).................19,27        174        205       174      205
Loans to joint venture entities and
associated entities.............................27         29         46        29       46
Reach capacity prepayment (e).....................        214         --       214       --
Cross currency swap hedge receivable (1.2)......29        273        622       273      622
Other receivables (d).............................        187        132       187      132
                                                     -------------------   ----------------
                                                          877      1,005     1,319    1,121
                                                     ===================   ================
</TABLE>

(a) Our policy requires trade debtors to pay us within 14 days. We have no
significant exposure to any individual customer, geographical location or
industry category. All credit and recovery risk associated with trade debtors
has been provided for in the financial statements.

(b) In fiscal 2002, bank deposits, bills of exchange and commercial paper
included $6 million Japanese yen deposits. These related to our Japanese finance
lease liabilities and were held to satisfy our requirements under the leases
which were payable in July 2002.

(c) Share loans to employees represent amounts receivable from employees under
all employee share plans. Refer to note 19 for details regarding the share
plans. The loan balance is considered fully recoverable over the period of the
employee share schemes.

(d) Included in our other non current receivables is an amount of $88 million
(2002: $115 million) from Telstra Growthshare (the senior executive equity
participation scheme). Refer to note 19 for further information on Telstra
Growthshare.

(e) On 25 April 2003, we entered a capacity prepayment agreement with our 50%
owned joint venture entity, Reach Ltd. Our prepayment amounted to $230 million
(US$143 million) and was funded by the partial redemption of our converting note
in PCCW Limited (PCCW). The prepayment earns compounding interest equivalent to
the 3 month US LIBOR rate plus an additional 2.50%, and provides the right to
receive future carriage and related services capacity equivalent to the amount
of the payment and accrued interest. We have classified the capacity prepayment
as non current as no draw down is expected until fiscal 2007. The prepayment is
considered fully recoverable.

226

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                                Telstra Group    Telstra Entity
--------------------------------------------------------------   --------------
                                                As at 30 June     As at 30 June
                                                  2003    2002     2003    2002
                                                    $m      $m       $m      $m
--------------------------------------------------------------   --------------

10. Inventories

Current
Raw materials and stores recorded at cost....       21       7       21       7
Construction contracts (a) (1.9).............       18      35       --      --

Finished goods recorded at cost..............      235     161      202     135
Finished goods recorded at net realisable
value........................................       12      27       12      22
                                                --------------   --------------
Total finished goods.........................      247     188      214     157
Provision for stock obsolescence.............      (26)    (26)     (10)     (4)
                                                --------------   --------------
                                                   260     204      225     160
                                                ==============   ==============
Non current
Finished goods recorded at cost..............       14      18       14       5
Finished goods recorded at net realisable
value........................................        9      14        9      14
                                                --------------   --------------
                                                    23      32       23      19
Provision for stock obsolescence.............       (9)    (12)      (9)    (12)
                                                --------------   --------------
                                                    14      20       14       7
                                                ==============   ==============
(a) Construction contract disclosures are
shown in the table below.

Gross amount of construction work in
progress.....................................       92     126       --      --
Profits recognised to date...................       18      15       --      --
                                                --------------   --------------
                                                   110     141       --      --
Progress billings and advances received......      (92)   (106)      --      --
                                                --------------   --------------
                                                    18      35       --      --
                                                ==============   ==============

                                                                             227

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                               Telstra Group   Telstra Entity
------------------------------------------------------------  ----------------
                                               As at 30 June   As at 30 June
                                                2003    2002     2003     2002
                                       Note       $m      $m       $m       $m
------------------------------------------------------------  ----------------
11. Investments

Investments - accounted for using the
equity method (1.10)
Carrying amount of investments in
joint venture entities....................24     129   1,110        3        3
Investment in associated entities...........      56     101       26       57
Provision for reduction in value............     (26)    (14)     (19)     (26)
                                              --------------  ----------------
Carrying amount of investments in
associated entities (a)...................24      30      87        7       31
                                              --------------  ----------------
                                                 159   1,197       10       34
                                              ==============  ================
Investments - other non current (1.10)
Listed securities
Investment in listed corporations
(at cost)...................................      46      58       41       38
Provision for reduction in value............     (14)    (17)     (14)     (14)
                                              --------------  ----------------
Total listed securities excluding
investments in associated entities.....11(i)      32      41       27       24
Unlisted securities and other
investments
Investment in controlled entities
(at cost).................................23      --      --   12,028    9,553
Provision for reduction in value............      --      --   (7,912)  (4,875)
                                              --------------  ----------------
Total unlisted securities and other
investments.................................      --      --    4,116    4,678
Investment in other corporations
(at cost)...................................      66      79       62       73
Provision for reduction in value............      (2)    (15)      (1)     (13)
                                              --------------  ----------------
Total investment in other
corporations..........................11(ii)      64      64       61       60
                                              --------------  ----------------
                                                  96     105    4,204    4,762
                                              ==============  ================

(a) During fiscal 2003, we sold our remaining shareholding in our listed
associated entity Solution 6 Holdings Limited. Its equity accounted value at 30
June 2002 was $14 million and was recorded as part of the carrying amount of
investments in associated entities. Its net fair value was $18 million as at 30
June 2002.

228

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

11. Investments (continued)

Listed securities and investments in other corporations are as follows:

<TABLE>
<CAPTION>
                                                                                  Telstra Group's    Telstra Entity's
                                                                                  recorded amount    recorded amount
Name of investment                  Principal activities     Ownership interest  of investment (*)  of investment (*)
-------------------------------------------------------------------------------  -----------------  -----------------
                                                                As at 30 June      As at 30 June      As at 30 June
                                                                 2003      2002      2003     2002     2003     2002
                                                                    %         %        $m       $m       $m       $m
-------------------------------------------------------------------------------  -----------------  -----------------
<S>                             <C>                             <C>       <C>      <C>        <C>     <C>       <C>
(i) Listed securities
                                International
                                communications and
Infonet Services Corporation    computing services                5.3       5.3        11       11       11        11
-----------------------------------------------------------
Commander                       Voice and data transmission
Communications Limited (a)      services                         16.4      16.6        16       16       16        13
-----------------------------------------------------------
                                Provision of satellite
New Skies Satellites, N.V.(b).  capacity                           --       0.8        --        9       --        --
-----------------------------------------------------------
Other listed investments......                                                          5        5       --        --
-----------------------------------------------------------                      -----------------  -----------------
                                                                                       32       41       27        24
                                                                                 =================  =================
(ii) Investments in other
corporations
                                Provision of satellite
Intelsat Limited..............  capacity                          1.7       1.7        60       60       60        60
-----------------------------------------------------------
Other investments.............                                                          4        4        1        --
-----------------------------------------------------------                      -----------------  -----------------
                                                                                       64       64       61        60
                                                                                 =================  =================
</TABLE>

(*) Amounts shown net of provision for reduction in value.

(a) Our investment in Commander Communications Limited has decreased from 16.6%
to 16.4% due to a dilution in our shareholding. Subsequent to 30 June 2003, we
disposed of our investment in this entity for $24 million.

(b) During fiscal 2003, we sold our shareholding in New Skies Satellites N.V.
for $5.9 million.

                                                                             229

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

12. Property, plant and equipment

<TABLE>
<CAPTION>
Telstra Group                                           (a)       (b)       (c)       (d)      (e)      (f)
----------------------------------------------------------------------------------------------------------------------
                                                               Buildings    CA's      CA's    Other    Equip
                                                       Land      (incl     (incl.    under    plant,   under
                                                      & site    l'hold     l'hold   finance  equip &  finance
                                                      imp'mnt   imp'mnt)  imp'mnt)   lease     MV      lease    Total
                                               Note      $m       $m         $m        $m       $m       $m       $m
----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>    <C>      <C>        <C>       <C>      <C>      <C>      <C>
30 June 2003
Carrying amount at cost (1.12)
Balance at 30 June 2002.............................       81        778    37,272      858    1,757       47   40,793
- additions.........................................        1         43     2,486       --       72       --    2,602
- disposals.........................................      (33)      (103)     (286)      --     (232)      --     (654)
- net foreign currency exchange differences on
translation of financial statements of self-
sustaining operations...............................       --         (5)      (72)      --      (10)      --      (87)
- other.............................................       --        (15)       92       --     (138)       5      (56)
                                                      ----------------------------------------------------------------
Balance at 30 June 2003.............................       49        698    39,492      858    1,449       52   42,598
                                                      ----------------------------------------------------------------
Accumulated depreciation/amortisation
Balance at 30 June 2002.............................       --       (265)  (15,786)    (195)  (1,106)     (20) (17,372)
- disposals.........................................       --         42       197       --      188       --      427
- depreciation and amortisation expense (i)........3       --        (75)   (2,436)     (82)    (154)      (7)  (2,754)
- net foreign currency exchange differences on
translation of financial statements of self-
sustaining operations...............................       --          1        58       --        6       --       65
- other.............................................       --         18        (4)      --       47      (13)      48
                                                      ----------------------------------------------------------------
Balance at 30 June 2003.............................       --       (279)  (17,971)    (277)  (1,019)     (40) (19,586)
                                                      ----------------------------------------------------------------
Net book value
                                                      ----------------------------------------------------------------
As at 30 June 2003..................................       49        419    21,521      581      430       12   23,012
                                                      ================================================================
</TABLE>

General purpose land and buildings
(a) Land and site improvements
(b) Buildings (including leasehold improvements)

Communication assets
(c) Communication assets (including leasehold improvements)
(d) Communication assets under finance lease

Other plant and equipment
(e) Other plant, equipment and motor vehicles
(f) Equipment under finance lease

(i) The depreciation and amortisation expense on buildings (including leasehold
improvements) is split between depreciation of general purpose buildings and
amortisation of leasehold improvements in our note 3 disclosures. The
depreciation and amortisation expense of communication assets (including
leasehold improvements) and communication assets under finance lease is
aggregated to depreciation of communication assets in our note 3 disclosures.

230

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
12. Property, plant and equipment (continued)

<TABLE>
<CAPTION>

Telstra Group                                           (a)       (b)       (c)       (d)      (e)      (f)
----------------------------------------------------------------------------------------------------------------------
                                                               Buildings    CA's      CA's    Other    Equip
                                                       Land      (incl     (incl.    under    plant,   under
                                                      & site    l'hold     l'hold   finance  equip &  finance
                                                      imp'mnt   imp'mnt)  imp'mnt)   lease     MV      lease    Total
                                               Note     $m        $m         $m       $m       $m       $m       $m
----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>    <C>      <C>        <C>       <C>      <C>      <C>      <C>
30 June 2002

Carrying amount at cost (1.12)

Balance at 30 June 2001............................       160      1,339    34,149      906    1,817       65   38,436
- additions........................................        --         46     2,792       --      128       --    2,966
- disposals........................................       (33)       (32)     (738)      --     (276)     (24)  (1,103)
- acquisitions of businesses.......................         1         17       671       --       82        6      777
- net foreign currency exchange differences on
translation of financial statements of self-
sustaining operations..............................        --         (3)      (19)      --       (1)      --      (23)
- other............................................       (47)      (589)      417      (48)       7       --     (260)
                                                      ----------------------------------------------------------------
Balance at 30 June 2002............................        81        778    37,272      858    1,757       47   40,793
                                                      ----------------------------------------------------------------
Accumulated depreciation/amortisation

Balance at 30 June 2001............................        --       (408)  (13,883)    (164)  (1,140)     (38) (15,633)
- disposals.......................................         --         15       670       --      155       24      864
- depreciation and amortisation expense (i)..3             --        (84)   (2,373)     (79)    (115)      (2)  (2,653)
- net foreign currency exchange differences on
translation of financial statements of self-
sustaining operations..............................        --         --         3       --       --       --        3
- other............................................        --        212      (203)      48       (6)      (4)      47
                                                      ----------------------------------------------------------------
Balance at 30 June 2002............................        --       (265)  (15,786)    (195)  (1,106)     (20) (17,372)
                                                      ----------------------------------------------------------------
Net book value
                                                      ----------------------------------------------------------------
As at 30 June 2002.................................        81        513    21,486      663      651       27   23,421
                                                      ================================================================
</TABLE>

General purpose land and buildings
(a) Land and site improvements
(b) Buildings (including leasehold improvements)

Communication assets
(c) Communication assets (including leasehold improvements)
(d) Communication assets under finance lease

Other plant and equipment
(e) Other plant, equipment and motor vehicles
(f) Equipment under finance lease

(i) The depreciation and amortisation expense on buildings (including leasehold
improvements) is split between depreciation of general purpose buildings and
amortisation of leasehold improvements in our note 3 disclosures. The
depreciation and amortisation expense of communication assets (including
leasehold improvements) and communication assets under finance lease is
aggregated to depreciation of communication assets in our note 3 disclosures.

                                                                             231

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

12. Property, plant and equipment (continued)

<TABLE>
<CAPTION>
Telstra Entity                                          (a)       (b)       (c)       (d)      (e)      (f)
----------------------------------------------------------------------------------------------------------------------
                                                               Buildings    CA's     CA's     Other    Equip
                                                       Land      (incl     (incl.    under    plant,   under
                                                       & site   l'hold     l'hold   finance  equip &  finance
                                                      imp'mnt   imp'mnt)  imp'mnt)  lease      MV      lease    Total
                                               Note     $m        $m         $m       $m       $m        $m       $m
----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>    <C>      <C>        <C>       <C>      <C>      <C>       <C>
30 June 2003

Carrying amount at cost (1.12)

Balance at 30 June 2002............................        80        710    35,635      858    1,296       --   38,579
- additions........................................         1         38     2,525       --       17       --    2,581
- disposals........................................       (33)       (96)     (152)      --     (195)      --     (476)
- acquisition of businesses........................        --         --        --       --       --        9        9
- other............................................        --          1        78       --      (54)      --       25
                                                      ----------------------------------------------------------------
Balance at 30 June 2003............................        48        653    38,086      858    1,064        9   40,718
                                                      ----------------------------------------------------------------
Accumulated depreciation/amortisation

Balance at 30 June 2002............................        --       (247)  (15,365)    (195)    (920)      --  (16,727)
- disposals........................................        --         35        90       --      154       --      279
- depreciation and amortisation
expense (i).......................................3        --        (57)   (2,282)     (82)    (106)      (2)  (2,529)
- other............................................        --          2        (1)      --       52       --       53
                                                      ----------------------------------------------------------------
Balance at 30 June 2003............................        --       (267)  (17,558)    (277)    (820)      (2) (18,924)
                                                      ----------------------------------------------------------------
Net book value
                                                      ----------------------------------------------------------------
As at 30 June 2003.................................        48        386    20,528      581      244        7   21,794
                                                      ================================================================
</TABLE>

General purpose land and buildings
(a) Land and site improvements
(b) Buildings (including leasehold improvements)

Communication assets
(c) Communication assets (including leasehold improvements)
(d) Communication assets under finance lease

Other plant and equipment
(e) Other plant, equipment and motor vehicles
(f) Equipment under finance lease

(i) The depreciation and amortisation expense on buildings (including leasehold
improvements) is split between depreciation of general purpose buildings and
amortisation of leasehold improvements in our note 3 disclosures. The
depreciation and amortisation expense of communication assets (including
leasehold improvements) and communication assets under finance lease is
aggregated to depreciation of communication assets in our note 3 disclosures.

232

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

12. Property, plant and equipment (continued)

<TABLE>
<CAPTION>

Telstra Entity                                          (a)      (b)        (c)       (d)      (e)      (f)
----------------------------------------------------------------------------------------------------------------------
                                                               Buildings    CA's      CA's    Other    Equip
                                                       Land      (incl     (incl.    under    plant,   under
                                                      & site    l'hold     l'hold   finance  equip &  finance
                                                      imp'mnt   imp'mnt)  imp'mnt)   lease     MV      lease    Total
                                               Note     $m        $m         $m       $m       $m       $m       $m
----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>    <C>      <C>        <C>       <C>      <C>      <C>       <C>

30 June 2002

Carrying amount at cost (1.12)

Balance at 30 June 2001............................       160      1,267    33,259      905    1,504       24   37,119
- additions........................................        --         63     2,682       --       37       --    2,782
- disposals........................................       (33)       (32)     (713)      --     (246)     (24)  (1,048)
- other............................................       (47)      (588)      407      (47)       1       --     (274)
                                                      ----------------------------------------------------------------
Balance at 30 June 2002............................        80        710    35,635      858    1,296       --   38,579
                                                      ----------------------------------------------------------------

Accumulated depreciation/amortisation

Balance at 30 June 2001............................        --       (396)  (13,694)    (164)    (974)     (24) (15,252)
- disposals........................................        --         15       650       --      142       24      831
- depreciation and amortisation
expense (i).......................................3        --        (79)   (2,130)     (79)     (85)      --   (2,373)
- other............................................        --        213      (191)      48       (3)      --       67
                                                      ----------------------------------------------------------------
Balance at 30 June 2002............................        --       (247)  (15,365)    (195)    (920)      --  (16,727)
                                                      ----------------------------------------------------------------
Net book value

                                                      ----------------------------------------------------------------
As at 30 June 2002.................................        80        463    20,270      663      376       --   21,852
                                                      ================================================================
</TABLE>

General purpose land and buildings
(a) Land and site improvements
(b) Buildings (including leasehold improvements)

Communication assets
(c) Communication assets (including leasehold improvements)
(d) Communication assets under finance lease

Other plant and equipment
(e) Other plant, equipment and motor vehicles
(f) Equipment under finance lease

(i) The depreciation and amortisation expense on buildings (including leasehold
improvements) is split between depreciation of general purpose buildings and
amortisation of leasehold improvements in our note 3 disclosures. The
depreciation and amortisation expense of communication assets (including
leasehold improvements) and communication assets under finance lease is
aggregated to depreciation of communication assets in our note 3 disclosures.

                                                                             233

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS(CONTINUED)
--------------------------------------------------------------------------------

12. Property, plant and equipment (continued)

Communication assets

Communication assets include certain network land and buildings which are
essential to the operation of communication assets.

Current value of all land and buildings

We obtain valuations of all of our land and buildings at least once every three
years and the current value as at 30 June 2003 is as follows:

..  $2,425 million for the Telstra Group (fiscal 2002: $2,906 million); and
..  $2,425 million for the Telstra Entity (fiscal 2002: $2,866 million).

These current values are not on independent valuation. The following bases are
used in determining the current value of property, plant and equipment:

-------------------------------------------------------------
Property, plant and equipment            Valuation
category                                   basis
-------------------------------------------------------------
General purpose land and                 Market value
buildings

Communication assets and
other plant and equipment
Network land                             Market value
Network buildings                Depreciated replacement cost
-------------------------------------------------------------

These valuations do not include land and buildings held for resale as included
in note 14.

Details of our capital expenditure and finance lease commitments are shown in
note 20 to these financial statements.

Assets pledged as security

Included in our balances of property, plant and equipment are assets which were
pledged as collateral for bank loans entered into by our controlled entity,
TelstraClear Limited. During fiscal 2003, these loans were fully repaid and the
pledge removed (refer note 16 for further information). The property, plant and
equipment and other assets, that were subject to this pledge are detailed in the
table below:

                                                        Telstra Group
----------------------------------------------------------------------
                                                        As at 30 June
                                                        2003      2002
                                                          $m        $m
----------------------------------------------------------------------
Property, plant and equipment........................     --       818
Other assets.........................................     --       415
                                                        --------------
                                                          --     1,233
                                                        ==============

234

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                                 Telstra Group   Telstra Entity
--------------------------------------------------------------   --------------
                                                 As at 30 June   As at 30 June
                                                  2003    2002    2003     2002
                                                    $m      $m      $m       $m
--------------------------------------------------------------   --------------

13. Intangible assets

Intangibles - goodwill (1.14(a))
Goodwill (a) (b)...............................  2,290   2,219       6        6
Accumulated amortisation.......................   (272)   (156)     (2)      (1)
                                                 -------------   --------------
                                                 2,018   2,063       4        5
                                                 =============   ==============
Intangibles - other (1.14(b))..................
Patents, trademarks and licences...............    685     697     339      340
Accumulated amortisation.......................   (121)    (87)   (103)     (71)
                                                 -------------   --------------
                                                   564     610     236      269
                                                 -------------   --------------
Brandnames.....................................    216     247      --       --
Accumulated amortisation.......................    (24)    (16)     --       --
                                                 -------------   --------------
                                                   192     231      --       --
                                                 -------------   --------------
Customer bases.................................    559     629      --       --
Accumulated amortisation.......................   (169)   (112)     --       --
                                                 -------------   --------------
                                                   390     517      --       --
                                                 -------------   --------------
                                                 1,146   1,358     236      269
                                                 =============   ==============

(a) The movements in the carrying value of our net goodwill balance are
summarised as follows:

                                                          Telstra Group
------------------------------------------------------------------------
                                                          As at 30 June
                                                          2003      2002
                                                            $m        $m
------------------------------------------------------------------------
Carrying amount at beginning of year.................    2,063     1,548
Additional goodwill recognised (i) (ii)..............       71       615
Removal of goodwill on disposal......................       --       (13)
Amortisation expense.................................     (116)      (87)
                                                        ----------------
Carrying amount at end of year.......................    2,018     2,063
                                                        ================

(i) On 9 April 2003, we acquired the remaining 41.6% shareholding of
TelstraClear Limited that we did not hold, resulting in additional goodwill of
$71 million in fiscal 2003 (refer note 23 for further information).

(ii) On 28 June 2002, we acquired the remaining 40% shareholding of Telstra CSL
Limited that we did not hold, resulting in additional goodwill of $522 million
in fiscal 2002 (refer note 23 for further information).

(b) As at 30 June 2003, the net goodwill balance was from investments made in
the following controlled entities:

                                                           Telstra Group
------------------------------------------------------------------------
                                                          As at 30 June
                                                          2003      2002
                                                            $m        $m
------------------------------------------------------------------------
Telstra CSL Limited (ii).............................    1,784     1,884
TelstraClear Limited (i).............................      145        79
Sensis Pty Ltd (formerly Pacific Access
Pty Ltd).............................................       39        41
Telstra Enterprise Services Pty Ltd..................       32        39
InsNet Pty Ltd.......................................       10        11
Other................................................        8         9
                                                        ----------------
Net goodwill.........................................    2,018     2,063
                                                        ================

                                                                             235

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                                Telstra Group    Telstra Entity
--------------------------------------------------------------   --------------
                                                As at 30 June     As at 30 June
                                                  2003    2002     2003    2002
                                                    $m      $m       $m      $m
--------------------------------------------------------------   --------------

14. Other assets

Current
Net deferred mobile phone handset
 subsidies (1.15(b))..........................     111     184      111     184
Deferred expenditure (1.15(c))................     249     233      213     197
Prepayments...................................     218     187      142     132
Land and buildings held for resale (i)........      --     434       --     434
                                                --------------   --------------
                                                   578   1,038      466     947
                                                ==============   ==============
Non current
Deferred expenditure (1.15(c))................     392     397      385     396
Accumulated amortisation......................      (5)    (12)      (5)    (12)
                                                -------------------------------
                                                   387     385      380     384
Software assets developed for internal
 use (1.15(d))................................   3,181   2,627    3,016   2,469
Accumulated amortisation......................  (1,180)   (823)  (1,157)   (808)
                                                --------------   --------------
                                                 2,001   1,804    1,859   1,661
Net deferred mobile phone handset
 subsidies (1.15(b))..........................      49      17       49      17
Converting note issued by PCCW (ii)...........      83     337       83     337
                                                --------------   --------------
                                                 2,520   2,543    2,371   2,399
                                                ==============   ==============

(i) In fiscal 2002, we reclassified $434 million of land and buildings from
property, plant and equipment as these assets were held for sale as at 30 June
2002. On 1 August 2002, we sold this portfolio of seven office properties for
$570 million (refer to note 3 for further details).

(ii) On 7 February 2001, PCCW Limited (PCCW) issued a convertible note to us for
US$750 million (A$1,366 million). The term of the convertible note was 6 years
with an interest coupon compounding quarterly of 5% for the first four years and
7% for the remaining two years.

On 28 June 2002, this convertible note was redeemed in full by PCCW. Under an
agreement, the fair value of the redemption was applied to acquire PCCW's 40%
interest in the Telstra CSL Group and to subscribe for a new US$190 million
(A$337 million) mandatorily converting secured note issued by PCCW. This note
has a three year term and an interest coupon compounding at a rate of 5% per
annum. PCCW's obligations under the note are secured by an equitable mortgage of
shares over its 50% shareholding in Reach Ltd.

On 25 April 2003, this converting note was partially redeemed to fund the
capacity prepayment (refer note 9 for further information). The terms and
conditions of this converting note remain unchanged and the face value after the
partial redemption is US$54 million (A$87 million).

236

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                               Telstra Group   Telstra Entity
-------------------------------------------------------------  --------------
                                               As at 30 June   As at 30 June
                                                 2003    2002    2003    2002
                                       Note        $m      $m      $m      $m
-------------------------------------------------------------  --------------
15. Payables
Current
Trade creditors (a)........................       645     606     475     424
Accrued expenses...........................     1,254   1,328     964     999
Accrued capital expenditure................       181     194     240     277
Accrued interest...........................       195     208     195     205
Other creditors (a)........................       250     426     156     172
Amounts owed to controlled entities
(other than trade creditors).............27        --      --      --     125
                                               --------------  --------------
                                                2,525   2,762   2,030   2,202
                                               ==============  ==============
Non current
Other creditors............................        51     129      48      68
                                               ==============  ==============

(a) We generally pay trade creditors and other creditors within 30 days of the
date of invoice for electronic funds transfer payments, or 30 days from the end
of the month of invoice for other payments. The carrying value of these balances
is approximately equal to net fair value.

                                                                             237

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                               Telstra Group   Telstra Entity
-------------------------------------------------------------  --------------
                                               As at 30 June   As at 30 June
                                                 2003    2002    2003    2002
                                         Note      $m      $m      $m      $m
-------------------------------------------------------------  --------------
16. Interest-bearing liabilities

Current
Short term debt
Loan from joint venture entities and
associated entities (a)....................27       1       4       1       4
Bills of exchange and commercial paper (b)...     643     602     643     602
                                               --------------  --------------
                                                  644     606     644     606
                                               --------------  --------------
Long term debt - current portion
Bank loans (c)...............................      --     539      --      20
Loans from controlled entities.............27      --      --   2,015   1,704
Telstra bonds (d)............................     210     582     210     582
Other loans (e)..............................     449     149     449     149
Finance leases (f).........................20      20      20       9       7
                                               --------------  --------------
                                                  679   1,290   2,683   2,462
                                               --------------  --------------
                                                1,323   1,896   3,327   3,068
                                               ==============  ==============
Non current
Long term debt
Bank loans (c)...............................      --   1,074      --   1,063
Telstra bonds (d)............................   2,403   2,605   2,403   2,605
Other loans (e)..............................   8,403   8,667   8,403   8,667
Finance leases (f).........................20      --      21      --       1
Cross currency swap hedge
payable (1.2)..............................29     426     114     426     114
                                               --------------  --------------
                                               11,232  12,481  11,232  12,450
                                               ==============  ==============
Total debt payable
Short term debt
Loan from joint venture entities and
associated entities (a)....................27       1       4       1       4
Bills of exchange and commercial paper (b)...     643     602     643     602
                                               --------------  --------------
                                                  644     606     644     606
Long term debt (including current portion)
Bank loans (c)...............................      --   1,613      --   1,083
Loans from controlled entities.............27      --      --   2,015   1,704
Telstra bonds (d)............................   2,613   3,187   2,613   3,187
Other loans (e)..............................   8,852   8,816   8,852   8,816
Finance leases (f).........................20      20      41       9       8
Cross currency swap hedge
payable (1.2)..............................29     426     114     426     114
                                               --------------  --------------
                                               11,911  13,771  13,915  14,912
                                               --------------  --------------
                                               12,555  14,377  14,559  15,518
                                               ==============  ==============

Our interest-bearing liabilities are unsecured, except for:
..    finance leases which are secured, as the rights to the leased asset
     transfer to the lessor in the event of a default by us; and
..    bank loans of $nil (2002: $519 million) held by non-Australian controlled
     entities.
Refer to notes (c) and (f) below.

238

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

16. Interest-bearing liabilities (continued)

Our long term debt (excluding cross currency swap hedge payables) is repayable
over the next five years ending 30 June and after as follows:

                                              Telstra Group
-------------------------------------------------------------------------------
                                                                  after
                              2004   2005   2006   2007    2008    2008   Total
                                $m     $m     $m     $m      $m      $m      $m
-------------------------------------------------------------------------------
Long term debt payable......   680  2,318   1,114   392   1,385   5,668  11,557
                              -----------------------------------------
Unamortised discount........                                                (72)
                                                                         ------
                                                                         11,485
                                                                         ======

(a) Loan from joint venture entities and associated entities

As at 30 June 2003, we owed a joint venture entity $1 million (2002: $4 million)
for an amount deposited with the Telstra Entity. The amount is repayable on
demand and has an interest rate of 4.70% (2002: 4.70%).

(b) Bills of exchange and commercial paper

We have issued bills of exchange and commercial paper of $643 million (2002:
$602 million) to financial institutions with an original maturity of less than
180 days. Some of our commercial paper is issued in foreign currencies and
swapped into Australian dollars.

At 30 June 2003, all $643 million (2002: $602 million) of the commercial paper
matures in less than three months. The weighted average effective interest rate
applicable to this commercial paper (in currency of issue) at 30 June 2003 was
3.22% (2002: 4.41%).

(c) Bank loans

Our non-Australian controlled entities had the following bank loans:

                                     A$ amount  Interest rates
---------------------------------------------------------------
                                        As at      Year ended
                                      30 June        30 June
                                     2003   2002    2003   2002
                                      A$m    A$m       %      %
---------------------------------------------------------------
Sri Lankan rupees bank loans (i)..     --     11      --   17.0
New Zealand dollar loans (ii).....     --    519      --    6.8
                                    ---------------------------
Total bank loans including current
portion...........................     --    530
                                    ============

(i)  In fiscal 2002, this loan had not been secured, but a negative pledge had
been given by our controlled entity and we also issued a letter of comfort. On
31 October 2002, we sold our 60% shareholding in the Sri Lankan mobile carrier,
Mobitel (Pvt) Limited (refer note 23 for further information).

(ii) In fiscal 2002, the loans held by TelstraClear Limited were secured against
certain fixed and floating assets of that entity. For further details of the
assets pledged as security, refer note 12. During fiscal 2003, these loans were
fully repaid.

                                                                             239

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

16. Interest-bearing liabilities (continued)

(d) Telstra bonds

During fiscal 2003, $582 million (2002: $39 million) of Telstra bonds matured.
Telstra bonds have been issued to both retail and wholesale investors and in a
range of currencies. They have effective interest rates ranging from 3.50% to
12.67% (2002: 3.50% to 12.67%) and mature up until the year 2020 (2002: 2020).
Our Telstra bonds are repayable over the next five years ending 30 June and
after as follows:

                                                Telstra Group
-------------------------------------------------------------------------------
                                 up to   up to   up to   up to   up to
                                  6.0%    8.0%   10.0%   12.0%   16.0%    Total
Coupon interest rate                $m      $m      $m      $m      $m       $m
-------------------------------------------------------------------------------
Due in the year ending June 30
2004..........................     158      45       7      --      --      210
2005..........................      --     250       3      20      --      273
2006..........................      --      --      12     504      --      516
2007..........................      --      --      --      --      --       --
2008..........................      --      --      --      --      --       --
After 2008....................      35   1,510      28      44      32    1,649
                                 ----------------------------------------------
                                   193   1,805      50     568      32    2,648
                                 -------------------------------------
Unamortised discount..........                                              (35)
                                                                         ------
                                                                          2,613
                                                                         ======

(e) Other loans

Our other loans are repayable over the next five years ending 30 June and after
as follows:

                                               Telstra Group
-------------------------------------------------------------------------------
                           2004   2005   2006   2007   2008  after 2008   Total
                             $m     $m     $m     $m     $m          $m      $m
-------------------------------------------------------------------------------
Other loans..............   449  2,045    598    392  1,385       4,019   8,888
                           --------------------------------------------
Unamortised discount.....                                                   (36)
                                                                         ------
                                                                          8,852
                                                                         ======

240

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

16. Interest-bearing liabilities (continued)

(e) Other loans (continued)

Details of our other loans including currency of borrowing, interest rates and
maturity dates are presented in the table below:

<TABLE>
<CAPTION>
Telstra Group - Other loans details              A$ amount       Interest rates                  Maturity dates
--------------------------------------------------------------------------------------------------------------------------
                                               As at 30 June   Year ended 30 June                As at 30 June
                                                2003    2002       2003       2002                2003                2002
                                                 A$m     A$m          %          %
--------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>     <C>     <C>        <C>        <C>                 <C>
                                                               4.60% to              between July 2003
Australian dollar loans....................      250      --      7.87%         --     and August 2014                  --
                                                               1.65% to   2.40% to   between July 2003   between July 2003
US dollar loans............................    1,946   2,301      6.50%      6.50%      and April 2012      and April 2012
                                                               2.58% to   5.88% to   between June 2005   between June 2005
Euro eurobond loan.........................    4,261   4,352      6.38%      6.38%       and June 2011       and June 2011
Deutschemark eurobond loan.................      872     891      5.13%      5.13%          April 2008          April 2008
French franc loan..........................      391     399      6.00%      6.00%       December 2006       December 2006
Swiss franc eurobond loan..................      332     357      3.38%      3.38%           June 2005           June 2005
                                                               0.31% to   0.33% to   between July 2007    between Oct 2002
Japanese yen loans.........................      225     415      1.65%      5.58%       and Sept 2010       and Sept 2010
Singapore dollar loans.....................       85     101      3.80%      3.80%          March 2008          March 2008
                                                               4.31% to
British pound sterling loans...............      490      --      6.13%         --         August 2014                  --
                                               ---------------------------------------------------------------------------
Total other loans including current portion    8,852   8,816
                                               =============
</TABLE>

To appropriately assess our foreign currency borrowings included in our other
loans, the hedge receivables and hedge payables arising from our cross currency
swaps entered to hedge this position should also be considered. Our policy on
the use of derivative instruments is included in note 1.25. The following table
shows our other loan position net of our outstanding cross currency swap
contracts:

                                             Telstra Group
-----------------------------------------------------------
                                             As at 30 June
                                               2003    2002
                                                 $m      $m
-----------------------------------------------------------
Other loans...............................    8,852   8,816
- less hedge receivable - current.........      (10)    (29)
- less hedge receivable - non current.....     (273)   (622)
- add hedge payable - non current.........      426     114
                                            ---------------
Other loans net of cross currency swaps       8,995   8,279
                                            ===============

                                                                             241

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

16. Interest-bearing liabilities (continued)

(f) Finance leases

Details of minimum lease payments due under finance leases are presented as
follows:

                                              Telstra Group
-------------------------------------------------------------------------------
                           2004   2005   2006   2007   2008  after 2008   Total
                             $m     $m     $m     $m     $m          $m      $m
-------------------------------------------------------------------------------
Finance leases...........    21     --     --     --     --          --      21
                           --------------------------------------------
Future finance charges...                                                    (1)
                                                                       --------
                                                                             20
                                                                       ========

(g) Financing arrangements

                                                   Telstra Group  Telstra Entity
----------------------------------------------------------------  --------------
                                                   As at 30 June   As at 30 June
                                                    2003    2002    2003    2002
                                                      $m      $m      $m      $m
----------------------------------------------------------------  --------------
Our financing arrangements
We have access to the following lines of credit:

Credit standby arrangements
Unsecured committed cash standby facilities
which are subject to annual review..............     894     955     850     815
Amount of credit unused.........................     855     896     850     815
                                                   -------------  --------------
Loan facilities
Unsecured bank term loan facilities.............   2,149   2,313   2,149   2,313
Amount of credit unused.........................   2,149   1,250   2,149   1,250
                                                   -------------  --------------

We have commercial paper facilities in place with financial institutions under
which we may issue up to $15,058 million (2002: $16,088 million). As at 30 June
2003, we had drawn down $643 million (2002: $602 million) of these commercial
paper facilities. These facilities are not committed or underwritten and we have
no guaranteed access to the funds.

Generally, our facilities are available unless we default on any terms
applicable under the relevant agreements or become insolvent.

242

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                         Telstra Group      Telstra Entity
------------------------------------------------------------------------  ------------------
                                                         As at 30 June       As at 30 June
                                                          2003      2002      2003      2002
                                                  Note      $m        $m        $m        $m
------------------------------------------------------------------------  ------------------
<S>                                                      <C>       <C>        <C>      <C>
17. Provisions

Current
Dividends payable (b) (c)............................7      --     1,415        --     1,415
Employee benefits (a).................................     279       373       234       253
Workers' compensation (1.18(b)) (b) (c)...............      39        41        36        38
Other provisions (b) (c)..............................      35        74        14        17
                                                        ----------------  ------------------
                                                           353     1,903       284     1,723
                                                        ================  ==================
Non current
Employee benefits (a).................................     572       572       522       517
Workers' compensation (1.18(b)) (b) (c)...............     197       229       184       218
Other provisions (b) (c)..............................      45        47        21        22
                                                        ----------------  ------------------
                                                           814       848       727       757
                                                        ================  ==================
(a) Aggregate employee benefits and related
on-costs liability
Current provision for employee benefits...............     279       373       234       253
Non current provision for employee benefits...........     572       572       522       517
Accrued labour, redundancy and on-costs (i)...........     242       183       236       182
                                                        ----------------  ------------------
                                                         1,093     1,128       992       952
                                                        ================  ==================
</TABLE>

(i) Accrued labour and related on-costs are included within current payables
(refer note 15).

Provision for employee benefits consist of amounts for annual leave, long
service leave and redundancy payments to employees (refer to note 1.18(a)).

The carrying amounts of all employee benefits are approximately equal to their
net fair value.

Non current employee benefits for long service leave are measured at their
present value. The following assumptions were adopted in measuring their present
value:

                                         Telstra Group      Telstra Entity
--------------------------------------------------------  ------------------
                                         As at 30 June       As at 30 June
                                          2003      2002      2003      2002
--------------------------------------------------------  ------------------
Weighted average projected increase in
employee benefits.....................     4.0%      4.0%      4.0%      4.0%
Weighted average discount rates.......     5.7%      6.0%      5.7%      6.0%
Leave taking rates....................    13.0%      7.3%     13.3%      7.0%

                                                                             243

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

17. Provisions (continued)

b) Information about our provisions, other than employee benefits:

Dividends Payable

In fiscal 2002, this provision provided for the final ordinary dividend to
shareholders. Due to the first time application of the new accounting standard
AASB 1044: "Provisions, Contingent Liabilities and Contingent Assets", a
difference has arisen between reporting periods regarding the timing and the
recognition of dividends declared in our statement of financial performance and
statement of financial position. There has been no change in the timing of
dividends declared by the directors. As the final ordinary dividend was not
declared, determined or publicly recommended as at 30 June 2003, no provision
for dividend was raised prior to that date in the statement of financial
position (refer note 7 for further information). The final ordinary dividend is
now reported as an event after balance date (refer note 28).

Workers' Compensation

The Telstra Entity and certain controlled entities self insure their workers'
compensation liabilities. The provision is based on a semi annual actuarial
review of our workers' compensation liability.

(c) Movement in provisions, other than employee benefits

Present values are calculated using appropriate rates based on government
guaranteed securities with similar due dates. The majority of our controlled
entities do not self insure, but pay annual premiums to third party insurance
companies for their workers compensation premiums.

Other

Other provisions include provision for restructuring, provision for warranties,
provision for restoration costs and other general provisions. Provision for
restructuring relate to restructuring costs expected on acquisition of
controlled entities and our internal restructures. Provision for warranties
relate to our best estimate of warranty costs expected to meet our products
future repairs and replacement based on current sales level and past historical
information. Provision for restoration costs relate to our future expected
restoration obligations in relation to the fitout of our general purpose leased
buildings. Other general provisions are provided to meet future costs that we
are obligated to make as a result of past transactions entered into.

Telstra Group
------------------------------------------------------------------------------
                                                   Workers
                                       Dividends  Compensa-
                                        Payable      tion      Other    Total
                                           $m         $m        $m        $m
------------------------------------------------------------------------------
30 June 2003
Balance at 30 June 2002..............      1,415        270       121    1,806
- adjustment due to change in
  accounting policy (i)..............     (1,415)        --        --   (1,415)
- additional provisions..............         --         10        24       34
- amounts used.......................         --         --       (44)     (44)
- reductions due to remeasurements...         --        (44)      (22)     (66)
- other..............................                    --         1        1
                                       ---------------------------------------
Balance at 30 June 2003..............         --        236        80      316
                                       =======================================
30 June 2002
Balance at 30 June 2001..............      1,416        284       151    1,851
- additional provisions..............      1,415         --        76    1,491
- amounts used.......................     (1,416)        (1)      (73)  (1,490)
- reductions due to remeasurements...         --        (15)      (34)     (49)
- other..............................         --          2         1        3
                                       ---------------------------------------
Balance at 30 June 2002..............      1,415        270       121    1,806
                                       =======================================

(i) Under the new accounting standard AASB 1044: "Provisions, Contingent
Liabilities and Contingent Assets", the provision for final ordinary dividend
raised at 30 June has been reversed to opening retained profits in the current
period statement of financial position (refer to statement of changes in
shareholders equity).

244

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

17. Provisions (continued)

Telstra Entity
------------------------------------------------------------------------------
                                                   Workers
                                       Dividends  Compensa-
                                        Payable      tion      Other    Total
                                           $m         $m        $m        $m
------------------------------------------------------------------------------
30 June 2003
Balance at 30 June 2002..............      1,415        256        39    1,710
- adjustment due to change in
  accounting policy (i)..............     (1,415)        --        --   (1,415)
- additional provisions..............         --          8         6       14
- amounts used.......................         --         --        (7)      (7)
- reductions due to remeasurements...         --        (44)       (4)     (48)
- other..............................         --         --         1        1
                                       ---------------------------------------
Balance at 30 June 2003..............         --        220        35      255
                                       =======================================
30 June 2002
Balance at 30 June 2001..............      1,416        273       104    1,793
- additional provisions..............      1,415         --       (15)   1,400
- amounts used.......................     (1,416)        (1)      (43)  (1,460)
- reductions due to remeasurements...         --        (15)       (5)     (20)
- other..............................         --         (1)       (2)      (3)
                                       ---------------------------------------
Balance at 30 June 2002..............      1,415        256        39    1,710
                                       =======================================

(i) Under the new accounting standard AASB 1044: "Provisions, Contingent
Liabilities and Contingent Assets", the provision for final ordinary dividend
raised at 30 June has been reversed to opening retained profits in the current
period statement of financial position (refer to statement of changes in
shareholders equity).

Provision for restructuring on acquisition of TelstraClear Limited

The provision for restructuring on acquisition of TelstraClear Limited
(TelstraClear) is included in our other provisions of the Telstra Group.

On 12 December 2001, we acquired a 8.4% shareholding in TelstraClear giving us a
58.4% controlling interest. In fiscal 2002, we recognised a $44 million
provision based on our best estimate of costs including redundancies directly
attributable to the restructure. In fiscal 2003, we have subsequently acquired
the remaining interest of TelstraClear (refer note 23 for further information).

The movement in the restructuring provision relating to the acquisition of
TelstraClear is detailed in the table below:

                                        Telstra Group
-----------------------------------------------------
                                        As at 30 June
                                         2003    2002
                                           $m      $m
-----------------------------------------------------
Balance at beginning of year.........      27      --
- additional provisions..............      --      44
- amounts used.......................     (28)    (13)
- reductions due to remeasurements...      --      (5)
- other..............................       1       1
                                       --------------
Balance at end of year...............      --      27
                                       ==============

                                                                             245

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                            Telstra Group & Telstra Entity
------------------------------------------------------------------------------
                                                     As at 30 June
                                           2003        2003      2002     2001
                                             $m        US$m        $m       $m
-----------------------------------------------------------  -----------------
18. Contributed equity

Issued and paid up capital

12,866,600,200 fully paid ordinary
shares (a)..........................      6,433       4,310     6,433    6,433
                                       ====================  =================

(a) Each of our fully paid ordinary shares carries the right to one vote at a
meeting of the company. Holders of our shares also have the right to receive
dividends as declared, and to participate in the proceeds from sale of all
surplus assets in proportion to the total shares issued in the event of the
company winding up.

246

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans

(a) TESOP99 and TESOP97

As part of the Commonwealth's sale of its shareholding in fiscal 2000 and fiscal
1998 we offered our eligible employees as defined by the employee share plans
the opportunity to buy Telstra shares. The shares were ordinary shares of the
Telstra Entity at the time of the offer.

These share plans were:

..  the Telstra Employee Share Ownership Plan II (TESOP99); and
..  the Telstra Employee Share Ownership Plan (TESOP97).

All eligible employees of the Telstra Entity and of companies that Telstra owned
greater than 50% equity were able to participate in the plans. Certain employees
who were part time, casual, fixed term, on leave without pay or living outside
Australia and contractors were not eligible to participate.

Generally, employees were offered interest free loans by the Telstra Entity to
acquire certain shares and in some cases became entitled to certain extra shares
and loyalty shares as a result of participating in the plans. All shares
acquired under the plans were transferred from the Commonwealth either to the
employees or to the trustee for the benefit of the employees. Telstra ESOP
Trustee Pty Ltd is the trustee for TESOP99 and TESOP97 and holds the shares on
behalf of participants. This company is 100% owned by us.

While a participant remains an employee of the Telstra Entity, a company in
which Telstra owns greater than 50% equity or the company which was their
employer when the shares were acquired, there is no date by which the employee
has to repay the loan. The loan may, however, be repaid in full at any time by
the employee using his or her own funds.

The loan shares, extra shares and in the case of TESOP99, the loyalty shares,
are generally subject to a restriction on the sale of the shares or transfer to
the employee for three years, or until the relevant employment ceases. After
three years, the employee may sell the shares provided the loan is repaid in
full for the loan shares and TESOP97 extra shares. Approximately 80% of the
dividends on the loan shares and TESOP97 extra shares held for the employees
under the plans are used to repay their loans.

If a participating employee leaves the Telstra Entity, a company in which
Telstra owns greater than 50% equity or the company which was their employer
when the shares were acquired, to acquire the relevant shares the employee must
repay their loan within two months of leaving. This is the case except where the
restriction period has ended because of the employee's death or disablement (in
this case the loan must be repaid within 12 months).

If the employee does not repay the loan when required, the trustee can sell the
shares if the sale proceeds cover the amount outstanding on the loan plus
relevant costs. The sale proceeds must then be used to pay the costs of the sale
and any amount outstanding on the loan, after which the balance will be paid to
the employee. The Telstra Entity's recourse under the loan is limited to the
amount recoverable through the sale of the employee's shares.

For TESOP99, the Government guaranteed an allocation of up to 5,000 shares for
employees using their own funds to purchase shares in the public offer. These
shares are directly held by the employees.

Further details on each of the plans are highlighted in the table following in
section (c).

Telstra incurs expenses in relation to the administration of the trusts for
TESOP99 and TESOP97. These are recognised in the statement of financial
performance as incurred. The allocation of shares under these plans did not give
rise to any other expense to be recognised by us.

(b) Telstra Growthshare Trust

The Telstra Growthshare Trust commenced in fiscal 2000. Under the trust, Telstra
operates three different share plans:

..  Telstra Growthshare
..  Directshare; and
..  Ownshare.

The trustee for the trust is Telstra Growthshare Pty Ltd. This company is 100%
owned by us. Allocations are in the form of options, restricted shares,
performance rights, deferred shares, directshares and ownshares under these
plans. Refer to the tables in section (c) below for more information.

(i) Telstra Growthshare

Telstra Growthshare started in fiscal 2000. Its purpose is to align key
executives' rewards with shareholders' interests, and reward performance
improvement supporting business plans and corporate strategies.

The board determines who is invited to participate in Telstra Growthshare.
Allocations are in the form of options, restricted shares, and performance
rights under our long term incentive plan, and deferred shares under our
deferred remuneration plan. Instruments issued represent a right to acquire a
share in Telstra. Generally, the options, restricted shares and performance
rights may only be exercised to acquire Telstra shares if a performance hurdle
is satisfied in the performance period and in the case of options, the exercise
price is paid by the executive. Deferred shares may only be exercised when a
prescribed period of service has been completed.

                                                                             247

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(b) Telstra Growthshare Trust (continued)

(i) Telstra Growthshare (continued)

Performance hurdle for options, restricted shares and performance rights

For allocations of options and performance rights made during fiscal 2003 and
fiscal 2002, the applicable performance hurdle is based on comparing Telstra's
total shareholder return (TSR) with the TSRs of the companies in the S&P/ASX 200
(Industrial) Index (peer group) within the performance period.

The companies in the peer group are anchored at the effective date of
allocation, and this same peer group of companies are then tracked during the
performance period. At the end of each quarter during the performance period,
the 30 day average TSR is calculated for Telstra and the companies in the peer
group for each trading day during that quarter.

The number of options and performance rights exercisable is dependant on
whether, during the performance period, the Telstra 30 day average TSR achieves
or exceeds the 50th percentile ranking when compared to the 30 day average TSR
of the peer group, and the timing of when or if this occurs.

Both the number of options and the number of performance rights potentially
exercisable are based on the following:

..  If in the first quarter of the performance period, Telstra's percentile
   ranking is the 50th percentile or above then:
   (i)  the number of options and performance rights that become exercisable for
        that quarter is scaled proportionately from the 50th percentile (at
        which 50% of the allocation becomes exercisable) to the 75th percentile
        (at which 100% of the allocation becomes exercisable); and
   (ii) in subsequent quarters, the number that become exercisable is based on
        the same proportionate scale, but is reduced by the number of options or
        performance rights that have previously become exercisable. The
        percentile ranking achieved needs to be above that achieved in previous
        quarters for additional options and performance rights to become
        exercisable.

..  If in the first quarter of the performance period, the percentile ranking is
   less than the 50th percentile then:
   (i)  half of the allocation will lapse; and
   (ii) in subsequent quarters, the remaining 50% of the options or performance
        rights will become exercisable if the ranking is the 50th percentile or
        above for that quarter.

..  If Telstra does not achieve or exceed the 50th percentile ranking in any
   quarter of the performance period, all options and performance rights will
   lapse.

For all allocations prior to 30 June 2001, the applicable performance hurdle was
that the average Telstra Accumulation Index must exceed the average S&P/ASX 200
(Industrial) Index (replacing the superseded All Industrials Accumulation Index)
for thirty consecutive days within the performance period. If the performance
hurdle is satisfied for these allocations, all of the relevant options or
restricted shares would become exercisable (i.e. they do not become exercisable
on a proportionate basis).

Options

An executive is not entitled to Telstra shares before the options allocated
under Telstra Growthshare initially vest, and then are exercised. This means
that the executive cannot use options to vote or receive dividends. If the
performance hurdle is satisfied in the performance period, options may be
exercised at any time before the expiry date; otherwise they will lapse. Once
the options are exercised, Telstra shares will be transferred to the executive.

Telstra provides loans to the trustee to enable it to purchase shares on market
to underpin the options. When exercised, the executive pays for the shares at
the exercise price and the loan is repaid to us. We receive interest on the
loans to the trust. On the basis that the executives must pay the exercise price
of the options, which repays the loans made by Telstra, there is no cash expense
incurred by us and included in our statement of financial performance. From 1
July 2002, we have suspended our option plan. Previously issued options remain
outstanding and valid.

Restricted Shares

The executive is not entitled to Telstra shares before the restricted shares
allocated under Telstra Growthshare vest. If the performance hurdle is satisfied
in the performance period, the restricted shares will vest and may be exercised
at any time before the expiry date, otherwise they will lapse. Once the
restricted shares have vested, they become restricted trust shares, which will
generally be held by the trustee for the executive for a certain period. Once
converted into restricted trust shares, the executive has an interest in Telstra
shares and is entitled to dividends, other distributions, and voting rights.

Restricted trust shares are held by the Trustee until the earlier of:

..  the period determined in accordance with the trust deed;
..  the executive finishes employment with Telstra; or
..  a date nominated by the board.

The executive may exercise restricted shares at a cost of $1 in total for the
number of restricted shares exercised on a particular day. These shares are
recorded as an expense to us when we provide funding to the trust to purchase
them on market. In fiscal 2003 and fiscal 2002, there were no restricted shares
allocated and therefore no associated expense.

248

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(b) Telstra Growthshare Trust (continued)

(i) Telstra Growthshare (continued)

Performance Rights

An executive is not entitled to Telstra shares before the performance rights
allocated under Telstra Growthshare vest. If the performance hurdle is satisfied
in the performance period, a specified number of performance rights as
determined in accordance with the trust deed and terms of issue, will become
vested performance rights. The vested performance rights can then be exercised
at any time before the expiry date, otherwise they will lapse. Once the vested
performance rights are exercised, Telstra shares will be transferred to the
executive. Until this time, the executive cannot use the performance rights (or
vested performance rights) to vote or receive dividends.

Telstra shares will be transferred to the executive on exercise of vested
performance rights. The executive may exercise the performance rights at a cost
of $1 in total for the number of performance rights exercised on a particular
day. The issue of performance rights are recorded as an expense to us when we
provide funding to the trust to purchase Telstra shares on market to underpin
them. In fiscal 2003, we recorded an expense of $8.5 million (2002: $6.5
million).

Deferred Shares

An executive is not entitled to Telstra shares before the deferred shares
allocated under Telstra Growthshare vest. Generally, if an executive continues
to be employed by an entity that forms part of the Telstra Group three years
after the commencement date of the instrument, the deferred share will become a
vested deferred share. The vested deferred shares can then be exercised at any
time before the expiry date, otherwise they will lapse. Once exercised, Telstra
shares will be transferred to the executive. Until this time, the executive can
not use the deferred shares or vested deferred shares to vote or receive
dividends or other entitlements.

Telstra shares will be transferred to the executive on exercise of vested
deferred shares. The executive may exercise the deferred shares at a cost of $1
in total for the number of deferred shares exercised on a particular day. The
issue of deferred shares are recorded as an expense to us when we provide
funding to the trust to purchase Telstra shares on market to underpin them. In
fiscal 2003, we recorded an expense of $10.3 million (2002: $nil).

Telstra Growthshare amounts expensed for USGAAP purposes

For the purposes of the United States generally accepted accounting principles
(USGAAP) disclosures, the estimated fair value of the options, restricted
shares, performance rights and deferred shares is made at the date of grant
using an approach consistent with the binomial and Black-Scholes valuation
models.

The additional compensation expense for USGAAP recognised on this basis for
performance rights and deferred shares allocated in fiscal 2003 was $nil (2002:
$41 million for options and performance rights). Refer to note 30 for additional
information.

(ii) Telstra Directshare

Non-executive directors may be provided part of their fees in Telstra shares.
Directors will receive a minimum of 20% of their fees by way of directshares.
Shares are acquired by the trustee from time to time and allocated to the
participating directors on a 6 monthly basis, on dates determined by the trustee
at its discretion. Although the trustee holds the shares in trust, the
participant retains the beneficial interest in the shares (dividends, voting
rights, bonuses and rights issues) until they are transferred at expiration of
the restriction period.

The restriction period continues:

..  for five years from the date of allocation of the shares;
..  until the participating director is no longer a director of, or is employed
   by, a company in the Telstra Group; or
..  until the board of Telstra determines that an 'event' has occurred.

At the end of the restriction period, the directshares will be transferred to
the participating director. The participating director is not able to deal in
the shares until this transfer has taken place. The expense associated with
shares allocated under this plan is included in the disclosure for directors'
fees.

(iii) Telstra Ownshare

Certain eligible employees may be provided part of their remuneration in Telstra
shares. Those employees indicate a preference to be provided Telstra shares as
part of their remuneration. Shares are acquired by the trustee from time to time
and allocated to these employees at the time their application is accepted.
Although the trustee holds the shares in trust, the participant retains the
beneficial interest in the shares (dividends, voting rights, bonuses or rights
issues) until they are transferred at expiration of the restriction period.

The restriction period continues:

..  for three years or five years depending on the elections available to the
   participant at the time of allocation;
..  until the participant ceases employment with the Telstra Group; or
..  until the board of Telstra determines that an 'event' has occurred.

At the end of the restriction period, the ownshares will be transferred to the
participant. The participant is not able to deal in the shares until this
transfer has taken place. The expense associated with shares allocated under
this plan is included in the disclosure for employees remuneration.

                                                                             249

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(c) Share plan information

The table below provides information about our TESOP99 and TESOP97 share plans:

<TABLE>
<CAPTION>
                                                                                       TESOP99                              TESOP97
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                              <C>
Date used to determine number of eligible employees.........                    27 August 1999                    20 September 1997
Date the plan started.......................................                   16 October 1999                     15 November 1997
Number of employees eligible to participate.................                            53,900                               64,309
-----------------------------------------------------------------------------------------------------------------------------------
Price paid by employee - first instalment...................            (16 October 1999)$4.50              (15 November 1997)$1.95
Price paid by employee - second instalment..................            (2 November 2000)$2.90              (17 November 1998)$1.35
                                                               --------------------------------------------------------------------
Total price paid by employee and market price on date of
issue.......................................................                             $7.40                                $3.30
                                                               ====================================================================
Number of shares each eligible employee was able to buy with
interest free loan (loan shares)............................                               400                                2,000
Number of extra shares received by each eligible employee...    one extra share for every four  one extra share for every four loan
                                                                  guaranteed allocation shares            shares or non-loan shares
                                                                purchased up to a limit of 200       purchased up to a limit of 500
-----------------------------------------------------------------------------------------------------------------------------------
The date participating employees have full ownership of the
loan shares and extra shares (i)............................                   16 October 2002                     15 November 2000
Number of employees who purchased loan shares...............                            42,439                               55,748
Total number of loan shares initially purchased.............                        16,939,000                          109,979,100
Total number of extra shares initially acquired relating to
loan shares.................................................                              (ii)                           27,494,775
-----------------------------------------------------------------------------------------------------------------------------------
Number of employees who used their own funds to buy shares
in TESOP and received extra shares..........................                            21,424                                2,282
Number of shares initially purchased under TESOP with
own funds...................................................                             (iii)                            3,776,732
Number of extra shares initially acquired by employees from
using their own funds.......................................                     (ii)3,903,314                              944,183
-----------------------------------------------------------------------------------------------------------------------------------
Total market value of shares at issue date..................    $93,790,413 (first instalment)      $277,279,841 (first instalment)
(including extra shares)....................................    $58,832,889 second instalment)     $181,936,265 (second instalment)
-----------------------------------------------------------------------------------------------------------------------------------
Total initial loan made to employees........................    $76,225,500 (first instalment)      $221,823,872 (first instalment)
                                                                $48,556,440(second instalment)     $144,401,940 (second instalment)
-----------------------------------------------------------------------------------------------------------------------------------
Loan discount paid on behalf of employees ($1 per loan).....                           $42,439                              $55,748
-----------------------------------------------------------------------------------------------------------------------------------
Number of Commonwealth loyalty shares available to each
eligible employee at no additional cost (shares need to be                                         one for every 10 non loan shares
held for 12 months to qualify)..............................           one for every 10 shares  purchased in the public offer up to
                                                                 purchased up to a limit of 80                       a limit of 200
Number of employees who received Commonwealth loyalty shares                        (iv)17,138                               21,761
Number of loyalty shares issued.............................                     (iv)1,243,305                            3,162,222
Market value of Commonwealth loyalty shares issued..........   (iv)$7,696,058($6.19 per share)         $20,363,290($6.46 per share)
-----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1>
(i) In the case of all loan shares, and extra shares acquired under TESOP97, the
loan must be repaid in full before shares may be transferred to the employee.

<F2>
(ii) For TESOP99, the extra shares were acquired under the Commonwealth
component as a result of employees acquiring guaranteed allocation shares in the
public offer using their own funds.

<F3>
(iii) Does not include guaranteed allocation shares acquired by employees from
the Commonwealth under the Commonwealth component.

<F4>
(iv) TESOP99 loyalty shares were issued to eligible employees still holding
their Commonwealth component shares on 2 November 2000 and did not prepay the
final instalment.
</FN>
</TABLE>

250

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(c) Share plan information (continued)

The following information details the number of outstanding equity instruments
and loan balances relevant to the TESOP99 and TESOP97 plans.

                                                     Employee           Employee
                                                  share plans        share plans
                                                As at 30 June      As at 30 June
                                                         2003               2002
--------------------------------------------------------------------------------
Market price of Telstra shares.............  $ 4.40 per share   $ 4.66 per share
Employee share loan balance (total
including current and non current,
excluding Growthshare option
loans - note 9)............................  $    198 million   $    230 million
Loan to Telstra Growthshare
(other receivables non current - note 9)...  $     88 million   $    115 million
TESOP99
--------------------------------------------------------------------------------
Remaining employees with loan shares (i)...            37,148             38,140
Remaining number of loan shares............        14,828,600         15,224,500
Remaining number of extra shares (ii)......                --          2,784,590
Remaining number of loyalty shares (ii)....                --          1,081,671
TESOP97
--------------------------------------------------------------------------------
Remaining employees with loan shares.......            21,960             25,665
Remaining number of loan shares............        43,465,700         50,778,700
Remaining number of extra shares...........        10,866,425         12,694,675

(i) The number of employees with loan shares includes 11,258 (2002: 6,703)
employees that have ceased employment and elected not to repay their loan. The
Telstra ESOP Trustee Pty Ltd continues to hold the shares relating to those
loans until the share price is sufficient to recover the loan amount and
associated costs. The Telstra ESOP Trustee Pty Ltd will then sell the shares. As
at 30 June 2003, there were 4,503,300 held for this purpose (2002: 2,675,100).

(ii) During fiscal 2003, the extra shares and loyalty shares for TESOP99 were
transferred to employees on completion of the restriction period.

                                                                             251

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(c) Share plan information (continued)

We provide the following information about Telstra Growthshare:

(i) Instruments outstanding at the beginning of fiscal 2003

The following options, restricted shares and performance rights had been issued
at the start of fiscal 2003, but were yet to vest with employees.

<TABLE>
<CAPTION>
                                     Number of                                                               Exercise date
                                    instruments   Commencement         Performance           Exercise      (once performance
                                    outstanding       date            hurdle period            price          hurdle met)
----------------------------------------------------------------------------------------------------------------------------
Growthshare 2000 - Sept 1999
allocation
----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>             <C>                     <C>              <C>
Options..........................     2,125,667   13 Sept 1999     between 13 Sept 2002   $         8.02     any time before
                                                                       and 13 Sept 2004                         13 Sept 2009
Restricted shares................       350,688   13 Sept 1999     between 13 Sept 2002   $ 1 per parcel     any time before
                                                                       and 13 Sept 2004        exercised        13 Sept 2004
Growthshare 2001 - Sept 2000
allocation
----------------------------------------------------------------------------------------------------------------------------
Options..........................     4,020,841    8 Sept 2000      between 8 Sept 2003   $         6.28     any time before
                                                                       and 13 Sept 2005                          8 Sept 2010
Restricted shares................       826,883    8 Sept 2000     between 13 Sept 2003   $ 1 per parcel     any time before
                                                                       and 13 Sept 2005        exercised         8 Sept 2005
Growthshare 2001 - March 2001
allocation
----------------------------------------------------------------------------------------------------------------------------
Options..........................       168,710   16 March 2001   between 16 March 2004   $         6.55     any time before
                                                                      and 16 March 2006                        16 March 2011
Restricted shares................        43,817   16 March 2001   between 16 March 2004   $ 1 per parcel     any time before
                                                                      and 16 March 2006        exercised       16 March 2006
Growthshare 2002 - Sept 2001
allocation
----------------------------------------------------------------------------------------------------------------------------
Options..........................    36,501,695    6 Sept 2001      between 6 Sept 2004   $         4.90     any time before
                                                                        and 6 Sept 2006                          6 Sept 2011
Performance rights...............     3,486,241    6 Sept 2001      between 6 Sept 2004   $ 1 per parcel     any time before
                                                                        and 6 Sept 2006        exercised          8 Dec 2006
Growthshare 2002 - March 2002
allocation
----------------------------------------------------------------------------------------------------------------------------
Options..........................     2,068,000   14 March 2002   between 14 March 2005   $         5.63     any time before
                                                                      and 14 March 2007                        14 March 2012
Performance rights...............       167,200   14 March 2002   between 14 March 2005   $ 1 per parcel     any time before
                                                                      and 14 March 2007        exercised        14 June 2007
</TABLE>

252

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(c) Share plan information (continued)

(i) Instruments outstanding at the beginning of fiscal 2003 (continued)

The following directshares and ownshares had been issued at the start of fiscal
2003 but were held by the trustee for the benefit of the relevant directors or
employees pending expiration of the restriction period.

                                                   Number of
                                                  instruments
                                                  outstanding
-------------------------------------------------------------
DirectShares
-------------------------------------------------------------
15 September 2000 allocation...................         7,585
19 March 2001 allocation.......................        11,104
14 September 2001 allocation...................        14,453
14 March 2002 allocation.......................        18,117
OwnShares
-------------------------------------------------------------
15 September 2000 allocation...................       312,655
14 September 2001 allocation...................       326,946
2 November 2001 allocation.....................        98,042
-------------------------------------------------------------

Participants in the directshare and ownshare plans are only able to deal in
these instruments at the end of the restriction period.

(ii) Instruments granted during the financial year

The following instruments were granted in September 2002:

<TABLE>
<CAPTION>
                                                                      Growthshare 2003                  Growthshare 2003
                                                                       deferred shares                performance rights
------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                                <C>
Number of executives who were allocated deferred
shares and performance rights......................                                166                               166
Effective commencement date of deferred shares
and performance rights.............................                   5 September 2002                  5 September 2002
Performance hurdle period - i.e. over what time
period executives have to satisfy the                                                    period between 5 September 2005
performance hurdle for the instruments to vest.....                                (a)              and 5 September 2007
------------------------------------------------------------------------------------------------------------------------
Number of deferred shares and performance rights
(representing a 100% allocation or maximum
entitlement available) issued......................                          2,123,000                         4,246,000
                                                      ------------------------------------------------------------------
Exercise price (once the instruments become
exercisable).......................................                  $ 1 per parcel of                 $ 1 per parcel of
                                                                 instruments exercised             instruments exercised
                                                      ==================================================================
Market price of Telstra shares on commencement
date...............................................                  $  4.87 per share                 $  4.87 per share
Exercise date (once the instruments become
exercisable).......................................   any time before 5 September 2007   any time before 5 December 2007
------------------------------------------------------------------------------------------------------------------------
<FN>
<F1>
(a) As deferred shares are allocated as annual fixed remuneration, there is no
performance hurdle. Generally, deferred shares will vest if the participating
executive continues to be employed by an entity that forms part of the Telstra
Group for three years after the effective commencement date.
</FN>
</TABLE>
No consideration is required to be provided by the participating executives on
the granting of these deferred shares and performance rights.

                                                                             253

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(ii) Instruments granted during the financial year (continued)

The following instruments were granted in March 2003:

<TABLE>
<CAPTION>
                                                                  Growthshare 2003              Growthshare 2003
                                                                   deferred shares            performance rights
----------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                            <C>
Number of executives who were allocated deferred
shares and performance rights......................                              4                             4
Effective commencement date of deferred shares
and performance rights.............................                   7 March 2003                  7 March 2003
Performance hurdle period - i.e. over what time
period executives have to satisfy the                                                period between 7 March 2006
performance hurdle for the instruments to vest.....                            (a)              and 7 March 2008
----------------------------------------------------------------------------------------------------------------
Number of deferred shares and performance rights
(representing a 100% allocation or maximum
entitlement available) issued......................                         22,100                        44,200
                                                      ----------------------------------------------------------
Exercise price (once the instruments become
exercisable).......................................              $ 1 per parcel of             $ 1 per parcel of
                                                             instruments exercised         instruments exercised
                                                      ==========================================================
Market price of Telstra shares on commencement
date...............................................               $ 4.11 per share              $ 4.11 per share
Exercise date (once the instruments become
exercisable).......................................   any time before 7 March 2008   any time before 7 June 2008
----------------------------------------------------------------------------------------------------------------
<FN>
<F1>
(a) As deferred shares are allocated as annual fixed remuneration, there is no
performance hurdle. Deferred shares will vest if the participating executive
continues to be employed by a member of the Telstra Group for three years after
the effective commencement date.
</FN>
</TABLE>

No consideration is required to be provided by the participating executives on
the granting of these deferred shares.

In the prior year, the following instruments were granted during September 2001:

<TABLE>
<CAPTION>
                                                                      Growthshare 2002                  Growthshare 2002
                                                                               options                performance rights
------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                                <C>
Number of executives who were allocated options
and performance rights.............................                                155                               155
Effective commencement date of options and
performance rights.................................                   6 September 2001                  6 September 2001
Performance hurdle period - i.e. over what time
period executives have to satisfy performance          period between 6 September 2004   period between 6 September 2004
hurdle to be eligible for shares...................               and 6 September 2006              and 6 September 2006
------------------------------------------------------------------------------------------------------------------------
Number of options and performance rights issued
(representing a 100% allocation or maximum
entitlement available).............................                         37,034,000                         3,537,100
                                                      ------------------------------------------------------------------
Exercise price (once the instruments become
exercisable).......................................                  $ 4.90 per option                 $ 1 per parcel of
                                                                                                   instruments exercised
                                                      ==================================================================
Market price of shares on commencement date........                  $  4.90 per share                 $  4.90 per share
Exercise date (once the instruments become
exercisable).......................................   any time before 6 September 2011   any time before 6 December 2006
------------------------------------------------------------------------------------------------------------------------
</TABLE>

254

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

19. Employee share plans (continued)

(c) Share plan information (continued)

(ii) Instruments granted during the financial year (continued)

In the prior year, the following instruments were granted during March 2002:

<TABLE>
<CAPTION>
                                                                    Growthshare 2002                  Growthshare 2002
                                                                             options                performance rights
----------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                                <C>
Number of executives who were allocated options
and performance rights............................                                 4                                 4
Effective commencement date of options and
performance rights................................                     14 March 2002                     14 March 2002
Performance hurdle period - i.e. over what time
period executives have to satisfy the                   period between 14 March 2005      period between 14 March 2005
performance hurdle for the instruments to vest....                 and 14 March 2007                 and 14 March 2007
----------------------------------------------------------------------------------------------------------------------
Number of options and performance rights issued
(representing a 100% allocation or maximum
entitlement available)............................                         2,068,000                           167,200
                                                      ----------------------------------------------------------------
Exercise price (once the instruments become
exercisable)......................................                 $ 5.63 per option                 $ 1 per parcel of
                                                                                                 instruments exercised
                                                      ================================================================
Market price of shares on commencement date.......                 $  5.63 per share                 $  5.63 per share
Exercise date (once the instruments become
exercisable)......................................     any time before 14 March 2012      any time before 14 June 2007
----------------------------------------------------------------------------------------------------------------------
</TABLE>

The following directshares were granted in September of fiscal 2003 and fiscal
2002:

<TABLE>
<CAPTION>
                                                        DirectShare Equity Plan 2003      DirectShare Equity Plan 2002
----------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                               <C>
Number of eligible participants...................                                11                                11
Number of participants in the plan................                                10                                10
Allocation date of shares.........................                  5 September 2002                 14 September 2001
                                                      ----------------------------------------------------------------
Number of shares allocated........................                            19,713                            19,445
Fair value of shares allocated....................                 $  4.87 per share                 $  4.81 per share
Total fair value of shares allocated..............                 $          96,002                 $          93,531
                                                      ----------------------------------------------------------------
</TABLE>

The following directshares were granted in March of fiscal 2003 and fiscal 2002:

<TABLE>
<CAPTION>
                                                        DirectShare Equity Plan 2003      DirectShare Equity Plan 2002
----------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                               <C>
Number of eligible non-executive directors........                                11                                11
Number of participants in the plan................                                10                                10
Allocation date of shares.........................                      7 March 2003                     14 March 2002
                                                      ----------------------------------------------------------------
Number of shares allocated........................                            40,709                            18,117
Fair value of shares allocated....................                 $  4.11 per share                  $ 5.63 per share
Total fair value of shares allocated..............                 $         167,314                  $        101,999
                                                      ----------------------------------------------------------------
</TABLE>

                                                                             255

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
19. Employee share plans (continued)

(c) Share plan information (continued)

(ii) Instruments granted during the financial year (continued)

The following ownshares were granted in September of fiscal 2003 and fiscal
2002:

                                          OwnShare Equity      OwnShare Equity
                                             Plan 2003            Plan 2002
--------------------------------------------------------------------------------
Number of eligible participants........               6,788                6,263
Number of participants in the plan.....                 406                  321
Allocation date of shares..............    5 September 2002    14 September 2001
                                         ---------------------------------------
Number of shares allocated.............             574,899              333,911
Fair value of shares allocated.........  $   4.87 per share  $    4.81 per share
Total fair value of shares allocated...  $        2,799,758  $         1,606,112
                                         ---------------------------------------

The following ownshares were granted in October of fiscal 2003 and fiscal 2002:

                                          OwnShare Equity      OwnShare Equity
                                             Plan 2003            Plan 2002
--------------------------------------------------------------------------------
Number of eligible employees...........              12,216               11,181
Number of participants in the plan.....                 179                   90
Allocation date of shares..............     28 October 2002      2 November 2001
                                         ---------------------------------------
Number of shares allocated.............             166,676               98,042
Fair value of shares allocated.........  $   4.78 per share  $    4.98 per share
Total fair value of shares allocated...  $          796,711  $           488,249
                                         ---------------------------------------

On an allocation of directshares and ownshares, the participants in the plans
are not required to make any payment to the Telstra Entity. Participants may be
provided a portion of their remuneration in the form of directshares or
ownshares as applicable. The fair value of the instruments issued is determined
by the remuneration foregone by the participant. The number of directshares or
ownshares allocated is based on the weighted average price of a Telstra share in
the week ending on the day before allocation date, in conjunction with the
remuneration foregone.

(iii) Instruments exercised during the financial year

There have been no options, restricted shares or performance rights that have
been exercised during the year and no fully paid shares distributed relating to
these plans as a result.

There were 8,925 deferred shares that were exercised during the year at the
exercise price of $1. These deferred shares were part of the September 2002
allocation and were exercised as part of a redundancy. The fair value at the
date of the transfer of Telstra shares relating to this exercise was $39,359,
based on the closing market price at that date.

There were no instruments exercised and no Telstra shares transferred relating
to the option, restricted share, performance rights and deferred share plans
during fiscal 2002.

Directshares and ownshares are not required to be exercised. The fully paid
shares held by the Telstra Growthshare Trust relating to these instruments are
merely transferred to the participants at the completion of the restriction
period.

The following fully paid shares have been distributed from the Telstra
Growthshare Trust to directors and executives under the directshare and ownshare
plans respectively, due to expiration of the applicable restriction period.

                            No. of
                            shares
                          distributed   Fair value
--------------------------------------------------
DirectShares............           --           --
OwnShares...............      101,146  $   460,843
--------------------------------------------------

256

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
19. Employee share plans (continued)

(c) Share plan information (continued)

(iii) Instruments exercised during the financial year (continued)

The following fully paid shares relating to the same plans were distributed
during fiscal 2002:

                            No. of
                            shares
                          distributed   Fair value
--------------------------------------------------
DirectShares............       13,627  $    73,136
OwnShares...............       43,863  $   220,489
--------------------------------------------------

The fair value of ownshares and directshares distributed is determined through
reference to the closing market price of a Telstra share on the date of
transfer.

(iv) Instruments which have lapsed during the financial year

The following instruments issued to participating employees have lapsed during
the financial year due to cessation of employment or the relevant performance
hurdle not being met:

                       Instruments lapsed
                        during year ended
Allocation                  30 June
                         2003       2002
------------------------------------------
Options
September 1999......    591,945    137,000
September 2000......    650,181    296,617
March 2001..........     18,710         --
September 2001......  4,084,750    532,305
March 2002..........    214,000         --

Restricted shares
September 1999......     90,410     23,312
September 2000......    128,923     59,058
March 2001..........      3,817         --

Performance rights
September 2001......    388,086     50,859
March 2002..........     18,200         --
September 2002......    211,774         --

Deferred shares
September 2002......     91,577         --
------------------------------------------

(v) Instruments outstanding at the end of fiscal 2003

After movements in our share plans during the financial year, the following
instruments remain outstanding as at 30 June 2003:

                                             No. of instruments
                                             outstanding as at
                                               30 June 2003
---------------------------------------------------------------
Growthshare 2000
---------------------------------------------------------------
Options....................................           1,533,722
Restricted shares..........................             260,278

Growthshare 2001 - Sept 2000 allocation
---------------------------------------------------------------
Options....................................           3,370,660
Restricted shares..........................             697,960

Growthshare 2001 - March 2001 allocation
---------------------------------------------------------------
Options....................................             150,000
Restricted shares..........................              40,000

Growthshare 2002 - Sept 2001 allocation
---------------------------------------------------------------
Options....................................          32,416,945
Performance rights.........................           3,098,155

Growthshare 2002 - March 2002 allocation
---------------------------------------------------------------
Options....................................           1,854,000
Performance rights.........................             149,000

Growthshare 2003 - Sept 2002 allocation
---------------------------------------------------------------
Deferred shares............................           2,022,498
Performance rights.........................           4,034,226

Growthshare 2003 - March 2003 allocation
---------------------------------------------------------------
Deferred shares............................              22,100
Performance rights.........................              44,200

                                                                             257

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
19. Employee share plans (continued)

(c) Share plan information (continued)

(v) Instruments outstanding at the end of fiscal 2003 (continued)

                                  No. of instruments
                                  outstanding as at
                                     30 June 2003
----------------------------------------------------
DirectShares
----------------------------------------------------
15 September 2000 allocation....               7,585
19 March 2001 allocation........              11,104
14 September 2001 allocation....              14,453
14 March 2002 allocation........              18,117
5 September 2002 allocation.....              19,713
7 March 2003 allocation.........              40,709

OwnShares
----------------------------------------------------
15 September 2000 allocation....             276,725
14 September 2001 allocation....             287,763
2 November 2001 allocation......              88,518
5 September 2002 allocation.....             565,466
28 October 2002 allocation......             159,600

The grant dates, performance hurdles, exercise prices and other terms relating
to the above instruments have not changed from initial allocation date or from
those terms disclosed at the beginning of fiscal 2003.

(vi) Other information relevant to our employee share plans

Shares held by the TESOP99 and TESOP97 trusts for the purposes of facilitating
the operations of the relevant share plans amount to 69,160,725 shares (2002:
82,564,136 shares). The fair value of these shares as at 30 June 2003 based on
the market value of Telstra shares at balance date amounts to $304 million
(2002: $385 million). As the final restriction period for these shares was
completed on 16 October 2002, they are now considered fully transferable to the
employees once the loan has been repaid in full.

Shares held by the Telstra Growthshare Trust for the purposes of facilitating
the operations of the Telstra Growthshare, Directshare and Ownshare plans amount
to 23,168,288 shares (2002: 23,278,359 shares). The fair value of these shares
as at 30 June 2003 based on the market value of Telstra shares at balance date
amounts to $102 million (2002: $108 million).

Options, restricted shares, and performance rights are subject to a performance
hurdle. Deferred shares require a prescribed period of service to be completed.
Generally, if these requirements are not achieved the instruments will have a
$nil value and will lapse. As the achievement of the performance hurdle and
completion of the service period is uncertain, a remuneration value is not
attributed to the options, restricted shares, performance rights and deferred
shares.

Under Telstra's USGAAP disclosures (refer note 30), an approach consistent with
the binomial and Black-Scholes pricing models was used to determine the fair
value of these instruments for the purpose of inclusion in the potential
compensation expenses. The value of the allocations per security as used in our
USGAAP disclosures is as follows:

                          Restricted  Performance   Deferred
Offers          Options     shares        rights     shares
               ----------------------------------------------
Sept 1999....  $    1.38  $     5.64           (a)         (a)
Sept 2000....  $    0.89  $     2.05           (a)         (a)
March 2001...  $    0.80  $     2.15           (a)         (a)
Sept 2001....  $    0.90          (a) $      2.33          (a)
March 2002...  $    0.97          (a) $      2.51          (a)
Sept 2002....         (a)         (a) $      2.54  $     3.77
March 2003...         (a)         (a) $      2.15  $     3.08
               ----------------------------------------------

The following valuations are based on the same methodologies, but in all cases,
exclude adjustments for the effect of non-retention of participants and
non-transferability of the instruments.

                          Restricted  Performance   Deferred
Offers          Options     shares      rights       shares
               ----------------------------------------------
Sept 1999....  $    1.38  $     5.64           (a)         (a)
Sept 2000....  $    1.59  $     3.62           (a)         (a)
March 2001...  $    1.53  $     3.77           (a)         (a)
Sept 2001....  $    1.13          (a) $      2.86          (a)
March 2002...  $    1.19          (a) $      3.08          (a)
Sept 2002....         (a)         (a) $      2.99  $     4.41
March 2003...         (a)         (a) $      2.60  $     3.60
               ----------------------------------------------

(a) There were no allocations of options, performance rights, restricted shares
or deferred shares in the relevant offer periods.

The following weighted average assumptions were used in determining the above
current year valuations:

------------------------------------------------------------------
                                       Growthshare deferred shares
                                         and performance rights
                                       ---------------------------
                                         Sept 2002     March 2003
------------------------------------------------------------------
Risk free rate.......................          5.12%          4.64%
Dividend yield.......................           4.0%           4.0%
Expected stock volatility............          19.0%          18.3%
Expected life - performance rights...       5 years        5 years
Expected life - deferred shares......       3 years        3 years
Average forfeiture rate per annum-
performance rights...................            10%            10%
Average forfeiture rate per annum-
deferred shares......................          14.5%          14.5%
                                       ===========================

On this basis, the resultant outcomes of the model indicate that the performance
hurdles are expected to be met in 61.6% of cases for the September 2002
allocation and 62.7% for the March 2003 allocation.

258

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
19. Employee share plans (continued)

(c) Share plan information (continued)

(vi) Other information relevant to our employee share plans (continued)

The following table highlights shareholdings by individual non-executive
directors as at 30 June 2003 as allocated under the directshare equity plan.
These shareholdings have been included in the total shareholding disclosures
made in note 27.

<TABLE>
<CAPTION>
                            Total shares                                  Total shares
                            held as at 30  September 2002    March 2003   held as at 30
                              June 2002      allocation      allocation    June 2003
                            -----------------------------------------------------------
                            No. of shares  No. of shares   No. of shares  No. of shares
---------------------------------------------------------------------------------------
<S>                         <C>            <C>             <C>            <C>
Robert C Mansfield........         16,139           4,928          7,137         28,204
John T Ralph..............          8,071           2,464          3,569         14,104
Sam H Chisholm (i)........             --              --             --             --
Anthony J Clark...........          4,595           1,540          2,474          8,609
John E Fletcher...........          3,744           1,335          3,771          8,850
Belinda J Hutchinson......          1,664           1,540          2,176          5,380
Catherine B Livingstone...          3,744           1,335          2,068          7,147
Charles Macek.............          1,554           1,540          2,474          5,568
Donald G McGauchie........          4,373           1,335          3,771          9,479
William A Owens...........          1,997           1,848          3,650          7,495
John W Stocker............          5,378           1,848          9,619         16,845
                            -----------------------------------------------------------
                                   51,259          19,713         40,709        111,681
---------------------------------------------------------------------------------------
<FN>
<F1>
(i) As fees are declined by the director, no directshares have been allocated
under this equity plan.
</FN>
</TABLE>

                                                                             259

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                                Telstra Group     Telstra Entity
--------------------------------------------------------------   ---------------
                                                As at 30 June     As at 30 June
                                                 2003     2002     2003     2002
                                                   $m       $m       $m       $m
--------------------------------------------------------------   ---------------

20. Expenditure commitments

(a) Capital expenditure commitments
Total capital expenditure commitments
contracted for at balance date but not
recorded in the financial statements:
Within 1 year...............................      366      379      434      353
Within 1-2 years............................      168      148      140      131
Within 2-3 years............................      127      139      122      114
Within 3-4 years............................      140      109      135      106
Within 4-5 years............................       --      109       --      106
After 5 years...............................       --       23       --       23
                                               ---------------   ---------------
                                                  801      907      831      833
                                               ===============   ===============

The capital expenditure commitments above include contracts for building and
improving our networks and software enhancements.

Included in the amounts above are capital
commitments relating to information
technology services (i):
Within 1 year...............................      157      198      149      181
Within 1-2 years............................      129      101      124       92
Within 2-3 years............................      127       92      122       90
Within 3-4 years............................      140       90      135       88
Within 4-5 years............................       --       91       --       88
After 5 years...............................       --        5       --        5
                                               ---------------------------------
                                                  553      577      530      544
                                               =================================

(i) These capital commitments predominantly relate to amounts to be spent on
software assets developed for internal use under a 10 year contract with IBM
Global Services Australia Limited (IBM GSA) (Refer note 20(d)(ii) for other
commitments relating to IBM GSA).

(b) Operating lease commitments
Future lease payments for non-cancellable
operating leases not recorded in the
financial statements:
Within 1 year...............................      251      234      136      148
Within 1-2 years............................      174      180       86      117
Within 2-3 years............................      144      101       63       67
Within 3-4 years............................      130       73       48       44
Within 4-5 years............................      114       60       34       34
After 5 years...............................      487      198       83       54
                                               ---------------   ---------------
                                                1,300      846      450      464
                                               ===============   ===============

In addition, in fiscal 2003 the Telstra Group have total future commitments
under cancellable operating leases of $471 million (2002: $492 million). In
fiscal 2003 the Telstra Entity have total future commitments under cancellable
operating leases of $426 million (2002: $404 million).

260

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

20. Expenditure commitments (continued)

Description of our operating leases

We have operating leases for the following major services:

..  rental of land and buildings;
..  rental of motor vehicles, caravan huts and trailers and mechanical aids; and
..  rental of personal computers, laptops, printers and other related equipment
   that are used in non communications plant activities.

The average lease term is:

..  seven years for land and buildings;
..  four years for motor vehicles, five years for light commercial vehicles and
   seven to twelve years for trucks and mechanical aids; and
..  three years for personal computers and related equipment.

Contingent rental payments only exist for motor vehicles and are not significant
compared with total rental payments made. These are based on unfair wear and
tear, excess kilometres travelled, additional fittings and no financial loss to
be suffered by the leasing company from changes to the original agreements. Our
motor vehicles and related equipment must also remain in Australia.

We do not have any significant purchase options in our operating leases.

Operating leases related to our personal computers and associated equipment had
average interest rates of 5.1% for fiscal 2003 (5.5% for fiscal 2002).

<TABLE>
<CAPTION>
                                                                Telstra Group     Telstra Entity
--------------------------------------------------------------------------------  ---------------
                                                                As at 30 June      As at 30 June
                                                                 2003       2002    2003     2002
                                                      Note         $m         $m      $m       $m
--------------------------------------------------------------------------------  ---------------
<S>                                                   <C>       <C>         <C>    <C>       <C>
(c) Finance lease commitments
Within 1 year.............................................         21         22       9        7
Within 1-2 years..........................................         --         19      --        1
Within 2-3 years..........................................         --          2      --       --
Within 3-4 years..........................................         --         --      --       --
Within 4-5 years..........................................         --         --      --       --
                                                               -----------------  ---------------
Total minimum lease payments..............................         21         43       9        8
Future finance charges on finance leases..................         (1)        (2)     --       --
                                                               -----------------  ---------------
Present value of net future minimum lease payments........         20         41       9        8
                                                               =================  ===============
Recorded as current interest-bearing liabilities........16         20         20       9        7
Recorded as non current interest-bearing liabilities....16         --         21      --        1
                                                               -----------------  ---------------
Total finance lease liabilities.........................16         20         41       9        8
                                                               =================  ===============
</TABLE>

Description of our finance leases

In addition to the above finance lease commitments, we have also guaranteed the
performance of a third party for finance lease payments to be made by the third
party, on our behalf (refer note 21 for further information).

We have finance leases for the following major services:

..  communications exchange equipment denominated in US dollars; and
..  computer mainframes, computer processing equipment and other related
   equipment.

The average lease term is:

..  13 years for communications exchange equipment denominated in US dollars; and
..  three years for computer mainframe and associated equipment.

We entered into US finance leases for communications exchange equipment in
fiscal 2000 and fiscal 1999. We have prepaid all lease rentals due under the
terms of these leases. We have guaranteed that the lease payments will be paid
as scheduled over the lease term to the ultimate lessor. We received guarantee
fees of $39 million in fiscal 2000 and $37 million for fiscal 1999. These fees
are recorded in revenue received in advance and are being released to the
statement of financial performance over the term of the leases being 13 years.
The structure of each lease includes an early buy out option with approximately
10 years remaining.

                                                                             261

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

20. Expenditure commitments (continued)

Interest rates for our finance leases are:

..  US dollar communication assets between 4.25% and 5.06%; and
..  computer mainframe, computer processing equipment and associated equipment
   between 8.26% and 9.36%.

Refer note 12 for further details on communication assets and equipment that are
held under finance lease

                                               Telstra Group     Telstra Entity
--------------------------------------------------------------   ---------------
                                               As at 30 June      As at 30 June
                                                 2003     2002     2003     2002
                                                   $m       $m       $m       $m
--------------------------------------------------------------   ---------------
(d) Other commitments
Other expenditure commitments, other than
commitments dealt with in (a), (b) and (c)
above, which have not been recorded in the
financial statements are:
Within 1 year...............................      920    1,125      635      844
Within 1-2 years............................      582      651      350      467
Within 2-3 years............................      521      553      308      374
Within 3-4 years............................      515      487      313      308
Within 4-5 years............................      156      489       10      309
After 5 years...............................    1,547    1,427        4       22
                                               ---------------   ---------------
                                                4,241    4,732    1,620    2,324
                                               ===============   ===============

The other expenditure commitments above include contracts for purchase of
capacity, printing, engineering and operational support services, software
maintenance, license fees, naming rights and building maintenance. The above
commitments also include commitments relating to our investment in FOXTEL (refer
note 24) and commitments relating to information technology services (other than
those disclosed as capital commitments) as follows:

FOXTEL commitments (i):
Within 1 year...............................      193      139       --       --
Within 1-2 years............................      194      139       --       --
Within 2-3 years............................      174      139       --       --
Within 3-4 years............................      163      139       --       --
Within 4-5 years............................      133      139       --       --
After 5 years...............................    1,352    1,174       --       --
                                               ---------------   ---------------
                                                2,209    1,869       --       --
                                               ===============   ===============

Commitments relating to information
technology services (ii)....................
Within 1 year...............................      399      496      338      375
Within 1-2 years............................      306      350      277      316
Within 2-3 years............................      297      334      270      305
Within 3-4 years............................      308      328      279      299
Within 4-5 years............................       --      334       --      305
After 5 years...............................       --       18       --       18
                                               ---------------   ---------------
                                                1,310    1,860    1,164    1,618
                                               ===============   ===============

262

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

20. Expenditure commitments (continued)

(i)  Our joint venture entity, FOXTEL has commitments amounting to approximately
$4,418 million (US$2,960 million) (2002: $3,738 million, US$2,060 million), the
majority of our 50% share of these commitments relate to minimum subscriber
guarantees (MSG) for pay television programming agreements. These agreements are
for periods of between 1 and 17 years (2002: 1 and 18 years) and are based on
current prices and costs under agreements entered into between the FOXTEL
Partnership and various other parties. These minimum subscriber payments
fluctuate in accordance with price escalation/ reduction formulas contained in
the agreements.

On 1 December 2002, FOXTEL entered an unconditional content supply agreement
with Optus that allowed Optus to provide a number of FOXTEL pay TV channels over
the Optus cable network. Under this agreement, FOXTEL assumes some of Optus'
financial obligations under its movie and other content arrangement.

Refer also to note 21 'FOXTEL minimum subscriber guarantees', for further
information.

(ii) Commitments for information technology (IT) services predominantly result
from a contract with IBM GSA. Under the IBM GSA contract, IBM GSA will provide
IT services to the Telstra Entity and selected Australian controlled entities
for a period of 10 years from 24 July 1997. The Telstra Entity is committed to a
total amount of $1,596 million (2002: $2,026 million) over the period, of which
$507 million (2002: $458 million) relates to a capital commitment (refer note
20(a)).

Commitments with Reach Ltd (REACH)

Under an International Services Agreement Australia (AISA) signed with our joint
venture entity REACH in fiscal 2002, we are committed to the purchase of
switched voice, international transmission and global internet access services
to meet certain percentages of our annual capacity requirement ("committed
services"). The committed services may also include the services for the
carriage of calls or data between places outside of Australia.

In fiscal 2003, the AISA was updated to expand our initial five year commitment
until 31 December 2010 in accordance with the terms of the new capacity
prepayment agreement (refer note 9 for further information). Under the revised
AISA, we are committed to the purchase of switched voice, international
transmission and global internet access services to meet 90% of our annual
capacity requirement.

                                                                             263

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

21. Contingent liabilities and contingent assets

We have no significant contingent assets as at 30 June 2003. The details and
maximum amounts (where reasonable estimates can be made) are set out below for
contingent liabilities.

Telstra Entity

Common law claims

Certain common law claims by employees and third parties are yet to be resolved.
The maximum amount of these contingent liabilities cannot be reasonably
estimated. As at 30 June 2003, management believes that the resolution of these
contingencies will not have a significant effect on the Telstra Entity's
financial position, results of operations or cash flows.

Indemnities, performance guarantees and financial support

We have provided the following indemnities, performance guarantees and financial
support through the Telstra Entity as follows:

..  Indemnities to financial institutions to support bank guarantees to the value
   of $276 million (2002: $311 million) in respect of the performance of
   contracts.

..  Indemnities to financial institutions in respect of the obligations of our
   controlled entities. The maximum amount of our contingent liabilities for
   this purpose was $249 million (2002: $219 million).

..  Financial support for certain controlled entities to the amount necessary to
   enable those entities to meet their obligations as and when they fall due.
   The financial support is subject to conditions including individual monetary
   limits totalling $7 million (2002: $nil) and a requirement that the entity
   remains our controlled entity.

..  Guarantee of the performance of joint venture entities under contractual
   agreements to a maximum amount of $247 million (2002: $422 million).

..  Guarantee of the performance of a third party for lease payments to be made
   by the third party, on our behalf, over the remaining terms of the finance
   leases (average 13 years). The lease payments over the remaining period of
   the lease amount to $1,042 million (US$698 million) (2002: $1,256 million
   (US$709 million)).

..  During fiscal 1998, we resolved to provide our associated entity, IBM Global
   Services Australia Limited (IBM GSA), with our pro rata 26% share of
   shareholder guarantees on a several basis up to $210 million. These
   guarantees may be made with IBM GSA bankers, or directly to IBM GSA
   customers. Our shareholding in IBM GSA, and our pro rata share of any future
   payments made under the shareholder guarantees, reduced to 22.6% during
   fiscal 2000. We issued a shareholder guarantee of $68 million on behalf of
   IBM GSA during fiscal 2000. As at 30 June 2003, $142 million (2002: $142
   million) of the $210 million guarantee facility remains unused.

..  Indemnities to Telstra Growthshare Pty Ltd for all liabilities, costs and
   expenses incurred by the trustee in the execution of the powers vested in it.

Controlled entities

Indemnities provided by our controlled entities

At 30 June 2003, our controlled entities had outstanding indemnities in respect
of obligations to financial institutions and corporations. The maximum amount of
our controlled entities' contingent liabilities in respect of these indemnities
was $1 million (2002: $58 million).

During fiscal 2002, our controlled entity Hong Kong CSL Limited (HK CSL)
guaranteed a performance bond of $57 million (HK$250 million) issued by a bank
to the Office of Telecommunications Authority of Hong Kong (OFTA) in respect of
the 3G licence awarded to HK CSL. The performance bond was equal to the minimum
annual fees payable to the OFTA for five years.

On 22 October 2002, a revised performance bond of $38 million (HK$200 million)
was issued to the OFTA with a duration of four years. A one year waiver has been
granted to HK CSL. In addition, this bond was issued with indemnity from the
Telstra Entity. At 30 June 2003, this amount has been included within
indemnities to financial institutions in respect of the obligations of our
controlled entities. Total expenditure commitments pursuant to the 3G licence
are included within other commitments in note 20.

Other

The PT Mitra Global Telekomunikasi Indonesia (MGTI) joint venture agreement
(JVA) was renegotiated during the financial year ending 30 June 2000. The
revised JVA reduced the amount of base equity to be contributed by shareholders
from US$340 million to US$208 million (which has now been contributed).

However, Telstra Global Limited (TGL), under the JVA, may be severally liable
for calls against standby equity that would be made by MGTI if certain
conditions are met. Should this equity be called, TGL will be liable to
contribute additional equity of $25 million (US$17 million) (2002: $30 million
(US$17 million)). If the other shareholders in MGTI default on contributing
their share of a standby equity call, TGL may be liable to contribute an
additional $102 million (US$68 million) (2002: $120 million (US$68 million)) as
standby equity.

264

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

21. Contingent liabilities and contingent assets (continued)

Controlled entities (continued)

Other (continued)

TGL has granted a limited recourse pledge over its shares in MGTI in support of
MGTI's obligations under a $716 million (US$480 million) (2002: $850 million
(US$480 million)) Loan Agreement dated 23 September 1996 between MGTI and
various lenders. As a result of agreements with lenders reached in September
1999 the facility is now limited to the debt drawn and outstanding. The
outstanding debt under this facility is currently $106 million (US$71 million)
(2002: $175 million (US$99 million)). Repayments are being made on schedule. The
lenders have no recourse under the pledge to the assets of Telstra Global
Limited other than to its shares in MGTI (except in the case of a breach of
representation, warranty or covenant by TGL).

In February 2001, changes in Indonesian banking regulations required MGTI to
cash in currency hedges associated with the loan facility. These hedges yielded
a gain of $75 million (US$38 million), which was applied against the principal
of the loan.

Other

FOXTEL minimum subscriber guarantees

The Telstra Entity and its partners, News Corporation and Publishing and
Broadcasting Limited, and Telstra Media and its partner, Sky Cable, have entered
into agreements relating to pay television programming with various parties.
These involve commitments for minimum subscriber fees. Due to joint and several
liability under the agreements, if News Corporation, Publishing and Broadcasting
Limited or Sky Cable fail to meet any of their obligations, the Telstra Entity
and Telstra Media would be contingently liable to the extent of those failures.
Refer note 20 for details of minimum subscriber guarantee commitments.

ASIC deed of cross guarantee

A list of the companies that are part of our deed of cross guarantee appear in
note 23. Each of these companies (except Telstra Finance Limited) guarantees the
payment in full of the debts of the other named companies in the event of their
winding up. Refer to note 23 for further information.

                                                                             265

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

22. Superannuation commitments

The employee superannuation schemes that we participate in or sponsor exist to
provide benefits for our employees and their dependants after finishing
employment with us. It is our policy to contribute to the schemes at rates
specified in the governing rules for accumulation schemes or at rates determined
by the actuaries for defined benefit schemes.

Commonwealth Superannuation Scheme (CSS) and the Telstra Superannuation Scheme
(Telstra Super)

Before 1 July 1990, eligible employees of the Telstra Entity were members of the
Commonwealth Superannuation Scheme (CSS). The CSS is a defined benefit scheme
for Commonwealth Public Sector employees. Under the CSS, we are responsible for
funding all employer financed benefits that arise from 1 July 1975 for employees
who are CSS members. Employer contributions by us, and other employers that
participate in the CSS, are paid to the Commonwealth Consolidated Revenue Fund.
Employee contributions to the CSS are separately managed.

On 1 July 1990, the Telstra Superannuation Scheme (Telstra Super) was
established. Telstra Super has both defined benefit and accumulation divisions.
A majority of our CSS members transferred to Telstra Super when it was first
established. As CSS members transferred, the liability for benefits for their
past service was transferred to Telstra Super and a transfer of assets was
payable from the CSS to Telstra Super (deferred transfer values).

The benefits received by members of each defined benefit scheme take into
account factors such as the employee's length of service, final average salary,
employer and employee contributions.

As at 30 June 2000, S J Schubert FIAA completed an actuarial investigation of
Telstra's obligations under the CSS and K O'Sullivan FIAA completed an actuarial
investigation of the two defined benefit divisions of Telstra Super.

The actuarial investigation of Telstra Super reported that a surplus continued
to exist. As per the recommendations within the actuarial investigation, we were
not required to make employer contributions to Telstra Super until the next
actuarial investigation that is due to be completed by 30 June 2004 based on the
scheme's financial position as at 30 June 2003. This contribution holiday
includes the contributions otherwise payable to the accumulation divisions of
Telstra Super. The continuance of the holiday, is however, dependant on the
performance of the fund. In fiscal 2003, there has been a reduction in the value
of the assets of the fund and therefore we are closely monitoring the situation
in light of the current financial market performance.

The actuarial investigation of our obligations under the CSS also recommended
that we continue to make no employer contributions to the CSS. We will review
our contribution rate for the CSS at the next actuarial investigation that is
due to be completed by 30 June 2004 based on the scheme's financial position as
at 30 June 2003.

In June 1999, the Minister for Finance and Administration signed a document
which allowed the CSS surplus (otherwise known as the residual notional fund
surplus or RNFS) based on the scheme's financial position at 30 June 1997 to be
transferred to Telstra Super over a 40 year period. This amounted to $1,428
million. Any RNFS amounts transferred to Telstra Super are taxed at the rate of
15%. The CSS actuarial investigation as at 30 June 2000 was conducted during
fiscal 2001. The Department of Finance and Administration is currently
considering the results of the actuarial investigation. That consideration has
not been completed pending the outcome of our discussions with the Commonwealth
on superannuation matters. Based on the results of the CSS actuarial
investigation, our actuary has recommended that the schedule to transfer the
RNFS be reviewed to take into account the revised surplus position.

Prior to 31 August 2000, we had an ongoing arrangement to pay an additional $121
million each year to Telstra Super over 16 years ending 30 June 2011. This
contribution commitment was independent of the contribution holiday advised by
the actuary.

On 31 August 2000, the trustee of Telstra Super and the Commonwealth (who
guaranteed our payments) released us from our obligation to make these
additional contributions. As part of the terms of the release, we have agreed to
provide such future employer payments to Telstra Super as may be required to
maintain the vested benefits index (VBI - the ratio of fund assets to members'
vested benefits) of the defined benefit divisions of Telstra Super in the range
of 100-110%.

The trustee of Telstra Super agreed to the release of the obligation based on
actuarial advice that the removal of these additional contributions, coupled
with Telstra's contribution commitment, will maintain the solvency level of
Telstra Super at a satisfactory level (refer to note 3 for the financial effect
of the removal of this obligation). The VBI of the defined benefit divisions was
approximately 113% as at 30 June 2003 (129% at 30 June 2002).

Other superannuation schemes

Our controlled entity, Hong Kong CSL Limited (HK CSL), participates in a
superannuation scheme known as the HK CSL Retirement Scheme (formerly Pacific
Century CyberWorks (PCCW) Retirement Benefit Scheme). The scheme has both
defined benefits and defined contributions divisions.

266

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

22. Superannuation commitments (continued)

Other superannuation schemes (continued)

The HK CSL Retirement Scheme is established under trust and is administered by
an independent trustee. The benefits received by members for the defined
benefits scheme are based on the employees' remuneration and length of service.

At 30 June 2002, the employee liability of HK CSL formed part of a scheme in the
name of PCCW-HKT Limited, which was HK CSL's previous immediate parent. On 1
December 2002, HK CSL established the new HK CSL Retirement Scheme.

<F2>
(i) Amounts for the defined benefit divisions of Telstra Super have been taken
from the audited financial report of the scheme as at 30 June 2003 and 30 June
2002. The scheme assets are stated at net market values.

Telstra Super net scheme assets include the carrying value of the CSS RNFS as at
30 June 2003 of $1,235 million (2002: $1,406 million). The CSS RNFS balance
represents the revised surplus position recognised as receivable by Telstra
Super. As any amounts transferred from the CSS to Telstra Super are taxed at the
rate of 15%, the adjustment in the table represents 85% of the RNFS which should
be reduced from net scheme assets and net surplus to eliminate the recognition
of the CSS surplus by Telstra Super.

The assets attributable to HK CSL of the previous scheme were transferred to the
new HK CSL Retirement Scheme along with an additional lump sum contribution from
HK CSL. This equated to the aggregate past service liability of the previous
scheme and ensured that the HK CSL Retirement Scheme was fully funded. The
transfers as at 1 December 2002 were based on an actuarial investigation
conducted by Watson Wyatt Hong Kong Limited.

Financial position

The financial position of the defined benefit divisions of Telstra Super, our
Notional Fund in the CSS and the HK CSL Retirement Scheme is shown as follows:

<TABLE>
<CAPTION>
                                      Net scheme assets  Accrued benefits   Net surplus(a)  Vested benefits
-----------------------------------------------------------------------------------------------------------
                                       As at 30 June      As at 30 June     As at 30 June    As at 30 June
                                         2003      2002     2003     2002     2003    2002     2003    2002
                                           $m        $m       $m       $m       $m      $m       $m      $m
-----------------------------------------------------------------------------------------------------------
<S>                                    <C>       <C>       <C>      <C>     <C>     <C>       <C>     <C>
Telstra Super (i)...................    4,222     4,804    2,847    3,078    1,375   1,726    3,729   3,734
CSS (ii)............................    7,479     7,479    3,865    3,865    3,614   3,614    4,091   4,091
HK CSL Retirement Scheme (iii)......       67        73       67       73       --      --       66      73
                                      ---------------------------------------------------------------------
                                       11,768    12,356    6,779    7,016    4,989   5,340    7,886   7,898
Less 85% residual notional fund
surplus (i).........................   (1,050)   (1,195)      --       --   (1,050) (1,195)      --      --
                                      ---------------------------------------------------------------------
Total...............................   10,718    11,161    6,779    7,016    3,939   4,145    7,886   7,898
                                      =====================================================================
</TABLE>
<FN>
<F1>
(a) Net surplus is the excess of net scheme assets over accrued benefits.

<F3>
(ii) The CSS amounts show our share of the benefit liability in respect to past
service of our employees and former employees who are members of the CSS. The
CSS amounts for both 30 June 2003 and 30 June 2002 are based on notional amounts
shown in the actuarial valuation dated 30 June 2000, subject to the following:

..  deferred transfer values of $2,142 million have been excluded from the CSS
   net scheme assets, accrued benefits and vested benefits as Telstra Super is
   responsible for CSS members transferred to Telstra Super. Amounts for
   deferred transfer values have been recognised by Telstra Super;
..  the net surplus of $3,614 million excludes $694 million related to the
   present value of future service liabilities. By including the $694 million,
   the surplus of notional assets over total liabilities for the CSS is $2,920
   million; and
..  based on the most recent actuarial investigation as at 30 June 2000, it has
   been recommended by the actuary that the surplus of $2,920 million, less
   superannuation contribution tax at the rate of 15%, be transferred to Telstra
   Super as previously described in this note. The Department of Finance and
   Administration is still considering the results of the actuarial
   investigation and the balance may be subject to change. Based on more recent
   estimates provided by our actuary this balance has declined, although it is
   still expected to be above its carrying value of $1,235 million recognised as
   receivable by Telstra Super.

                                                                             267

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

22. Superannuation commitments (continued)

Financial position (continued)

<F4>
(iii) We acquired full ownership of HK CSL on 28 June 2002. At 30 June 2002, the
scheme was still in the name of PCCW-HKT Limited, which is HK CSL's previous
immediate parent. Amounts for 30 June 2002 are based on our share of the
notional amounts shown in the actuarial valuation dated 30 June 2002. On 1
December 2002, the assets attributable to HK CSL were transferred from the PCCW
Retirement Benefit Scheme to the HK CSL Retirement Scheme. Amounts for 30 June
2003 for the HK CSL Retirement Scheme have been taken from the actuarial
valuation dated 30 June 2003. The scheme assets are stated at net market values.

</FN>

Investment types and estimated returns on those asset groups held by our
significant superannuation schemes
<TABLE>
<CAPTION>
<S>                                 <C>          <C>

                                   Telstra Super/CSS
                                      (i)(ii)
----------------------------------------------------
                                   Estimated returns
                                     As at 30 June
                                   2003         2002
                                      %            %
----------------------------------------------------
Australian shares................   9.3          7.8
International shares.............   8.7          7.5
Listed property..................   6.2          6.3
Direct property..................   7.5          6.2
Australian fixed interest........   4.8          5.1
International fixed interest.....   4.6          5.5
Cash.............................   4.3          4.2
                                   -----------------
</TABLE>

(i) Our estimates are based on expected 10 year after tax returns with an
allocation of 85% growth assets and 15% defensive assets.

(ii) Every three years our actuaries calculate the financial position of our
notional fund in the CSS as part of their actuarial investigation. The assets of
this scheme are accumulated at the same rate of return as that earned by Telstra
Super. As a result, the expected after tax returns of the CSS will be identical
to those returns expected to be generated by Telstra Super.

The estimated period over which the benefits of our members will be returned is
13 years for Telstra Super and 12 years for the CSS.

Employer contributions

Employer contributions made to:

..  the defined benefits divisions of Telstra Super were $nil for the past three
   fiscal years;
..  the CSS were $nil for the past three fiscal years;
..  the defined benefit divisions of the HK CSL scheme for fiscal 2003 were $8
   million (2002: $7 million; 2001: $3 million); and
..  the accumulation divisions of Telstra Super for fiscal 2003 were $4 million
   (2002: $6 million; 2001: $7 million), including voluntary salary sacrifice
   contributions made at the discretion of the employee of $1 million (2002: $1
   million; 2001: $1 million).

Telstra Super additional contributions were $nil for the last three years. As
described in this note, the Trustee of Telstra Super and the Commonwealth
released us from our obligation to make these additional contributions.

268

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities

Below is a list of our investments in controlled entities.

<TABLE>
<CAPTION>
                                                                                              Telstra Entity's
                                                                      Country of               recorded amount   % of equity held by
Name of entity                                                        incorporation           of investment (a)   immediate parent
---------------------------------------------------------------------------------------------------------------  -------------------
                                                                                                As at 30 June       As at 30 June
                                                                                                 2003      2002       2003      2002
                                                                                                   $m        $m          %         %
---------------------------------------------------------------------------------------------------------------  -------------------
<S>                                                                   <C>                     <C>         <C>        <C>       <C>
Parent entity
Telstra Corporation Limited (1)....................................   Australia
Controlled entities
Telecommunications Equipment Finance Pty Ltd (5) *.................   Australia                    --        --         --        --
Telstra Finance Limited (1) (4)....................................   Australia                    --        --      100.0     100.0
Telstra Corporate Services Pty Ltd (1).............................   Australia                     6         6      100.0     100.0
Transport Communications Australia Pty Ltd *.......................   Australia                     4         4      100.0     100.0
Telstra ESOP Trustee Pty Ltd (4) *.................................   Australia                    --        --      100.0     100.0
Telstra Growthshare Pty Ltd (4) *..................................   Australia                    --        --      100.0     100.0
On Australia Pty Ltd (1) (3).......................................   Australia                    11        11      100.0     100.0
Telstra Media Pty Ltd (1)..........................................   Australia                   381       347      100.0     100.0
Telstra Multimedia Pty Ltd (1).....................................   Australia                 2,678     1,720      100.0     100.0
Telstra International Limited (1)..................................   Australia                    84        84      100.0     100.0
--------------------------------------------------------------------------------------------
Telstra OnAir Holdings Pty Ltd *...................................   Australia                   302       302      100.0     100.0
   . Telstra OnAir Infrastructure Holdings Pty Ltd *...............   Australia                    --        --      100.0     100.0
      . Telstra 3G Spectrum Holdings Pty Ltd *.....................   Australia                    --        --      100.0     100.0
--------------------------------------------------------------------------------------------
Telstra New Wave Pty Ltd (1).......................................   Australia                     1         1      100.0     100.0
   . Hypertokens Pty Ltd *.........................................   Australia                    --        --      100.0     100.0
   . Customer Contact Technologies Pty Ltd (10)*...................   Australia                    --        --      100.0        --
   . Data & Text Mining Technologies Pty Ltd (10) *................   Australia                    --        --      100.0        --
   . Lyrebird Technologies Pty Ltd (10)*...........................   Australia                    --        --      100.0        --
--------------------------------------------------------------------------------------------
Telstra Holdings Pty Ltd (1) (12)..................................   Australia                 7,293     5,810      100.0     100.0
   . Beijing Australia Telecommunications Technical
     Consulting Services Company Limited (7) (8)...................   China                        --        --      100.0     100.0
   . Telstra Holdings (Bermuda) No. 2 Limited (8)..................   Bermuda                      --        --      100.0     100.0
      . Telstra CSL Limited (formerly Joint Venture
        (Bermuda) No. 2 Limited) (2) (8)...........................   Bermuda                      --        --      100.0     100.0
         . Bestclass Holdings Ltd (8)..............................   British Virgin Islands       --        --      100.0     100.0
            . Hong Kong CSL Limited (8)............................   Hong Kong                    --        --      100.0     100.0
               . Integrated Business Systems Limited (8)...........   Hong Kong                    --        --      100.0     100.0
               . One2Free Personalcom Limited (8)..................   Hong Kong                    --        --      100.0     100.0
               . CSL Limited (8)...................................   Hong Kong                    --        --      100.0     100.0
         . RWC, HK Limited (3) (8).................................   Hong Kong                    --        --          -     100.0
   . Telstra Holdings (Bermuda) No 1 Limited (8)...................   Bermuda                      --        --      100.0     100.0
   . Telstra International HK Limited (8)..........................   Hong Kong                    --        --      100.0     100.0
   . Telstra IDC Holdings Limited (8)..............................   Bermuda                      --        --      100.0     100.0
   . Telstra Japan Retail K.K.  (8)................................   Japan                        --        --      100.0     100.0
   . Telstra Singapore Pte Ltd (8) (10)............................   Singapore                    --        --      100.0        --
   . Telstra Wholesale Inc. (3) (8)................................   United States                --        --         --     100.0
   . Mobitel (Pvt) Limited (8) (12)................................   Sri Lanka                    --        --         --      60.0
   . Telstra New Zealand Limited (3) (8)...........................   New Zealand                  --        --         --     100.0
   . Telstra Global Limited (8)....................................   United Kingdom               --        --      100.0     100.0
      . Telstra Europe Limited (8).................................   United Kingdom               --        --      100.0     100.0
      . PT Telstra Nusantara (8)...................................   Indonesia                    --        --      100.0     100.0
   (continued over page)
</TABLE>

                                                                             269

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities (continued)

<TABLE>
<CAPTION>
                                                                                              Telstra Entity's
                                                                      Country of              recorded amount    % of equity held by
Name of entity                                                        incorporation           of investment (a)   immediate parent
---------------------------------------------------------------------------------------------------------------  -------------------
                                                                                                As at 30 June       As at 30 June
                                                                                                 2003      2002       2003      2002
                                                                                                   $m        $m          %         %
---------------------------------------------------------------------------------------------------------------  -------------------
<S>                                                                   <C>                     <C>         <C>    <C>           <C>
Controlled entities (continued)
--------------------------------------------------------------------------------------------
   . Telstra Inc. (8)..............................................   United States                --        --      100.0     100.0
   . Telstra India Private Limited (8).............................   India                        --        --      100.0     100.0
   . NDC New Zealand Limited (8) (12)..............................   New Zealand                  --        --      100.0     100.0
      . TelstraClear Limited (8) (11) (12).........................   New Zealand                  --        --      100.0      58.4
         . Saturn Communications Limited (3) (8)...................   New Zealand                  --        --         --     100.0
         . Paradise.Net Limited (3) (8)............................   New Zealand                  --        --         --     100.0
         . Kiwi Cable Company Limited (3) (8)......................   New Zealand                  --        --         --     100.0
         . Netlink Limited (3) (8).................................   New Zealand                  --        --         --     100.0
         . TelstraSaturn Holdings Limited (8)......................   New Zealand                  --        --      100.0     100.0
            . CLEAR Communications Limited (8).....................   New Zealand                  --        --      100.0     100.0
         . CLEAR Communications (Australia) Pty Ltd (3) (8)........   Australia                    --        --         --     100.0
         . ZFREE Limited (3) (8)...................................   New Zealand                  --        --         --     100.0
         . ZTALK Limited (3) (8)...................................   New Zealand                  --        --         --     100.0
--------------------------------------------------------------------------------------------
Telstra Communications Limited (1).................................   Australia                    29        29      100.0     100.0
   . Telecom Australia (Saudi) Company Limited (3) (6) (7) (8).....   Saudi Arabia                 --        --       50.0      50.0
--------------------------------------------------------------------------------------------
Telstra Rewards Pty Ltd *..........................................   Australia                    14        14      100.0     100.0
   . Telstra Visa Card Trust (3)...................................   Australia                    --        --      100.0     100.0
   . Qantas Telstra Card Trust (3).................................   Australia                    --        --      100.0     100.0
   . Telstra Visa Business Card Trust (3)..........................   Australia                    --        --      100.0     100.0
--------------------------------------------------------------------------------------------
Telstra Media Holdings Pty Ltd (1).................................   Australia                    29        29      100.0     100.0
   . Telstra Enterprise Services Pty Ltd (1) (12)..................   Australia                    --        --      100.0     100.0
      . Telstra Limited (8) (12)...................................   New Zealand                  --        --      100.0     100.0
   . Telstra Pay TV Pty Ltd (1)....................................   Australia                    --        --      100.0     100.0
--------------------------------------------------------------------------------------------
Telstra CB Holdings Limited (1)....................................   Australia                   898       898      100.0     100.0
   . Telstra CB.net Limited (1)....................................   Australia                    --        --      100.0     100.0
   . Telstra CB.Com Limited (1)....................................   Australia                    --        --      100.0     100.0
   . Telstra CB.fs Limited (1).....................................   Australia                    --        --      100.0     100.0
      . InsNet Pty Ltd (1).........................................   Australia                    --        --      100.0     100.0
         . Australasian Insurance Systems Pty Ltd (1)..............   Australia                    --        --      100.0     100.0
         . TRC Computer Systems Pty Ltd (1)........................   Australia                    --        --      100.0     100.0
         . DBA Limited (1).........................................   Australia                    --        --      100.0     100.0
            . Brokerlink Pty Ltd (1)...............................   Australia                    --        --       81.3      81.3
            . DBA Computer Systems Pty Ltd (1).....................   Australia                    --        --      100.0     100.0
               . Brokerlink Pty Ltd (1)............................   Australia                    --        --       18.7      18.7
               . Unilink Group Pty Ltd (1).........................   Australia                    --        --      100.0     100.0
--------------------------------------------------------------------------------------------
   (continued over page)
</TABLE>

270

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities (continued)

<TABLE>
<CAPTION>
                                                                       Telstra Entity's   % of equity held
                                                        Country of      recorded amount     by immediate
Name of entity                                          incorporation  of investment (a)       parent
----------------------------------------------------------------------------------------  -----------------
                                                                         As at 30 June      As at 30 June
                                                                         2003       2002    2003       2002
                                                                           $m         $m       %          %
----------------------------------------------------------------------------------------  -----------------
Controlled entities (continued)
---------------------------------------------------------------------
<S>                                                     <C>            <C>          <C>   <C>          <C>
Sensis Pty Ltd (formerly Pacific Access
Pty Ltd) (1) (2)......................................  Australia         121        121   100.0      100.0
   . CitySearch Australia Pty Ltd *...................  Australia          --         --   100.0      100.0
      . CitySearch Canberra Pty Ltd *.................  Australia          --         --   100.0      100.0
   . Telstra Retail Pty Ltd *.........................  Australia          --         --   100.0      100.0
   . Sensis Holdings Pty Ltd (formerly Telstra
     Retail Services Pty Ltd) (2) *...................  Australia          --         --   100.0      100.0
   . Pacific Access Enterprises Pty Ltd *.............  Australia          --         --   100.0      100.0
   . WorldCorp Holdings (S) Pte Ltd (3) (8)...........  Singapore          --         --   100.0      100.0
      . WorldCorp Publishing Pte Ltd (3) (8)..........  Singapore          --         --   100.0      100.0
---------------------------------------------------------------------
Network Design and Construction Limited (1)...........  Australia         177        177   100.0      100.0
   . NDC Global Holdings Pty Ltd (1) (12).............  Australia          --         --   100.0      100.0
      . NDC Telecommunications India Private
        Limited (8)...................................  India              --         --   100.0      100.0
      . PT NDC Indonesia (8)..........................  Indonesia          --         --    95.0       95.0
      . NDC Global Philippines, Inc (8)...............  Philippines        --         --   100.0      100.0
      . NDC Global Services (Thailand)
        Limited (8)...................................  Thailand           --         --    49.0       49.0
      . NDC Global Holdings (Thailand)
        Limited (8)...................................  Thailand           --         --    90.4       90.4
         . NDC Global Services (Thailand)
           Limited (8)................................  Thailand           --         --    51.0       51.0
      . NDC Global Services Malaysia Sdn.
        Bhd (8).......................................  Malaysia           --         --   100.0      100.0
   . NDC Global Services Pty Ltd (1)..................  Australia          --         --   100.0      100.0
----------------------------------------------------------------------------------------  -----------------
<FN>
<F1>
(a) The amounts recorded are before any provision for reduction in value.
<F2>
* These entities are Australian small proprietary limited companies, which are
not required to prepare and lodge individual audited financial reports with the
ASIC.
</FN>
</TABLE>

                                                                             271

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities (continued)

ASIC deed of cross guarantee

(1) The following companies have entered into a deed of cross guarantee dated 4
June 1996 (or have been subsequently added to this deed by an assumption deed):

..  Telstra Corporation Limited;
..  Telstra Holdings Pty Ltd;
..  Telstra International Limited;
..  Telstra Communications Limited;
..  Telstra New Wave Pty Ltd;
..  Telstra Multimedia Pty Ltd;
..  On Australia Pty Ltd;
..  Telstra Media Holdings Pty Ltd;
..  Network Design and Construction Limited;
..  Sensis Pty Ltd (formerly Pacific Access Pty Ltd);
..  Telstra CB Holdings Limited;
..  Telstra CB.net Limited;
..  Telstra CB.Com Limited;
..  Telstra CB.fs Limited;
..  InsNet Pty Ltd;
..  Australasian Insurance Systems Pty Ltd;
..  TRC Computer Systems Pty Ltd;
..  DBA Limited;
..  Brokerlink Pty Ltd;
..  DBA Computer Systems Pty Ltd;
..  Unilink Group Pty Ltd;
..  Telstra Media Pty Ltd;
..  Telstra Enterprise Services Pty Ltd;
..  Telstra Pay TV Pty Ltd;
..  NDC Global Holdings Pty Ltd;
..  NDC Global Services Pty Ltd *; and
..  Telstra Corporate Services Pty Ltd *.

Telstra Finance Limited is trustee to the deed of cross guarantee.

* These entities were added to the deed of cross guarantee during fiscal 2003 by
an assumption deed dated 31 October 2002.

The deed of cross guarantee was formed under ASIC Class Order 98/1418, including
those subsequent amendments made. This class order was dated 13 August 1998 and
has been subsequently amended by class orders 98/2017, 00/321, 01/1087, 02/248
and 02/1017. Under this class order and the deed of cross guarantee, the
companies listed above, except for Telstra Finance Limited:

..  form a closed group and extended closed group as defined in the class order;
..  do not have to prepare and lodge audited financial reports under the
   Corporations Act 2001. This does not apply to Telstra Corporation Limited;
   and
..  guarantee the payment in full of the debts of the other named companies in
   the event of their winding up.

The consolidated assets and liabilities of the closed group and extended closed
group at 30 June 2003 and 2002 is presented according to ASIC class order
98/1418 (as amended) as follows. This excludes Telstra Finance Limited. All
significant transactions between members of the closed group have been
eliminated.

272

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities (continued)

Closed Group Statement of Financial Position           Closed Group
---------------------------------------------------------------------
                                                      As at 30 June
                                                       2003      2002
                                                         $m        $m
---------------------------------------------------------------------
Current assets
Cash assets......................................     1,187       528
Receivables......................................     3,509     5,254
Inventories......................................       238       196
Other assets.....................................       783     1,244
                                                     ----------------
Total current assets.............................     5,717     7,222
                                                     ----------------
Non current assets
Receivables......................................     1,848       725
Inventories......................................        14         9
Investments - accounted for using the equity
method...........................................        59        80
Investments - other..............................     2,632     3,838
Property, plant and equipment....................    21,766    22,166
Future income tax benefit........................        --       131
Intangibles - goodwill...........................        81        91
Intangibles - other..............................       189       285
Other assets.....................................     2,519     2,197
                                                     ----------------
Total non current assets.........................    29,108    29,522
                                                     ----------------
Total assets.....................................    34,825    36,744
                                                     ----------------
Current liabilities
Payables.........................................     2,194     2,185
Interest-bearing liabilities.....................     1,650     1,624
Income tax payable...............................       614       596
Provisions.....................................         348     1,879
Revenue received in advance......................     1,180     1,241
                                                     ----------------
Total current liabilities........................     5,986     7,525
                                                     ----------------
Non current liabilities
Payables.........................................        48       127
Interest-bearing liabilities.....................    11,231    11,845
Provision for deferred income tax................     1,753     1,917
Provisions.......................................       790       823
Revenue received in advance......................       433       438
                                                     ----------------
Total non current liabilities....................    14,255    15,150
                                                     ----------------
Total liabilities................................    20,241    22,675
                                                     ----------------
Net assets.......................................    14,584    14,069
                                                     ================
Shareholders' equity
Contributed equity...............................     6,433     6,433
Reserves.........................................        39        13
Retained profits.................................     8,112     7,623
                                                     ----------------
Shareholders' equity available to the
closed group.....................................    14,584    14,069
                                                     ================

                                                                             273

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities (continued)

ASIC deed of cross guarantee (continued)

(1) (continued)

The consolidated net profit of the Closed Group and Extended Closed Group for
the fiscal years ended 30 June 2003 and 2002 is presented according to ASIC
class order 98/1418 (as amended) as follows. This excludes Telstra Finance
Limited. All significant transactions between members of the Closed Group have
been eliminated.

Closed Group Statement of Financial Performance and
Retained Profits reconciliation                               Closed Group
------------------------------------------------------------------------------
                                                           Year ended 30 June
                                                              2003        2002
                                                                $m          $m
------------------------------------------------------------------------------
Ordinary activities
Profit before income tax expense.......................      3,949       4,973
Income tax expense.....................................      1,502       1,763
                                                          --------------------
Net profit available to the closed group...............      2,447       3,210
Retained profits at the beginning of the financial year
available to the closed group..........................      7,623       7,018
Transfer out of the closed group (1)(a)................         --         225
Transfers to retained profits (1)(b)...................        (22)         --
Effect on retained profits from additions of new
entities to the closed group...........................         (6)         --
                                                          --------------------
Total available for distribution.......................     10,042      10,453
Dividends provided for or paid.........................      1,930       2,830
                                                          --------------------
Retained profits at the end of the financial year
available to the closed group..........................      8,112       7,623
                                                          ====================

(1)(a) The consolidated assets and liabilities of the closed group includes
closed group members' equity accounted investments and investments in controlled
entities that are not members of the closed group. Investments in controlled
entities which are not part of the closed group are recorded at cost less
provision for diminution and are not consolidated as part of this group.

On 12 December 2001, we acquired a further 8.4% shareholding in TelstraClear
Limited (TelstraClear) giving us a 58.4% controlling interest. Prior to this
date TelstraClear was a joint venture entity and included as an equity accounted
investment in the closed group. The increase in retained profits in fiscal 2002
of $225 million represents a transfer out of accumulated equity accounted
retained losses in relation to TelstraClear as at 12 December 2001. From this
date, TelstraClear has been a controlled entity and is included in the closed
group at cost less provision for diminution.

(1)(b) During fiscal 2003, we sold our remaining shareholding in Solution 6
Holdings Limited (Solution 6). As a result, the foreign currency translation and
general reserves arising from equity accounting our investment in Solution 6
were transferred out of reserves and into retained profits. The total amount of
equity accounted reserves transferred in fiscal 2003 was a negative $22 million,
resulting in a reduction in retained profits and a corresponding increase in
reserves.

Change of company names

(2) The following entities changed names during fiscal 2003:

..  Pacific Access Pty Ltd changed its name to Sensis Pty Ltd on 19 August 2002;
..  Telstra Retail Services Pty Ltd changed its name to Sensis Holdings Pty Ltd
   on 20 March 2003; and
..  Joint Venture (Bermuda) No. 2 Limited changed its name to Telstra CSL Limited
   on 12 March 2003.

Liquidations

(3) As at 30 June 2003, the following companies were in voluntary liquidation:

..  On Australia Pty Ltd;
..  Telecom Australia (Saudi) Company Ltd;
..  WorldCorp Holdings (S) Pte Ltd; and
..  WorldCorp Publishing Pte Ltd.

274

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities (continued)

Liquidations (continued)

(3)(continued)

The following companies were liquidated during fiscal 2003:

..  Saturn Communications Limited on 7 August 2002;
..  Paradise.Net Limited on 7 August 2002;
..  Netlink Limited on 7 August 2002;
..  ZFREE Limited on 7 August 2002;
..  ZTALK Limited on 7 August 2002;
..  CLEAR Communications (Australia) Pty Ltd on 30 September 2002;
..  Kiwi Cable Company Limited on 11 November 2002;
..  Telstra New Zealand Limited on 11 November 2002;
..  RWC, HK Limited on 4 April 2003; and
..  Telstra Wholesale Inc. on 30 June 2003.

During fiscal 2002, we entered into arrangements to transfer responsibility for
the operation and funding of the Telstra Visa Card, Qantas Telstra Visa Card and
the Telstra Visa Business Card loyalty programs and related trusts from Telstra.
Telstra's involvement with these trusts will be dissolved during fiscal 2004.

Rounded investments

(4) The cost of the Telstra Entity's investments in controlled entities, which
is not shown when rounded to the nearest million dollars is as follows:

-----------------------------------------------------------------
                                                    As at 30 June
                                                    2003     2002
                                                       $        $
--------------------------------------------------------     ----
Telstra Finance Limited......................          5        5
Telstra ESOP Trustee Pty Ltd.................          2        2
Telstra Growthshare Pty Ltd..................          1        1
                                                    ====     ====

Controlled entities in which we have no equity ownership

(5) We do not have an equity investment in Telecommunications Equipment Finance
Pty Ltd. We have effective control over this entity through economic dependency
and have consolidated it into our group financial report. This company does not
have significant assets or liabilities.

Controlled entities in which our equity ownership is less than or equal to 50%

(6) We own 50% of the issued capital of Telecom Australia (Saudi) Company
Limited. We can exercise control over the board of directors of this entity in
perpetuity, and therefore we have consolidated the financial results, position
and cash flows of this entity into our group financial report.

Controlled entities with different balance dates

(7) The following companies have different balance dates to our balance date of
30 June for fiscal 2003:

..  Telecom Australia (Saudi) Company Limited - 31 December; and
..  Beijing Australia Telecommunications Technical Consulting Services Company
   Limited - 31 December.

Financial reports prepared as at 30 June are used for consolidation purposes.

Controlled entities not individually audited by the Australian National Audit
Office

(8) Companies not audited by the Australian National Audit Office, our
Australian statutory auditor.

Dividends received by the Telstra Entity

(9) There were no significant dividends received by the Telstra Entity during
fiscal 2003 or fiscal 2002 from our controlled entities.

New incorporations and investments

(10) We have invested in or  incorporated  the following  entities during fiscal
2003:

..  Customer Contact Technologies Pty Ltd on 30 July 2002;
..  Data & Text Mining Technologies Pty Ltd on 30 July 2002;
..  Lyrebird Technologies Pty Ltd on 30 July 2002; and
..  Telstra Singapore Pte Ltd on 12 November 2002.

The amounts initially invested were not significant.

(11) On 9 April 2003, we acquired the remaining 41.6% of TelstraClear for $25
million, taking our ownership interest to 100%. As a result of this acquisition,
the shareholder's agreement between us and the minority shareholder was
terminated, and all rights and options attaching to our respective shareholdings
under this agreement ceased to exist.

                                                                             275

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

23. Investments in controlled entities (continued)

Sales and disposals

(12) On 31 October 2002, we sold our 60% shareholding in the Sri Lankan mobile
carrier, Mobitel (Pvt) Limited for $17 million (US$9 million).

The following entities were sold between entities within the Telstra Group:

..  On 30 September 2002, Telstra Holdings Pty Ltd sold its investment in Telstra
   Limited to Telstra Enterprise Services Pty Ltd; and
..  On 23 June 2003, NDC Global Holdings Pty Ltd sold its investment in NDC New
   Zealand Limited to Telstra Holdings Pty Ltd. As part of this restructure,
   TelstraClear performed a share buy-back of Telstra Holdings Pty Ltd's entire
   shareholding in TelstraClear and issued new shares to NDC New Zealand
   Limited. TelstraClear is now a 100% owned controlled entity of NDC New
   Zealand Limited.

Other structural changes

(13) On 28 June 2002, we signed a deed poll whereby we gave up our rights to
appoint a majority of the directors to the board of Keycorp Limited (Keycorp).
Accordingly, we no longer had the capacity to control this entity and
reclassified our investment from a controlled entity to an associated entity on
the basis that we have the capacity to significantly influence Keycorp's
operating and financial policies (refer note 24 for further information). As a
result, Keycorp Limited and its subsidiaries are not included in our controlled
entity listing as at 30 June 2003 or 30 June 2002.

276

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24. Investments in joint venture entities and associated entities

Our investments in joint venture entities are listed below:

<TABLE>
<CAPTION>
Name of joint venture                Principal                    Ownership     Telstra Group's carrying  Telstra Entity's carrying
entity                               activities                    interest     amount of investment (*)  amount of investment (*)
------------------------------------------------------------------------------  ------------------------  -------------------------
                                                                As at 30 June         As at 30 June              As at 30 June
                                                                 2003     2002         2003         2002         2003          2002
                                                                    %        %           $m           $m           $m            $m
------------------------------------------------------------------------------  ------------------------  -------------------------
<S>                                  <C>                        <C>       <C>         <C>           <C>          <C>           <C>
(i) Joint venture entities
FOXTEL Partnerships (#)............  Pay television              50.0     50.0           44           42           --            --
-------------------------------------------------------------
Customer Services Pty Ltd (c)......  Customer service            50.0     50.0           --           --           --            --
-------------------------------------------------------------
FOXTEL Management Pty Ltd (1)......  Management services         50.0     50.0           --           --           --            --
-------------------------------------------------------------
FOXTEL Cable Television Pty Ltd
(c) (3)............................  Pay television              80.0     80.0           --           --           --            --
-------------------------------------------------------------
                                     International
Reach Ltd (incorporated in           connectivity services to
Bermuda) (a) (c) (11)..............  wholesale customers         50.0     50.0           --          945           --            --
-------------------------------------------------------------
DataOne Corporation Pte Ltd
(incorporated in Singapore) (a) (9)  Internet hosting company      --     20.0           --           --           --            --
-------------------------------------------------------------
                                     Call centre services and
Stellar Call Centres Pty Ltd (2)...  solutions                   50.0     50.0           11            9            3             3
-------------------------------------------------------------
Xantic B.V. (incorporated in The     Global satellite
Netherlands) (a)...................  communications              35.0     35.0           74          114           --            --
-------------------------------------------------------------
                                     Olympic business
Investment 2000 Pty Ltd (1) (8)....  investment opportunities      --     25.0           --           --           --            --
-------------------------------------------------------------
IDC Limited (incorporated in
Bermuda) (a) (8)...................  Dormant                       --     50.0           --           --           --            --
-------------------------------------------------------------
                                     Toll free number
TNAS Limited (incorporated in        portability in New
New Zealand) (b) (c) (7)...........  Zealand                     33.3     50.0           --           --           --            --
-------------------------------------------------------------                   ------------------------  -------------------------
                                                                       note 11          129        1,110            3             3
                                                                                ========================  =========================

<FN>
<F1>
(#) This includes both the FOXTEL Partnership and the FOXTEL Television
Partnership.

<F2>
(a) Balance date is 31 December.

<F3>
(b) Balance date is 31 March.

Unless noted above, all investments have a balance date of 30 June and are
incorporated in Australia. Where there is a different balance date, financial
reports prepared as at 30 June are used for equity accounting purposes.

<F4>
(c) Equity accounting of these investments has been suspended and the investment
is recorded at zero due to losses made by the entities and/or reductions in the
equity accounted carrying amount.

<F5>
(*) The Telstra Group carrying amounts are calculated using the equity method of
accounting. The Telstra Entity's carrying amounts are at cost less any provision
for reduction in value. Refer note 1.10(b) for details of our equity accounting
policy. All amounts recorded are net of provision for reduction in value.
</FN>
</TABLE>

                                                                             277

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24.  Investments in joint venture entities and associated entities (continued)

Our investments in associated entities are listed below:

<TABLE>
<CAPTION>
Name of associated                   Principal                    Ownership     Telstra Group's carrying  Telstra Entity's carrying
entity                               activities                    interest     amount of investment (*)   amount of investment (*)
------------------------------------------------------------------------------  ------------------------  -------------------------
                                                                As at 30 June         As at 30 June              As at 30 June
                                                                 2003     2002         2003         2002         2003          2002
                                                                    %        %           $m           $m           $m            $m
------------------------------------------------------------------------------  ------------------------  -------------------------
<S>                                  <C>                        <C>       <C>         <C>           <C>          <C>           <C>
(ii) Associated entities
IBM Global Services                  Information
Australia Limited (a) (2) (#)......  technology services         22.6     22.6            2           --           --            --
-------------------------------------------------------------
Australian-Japan Cable Holdings
Limited (incorporated in
Bermuda) (a) (c) (12)..............  Network cable provider      39.9     39.9           --           34           --            --
-------------------------------------------------------------
                                     Business software
Solution 6 Holdings Limited (9)....  system provider               --     15.2           --           14           --            --
-------------------------------------------------------------
                                     Smart card transaction
ECard Pty Ltd (7)..................  processing                  50.0     41.0            3           12            7            31
-------------------------------------------------------------
PT Mitra Global Telekomunikasi
Indonesia (incorporated in           Telecommunications
Indonesia) (a).....................  services                    20.4     20.4           25           27           --            --
-------------------------------------------------------------
Telstra Super Pty Ltd (c) (1) (4)..  Superannuation trustee     100.0    100.0           --           --           --            --
-------------------------------------------------------------
myinternet Limited (c).............  Educational portal          21.1     21.1           --           --           --            --
-------------------------------------------------------------
                                     Electronic transactions
Keycorp Limited (c) (6)............  solutions                   47.9     47.9           --           --           --            --
-------------------------------------------------------------
                                     Charitable trustee
Telstra Foundation Limited (5).....  organisation               100.0    100.0           --           --           --            --
-------------------------------------------------------------
CityLink Limited (incorporated in    Provider of wholesale
New Zealand) (b) (c) (1)...........  fibre bandwidth             27.1     27.1           --           --           --            --
-------------------------------------------------------------                   ------------------------  -------------------------
                                                                       note 11           30           87            7            31
                                                                                ========================  =========================

<FN>
<F1>
(a) Balance date is 31 December.

<F2>
(b) Balance date is 31 March.

Unless noted above, all investments have a balance date of 30 June and are
incorporated in Australia. Where there is a different balance date, financial
reports prepared as at 30 June are used for equity accounting purposes.

<F3>
(c) Equity accounting of these investments has been suspended and the investment
is recorded at zero due to losses made by the entities and/or reductions in the
equity accounted carrying amount.

<F4>
(*) The Telstra Group carrying amounts are calculated using the equity method of
accounting. The Telstra Entity's carrying amounts are at cost less any provision
for reduction in value. Refer note 1.10(b) for details of our equity accounting
policy. All amounts recorded are net of provision for reduction in value.

<F5>
(#) Equity accounting recommenced for this investment in fiscal 2003.
</FN>
</TABLE>

278

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24. Investments in joint venture entities and associated entities (continued)

Share of joint venture entities' and associated entities' net losses/(profits)

-------------------------------------------------------------------------------
                                                            Year ended 30 June
                                                                2003       2002
                                                                  $m         $m
-------------------------------------------------------------------------------
Our net  loss/(profit)  from joint venture entities and
associated  entities has been contributed by the
following entities:

Joint venture entities
- FOXTEL Partnerships (#)................................         47         47
- Stellar Call Centres Pty Ltd (2).......................         (2)        (4)
- TelstraClear Limited (10)..............................         --         75
- Xantic B.V.............................................         24         --
- Dynegy Connect LP......................................         --         12
- Reach Ltd (11).........................................        946        (53)
- DataOne Corporation Pte Ltd (9)........................         --          2
                                                            -------------------
                                                               1,015         79
                                                            -------------------
Associated entities
- IBM Global Services Australia Limited (2)..............         (6)        (7)
- Australian-Japan Cable Holdings Limited (12)...........          6         12
- Solution 6 Holdings Limited (9)........................          2         (9)
- ECard Pty Ltd (7)......................................         10         15
- PT Mitra Global Telekomunikasi Indonesia...............         (2)        (9)
                                                            -------------------
                                                                  10          2
                                                            -------------------
                                                               1,025         81
                                                            ===================

(#) This includes both the FOXTEL Partnership and the FOXTEL Television
Partnership.

                                                                             279

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24. Investments in joint venture entities and associated entities (continued)

Rounded investments

(1) The carrying amounts of our investments in joint venture entities and
associated entities which are not shown when rounded to the nearest million
dollars are shown below:

                                            Carrying amount of investment
                                         Telstra Group       Telstra Entity
----------------------------------------------------------------------------
                                         As at 30 June       As at 30 June
                                          2003      2002      2003      2002
                                             $         $         $         $
--------------------------------------------------------   -----------------
(i) Joint venture entities
FOXTEL Management Pty Ltd...........         1         1        --        --
Investment 2000 Pty Ltd (8).........        --         *        --        12
(ii) Associated entities
Telstra Super Pty Ltd (4)...........         *         *         2         2
CityLink Limited....................   299,403   296,272        --        --
                                       =================   =================

* Equity accounted amount of investment is suspended and the investment is
recorded at zero due to losses made by the entities or as a result of reducing
the equity accounted amount to zero.

Dividends received from joint venture and associated entities

(2) We received or were presently entitled to receive dividends and
distributions from the following entities during fiscal 2003:

..  IBM Global Services Australia Limited $4.9 million (2002: $9.0 million); and
..  Stellar Call Centres Pty Ltd $1.2 million (2002: $0.1 million).

Associated and joint venture entities in which we own more than 50% equity

(3) We own 80% of the equity of FOXTEL Cable Television Pty Ltd. This entity is
disclosed as a joint venture entity, as the outside equity shareholders have
participating rights that prevent us from dominating the decision making of the
board of directors. Effective voting power is restricted to 50% and we have
joint control.

(4) We own 100% of the equity of Telstra Super Pty Ltd, the trustee for the
Telstra Superannuation Scheme (Telstra Super). We do not consolidate Telstra
Super Pty Ltd, as we do not control the board of directors. We have equal
representation with employee representatives on the board. The entity is
therefore classified as an associated entity as we have significant influence
over it.

(5) We own 100% of Telstra Foundation Limited (TFL). TFL is limited by guarantee
(guaranteed to $100) with Telstra Corporation Limited being the sole member. We
did not contribute any equity to TFL on incorporation. TFL is the trustee of the
Telstra Community Development Fund and manager of the Telstra's Kids Fund. We do
not consolidate TFL as we do not control the board of directors. However, due to
our board representation we significantly influence this entity.

Equity accounted investments previously consolidated

(6) On 28 June 2002, we signed a deed poll whereby we gave up our rights to
appoint a majority of the directors to the board of Keycorp Limited (Keycorp).
Accordingly, we no longer had the capacity to control this entity.

We deconsolidated the Keycorp Group from 28 June 2002 and reclassified the
investment from a controlled entity to an associated entity on the basis that we
have the capacity to significantly influence the operating and financial
policies of the entity.

We have equity accounted our share of Keycorp's post acquisition losses and
reserves to the extent that the investment carrying value is reduced to $nil and
as at 30 June 2003 and 30 June 2002 equity accounting was suspended. The equity
method of accounting will not recommence until our share of profits and reserves
exceeds our cumulative share of losses and reserve reductions.

280

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24. Investments in joint venture entities and associated entities (continued)

New incorporations and changes in investments

(7) On 14 November 2002, a share buy back by Ecard Pty Ltd (Ecard) increased our
ownership interest in this entity to 50.0% (from 41.0% at 30 June 2002).

On 26 June 2003, we received $2.5 million as a result of a capital reduction
performed by Ecard. This reduced the carrying amount of our investment in this
entity by $2.5 million. This transaction did not effect our ownership interest.

As at 30 June 2003, our interest in TNAS Limited is 33.3% (2002: 50.0%). Our
shareholding was diluted due to a cancellation of issued capital of this entity
during the financial year.

Liquidation and de-registration of companies

(8) On 27 December 2002, the non operating company IDC Limited was dissolved.

Investment 2000 Pty Ltd was liquidated on 28 April 2003.

Sale of investments

(9) On 29 November 2002, we exercised a put option under the Joint Venture
Agreement between Telstra Holdings Pty Ltd, DataOne Corporation Pte Limited
(DataOne) and other venture parties for the sale of our shares in DataOne for a
total consideration of $3 million (SGD$3 million).

On 8 May 2003, we sold 1 million of our shares in Solution 6 Holdings Limited
(Solution 6) for $0.5 million, reducing our ownership interest from 13.2% to
12.7%. On 19 June 2003, we sold our remaining 32 million shares for $16.7
million.

Prior to the sale of our shares, our investment in Solution 6 decreased from
15.2% at 30 June 2002 to 13.2% in May 2003 due to six separate dilutions in our
shareholding. We were the largest single shareholder and had entitlement to
appoint a director to the board of Solution 6. On that basis, we had the
capacity to affect substantially the financial and operating policies of the
entity and up until the sale of the investment, we continued to equity account
this investment.

Investments no longer equity accounted

(10) On 12 December 2001, we acquired a controlling interest in TelstraClear
Limited (TelstraClear). Subsequent to this, TelstraClear is a controlled entity
and as such nil share of (profits)/losses is recorded for equity accounting
purposes.

Investment in Reach Ltd (REACH)

(11) We have written off the carrying amount of the investment in our 50% owned
joint venture, REACH. Equity accounting of the investment is suspended and the
investment is recorded at zero.

The write off occurred due to the depressed conditions in the global market for
international data and internet capacity resulting in high levels of excess
capacity, intense price competition and lower than expected revenues. Refer note
3 for further information.

Included in our net loss from REACH are the following components:
-------------------------------------------------------------------------------
                                                                     Year ended
                                                                      30 June
                                                                        2003
                                                                         $m
-------------------------------------------------------------------------------
Our share of REACH's profits up to suspension of equity
accounting........................................................          (57)
Notional goodwill amortisation up to suspension of equity
accounting........................................................           60
Recognition of deferred profit up to suspension of equity
accounting........................................................          (22)
Write off of the carrying value of our investment (note 3)........          965
                                                                     ----------
                                                                            946
                                                                     ==========

Investment in Australian-Japan Cable Holdings Limited

(12) We have written off the carrying value of our investment in our 39.9% owned
joint venture, Australian-Japan Cable Holdings Limited.

                                                                             281

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24. Investments in joint venture entities and associated entities (continued)

The movements in the consolidated equity accounted amount of our joint venture
and associated entities are summarised as follows:
<TABLE>
<CAPTION>
                                                                                  Joint venture     Associated
                                                                                     entities        entities
                                                                                  Telstra Group    Telstra Group
------------------------------------------------------------------------------------------------   -------------
                                                                                  Year ended/As    Year ended/As
                                                                                    at 30 June      at 30 June
                                                                                    2003    2002    2003   2002
                                                                            Note      $m      $m      $m     $m
------------------------------------------------------------------------------------------------   -------------
<S>                                                                               <C>      <C>     <C>     <C>
Carrying amount of investments at beginning of year.............................   1,110   1,192      87      67
Additional investments made during the year.....................................      49      67      --      39
                                                                                  --------------   -------------
                                                                                   1,159   1,259      87     106
Share of profits/(losses) before income tax expense.............................      (1)     38      (5)     (1)
Share of income tax expense.....................................................     (12)    (41)     (5)     (2)
                                                                                  --------------   -------------
Share of net losses.............................................................     (13)     (3)    (10)     (3)
Amortisation of unrealised inter-entity profits after income tax................      24      47      --       1
Write off of notional goodwill and release of deferred profit of
Reach Ltd.......................................................................    (965)     --      --      --
Amortisation of notional goodwill...............................................     (61)   (123)     --      --
                                                                                  --------------   -------------
Share of net losses.............................................................  (1,015)    (79)    (10)     (2)
Dividends and distributions received............................................      (1)     --      (5)     (9)
Share of reserves...............................................................      --      53       3     (18)
Share of foreign currency translation reserve and movements due to
exchange rate translations......................................................     (14)     45      (7)     10
Sale, transfers and reductions of investments during the year...................      --    (168)    (13)     --
                                                                                  --------------   -------------
Carrying amount of investments before reduction to recoverable amount...........     129   1,110      55      87
Reduction in value of investments to recoverable amount.........................      --      --     (25)     --
                                                                                  --------------   -------------
Carrying amount of investments at end of year.................................11     129   1,110      30      87
                                                                                  ==============   =============
Our share of contingent liabilities of joint venture entities and associated
entities - we are not directly liable for these.................................       3       1      28      36
Our share of capital commitments contracted for, by our joint venture entities
and associated entities - we are not directly liable for these..................     115     239       2      44
Our share of other expenditure commitments contracted for (other than the supply
of inventories), by our joint venture entities and associated entities - we are
not directly liable for these (a)...............................................     147     287      55      70
                                                                                  ==============   =============
<FN>
<F1>
(a) Our share of commitments of our joint venture entity FOXTEL for which we are
directly liable are included within note 20.
</FN>
</TABLE>

282

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24. Investments in joint venture entities and associated entities (continued)

Other disclosures for joint venture entities

Summarised presentation of our share of all of our joint venture entities'
assets, liabilities, revenue and expense items (including joint venture entities
where equity accounting has been suspended):

                                                      Telstra Group
--------------------------------------------------------------------
                                                      Year ended/As
                                                        at 30 June
                                                       2003     2002
                                                         $m       $m
--------------------------------------------------------------------
Joint venture entities
Current assets...................................       461      547
Non current assets...............................     1,190    3,654
                                                      --------------
Total assets.....................................     1,651    4,201
                                                      --------------
Current liabilities..............................       556      566
Non current liabilities..........................     1,376    1,742
                                                      --------------
Total liabilities................................     1,932    2,308
                                                      --------------
Net assets.......................................      (281)   1,893
                                                      ==============
Total revenues...................................     1,721    1,839
Total expenses...................................     1,789    1,825
                                                      --------------
Profits/(losses) before income tax expense.......       (68)      14
Income tax expense...............................        23       41
                                                      --------------
Net losses.......................................       (91)     (27)
                                                      ==============
Other disclosures for associated entities

Summarised presentation of our share of all of
our associated entities' assets, liabilities
and net profits/(losses) (including associated
entities where equity accounting has been
suspended):
Associated entities
Net profits/(losses).............................       (82)       3
                                                      ==============
Assets...........................................       413      571
                                                      ==============
Liabilities......................................       380      474
                                                      ==============

                                                                             283

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

24. Investments in joint venture entities and associated entities (continued)

Included in the consolidated financial report of the Telstra Group are:
<TABLE>
<CAPTION>
                                                                                    Joint venture       Associated
                                                                                      entities           entities
                                                                                   Telstra Group       Telstra Group
---------------------------------------------------------------------------------------------------    -------------
                                                                                    As at 30 June      As at 30 June
                                                                                    2003       2002    2003     2002
                                                                                      $m         $m      $m       $m
---------------------------------------------------------------------------------------------------    -------------
<S>                                                                               <C>        <C>       <C>      <C>
Amount of our recorded retained losses balance relating to equity accounting
our joint venture entities and associated entities (i)..........................  (2,545)    (1,530)   (179)    (143)
Amount of our recorded foreign currency translation reserve credit/(debit)
balance relating to equity accounting our joint venture entities and
associated entities.............................................................     (13)         9     (42)     (35)
Amount of our recorded general reserve credit/(debit) balance relating to
equity accounting our joint venture entities and associated entities............      --         --       9      (17)
                                                                                  =================    =============
<FN>
<F1>
(i) The following items are included in this amount:

..   share of net (losses)/profits;
..   initial unrealised inter-entity profit after tax adjustment;
..   notional goodwill amortisation and writedowns;
..   deferred profits amortised; and
..   reduction in value of investments to recoverable amount.
</FN>
</TABLE>

284

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
                                                 Telstra Group   Telstra Entity
---------------------------------------------------------------  --------------
                                                 Year ended 30    Year ended 30
                                                     June             June
                                                  2003     2002   2003     2002
                                                    $m       $m     $m       $m
---------------------------------------------------------------  --------------

25.  Directors' remuneration -
salaries and other benefits

Total income and benefits of all
directors of the Telstra Entity (a)............                  3,300    3,927
                                                                 ==============
Total income and benefits of all
directors of the Telstra Entity and all of the
directors of our controlled entities (a).......  3,310    4,338
                                                 ==============

The income brackets of Telstra Entity directors are displayed below together
with the number of Telstra Entity directors with income in those brackets:

                                                                Number   Number
                                                                ---------------
$ 40,000 - $ 49,999..........................................       --        1
$ 50,000 - $ 59,999..........................................       --        1
$ 70,000 - $ 79,999..........................................        1        3
$ 80,000 - $ 89,999..........................................        2        1
$ 90,000 - $ 99,999..........................................        2        1
$ 110,000 - $ 119,999........................................        1        1
$ 120,000 - $ 129,999........................................       --        2
$ 130,000 - $ 139,999........................................        2       --
$ 140,000 - $ 149,999........................................        1       --
$ 150,000 - $ 159,999........................................       --        1
$ 250,000 - $ 259,999........................................       --        1
$ 270,000 - $ 279,999........................................        1       --
$ 280,000 - $ 289,999........................................       --        1
$ 2,110,000 - $ 2,119,999....................................        1       --
$ 2,390,000 - $ 2,399,999....................................       --        1
                                                                ===============

(a) Directors' remuneration also includes employer contributions made to
superannuation funds

                                                                             285

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                                Telstra Group    Telstra Entity
--------------------------------------------------------------   ---------------
                                                 Year ended        Year ended
                                                   30 June           30 June
                                                 2003     2002     2003     2002
                                                   $m       $m       $m       $m
--------------------------------------------------------------   ---------------

26. Executives' remuneration - salaries and
other benefits

An executive officer is a person who is a
member of our senior management team and is
involved in our strategic direction and
operational management. This includes the
chief executive officer (CEO), those who
report directly to the CEO and the next
level of executives who have a direct
reporting relationship to the CEO's direct
reports.
Total income and benefits of all Australian
based executive officers of the Telstra
Entity where their income is $100,000 or
more (a)(b)(c)(d)...........................                     42.680   44.540
                                                                 ===============
Total income and benefits of all Australian
based executive officers of the Telstra
Entity and our controlled entities where
their income is $100,000 or
more (a) (b) (c) (d)........................   42.900   47.106
                                               ===============

The income brackets of all Australian based
executives whose income is $100,000 or more
are displayed below, together with the
number of executives with income in those
brackets:

                                               Number   Number   Number   Number
                                               ---------------   ---------------
$100,000 - $109,999.........................        1        1        1       --
$110,000 - $119,999(d)......................        2        1        2        1
$120,000 - $129,999.........................       --        5       --        3
$130,000 - $139,999.........................        1       --        1       --
$140,000 - $149,999.........................       --        5       --        3
$150,000 - $159,999.........................        1        2        1        2
$160,000 - $169,999.........................       --        2       --        2
$170,000 - $179,999.........................       --        1       --       --
$180,000 - $189,999.........................       --        3       --        3
$190,000 - $199,999.........................        2        5        2        3
$200,000 - $209,999.........................        1        3        1        2
$210,000 - $219,999.........................        4        1        3       --
$220,000 - $229,999(d)......................        1        4        1        4
$230,000 - $239,999(d)......................        5       --        5       --
$240,000 - $249,999.........................       --        3       --        3
$250,000 - $259,999.........................        1        3        1        2
$260,000 - $269,999.........................        1       --        1       --
$270,000 - $279,999.........................        2        2        2        2
$280,000 - $289,999.........................        2        2        2        2
$290,000 - $299,999.........................       --        4       --        4
$300,000 - $309,999.........................        1        5        1        4
$310,000 - $319,999.........................        8        3        8        3
$320,000 - $329,999.........................        3        3        3        3
$330,000 - $339,999.........................       --        1       --        1
$340,000 - $349,999(d)......................        3        1        3        1
$350,000 - $359,999.........................        3        4        3        4
$360,000 - $369,999(d)......................        2        3        2        3
$370,000 - $379,999.........................       --        2       --        2
$380,000 - $389,999.........................       --        2       --        1
$390,000 - $399,999.........................        2        2        2        2
$400,000 - $409,999.........................        1        3        1        3
(continued over page)

286

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

                                                Telstra Group     Telstra Entity
--------------------------------------------------------------   ---------------
                                                 Year ended         Year ended
                                                   30 June           30 June
                                                 2003     2002     2003     2002
--------------------------------------------------------------   ---------------

26. Executives' remuneration - salaries and
other benefits
(continued)
                                               Number   Number   Number   Number
                                               ---------------   ---------------
$420,000 - $429,999.........................        1        3        1        3
$430,000 - $439,999.........................        1        4        1        4
$440,000 - $449,999(d)......................        5        1        5        1
$450,000 - $459,999.........................       --        1       --        1
$460,000 - $469,999.........................        6        3        6        3
$470,000 - $479,999.........................        3        2        3        2
$480,000 - $489,999.........................       --        1       --        1
$490,000 - $499,999(d)......................        1        2        1        2
$500,000 - $509,999.........................        1        1        1        1
$510,000 - $519,999.........................        1       --        1       --
$520,000 - $529,999.........................        2        4        2        4
$530,000 - $539,999.........................       --        2       --        2
$540,000 - $549,999.........................        2       --        2       --
$550,000 - $559,999.........................        1       --        1       --
$560,000 - $569,999.........................        1        2        1        2
$580,000 - $589,999.........................        1       --        1       --
$600,000 - $609,999(d)......................        1       --        1       --
$610,000 - $619,999.........................        1       --        1       --
$620,000 - $629,999.........................        1        2        1        2
$640,000 - $649,999.........................        1       --        1       --
$650,000 - $659,999(d)......................        1       --        1       --
$670,000 - $679,999.........................       --        1       --        1
$710,000 - $719,999.........................       --        1       --        1
$740,000 - $749,999.........................        1        1        1        1
$880,000 - $889,999(d)......................        1       --        1       --
$890,000 - $899,999(d)......................        1       --        1       --
$930,000 - $939,999.........................        1        1        1        1
$1,000,000 - $1,009,999(d)..................        1       --        1       --
$1,060,000 - $1,069,999.....................       --        1       --        1
$1,130,000 - $1,139,999(d)..................        3       --        3       --
$1,190,000 - $1,199,999.....................       --        1       --        1
$1,250,000 - $1,259,999.....................       --        1       --        1
$1,340,000 - $1,349,999.....................       --        1       --        1
$1,510,000 - $1,519,999.....................        1       --        1       --
$1,680,000 - $1,689,999(d)..................        1        1        1        1
$1,700,000 - $1,709,999.....................       --        1       --        1
$2,110,000 - $2,119,999.....................        1       --        1       --
$2,390,000 - $2,399,999.....................       --        1       --        1
                                               ===============   ===============

                                                                             287

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

26. Executives' remuneration - salaries and other benefits (continued)

(a) Income and benefits of executives includes:

..  fixed remuneration which is made up of salary, company superannuation
   contributions and benefits including fringe benefits tax;
..  manager incentive plan payments relating to actual performance for Telstra
   and the individual in fiscal 2003;
..  retirement/redundancy/termination payments totalling $5.81 million (2002:
   $4.06 million) for the Telstra Group; and
..  retirement/redundancy/termination payments totalling $5.78 million (2002:
   $4.00 million) for the Telstra Entity.

(b) The Manager Incentive Plan (MIP) is an annual plan open to all of our
executives. The amount of remuneration at risk (target incentive) varies between
10% and 43% (2002: 10% and 43%) of the total remuneration package depending on
the executive's role. The plan is based on performance against set targets for
corporate, business unit and individual measures. The measures include
financial, customer service, employee opinion and individual measures that
support our key business objectives. Before any MIP is payable, a target must be
reached, according to the predefined measures. The plan also provides that
payments are capped at a specified level.

(c) Telstra Growthshare commenced in fiscal 2000 and provides for selected
senior executives who contribute significantly to our future long term
profitability to be invited to participate in an equity based Long Term
Incentive (LTI) plan and/or an equity based deferred remuneration plan, on an
annual basis. Since the commencement of the plan, those selected senior
executives have been eligible to receive an allocation of options, restricted
shares, performance rights or deferred shares, or a combination of each in a
given fiscal year. The options, restricted shares and performance rights can
only be exercised to obtain normal ordinary shares between certain time periods
and if specific long term company performance hurdles have been achieved.
Generally, deferred shares can only be exercised after a certain period of
service has been completed. If the hurdle is not achieved or the service period
not completed, the instrument will have a $nil value and will lapse. For further
details of the LTI plan and equity based deferred remuneration plan, including
detailed explanations of performance hurdles and allocations, refer to note 19.

As there is no AGAAP requirement to record an expense for the fair value of the
options, performance rights and deferred shares issued under Telstra Growthshare
in fiscal 2003 or fiscal 2002, no remuneration value has been included in our
director and executive remuneration disclosures relating to those instruments.
Under Telstra's USGAAP disclosures (refer note 30), we are however required to
derive a value for the purposes of our USGAAP statement of financial
performance. An approach consistent with the binomial and Black-Scholes
valuation models was adopted to complete this requirement.

Details of the valuations derived since the commencement of Telstra Growthshare
and the assumptions used in deriving those values for fiscal 2003 are detailed
in note 19. For further details on our USGAAP disclosures, refer to note 30.

(d) Includes payments relating to individual contractual commitments and the
commencement or completion of employment with us during fiscal 2003.

288

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

27. Related entity transactions

Ultimate controlling entity

The Commonwealth is the ultimate parent and controlling entity of the Telstra
Group. Telstra Corporation Limited is the parent entity in the group comprising
the Telstra Entity and its controlled entities.

We supply telecommunications services to, and acquire other services from, the
Commonwealth, its Departments of State, trading and other agencies. These
transactions are made within normal customer/ supplier relationships on terms
and conditions no more favourable than those available to other customers or
suppliers. There are no exclusive rights to supply any of these services.
Services provided to any one governmental department or agency or the
combination of all of these services in total, do not represent a significant
component of our operating revenues. For these reasons, the financial reports do
not disclose transactions relating to the purchase and sale of goods and
services from or to the Commonwealth, its Departments of State, trading and
other agencies.

Directors of the Telstra Entity

The name of each person who held office as a director of the Telstra Entity for
the whole of fiscal 2003 is:

Robert C Mansfield  John E Fletcher          Donald G McGauchie
John T Ralph        Belinda J Hutchinson     William A Owens
Sam H Chisholm      Catherine B Livingstone  John W Stocker
Anthony J Clark     Charles Macek            Zygmunt E Switkowski

Details of directors' remuneration, superannuation and retirement payments are
listed in note 25.

Loans to directors of the Telstra Entity

No non-executive director of the Telstra Entity had a loan with the Telstra
Entity or any of its controlled entities at any time during fiscal 2003 or 2002.

In fiscal 1998, Z E Switkowski (before being appointed chief executive officer
and managing director) was provided with a loan from the Telstra Entity as part
of his participation in the Telstra Employee Share Ownership Plan (TESOP97). The
loan was provided interest free and on the same terms as all other eligible
employees who participated in TESOP97. During fiscal 2000, Z E Switkowski also
participated in the Telstra Employee Share Ownership Plan II (TESOP99). Further
details of the share plans are contained in note 19.

The total amounts repaid during fiscal 2003 was $555 (2002: $469). At 30 June
2003, the outstanding balance of the loan to Z E Switkowski was $7,144 (2002:
$7,699). There were no loans provided during fiscal 2003 and fiscal 2002.

Other transactions with directors of the Telstra Entity and their director
related entities

Each of the directors of the Telstra Entity have telecommunications services
transactions with the Telstra Group, which are not significant and are both
trivial and domestic in nature. Director related entities also have
telecommunications services which are on normal commercial terms and conditions.

Loan to Telstra Growthshare

During fiscal 2000, Telstra created Telstra Growthshare (a senior executive
equity participation plan). In fiscal 2003, we advanced $nil (2002: $81 million)
to Telstra Growthshare to enable it to purchase shares in the Telstra Entity. In
the prior year, of the $81 million loan provided, $7 million was used to acquire
performance rights. This amount has been immediately expensed to the statement
of financial performance as it is not repayable to Telstra. The loan balance at
30 June 2003 of $88 million (2002: $115 million) was used to acquire Telstra
Entity shares over which certain senior executives are granted options. Telstra
Growthshare also holds in trust certain shares allocated to senior executives
and non-executive directors under the ownshare and directshare schemes (refer
note 19 for further information).

Loans to employees

We have two employee shares schemes, being TESOP97 and TESOP99. At the
commencement of the scheme, loans were advanced to participating employees to
enable the purchase of Telstra shares. Loans under TESOP97 and TESOP99 are
provided interest free. During fiscal 2003, $32 million (2002: $40 million) of
the loans under TESOP97 and TESOP99 was repaid. At 30 June 2003, the outstanding
loan balance for both schemes was $198 million (2002: $230 million). Refer to
note 19 for further information.

                                                                             289

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

27. Related entity transactions (continued)

Directors of the Telstra Entity's interests in shares of the Telstra Entity

As at 30 June 2003 and 2002, the directors, family members and their related
entities had interests in the share capital of the Telstra Entity as follows:

Telstra Entity - shares (a)
-----------------------------------------
                         As at 30 June
                           2003      2002
-----------------------------------------
R C Mansfield........   130,604   118,539
J T Ralph............    92,204    81,171
S H Chisholm.........        --        --
A J Clark............    92,609    84,095
J E Fletcher.........    40,850    35,744
B J Hutchinson.......    62,091    58,375
C B Livingstone......    34,697    31,294
C Macek..............    37,568    23,554
D G McGauchie........    26,476    23,073
W A Owens............     7,495     1,997
J W Stocker..........    85,670    60,503
Z E Switkowski (a)...   155,810   155,810
-----------------------------------------

Total shareholdings include shares held by the directors and their director
related entities. Unless related to TESOP99, TESOP97 or Telstra Growthshare,
shares acquired or disposed by directors during the year were on an arm's length
basis at market price. Overall, there has been 91,919 shares (2002: 83,420
shares) acquired and nil shares (2002: 2,950 shares) disposed of during fiscal
2003.

(a) There have been no shares issued under TESOP97 and TESOP99 during fiscal
2003 or fiscal 2002. Shares have, however, been allocated under the directshare
equity plan. A schedule of the shareholdings and details on this plan are
included in note 19.

Telstra Entity - cumulative equity based instruments issued under Telstra
Growthshare
--------------------------------------------
                          Z E Switkowski (b)
--------------------------------------------
As at 30 June 2003
Options................            3,456,000
Restricted shares......              146,000
Performance rights.....              756,200
Deferred shares........              249,100
                          ------------------
As at 30 June 2002
Options................            3,456,000
Restricted shares......              146,000
Performance rights.....              258,000
Deferred shares........                   --
                          ------------------

(b) Refer to note 19 for details of Telstra Growthshare terms and conditions.

Directors of controlled entities

Each of our controlled entity directors and their director related entities have
telecommunications services transactions with us, which are on normal commercial
terms and conditions which are trivial and domestic in nature.

Loans to directors of controlled entities

Certain employees of the Telstra Group who were eligible to participate in
TESOP99 and TESOP97 (refer note 19) were also directors of controlled entities.
The directors of the controlled entities were provided with an interest free
loan to enable the purchase of shares from the Commonwealth on the same terms
and conditions as all other employees eligible to participate in TESOP99 and
TESOP97. During fiscal 2003 and fiscal 2002, certain employees became directors
of controlled entities in the Telstra Group. These directors brought with them
existing loans of $nil and $130,696 respectively.

The amount of new loans advanced during fiscal 2003 was $nil (2002: $nil). Loan
repayments of $45,078 (2002: $55,698) were made including 5 directors who repaid
their TESOP97 loans in full. For TESOP99 shares, directors that have left
continue to be the beneficial owner of the shares. The balance of the loans
outstanding at 30 June 2003 was $211,046 (2002:$315,245). All controlled entity
directors listed below made loan repayments during fiscal 2003 and 2002:

B Akhurst     B Grisdale    M Robey
R Baxter      P Hastings    C Rowles
B Beros       J Hibbard     L Saly
H Bradlow     H Kelly       H Sawczak
T Bundrock    S Lee         G Shepherd
J Burke       A Lockwood    D Simmonds
C Cameron     G Moriarty    R Simpson
D Campbell    G Nicholson   J Stanhope
A Cherubin    T Pearson     P Wallis
T Crossley    N Peckham     P Whorlow
C Davis       P Pickering   K Wijeyewardene
A Day         B Pineau      G Willis
A Dix         D Pitt        L Wood
W Donaldson   J Price

290

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

27. Related entity transactions (continued)

Loans to directors of controlled entities (continued)

There were five directors who repaid their TESOP97 loan in full during the year;
they were C Cameron, G Moriarty, B Pineau, M Robey, and G Shepherd. G Moriarty
and G Shepherd also repaid their TESOP99 loans in full.

Telstra shares owned by the Telstra Superannuation Scheme (Telstra Super)

Telstra Super owns shares in Telstra Corporation Limited. As at 30 June 2003
Telstra Super owned 9,975,761 (2002: 14,838,932) shares at a cost of $46 million
(2002: $77 million) and a market value of $44 million (2002: $69 million). In
fiscal 2003, we paid dividends to Telstra Super of $3 million (2002: $3
million). In addition, Telstra Super holds bonds issued by Telstra Corporation
Limited. As at 30 June 2003, Telstra Super holds bonds with a cost of $8 million
(2002: $3 million) and a market value of $8 million (2002: $3 million). All
purchases and sales of Telstra shares and bonds by Telstra Super are determined
by the trustee and/or its investment managers on behalf of the members of
Telstra Super.

Wholly owned group and other related entity disclosures

Amounts  receivable  from and payable to entities in the wholly owned group and
other related entities:

                                                 Telstra Group   Telstra Entity
---------------------------------------------------------------  --------------
                                                  As at 30 June   As at 30 June
                                                   2003    2002    2003    2002
                                           Note      $m      $m      $m      $m
---------------------------------------------------------------  --------------
Total amounts receivable
(including trade debtors) at 30 June from:
Current
Wholly owned controlled entities..............9      --      --     689   2,620
Provision for amounts owed by
controlled entities (i).......................9      --      --    (285)   (855)
                                                 --------------  --------------
                                                     --      --     404   1,765
Other controlled entities.....................9      --      --      --     528
Joint venture entities and associated
entities......................................9      61      61      48      29
Non current
Wholly owned controlled entities..............9      --      --     511     202
Provision for amounts owed by controlled
entities......................................9      --      --     (69)    (86)
                                                 --------------  --------------
                                                     --      --     442     116
Joint venture entities and associated
entities......................................9      29      46      29      46
                                                 --------------  --------------
                                                     90     107     923   2,484
                                                 ==============  ==============
Total amounts payable
(including accounts payable) at 30
June to:
Current
Wholly owned controlled entities..........15,16      --      --   2,015   1,829
Joint venture entities and associated
entities..................................15,16      63     125      56     103
                                                 --------------  --------------
                                                     63     125   2,071   1,932
                                                 ==============  ==============

                                                                             291

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

27. Related entity transactions (continued)

Wholly owned group and other related entity disclosures (continued)

Transactions with our wholly owned controlled entities

(i) Included in the profit before income tax expense of the Telstra Entity was a
positive net movement of $570 million (2002: $855 million expense) in relation
to the provision for amounts owed by a controlled entity. This balance is
eliminated on consolidation for Telstra Group reporting purposes (refer note 3
for further information).

(ii) In fiscal 2003, a number of purchase and sale transactions occurred between
the Telstra Entity and its wholly owned controlled entities.

..    During fiscal 2003, communication assets were sold by the Telstra Entity to
     a controlled entity in the wholly owned group at cost of $29 million (2002:
     $34 million).

..    The Telstra Entity sold services, purchased goods and communications
     assets, paid fees and received and paid interest to entities in the wholly
     owned group during the year. These transactions are in the normal course of
     business and are on normal commercial terms and conditions.

..    Our controlled entity Network Design and Construction Limited (NDC)
     constructs communication assets on our behalf. During fiscal 2003, we paid
     for the purchase and maintenance of communication assets from NDC totalling
     $737 million (2002: $784 million).

Included in the revenue received in advance amount at 30 June 2003 is $228
million (2002: $233 million) for the use of our Yellow Pages (R) trademark and
$84 million (2002:$90 million) for the use of our White Pages (R) trademark that
were received from a controlled entity. These amounts are not recorded as
revenue until the directories are published according to our accounting policy
described in note 1.19.

During fiscal 2003, the Telstra Entity elected to form a tax consolidated group
with its Australian resident wholly owned controlled entities. We have
transferred the amount of $191 million relating to future income tax benefits
and $94 million relating to provision for deferred income tax from our resident
wholly owned controlled entities to the Telstra Entity as a result of this
election. In addition, the Telstra Entity has reimbursed our resident wholly
owned controlled entities $10 million relating to PAYG instalments made prior to
entering the tax consolidation system (refer note 4 for further information).

Transactions with our other related entities

On 25 April 2003, we entered a capacity prepayment agreement with our joint
venture entity Reach Ltd (REACH). Included in non current receivables for the
year ended 30 June 2003 is a payment of $230 million (US$143 million) to REACH
for a right to receive future carriage and related services capacity. This non
current receivable earns interest at market rates (refer note 9 for further
information).

During fiscal 2003, purchases were made by the Telstra Group of $506 million
(2002: $788 million) and Telstra Entity of $471 million (2002: $735 million)
from Reach. These amounts were for both the purchase of, and entitlement to,
capacity and connectivity services. These purchases were made in line with
market prices. Entitlement to capacity with Reach takes into account our future
needs and growth opportunities. Sales were made for international inbound call
termination services, construction and consultancy by the Telstra Group of $109
million (2002: $115 million) and Telstra Entity of $105 million (2002: $94
million) to Reach.

During fiscal 2003, purchases were made by the Telstra Group of $413 million
(2002: $417 million) and Telstra Entity of $403 million (2002: $407 million)
from our associated entity IBMGSA. These amounts were for information technology
services predominately resulting from a contract with IBMGSA. These purchases
were made on normal commercial terms and conditions (refer note 20 for further
information).

Included in software assets for fiscal 2003 is $132 million (2002: $168 million)
paid to IBMGSA.

During fiscal 2003, we paid for operating expenses on behalf of the following
entities:

..    Telstra Foundation Limited;
..    Telstra Community Development Trust;
..    Telstra Growthshare Trust;
..    Telstra Employee Share Ownership Plan I (TESOP97); and
..    Telstra Employee Share Ownership Plan II (TESOP99).

292

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

27. Related entity transactions (continued)

Wholly owned group and other related entity disclosures (continued)

During fiscal 2003, 2002 and 2001, we had the following transactions between
members of the wholly owned group and other related entities:

<TABLE>
<CAPTION>
                                                       Telstra Group           Telstra Entity
---------------------------------------------------------------------------  ------------------
                                                    Year ended 30 June       Year ended 30 June
                                                   2003      2002      2001      2003      2002
                                         Note        $m        $m        $m        $m        $m
---------------------------------------------------------------------------  ------------------
<S>                                      <C>      <C>       <C>        <C>       <C>      <C>

Our transactions with entities in the wholly
owned group and other related entities

Profit before income tax expense for the year
includes the following transactions:

Interest revenue from:
Wholly owned controlled entities............2        --        --        --       124        67
Joint venture entities and associated
entities....................................2         2         2         2         2         2
Borrowing costs:
Wholly owned controlled entities............3        --        --        --        80        58
Provision for doubtful debts - increase/
(decrease):
Wholly owned controlled entities............3        --        --        --      (587)      830
Sale of goods and services to:
Joint venture entities and associated
entities.....................................       232       370       152       124       120
Purchase of goods and services from:
Joint venture entities and associated
entities.....................................     1,113     1,332       616       985     1,210
                                               ----------------------------  ------------------
</TABLE>

                                                                             293

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

28. Events after balance date

The directors are not aware of any matter or circumstance that has occurred
since 30 June 2003 that, in their opinion, has significantly affected or may
significantly affect in future years:

..  our operations;
..  the results of those operations; or
..  the state of our affairs;

other than:

On 28 August 2003, the directors of Telstra Corporation Limited declared a fully
franked final ordinary dividend of 12 cents per ordinary share, payable on 31
October 2003 to those shareholders on record at 26 September 2003. A provision
for dividend payable has been raised as at the date of declaration, amounting to
$1,544 million.

On 28 August 2003, plans were announced to spend between $800 million and $1,000
million to buy-back a portion of the Telstra Entity's share capital, subject to
regulatory approval. The share buy-back will be an off market buy-back and is
the first step of a capital management program. The financial effect of the
buy-back cannot be reliably estimated as yet.

On 27 August 2003, we entered into an agreement to sell our 22.6% shareholding
in our associated entity IBM Global Services Australia Limited (IBMGSA), subject
to regulatory approvals. Revenue from the sale of this investment amounted to
$154 million resulting in a profit before income tax expense of $149 million. We
also modified a 10 year contract with IBMGSA to provide information technology
services. This modification will result in an expense of $130 million being
recognised in our fiscal 2004 statement of financial performance and the removal
of $1,596 million of expenditure commitments disclosed as at 30 June 2003 (refer
to note 20 for additional information). In fiscal 2004, the net impact on our
profit before income tax expense of this transaction will be $19 million.

On 18 July 2003, we sold our 16.4% remaining interest in Commander
Communications Limited for $24 million.

The financial effect of the above events after balance date have not been
recognised in our statements of financial performance, financial position or
cash flows for the year ending 30 June 2003.

294

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures

We undertake transactions in a range of financial instruments which can be
classified as either primary (physical instruments) or secondary instruments
(derivative instruments).

Our primary instruments include:

..  cash assets;
..  receivables;
..  payables;
..  bank deposits;
..  bills of exchange and commercial paper;
..  listed investments and investments in other corporations; and
..  various forms of borrowings both receivable and payable.

These primary financial instruments enable us to achieve company objectives
through facilitating our ongoing operating activities and ensuring that all
entities within the Telstra Group remain solvent at all times.

Secondary instruments or derivative instruments create an obligation or right
that effectively transfers one or more of the risks associated with an
underlying primary financial instrument. We use derivatives to manage our
exposure within levels considered acceptable to the group as determined by
guidelines and policies approved by the board of directors. Instruments that we
use to achieve this include:

..  forward foreign currency contracts;
..  cross currency swaps; and
..  interest rate swaps.

Primary instruments create underlying exposures for the group. The main risks
associated with these instruments include:

..  interest rate risk;
..  foreign currency risk;
..  credit risk; and
..  liquidity risk.

Interest rate risk refers to the risk that the value of a financial instrument
will fluctuate due to changes in market interest rates. Our interest rate risk
arises from the interest bearing financial assets and liabilities that we use
whether the primary instrument has a fixed or variable rate attached. We monitor
this risk on our net debt portfolio which includes our financial liabilities
less matching short term financial assets. We manage interest rate risk by:

..  controlling the settings of the group financial position to target levels of
   fixed and variable interest proportions of the net debt portfolio; and
..  ensuring access to diverse sources of funding, minimising risks of
   refinancing.

We use suitable derivative instruments as part of the management of this risk.

Foreign currency risk refers to the risk that the value of a financial
commitment or investment will fluctuate due to changes in foreign currency
exchange rates. Our foreign currency risk arises due to:

..  firm or anticipated transactions for receipts and payments for international
   telecommunications traffic settled in foreign currencies;
..  purchase commitments priced in foreign currencies;
..  investments denominated in foreign currencies; and
..  a portion of our borrowings denominated in foreign currencies.

We manage this risk by initially seeking contracts effectively denominated in
Australian dollars where possible and economically favourable to do so. Where
financial commitments are effectively denominated in foreign currencies and do
not form part of a natural hedging position, we manage exposure to rate
movements through the use of derivative instruments.

Credit risk is the risk that a contracting entity will not complete its
obligations under a financial instrument and cause us to make a financial loss.
We have exposure to credit risk on all financial assets included in our
statement of financial position. To help manage this risk:

..  we have a policy for establishing credit limits for the entities we deal
   with;
..  we may require collateral where appropriate; and
..  we minimise exposure to individual entities we either transact with or enter
   into derivative contracts with (through a system of credit limits).

Liquidity risk includes the risk that, as a result of our operational liquidity
requirements:

..  we will not have sufficient funds to settle a transaction on the due date;
..  we will be forced to sell financial assets at a value which is less than what
   they are worth; or
..  we may be unable to settle or recover a financial asset at all.

To help reduce these risks we:

..  have a liquidity policy which targets a minimum and average level of cash and
   cash equivalents to be maintained;
..  have readily accessible standby facilities and other funding arrangements in
   place; and
..  generally use instruments that are tradeable in highly liquid markets.

                                                                             295

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

After we have minimised the potential risk associated with entering into a
primary financial instrument, any remaining risk is then hedged through the use
of derivative instruments within guidelines approved by the board of directors.
These instruments enable us to minimise our exposure to:

..  interest rate risk;
..  foreign currency risk; and/or
..  other market risk.

After hedging risk through derivatives, the remaining potential for gain or loss
is managed. This is due to the gains or losses on the underlying physical
transactions being offset by the gains or losses on the related derivative
instrument. Hedging activities also enable us to minimise the volatility of our
cash flows due to changes in interest rates and foreign currency exchange rates.

We do not speculatively trade in derivative instruments. All our derivative
transactions are entered into to hedge the risks relating to underlying physical
transactions.

To hedge our interest rate risk, we mainly use interest rate swaps and cross
currency swaps. Our interest rate risk is calculated on our net debt portfolio
which includes both physical borrowings such as bonds and commercial paper and
associated derivative instruments. We manage our net debt in accordance with set
targeted interest rate profiles and debt maturity profiles.

To hedge our foreign currency risk, we predominantly use cross currency swaps
and forward foreign currency contracts.

Our currency risk arising from translation of foreign currency borrowings and
investments is determined by reference to the underlying primary instrument. In
relation to borrowings, we effectively remove the currency risk by fully
converting them to Australian dollar borrowings at drawdown by applying cross
currency swaps, unless a natural hedge exists. In relation to investments, we
hedge borrowings in the same currency and with the same interest rate
characteristics where appropriate. We enter into forward foreign currency
contracts on anticipated future transactions to reduce our risk to a level
considered acceptable by the company.

Foreign currency risk on transactions (i.e. excluding translation risks) are
calculated on a net foreign exchange basis for individual currencies. This
underlying foreign exchange risk is combined (offset) with the associated
foreign exchange derivatives used to hedge these risks generating our net
foreign exchange risk.

Foreign currency risk also arises on translation of the financial reports of our
non-Australian controlled entities. Our significant non-Australian controlled
entities operate independently from us both financially and operationally. As a
result, the majority of the foreign currency gains or losses arising from this
risk are recorded through the foreign currency translation reserve. Where
hedging of this risk is undertaken, we prefer to use foreign currency borrowings
to provide a natural hedge position. Where this is not an option, other
derivative instruments are used (e.g. forward foreign currency contracts).

We enter into, and hedge transactions in the following significant foreign
currencies:

..  United States dollars;
..  British pounds sterling;
..  New Zealand dollars;
..  Euro;
..  Hong Kong dollars; and
..  Japanese yen.

296

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

Interest rate risk

Our exposure to interest rate risk and the effective interest rates on financial
instruments at 30 June 2003 are shown in Table A below. This information
includes all financial instruments both recognised and unrecognised in the
statement of financial position. The information as at 30 June 2002 is shown in
Table B.

<TABLE>
<CAPTION>
Table A                                                                         Telstra Group
---------------------------------------------------------------------------------------------------------------------------------
                                                                          As at 30 June 2003
                                                                        Interest rate
                                            Weighted  ------------------------------------------------
                                            average   Floating              Fixed due dates                Non
                                           effective            --------------------------------------  interest
                                            interest            1 yr.or less  2 to 5 yrs.  over 5 yrs.   bearing  Total (c)
                                              rate    ---------------------------------------------------------------------
                                               %         $m          $m            $m           $m         $m         $m     Note
---------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>        <C>       <C>           <C>          <C>          <C>       <C>        <C>
Financial assets
Cash assets...........................(a)       4.48     1,101            --           --           --       199      1,300     8
Trade debtors and accrued revenue........         --        --            --           --           --     3,305      3,305     9
Bank deposits, bills of exchange
and commercial paper > 90 days........(a)         --        --            --           --           --        --         --     9
Share loan to employees..................         --        --            --           --           --       198        198     9
Other receivables.....................(a)       2.50        --            --           --           88       346        434     9
Loans to joint ventures and
associated entities...................(a)       5.23        --            33           29           --        --         62     9
Cross currency swaps..................(a)         --    (1,892)           10        2,192          (27)       --        283     9
Investments...........................(b)         --        --            --           --           --        96         96    11
PCCW converting note..................(a)       5.00        --            --           83           --        --         83    14
                                                      ---------------------------------------------------------------------
Total financial assets/(liabilities)
as at 30 June 2003.......................                 (791)           43        2,304           61     4,144      5,761
                                                      ---------------------------------------------------------------------
Financial liabilities
Trade creditors and accrued
expenditure..............................         --        --            --           --           --     2,275      2,275    15
Other creditors..........................         --        --            --           --           --       301        301    15
Loan from joint venture entity........(a)       4.70        --             1           --           --       --           1    16
Bills of exchange and commercial
paper.................................(a)       3.22       643            --           --           --        --        643    16
Bank loans............................(a)         --        --            --           --           --        --         --    16
Telstra bonds.........................(a)       8.19        --           210          784        1,619        --      2,613    16
Other loans...........................(a)       5.65        --           449        4,409        3,994        --      8,852    16
Cross currency swaps..................(a)         --       593            --         (148)         (19)       --        426    16
Finance lease liabilities.............(a)       7.55        --            18            2           --        --         20    16
Interest rate swaps...................(a)         --     2,222           230         (149)      (2,303)       --         --
                                                      ---------------------------------------------------------------------
Total financial liabilities as at
30 June 2003.............................                3,458           908        4,898        3,291     2,576     15,131
                                                      ---------------------------------------------------------------------
Net financial assets/(liabilities)
as at 30 June 2003.......................               (4,249)         (865)      (2,594)      (3,230)    1,568     (9,370)
                                                      =====================================================================
<FN>
<F1>
(a) The effective yield (effective interest rate) on our net debt at 30 June
2003 was 7.45%, after taking into account the impact of interest rate swaps and
cross currency swaps.
<F2>
(b) This excludes investments in joint venture entities and associated entities.
<F3>
(c) Carrying amount as per statement of financial position.
</FN>
</TABLE>

                                                                             297

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

Interest rate risk (continued)

<TABLE>
<CAPTION>
Table B                                                                         Telstra Group
---------------------------------------------------------------------------------------------------------------------------------
                                                                            As at 30 June 2002
                                                                        Interest rate
                                            Weighted  ------------------------------------------------
                                            average   Floating              Fixed due dates                Non
                                           effective            --------------------------------------  interest
                                            interest            1 yr.or less  2 to 5 yrs.  over 5 yrs.   bearing  Total(c)
                                              rate    ---------------------------------------------------------------------
                                               %            $m            $m           $m           $m        $m         $m  Note
---------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>        <C>       <C>           <C>          <C>          <C>       <C>        <C>
Financial assets
Cash assets...........................(a)       3.45       759            --           --           --       311      1,070     8
Trade debtors and accrued revenue........         --        --            --           --           --     3,438      3,438     9
Bank deposits, bills of exchange and
commercial paper > 90 days............(a)       5.15       388            --           --           --        --        388     9
Share loan to employees..................         --        --            --           --           --       230        230     9
Other receivables.....................(a)       3.50        --            --           --          115       184        299     9
Loans to joint ventures and
associated entities...................(a)       4.61        --            16           46           --        --         62     9
Cross currency swaps..................(a)         --    (1,916)          148        1,548          871        --        651     9
Investments...........................(b)         --        --            --           --           --       105        105    11
PCCW converting note..................(a)       5.00        --            --          337           --        --        337    14
                                                      ---------------------------------------------------------------------
Total financial assets/(liabilities)
as at 30 June 2002.......................                 (769)          164        1,931          986     4,268      6,580
                                                      ---------------------------------------------------------------------
Financial liabilities
Trade creditors and accrued
expenditure..............................         --        --            --           --           --     2,336      2,336    15
Other creditors..........................         --        --            --           --           --       555        555    15
Loan from joint venture entity........(a)       4.70        --             4           --           --        --          4    16
Bills of exchange and commercial
paper.................................(a)       4.41       602            --           --           --        --        602    16
Bank loans............................(a)       3.87     1,613            --           --           --        --      1,613    16
Telstra bonds.........................(a)       8.74        --           582          989        1,616        --      3,187    16
Other loans...........................(a)       5.85        --           148        3,736        4,932        --      8,816    16
Cross currency swaps..................(a)         --       331            --           --         (217)       --        114    16
Finance lease liabilities.............(a)       7.11        --            20           21           --        --         41    16
Interest rate swaps...................(a)         --     1,150          (280)      (1,763)         893        --         --    --
                                                      ---------------------------------------------------------------------
Total financial liabilities as at
30 June 2002.............................                3,696           474        2,983        7,224     2,891     17,268
                                                      ---------------------------------------------------------------------
Net financial assets/(liabilities)
as at 30 June 2002.......................               (4,465)         (310)      (1,052)      (6,238)    1,377    (10,688)
                                                      =====================================================================
<FN>
<F1>
(a) The effective yield (effective interest rate) on our net debt at 30 June
2002 was 7.7%, after taking into account the impact of interest rate swaps and
cross currency swaps.
<F2>
(b) This excludes investments in joint venture entities and associated entities.
<F3>
(c) Carrying amount as per statement of financial position.
</FN>
</TABLE>

298

<PAGE>

                             Telstra Corporation Limited and controlled entities

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

Credit risk

The recorded amounts of financial assets included in the consolidated statement
of financial position, net of any applicable provisions for loss, represent our
maximum exposure due to credit risk for these assets. Where entities have a
right of set-off and intend to settle on a net basis under master netting
arrangements, this set-off has been recognised in the financial statements on a
net basis. Accordingly, our maximum credit risk exposure amounts to $5,761
million (2002: $6,580 million).

The major concentrations of credit risk for the group arise from our
transactions in money market instruments, forward foreign currency contracts,
cross currency and interest rate swaps. One of the methods that we use to manage
the risk relating to these instruments is to monitor our exposure by country of
institution. When reviewing concentrations of risk, we adjust for the period to
maturity of relevant instruments in our portfolio to accurately consider our
exposure at a point in time. On this basis, our credit risk exposure (which
includes a time based volatility allowance (VAR)) by country of institution is
included in Table C below.

Table C                           Telstra Group
-------------------------------------------------------------
                     Credit risk concentrations (VAR based)
                                  As at 30 June
                    -----------------------------------------
                             2003                 2002
                          %        $m           %        $m
---------------------------------------   -------------------
Australia........         30      2,232         26      2,079
United States....         51      3,876         51      4,027
Japan............         --         16         --         35
Europe...........          9        680         11        847
Hong Kong........         --         --          5        405
Other............         10        767          7        542
                    -------------------   -------------------
                         100      7,571        100      7,935
                    ===================   ===================

We also have credit risk exposure to an individual contracting entity through a
converting note we hold in PCCW Limited (PCCW). Our maximum credit risk exposure
relating to this transaction amounts to $83 million (2002: $337 million) (refer
to note 14 for further information).

Outside of these above transactions, we do not have any other significant
exposure to any individual contracting entity.

Net fair value of our financial assets and financial liabilities

Apart from those items referred to below, our financial assets and financial
liabilities recorded in the statement of financial position approximate net fair
value.

Table D                           Telstra Group
----------------------------------------------------------
                        Carrying amount    Net fair value
                         As at 30 June     As at 30 June
                         2003     2002     2003     2002
                              %    $m           %    $m
----------------------------------------  ----------------
Not readily traded
Financial assets
Converting note
issued by PCCW               83      337       85      337
                        ----------------  ----------------
Traded on organised
markets
Financial assets
Listed
investments                  32       41       89      144
                        ----------------  ----------------
Financial liabilities
Telstra bonds             2,663    3,253    2,990    3,472
Other loans               8,957    8,904    9,707    9,097
                        ----------------  ----------------
                         11,620   12,157   12,697   12,569
                        ----------------  ----------------

Unless there is evidence to suggest otherwise, financial assets and financial
liabilities with a short term to maturity are considered to approximate net fair
value. This includes items such as bank deposits, trade debtors, payables, bills
of exchange and commercial paper.

The net fair values of other financial assets and financial liabilities (apart
from our listed investments) are determined through reference to discounted cash
flows, current risk adjusted market interest rates and any rights specific to
each instrument or group of instruments. The net fair values of our listed
investments are determined by reference to prices quoted on the relevant stock
exchanges where the securities are traded.

The net fair value of our derivative instruments is included in the following
discussion on derivatives.

                                                                             299

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

Other information on our primary financial instruments

Until 28 June 2002, we held a US$750 million convertible note issued by PCCW. On
this date, PCCW redeemed the note in full and the fair value of the redemption
was applied to acquire PCCW's 40% interest in Telstra CSL Limited and to
subscribe to a new US$190 million mandatorily converting secured note. We valued
the original note on a yield to maturity basis which resulted in a $96 million
expense recorded in our statement of financial performance in fiscal 2002. As
this transaction was completed at the prior year end, the carrying value of the
converting note was considered to represent fair value at 30 June 2002. Also
included in interest expense for fiscal 2002, was $66 million relating to a mark
to market adjustment for interest rate swaps taken out over the convertible note
where the underlying exposure was no longer present.

On 25 April 2003, the converting note was partially redeemed by PCCW as part of
our entry into a capacity prepayment arrangement with our 50% owned joint
venture, Reach Ltd. The remaining converting note at the time of entry into this
arrangement was approximately US$54 million (refer to note 9 and note 14 for
additional information).

Additional information about our derivative instruments

As indicated, we enter into contracts for derivative instruments to hedge risks
relating to underlying transactions. The following information provides further
details on terms and conditions relating to those derivative instruments. To
appropriately assess our exposure to risk, these secondary instruments should be
viewed in the context of the underlying transactions and balances being hedged.
As a result, net market values and other data should not be assessed on their
own.

Our major exposure to interest rate risk and foreign currency risk arises from
our loans and borrowings. It is our policy to hedge the interest rate exposure
on our debt portfolio to adjust the ratio of fixed interest debt to variable
interest debt, as required by our debt management policy. We also hedge currency
exposure on our foreign currency loans and borrowings remaining after
considering any natural hedging positions. We mainly use cross currency swaps,
interest rate swaps, and forward foreign currency exchange contracts to achieve
this position.

The terms and conditions in relation to interest rate and maturity of the cross
currency swaps are similar to the terms and conditions of the underlying hedged
borrowings in note 16.

The due dates of interest rate swaps match the due dates of the underlying debt
within the requirements of our debt management policy. Net interest receipts and
payments are recognised as an adjustment to borrowing costs.

At 30 June 2003 and 2002, the Australian dollar interest rates applicable to our
derivatives varied as shown in Table E below.

Table E                      Telstra Group
----------------------------------------------------
                          Interest rate variations
                               As at 30 June
                        ----------------------------
Cross currency
swaps                       2003           2002
----------------------------------------------------
Fixed.................  from 7.05% to  from 7.05% to
                             7.87%          7.87%
Variable..............  from 4.60% to  from 4.69% to
                             6.14%          6.58%
Interest rate swaps
-------------------------------------  -------------
Fixed.................  from 5.25% to  from 5.25% to
                            10.11%          8.46%
Variable..............  from 4.42% to  from 4.15% to
                             5.21%          5.44%
----------------------------------------------------

The notional principal amounts of interest rate swaps represent the face values
of swap contracts entered into by us and that are outstanding at balance date.
The notional principal amounts do not represent amounts exchanged or to be
exchanged by the parties to the contract. They are not a true reflection of the
credit risk and are therefore not recorded in the statement of financial
position.

The maturity dates, net notional principal amounts, net fair value and carrying
amounts of our outstanding interest rate swaps at balance date are shown in
Table F following.

The gross notional principal amounts of our interest rate swaps are $11,551
million (2002: $11,416 million). The gross notional principal amounts of
interest rate swaps is significantly larger than the net notional principal
amounts shown. This is due to the net notional principal amount taking into
account our offsetting positions. Gross positions have also been modified over
time as volumes and positions have changed.

300

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

Additional information about our derivative instruments (continued)

<TABLE>
<CAPTION>
Table F                                                                            Telstra Group
----------------------------------------------------------------------------------------------------------------------------
                                                           Net notional
                                                       principal amount (a)      Net fair value (b)     Carrying amount (c)
----------------------------------------------------------------------------------------------------------------------------
                                                                                   As at 30 June
                                                            2003        2002        2003        2002        2003        2002
                                                              $m          $m          $m          $m          $m          $m
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>       <C>            <C>     <C>             <C>
Interest rate swaps with floating interest rates
- Less than one year receivable/(payable)...........        (230)        280          (4)         (3)         (2)         (1)
- One to five years receivable/(payable)............         149       1,763         (71)        (89)         (8)        (79)
- Greater than five years receivable/(payable)......       2,303        (893)        319         (12)         31          (8)
                                                       ---------------------------------------------------------------------
                                                           2,222       1,150         244        (104)         21         (88)
                                                       =====================================================================
<FN>
<F1>
(a) At 30 June 2003 and 30 June 2002, we had a net interest rate swap position
of pay fixed. This means that on a net basis we receive interest on the interest
rate swap at variable rates and pay interest on the interest rate swaps at fixed
rates. As a result our exposure to movements in interest rates is managed.

<F2>
(b) The net fair value represents the market value of both the fixed and
floating components of our interest rate swaps.

<F3>
(c) The carrying amount represents the accrued interest payable on interest rate
swaps which is included in current payables.
</FN>
</TABLE>

The maturity profile, net principal amounts, net fair values and carrying
amounts of our outstanding cross currency swaps at balance date are shown in
Table G below.

<TABLE>
<CAPTION>
Table G                                                  Telstra Group
-----------------------------------------------------------------------------------------------
                                     Notional
                               principal amount (a)   Net fair value (b)    Carrying amount (c)
-----------------------------------------------------------------------------------------------
                                                         As at 30 June
                                    2003       2002       2003       2002       2003       2002
                                      $m         $m         $m         $m         $m         $m
-----------------------------------------------------------------------------------------------
<S>                            <C>            <C>     <C>            <C>    <C>            <C>
Cross currency swaps
- Less that one year.........        440        119          8         36          7         31
- One to five years..........      4,024      3,273        348        561        172        502
- Greater than five years....      4,287      4,894       (477)      (102)      (308)        33
                               ----------------------------------------------------------------
                                   8,751      8,286       (121)       495       (129)       566
                               ================================================================
<FN>
<F1>
(a) The notional principal amount represents the face value of the payable leg
of our swaps we have entered into, denominated in Australian dollars.

<F2>
(b) The net fair value represents the market value of our outstanding cross
currency swaps.
<F3>

(c) The carrying amount represents the net principal which is recorded in
interest bearing liabilities, current receivables and non current receivables
and accrued interest which is recorded in current receivables.
</FN>
</TABLE>
                                                                             301

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

Additional information about our derivative instruments (continued)

We also have exposure to foreign currency risk through our ongoing business
activities where we have purchase or settlement commitments in foreign
currencies. This includes equipment and material purchases or other currency
conversion exposures on ongoing receivables and payables, excluding loan and
borrowing balances. In addition, we have exposure to foreign currency risk as a
result of our investments in offshore activities, including our investments in
TelstraClear Limited and Hong Kong CSL Limited. This risk is created by the
translation of the net assets of these entities from their operating currency to
Australian dollars. Our exposures before and after hedging are detailed in Table
H below:

Table H                                                 Telstra Group
-------------------------------------------------------------------------------
                                                 Exposure          Exposure
                                              before hedging     after hedging
-------------------------------------------------------------------------------
                                              As at 30 June     As at 30 June
                                                2003     2002     2003     2002
                                                  $m       $m       $m       $m
-------------------------------------------------------------   ---------------
Net anticipated future transactions
(amounts payable)...........................     273      503      139      261
Net transaction exposure (on amounts payable
recorded in the statement of financial
position)...................................     176      299       79      154
Translation exposure (offshore investments).  (1,802)    (959)  (1,065)    (959)
                                              ---------------   ---------------
                                              (1,353)    (157)    (847)    (544)
                                              ===============   ===============
The maturity dates of the anticipated future
transactions are as follows:
Less than one year..........................     264      503
One to five years...........................       9       --
                                              ---------------
                                                 273      503
                                              ===============

Our hedging policy provides effective hedging for all our foreign currency
exchange exposures within levels considered acceptable to the company.

Details of forward foreign currency contracts we have entered into to hedge our
trading activities are combined with forward foreign currency contracts entered
into to hedge our loans and borrowings in Table I below. Details include net
Australian dollar amounts receivable/(payable), settlement dates and average
contractual forward exchange rates.

Table I                                                        Telstra Group
-------------------------------------------------------------------------------
                                                               As at 30 June
                                                                2003       2002
                                                                  $m         $m
-------------------------------------------------------------------------------

United States dollars
- less than three months, at rates averaging United States
  dollars $0.5465 (2002: US$0.5389).......................         6        117
- 3 to 12 months, at rates averaging United States
  dollars $0.6112 (2002: US$0.5643).......................        97        251
- 12 to 18 months, at rates averaging United States
  dollars $0.6046 (2002: US$0.4989).......................         5          9
- over 18 months, at rates averaging United States
  dollars $0.6716 (2002: US$0.5630).......................        16         (2)
                                                            -------------------
                                                                 124        375
                                                            -------------------

302

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

29. Additional financial instruments disclosures (continued)

Additional information about our derivative instruments (continued)

Table I (continued)                                             Telstra Group
-------------------------------------------------------------------------------
                                                                As at 30 June
                                                                 2003      2002
                                                                   $m        $m
-------------------------------------------------------------------------------
British pounds sterling
- less than three months, at rates averaging British pounds
  sterling 0.3560 (2002: British pounds sterling 0.3991)....        1         1
- 3 to 12 months, at rates averaging British pounds
  sterling nil (2002: British pounds sterling 0.3784).......       --         7
                                                               ----------------
                                                                    1         8
                                                               ----------------
Euro
- less than three months, at rates averaging Euro 0.5430
  (2002: Euro 0.5895).......................................        3        17
- 3 to 12 months, at rates averaging Euro nil
  (2002: Euro 0.5927).......................................       --        31
                                                               ----------------
                                                                    3        48
                                                               ----------------
Japanese yen
- less than three months, at rates averaging Japanese
  yen nil (2002: Japanese yen 69.5398)......................       --         1
- 3 to 12 months, at rates averaging Japanese yen nil
  (2002: Japanese yen 70.2000)..............................       --         3
                                                               ----------------
                                                                   --         4
                                                               ----------------
New Zealand dollars
- less than three months, at rates averaging New Zealand
  dollars $1.1465 (2002: New Zealand dollars $1.215)........     (148)     (500)
                                                               ----------------
                                                                 (148)     (500)
                                                               ----------------
Hong Kong dollars
- less than three months, at rates averaging Hong Kong
  dollars $4.4593 (2002: Hong Kong dollars nil).............     (255)       --
                                                               ----------------

Our offshore controlled entities have also entered into the
following Australian dollar forward foreign currency
contracts:
- less than three months, at rates averaging Australian
  dollars $0.8764 (2002: Australian dollars nil)............       (1)       --
- 3 to 12 months, at rates averaging Australian dollars
  $0.9702 (2002: Australian dollars nil)                           (4)       --
                                                               ----------------
                                                                   (5)       --
                                                               ----------------

The net fair value of forward foreign currency contracts at 30 June 2003 is a
$22 million gain (2002: $30 million loss).

For interest rate swaps, cross currency swaps and forward foreign currency
contracts where the carrying amount is in excess of net fair value at balance
date, no reduction to net fair value is made since these derivatives act as
hedges of underlying physical transactions.

In addition to the credit risk on our primary financial instruments, we also
have exposure on our derivative instruments. The values shown in Table J below
include all transactions where the net fair value is favourable. For credit
purposes, there is only a credit risk where the contracting entity is liable to
pay us in the event of a closeout. The amounts disclosed in Table J are
different from those shown in the net fair value amounts in Tables G and H as
these show the net fair value after netting favourable against unfavourable
transactions. Table J only shows the favourable transactions.

Table J                                                 Telstra Group
------------------------------------------------------------------------
                                                        Net fair value
                                                     -------------------
                                                        As at 30 June
                                                         2003       2002
                                                           $m         $m
------------------------------------------------------------------------
Interest rate swaps...............................        623        129
Cross currency swaps..............................        431        562
Forward foreign currency contracts................         50          9
                                                     -------------------
                                                        1,104        700
                                                     ===================

                                                                             303

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures

Reconciliations to financial reports prepared using USGAAP

Our consolidated financial report is prepared in accordance with accounting
principles generally accepted in Australia (AGAAP). AGAAP has significant
differences from the accounting principles generally accepted in the United
States (USGAAP).The significant differences between AGAAP and USGAAP are
presented throughout note 30. Additionally, where there is no conflict with
AGAAP requirements we have incorporated some of the additional USGAAP
requirements throughout the AGAAP financial statements.

<TABLE>
<CAPTION>
                                                                    Telstra Group
-----------------------------------------------------------------------------------------------
                                                                 Year ended 30 June
                                                          2003       2003       2002       2001
                                               Note         $m       US$m         $m         $m
-----------------------------------------------------------------------------------------------
<S>                               <C>                   <C>        <C>        <C>        <C>
Reconciliation of net income to USGAAP

AGAAP net income reported in statement of
financial performance..............................      3,429      2,297      3,661      4,058
Adjustments required to agree with USGAAP
Property, plant and equipment.................30(a)       (323)      (216)      (204)      (192)
Retirement benefit gain/(expense).............30(f)        130         87        472       (110)
Amortisation of software assets...............30(i)         --         --         --        (25)
Mobile phone subsidies........................30(k)         --         --         30        144
Income tax benefit/(expense)..................30(l)        164        110        (59)       307
Employee compensation expense.................30(m)         --         --        (41)        (9)
Redundancy and restructuring provision -
fiscal 2000 reversal..........................30(n)         --         --        (94)      (392)
Derivative financial instruments and
hedging activities............................30(o)       (420)      (281)       (17)      (101)
PCCW converting note..........................30(o)         12          8        198       (198)
Sale of Global Wholesale Business to
Reach Ltd (REACH).............................30(p)         --         --         --       (882)
Equity accounting and write-off adjustments
for REACH.....................................30(q)        665        445         36         17
Consolidation adjustment for Telstra CSL
Limited (CSL).................................30(r)         --         --        (65)       959
Fair value / general reserve adjustments......30(s)          9          6        (19)        --
Goodwill adjustments..........................30(t)       (216)      (145)        --         --
                                                      -----------------------------------------
Net income per USGAAP..............................      3,450      2,311      3,898      3,576
                                                      =========================================
Statement of financial performance measured
and classified per USGAAP

Operating revenue (i)..............................     20,495     13,732     20,196     19,456
Operating expenses:
Labour.............................................      3,074      2,060      2,862      2,899
Goods and services purchased.......................      3,236      2,168      3,613      3,320
Depreciation and amortisation......................      3,532      2,366      3,536      3,149
Other operating expenses...........................      4,337      2,906      4,072      3,854
                                                      -----------------------------------------
Total operating expenses...........................     14,179      9,500     14,083     13,222
                                                      -----------------------------------------
Operating income...................................      6,316      4,232      6,113      6,234
Net interest expense (ii)..........................       (823)      (552)      (851)      (705)
Dividend income...................................2          1          1          1         16
Share of net losses of associates and joint
venture entities...................................       (114)       (76)       (41)      (143)
Other (expense)/income (iii).......................       (297)      (199)       537        370
                                                      -----------------------------------------
Net income before income tax expense and
minority interests.................................      5,083      3,406      5,759      5,772
Income tax expense............................30(l)      1,359        911      1,859      2,044
                                                      -----------------------------------------
Net income before minority interests and
cumulative effect adjustments......................      3,724      2,495      3,900      3,728
Minority interests.................................         35         23         (2)        10
                                                      -----------------------------------------
Net income before cumulative effect
adjustments........................................      3,759      2,518      3,898      3,738
Cumulative effect of changes in
accounting principles, net of
tax...............................30(j),30(o),30(t)       (309)      (207)        --       (162)
                                                      -----------------------------------------
Net income per USGAAP..............................      3,450      2,311      3,898      3,576
                                                      =========================================
</TABLE>

304

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Reconciliations to financial reports prepared using USGAAP
(continued)

<TABLE>
<CAPTION>
                                                                                               Telstra Group
----------------------------------------------------------------------------------------------------------------------------
                                                                                             Year ended 30 June
                                                                                       2003       2003       2002       2001
                                                                            Note         $m       US$m         $m         $m
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>        <C>        <C>        <C>
Reconciliation of certain statement of financial performance
components to USGAAP
Presenting information according to USGAAP involves reclassifying the
presentation adopted for AGAAP. The reconciliation of operating revenue, net
interest expense and other income from AGAAP to USGAAP is provided below:
Revenue from ordinary activities per AGAAP.....................................2     21,616     14,483     20,802     22,983
Less:
Dividend income................................................................2          1          1          1         16
Revenue from the sale of non current assets....................................2        859        575        302      3,303
Reclassifications due to cumulative effect of change in
accounting principle...................................................1.2, 3(c)         --         --         --       (777)
Writeback of superannuation additional contribution liability.........3(c),30(f)         --         --         --        725
Other revenue per AGAAP (iv)....................................................        261        175        303        260
                                                                                   -----------------------------------------
(i) Operating revenue per USGAAP................................................     20,495     13,732     20,196     19,456
                                                                                   =========================================
Net borrowing costs per AGAAP...................................................       (795)      (533)      (770)      (666)
Additional derivative financial instruments and hedging expenses................        (15)       (10)       (20)       (15)
Interest income on REACH capacity prepayment....................................          2          1         --         --
PCCW converting note interest revenue reversal..................................        (15)       (10)       (61)       (24)
                                                                                   -----------------------------------------
(ii) Net interest expense per USGAAP............................................       (823)      (552)      (851)      (705)
                                                                                   =========================================
(iv) Other revenue per AGAAP....................................................        261        175        303        260
Add/(subtract):
AGAAP Net profit/(loss) on sale of:
- property, plant and equipment.............................................3(a)        173        116         (4)         7
- investments in controlled entities........................................3(a)          5          3          3          4
- investments in joint venture entities.....................................3(a)          3          2         --          2
- investments in associated entities........................................3(a)          9          6         --         --
- investments in listed entities and other corporations.....................3(a)         (2)        (1)        (5)       266
- patents, trademarks and licences..........................................3(a)         --         --          1          8
- business..................................................................3(a)         10          7         --        852
USGAAP reversal of gain on sale of Global Wholesale Business....................         --         --         --       (859)
USGAAP net profit on sale of non current assets.................................         48         33         (7)        38
USGAAP write-off of REACH investment.......................................30(q)       (203)      (136)        --         --
USGAAP impairment of CSL goodwill..........................................30(t)        (85)       (57)        --         --
USGAAP reversal of gain on sale/leaseback and subsequent amortisation......30(a)       (162)      (109)        --         --
Derivative financial instruments and hedging activities.........................       (404)      (271)         4        (59)
PCCW converting note............................................................         27         18        259       (174)
Net foreign currency translation gains/(losses).................................         23         15        (17)        25
                                                                                   -----------------------------------------
(iii) Other (expense)/income per USGAAP.........................................       (297)      (199)       537        370
                                                                                   =========================================
</TABLE>

                                                                             305

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Reconciliations to financial reports prepared using USGAAP
(continued)

<TABLE>
<CAPTION>
                                                                                                 Telstra Group
----------------------------------------------------------------------------------------------------------------------------
                                                                                              Year ended 30 June
                                                                                       2003       2003       2002       2001
                                                                            Note         $m       US$m         $m         $m
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>      <C>          <C>        <C>
USGAAP Earnings per share
Net income per USGAAP...........................................................      3,450      2,311      3,898      3,576
                                                                                      CENTS   US CENTS      CENTS      CENTS
                                                                                   -----------------------------------------
Basic earnings per share before cumulative effect of change in
accounting principles...........................................................       29.4       19.7       30.5       29.3
Cumulative effect of change in accounting principles (net of tax):
Revenue recognition (SAB 101)..............................................30(j)         --         --         --       (1.1)
Derivative financial instruments and hedging activities....................30(o)         --         --         --       (0.1)
Transition impairment of CSL goodwill................................30(r),30(t)       (2.4)      (1.6)        --         --
                                                                                   -----------------------------------------
Basic earnings per share per USGAAP (cents).....................................       27.0       18.1       30.5       28.1
                                                                                   =========================================
Dilutive earnings per share before cumulative effect of change
in accounting principles........................................................       29.3       19.6       30.4       29.1
Cumulative effect of change in accounting principles (net of tax):
Revenue recognition (SAB 101)..............................................30(j)         --         --         --       (1.1)
Derivative financial instruments and hedging activities....................30(o)         --         --         --       (0.1)
Transition impairment of CSL goodwill................................30(r),30(t)       (2.4)      (1.6)        --         --
                                                                                   -----------------------------------------
Diluted earnings per share per USGAAP (cents)...................................       26.9       18.0       30.4       27.9
                                                                                   =========================================

                                                                                               Number (in millions)
                                                                                   -----------------------------------------
Weighted average number of ordinary shares and common share
equivalents used for basic earnings per share calculations (v)..................     12,793     12,793     12,783     12,764
Weighted average number of employee share options exercised
during the year (vi)............................................................         36         36         44         65
                                                                                   -----------------------------------------
Weighted average number of potential ordinary shares and
common share equivalents used for diluted earnings per share calculations.......     12,829     12,829     12,827     12,829
                                                                                   =========================================

(v) Reconciliation of weighted average number of ordinary shares and common
share equivalents used for basic earnings per share calculations                               Number (in millions)
                                                                                   -----------------------------------------
Number of shares used for AGAAP earnings per share calculations...............18     12,867     12,867     12,867     12,867
Adjusted for weighted average TESOP97 and 99 options outstanding
during the year (vii)...........................................................        (74)       (74)       (84)      (103)
                                                                                   -----------------------------------------
Number of shares used for USGAAP basic earnings per share calculations..........     12,793     12,793     12,783     12,764
                                                                                   =========================================
</TABLE>

(vi) Only the TESOP97 options are dilutive to dilutive earnings per share per
USGAAP. The average market price of Telstra shares is below the exercise price
of the TESOP99 options and therefore the TESOP99 options are not dilutive. The
exercise price for TESOP97 and TESOP99 options is the remaining loan balance
payable by the employee to Telstra.

(vii) For USGAAP, the earnings per share calculations for fiscal 2003, 2002 and
2001 are affected by the issue of TESOP97 and TESOP99 options referred to in
note 30(m) below.

306

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Reconciliations to financial reports prepared using USGAAP
(continued)

<TABLE>
<CAPTION>
                                                                                                 Telstra Group
----------------------------------------------------------------------------------------------------------------------------
                                                                                                 As at 30 June
                                                                                       2003       2003       2002       2001
                                                                            Note         $m       US$m         $m         $m
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>        <C>        <C>        <C>
Reconciliation of shareholders' equity to USGAAP
AGAAP shareholders' equity per statement of financial position..................     15,422     10,333     14,106     13,722
Cumulative adjustments required to agree with USGAAP
Property, plant and equipment..............................................30(a)         96         65        419        622
Listed investments (available-for-sale securities).........................30(b)         57         38        103        417
Dividend payable......................................................7,17,30(c)         --         --      1,415      1,416
Minority interests.........................................................30(d)         (2)        (2)         2       (483)
Retirement benefits........................................................30(f)      4,217      2,825      4,087      3,615
Mobile phone subsidies.....................................................30(k)         --         --         --        (30)
Income tax.................................................................30(l)     (1,031)      (691)    (1,293)    (1,337)
Employee share loans.......................................................30(m)       (198)      (133)      (230)      (270)
Redundancy and restructuring provision - fiscal 2000.......................30(n)         --         --         --         94
Derivative financial instruments and hedging activities....................30(o)       (538)      (360)      (133)      (133)
PCCW converting note (available-for-sale security).........................30(o)          2          1         --       (104)
Sale of Global Wholesale Business to Reach Ltd - fiscal 2001...............30(p)       (882)      (591)      (882)      (882)
Equity accounting and write-off adjustments for Reach Ltd................. 30(q)        696        466         41         17
Consolidation adjustment for Telstra CSL Limited (CSL).....................30(r)        456        306        821      1,131
Fair value / general reserve adjustments...................................30(s)        (54)       (36)       (54)        --
Goodwill adjustments.......................................................30(t)       (216)      (145)        --         --
                                                                                    ----------------------------------------
Shareholders' equity per USGAAP.................................................     18,025     12,076     18,402     17,795
                                                                                    ========================================
Statement of financial position measured and classified per USGAAP
Current assets
Cash...........................................................................8      1,300        871      1,070      1,077
Accounts receivable, net........................................................      3,561      2,386      4,038      4,259
Inventories...................................................................10        260        174        204        320
Deferred tax asset.........................................................30(l)        166        111        301        171
Other assets....................................................................        578        387        604        519
                                                                                    ----------------------------------------
Total current assets............................................................      5,865      3,929      6,217      6,346
                                                                                    ----------------------------------------
Non current assets
Receivables.....................................................................        259        174        178         74
Derivative financial instruments................................................        694        465        637        514
Inventories...................................................................10         14          9         20          8
Investments - accounted for using the equity method.............................        161        108        386        424
Investments - other non current.................................................        238        159        545      1,963
Property, plant and equipment...................................................     44,635     29,906     43,800     41,196
Accumulated depreciation of proprerty, plant and equipment......................    (21,356)   (14,309)   (19,515)   (17,758)
Goodwill, net...................................................................      2,112      1,415      2,800      2,636
Other intangible assets, net....................................................      1,146        768      1,358      1,464
Prepaid pension assets.....................................................30(f)      4,217      2,825      4,087      3,615
Other assets....................................................................      2,437      1,633      2,206      2,078
                                                                                    ----------------------------------------
Total non current assets........................................................     34,557     23,153     36,502     36,214
                                                                                    ----------------------------------------
Total assets....................................................................     40,422     27,082     42,719     42,560
                                                                                    ========================================
</TABLE>

                                                                             307

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Reconciliations to financial reports prepared using USGAAP
(continued)

<TABLE>
<CAPTION>
                                                                                                     Telstra Group
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                      As at 30 June
                                                                                            2003       2003       2002       2001
                                                                                 Note         $m       US$m         $m         $m
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>       <C>        <C>        <C>        <C>
Statement of financial position measured and classified per USGAAP (continued)
Current liabilities

Payables............................................................................       2,525      1,692      2,793      2,823
Borrowings - short term debt.......................................................16        644        431        606      2,552
Borrowings - long term debt due within one year....................................16        679        455      1,260         52
Income tax payable..................................................................4        660        442        632        657
Provisions..........................................................................         353        237        488        557
Revenue received in advance.........................................................         991        664      1,037      1,128
                                                                                       ------------------------------------------
Total current liabilities...........................................................       5,852      3,921      6,816      7,769
                                                                                       ------------------------------------------
Non current liabilities
Payables............................................................................          13          9        129        120
Derivative financial instruments....................................................         549        368        267        103
Borrowings - long term debt.........................................................      11,580      7,758     12,372     11,943
Income tax payable..................................................................          --         --         --         91
Deferred tax liability..........................................................30(l)      3,011      2,017      3,449      2,967
Provisions..........................................................................         814        545        848        846
Revenue received in advance.........................................................         576        386        438        456
                                                                                       ------------------------------------------
Total non current liabilities.......................................................      16,543     11,083     17,503     16,526
                                                                                       ------------------------------------------
Total liabilities...................................................................      22,395     15,004     24,319     24,295
                                                                                       ==========================================
Minority interests..................................................................           2          2         (2)       470
                                                                                       ------------------------------------------
Net assets                                                                                18,025     12,076     18,402     17,795
                                                                                       ==========================================
Shareholders' equity
Contributed equity.................................................................18      6,433      4,310      6,433      6,433
Share loan to employees.........................................................30(m)       (198)      (133)      (230)      (270)
Additional paid in capital from employee share plans............................30(m)        333        223        333        292
                                                                                       ------------------------------------------
Total share capital.................................................................       6,568      4,400      6,536      6,455
                                                                                       ------------------------------------------
Accumulated other comprehensive (loss)/income (reserves) (ix).......................        (554)      (371)       (27)       532
Retained earnings...................................................................      12,011      8,047     11,893     10,808
                                                                                       ------------------------------------------
Total shareholders' equity..........................................................      18,025     12,076     18,402     17,795
                                                                                       ==========================================
</TABLE>

(viii) Cost of sales includes both direct and indirect costs involved in the
sale of hte Company's goods and services. For a service company this would
commonly include depreciation and other indirect costs associated with the
provision of services. However, the Company does not report its costs according
to this description and classifies all of its expenses according to the nature
of the expense, referred to as "goods and services purchased" in relation to the
sale of goods and services. Goods and services purchased comprises:

     .  Network service capacity from external communication service
        providers;
     .  Mobile handsets from third party suppliers;
     .  Cost of goods sold; and
     .  Directory paper costs.

Goods and services purchased does not equate to cost of sales due to the non
inclusion of depreciation and other indirect costs associated with the provision
of our telecommunications services.

308

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Reconciliations to financial reports prepared using USGAAP
(continued)

(ix) Accumulated other comprehensive (loss)/income (reserves)

Accumulated other comprehensive (loss)/income, net of related tax, for USGAAP
consists of the following components:

                                                             Telstra Group
-------------------------------------------------------------------------------
                                                             As at 30 June
                                                         2003     2002     2001
                                                           $m       $m       $m
-------------------------------------------------------------------------------
General reserve.....................................       --       --        4
                                                       ------------------------
Foreign currency translation reserve................     (645)     (98)     188
(tax effect)........................................       72       17      (15)
                                                       ------------------------
                                                         (573)     (81)     173
                                                       ------------------------
Derivative financial instruments....................      (22)     (27)     (31)
(tax effect)........................................        7        9        9
                                                       ------------------------
                                                          (15)     (18)     (22)
                                                       ------------------------
Unrealised gain on available-for-sale securities....       47      103      511
(tax effect)........................................      (13)     (31)    (134)
                                                       ------------------------
                                                           34       72      377
                                                       ------------------------
Accumulated other comprehensive
(loss)/ income (net of tax).........................     (554)     (27)     532
                                                       ========================

Other comprehensive loss disclosure

Other comprehensive loss is calculated by totalling movements in shareholders'
equity that are not related to contributions from owners or payments to owners.

                                                            Telstra Group
-------------------------------------------------------------------------------
                                                          Year ended 30 June
                                                         2003     2002     2001
                                                           $m       $m       $m
-------------------------------------------------------------------------------
General reserve.....................................       --       (4)       3
Foreign currency translation reserve (after tax)....     (492)    (254)     214
Derivativefinancialinstruments (after tax)..........        3        4      (22)
Unrealised (loss)/gain on available-for-sale
securities (after tax)..............................      (49)    (302)      31
Realised loss/(gain) on sale of available-for-sale
securities (after tax) transferred to net income....       11       (3)    (266)
                                                       ------------------------
USGAAP other comprehensive loss.....................     (527)    (559)     (40)
                                                       ========================

The re-classification out of accumulated other comprehensive (loss)/ income to
net income was determined on the basis of specific identification.

In fiscal 2003, the proceeds from sales of available-for-sale equity securities
were $7 million (2002: $22 million, 2001: $603 million).

Total comprehensive income disclosure

Total comprehensive income is calculated by adding net income and other
comprehensive loss.

                                                             Telstra Group
-------------------------------------------------------------------------------
                                                          Year ended 30 June
                                                         2003     2002     2001
                                                           $m       $m       $m
-------------------------------------------------------------------------------
Net income per USGAAP...............................    3,450    3,898    3,576
USGAAP other comprehensive loss.....................     (527)    (559)     (40)
                                                       ------------------------
USGAAP Total comprehensive income...................    2,923    3,339    3,536
                                                       ========================

                                                                             309

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP

30(a) Property, plant and equipment

Revaluations

Prior to 1 July 2000, AGAAP allowed property, plant and equipment to be revalued
upwards. Increases in revalued amounts were recorded in an asset revaluation
reserve, unless they reversed a previous revaluation decrease charged to the
statement of financial performance. Impairments (decreases) to asset values were
recorded in the statement of financial performance, unless they reversed a
previous increase still remaining in the asset revaluation reserve.

Revaluations of property, plant and equipment are not allowed under USGAAP,
except for permanent impairments. Including the broadband network described
below, the net adjustment included in the reconciliation to shareholders equity
to reduce revalued property, plant and equipment to historical cost for
revaluations and impairments not allowed under USGAAP is $401 million for fiscal
2003 (2002: $407 million; 2001: $371 million). For fiscal 2003, net adjustments
for depreciation and disposals of $6 million benefit (2002: $36 million expense;
2001: $2 million benefit) has been included in the reconciliation of net income
to USGAAP.

Under USGAAP, a permanent impairment loss can only be recorded when the future
undiscounted cash flows relating to a group of assets are less than the recorded
amount of the assets. Under AGAAP, impairment losses are recorded in accordance
with Telstra's accounting policy when discounted future cash flows are less than
the recorded amount of the asset. Under AGAAP, in note 3, we recorded no
impairment losses during fiscal 2003 or fiscal 2002 and a $31 million impairment
loss in fiscal 2001. This loss related to Infrastructure Services & Wholesale
projects that were cancelled and the related capitalised internal use software
that was written off. This write off was allowed under USGAAP and no adjustment
to the USGAAP reconciliation was made.

USGAAP Impairment loss reversal - broadband network: In fiscal 1997, under AGAAP
we wrote down the value of our broadband network. We recognised an impairment
loss of $342 million in net income and $245 million was adjusted against the
asset revaluation reserve. Under USGAAP, the initial future undiscounted cash
flows derived from our broadband network were greater than the recorded value
and continue to be as at 30 June 2003. The reversal of the impairment loss has
been adjusted for in the reconciliations of net income and shareholders' equity
to USGAAP and additional depreciation of $62 million was recorded in the
reconciliation of net income to USGAAP in fiscal 2003 (2002: $62 million; 2001:
$62 million), included in the net adjustments above.

Depreciation expense

Depreciation expense for AGAAP and USGAAP has been calculated using the straight
line method of depreciation. Under AGAAP, depreciation expense is based on the
recorded amount of the asset and is therefore higher for assets that have been
revalued upwards. Depreciation expense has been adjusted to reflect depreciation
based on original cost in the reconciliations of net income and shareholders'
equity to USGAAP.

Indirect overheads included as part of the cost of constructed assets

Under AGAAP, before 1 July 1996 we recorded overhead costs directly associated
with the construction of our communication assets as part of the cost of those
assets. We expensed all indirect overhead costs as incurred. From 1 July 1996,
indirect overhead costs (as well as direct overhead costs) associated with
operations and management personnel directly involved in the construction of our
communication assets have been recorded as part of the cost of those assets.
This policy is now the same as USGAAP.

To reflect the current policy, as if it had always been in place for USGAAP
purposes, before 1 July 1996, capitalised overheads with a net book value of
$515 million (2002:$638 million, 2001: $782 million) have been included in the
reconciliation of shareholders' equity to USGAAP as at 30 June 2003. For fiscal
2003, additional depreciation and disposals of $123 million (2002: $144 million;
2001: $142 million) have been included in the reconciliation of net income to
USGAAP.

Borrowing costs included as part of the cost of constructed assets

Under AGAAP, before 1 July 1996, we expensed all borrowing costs when incurred.
From 1 July 1996, borrowing costs relating to the construction of property,
plant and equipment for internal use are recorded as part of the cost of the
asset. This policy is now the same as USGAAP.

To reflect the current policy, as if it had always been in place for USGAAP
purposes, before 1 July 1996, capitalised interest with a net book value of $144
million (2002:$188 million, 2001: $213 million) have been included in the
reconciliation of shareholders' equity to USGAAP as at 30 June 2003. For fiscal
2003, additional depreciation and disposals of $44 million (2002: $24 million;
2001: $51 million) have been included in the reconciliation of net income to
USGAAP.

Re-classification of assets held for sale

Under AGAAP, in fiscal 2002 we classified some land and buildings held for sale
as other current assets (refer note 14). Under USGAAP, usually assets held for
sale should be classified as current assets. However, as these assets were part
of a sale and leaseback transaction, the land and buildings remained in
property, plant and equipment until the sale was complete. In fiscal 2002, these
assets were reclassified, with a net increase to property, plant and equipment
of $435 million.

310

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(a) Property, plant and equipment (continued)

Reversal of gain on sale of property sold as part of a sale and lease back
transaction

The property held for sale under AGAAP in fiscal 2002 was sold in fiscal 2003.
Under AGAAP the net gain was recognised in net income.

Under USGAAP, any gains made on assets as part of a sale and leaseback
transaction must be deferred and recognised over the period of the underlying
leases. For fiscal 2003, the net gain reversed was $162 million before tax and
$49 million tax expense in the reconciliations of net income and shareholders'
equity to USGAAP.

Profits/(losses) on the sale of assets

Under AGAAP, proceeds on sale of non current assets are recorded as revenue from
ordinary activities - other revenue, and the net book value of assets sold is
recorded as other operating expenses, with the net impact representing the
profit or loss on sale of non current assets.

For USGAAP, the sale of non current assets is not considered to be an operating
activity and as a result the net profit or loss on the sale of non-current
assets is reclassified to other income below operating income.

AGAAP reported profits or losses on the sale of revalued assets are based on
revenue received less revalued net book value. For USGAAP, profits or losses are
based on revenue received less historical net book value. Adjustments are made
to the reconciliation of net income to USGAAP to record this difference in the
profit or loss on sale.

Asset retirement obligations

We adopted the requirements of SFAS 143 "Accounting for Asset Retirement
Obligations" (SFAS 143) for the first time from 1 July 2002. SFAS 143 requires
us to recognise the fair value of a liability for any legal obligations
associated with the retirement of a tangible long-lived asset that results from
the acquisition, construction, development, or normal operation of a long-lived
asset, with the cost capitalised as part of the asset carrying value.

Asset retirement obligations exist on general purpose leased buildings and
certain mobile tower communication assets that are situated on land held under
operating leases. Our treatment under AGAAP of these obligations is detailed in
note 1.18(c). We have calculated the impact of adopting SFAS 143 and have
determined that it is not material to us. Therefore, no adjustment has been made
to the USGAAP reconciliation. 30(b) Investments

Investments in joint venture entities and associated entities

From 1 July 1997, we adopted the equity method of accounting for investments in
joint venture entities and associated entities (refer note 1.10(b)). Under
AGAAP, equity accounting is suspended where the cumulative share of losses and
reserve movements have reduced the participating equity investment to zero.

Under USGAAP, equity accounted losses are required to be recognised in net
income to the extent that we have other non participating investments in the
equity accounted entity (i.e. preference shares or loans). In fiscal 2003 we
ceased equity accounting our REACH investment under AGAAP due to the investment
being written off to zero.

On 25 April 2003 we made a capacity prepayment of $230 million (US$143 million)
to REACH. This advance will accrue interest on a compounding basis at a market
reference rate and is to be repaid through the provision of capacity in the
future at market prices. This is recorded as a receivable under AGAAP (refer to
note 9). Under USGAAP, this amount (including accrued interest) is considered to
be a non participating investment in REACH. As such we continue to equity
account our share of the net assets and losses of REACH under USGAAP as an
adjustment to the adjusted basis of the receivable. Refer to note 30(q) for
further details regarding this adjustment.

In fiscal 2001, our investment in Reach Ltd, was initially recorded at a cost of
negative $30 million (refer note 30(p)). This negative investment was increased
to zero by crediting the goodwill created on the acquisition of Telstra CSL
Limited (CSL).

Equity securities (joint venture entities and associated entities)

Under AGAAP, temporary changes in the fair values of debt and equity securities
are not required to be adjusted and recorded in the financial statements. AGAAP
however does require permanent impairments in the value of debt and equity
securities to be recorded in the statement of financial performance.

Under USGAAP, Statement of Financial Accounting Standards No.115 (SFAS 115)
"Accounting for Certain Investments in Debt and Equity Securities," we are
required to account for debt and equity securities based on our intention to
hold or sell the securities. Securities classified as held-to-maturity are
stated at cost unless there is a decline in fair value that is considered
permanent. This reduction is recorded in the statement of financial performance.
Securities classified as available-for-sale are recorded at fair value with
changes in fair value, other than a permanent reduction, recorded in a separate
component of shareholders' equity (accumulated other comprehensive income) until
realised. Realised gains and losses are then recorded in the statement of
financial performance.

                                                                             311

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(b) Investments (continued)

Available-for-sale securities

The following is a summary of our available-for-sale debt and equity securities:

<TABLE>
<CAPTION>
                                                              Telstra Group
------------------------------------------------------------------------------------------------------
                                                            As at 30 June 2003
                                                                                                   Net
                                                           Accrued   Amortised              unrealised
                                                Principal  interest       cost  Fair value        gain
                                          Note         $m        $m         $m          $m          $m
------------------------------------------------------------------------------------------------------
<S>                                      <C>    <C>        <C>       <C>        <C>         <C>
Marketable securities included in cash:
Bank bills and promissory notes........             1,101         3      1,104       1,104          --
                                                ======================================================
Equity securities:
Listed investments.....................     11         32        --         --          89          57
                                                ------------------------------------------
Income tax expense.....................                                                            (17)
                                                                                            ----------
                                                                                                    40
Debt securities:
PCCW converting note - US$47 million
face value.............................  30(o)         95        --         --          85         (10)
                                                ------------------------------------------
Income tax benefit.....................                                                              4
                                                                                            ----------
                                                                                                    (6)
                                                                                            ----------
Total unrealised gain (net of tax) on
available-for-sale securities...............................................................        34
                                                                                            ==========
</TABLE>

<TABLE>
<CAPTION>
                                                              Telstra Group
------------------------------------------------------------------------------------------------------
                                                            As at 30 June 2002
                                                                                                   Net
                                                            Accrued  Amortised              unrealised
                                                Principal  interest       cost  Fair value        gain
                                          Note         $m        $m         $m          $m          $m
------------------------------------------------------------------------------------------------------
<S>                                      <C>    <C>        <C>       <C>        <C>         <C>
Marketable securities included in cash:
Bank deposits, bank bills and
promissory notes.......................               759         2        761         761          --
                                                ======================================================
Marketable securities due within one
year:
Bank bills and promissory notes........               382         1        383         383          --
                                                ======================================================
Equity securities:
Listed investments.....................     11         41        --         --         144         103
                                                --------------------------------------------
Income tax expense.....................                                                            (31)
                                                                                            ----------
                                                                                                    72
Debt securities:
PCCW converting note - US$190 million
face value.............................  30(o)        337        --         --         337          --
                                                ------------------------------------------------------
                                                                                            ----------
Total unrealised gain (net of tax) on available-for-sale securities.........................        72
                                                                                            ==========
</TABLE>

312

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(b) Investments (continued)

                                Telstra Group
---------------------------------------------
                                As at 30 June
                                 2003    2002
                                   $m      $m
---------------------------------------------
Held-to-maturity securities
Marketable securities maturing
in less than one year:
                                -------------
Foreign currency
deposits (a)..................     --       6
                                =============

(a) Foreign currency deposits are directly related to our finance lease
liabilities and can only be used for settlement of these finance leases. The
cost basis above equates to fair value.

30(c) Dividend payable recognition

In fiscal 2002 and 2001, under AGAAP, dividends declared after balance date and
before approval of the financial reports were recognised as a liability in those
financial statements.

Under USGAAP, provisions for dividends are only recognised as liabilities if the
dividends are formally declared before balance date. The effect of this
adjustment is disclosed in the reconciliation of shareholders' equity to USGAAP.
In fiscal 2003, due to a change in AGAAP, AGAAP is now consistent with USGAAP
and this adjustment is no longer required. Refer to note 7 for additional
disclosures on dividends.

The dividends per share for USGAAP (including the TESOP97 and TESOP99 options
outstanding (refer note 30(m) below) as issued shares) in Australian dollars for
the last three years are:

                                   Telstra Group
------------------------------------------------------
                                Year ended 30 June
                                  2003    2002    2001
                                 CENTS   CENTS   CENTS
------------------------------------------------------
Dividends paid per share:
Total dividends paid per share
per USGAAP....................    26.0    22.0    18.0
                                ======================

30(d) Minority interests (defined as outside equity interests per AGAAP)

Under AGAAP, minority interests are included in shareholders' equity in 'Outside
equity interests'. Under USGAAP, minority interests are disclosed as a separate
component of net assets rather than included in shareholders' equity. The effect
of this adjustment has been disclosed in the reconciliation of shareholders'
equity to USGAAP.

30(e) Dealer commissions and bonuses classification

Under AGAAP, dealer commissions and bonuses are included in goods and services
purchased as they are directly related to our sales revenue. Under USGAAP, they
are classified as other operating expenses. In the statement of financial
performance measured and classified under USGAAP, we have reclassified $379
million of dealer commissions and bonuses from goods and services purchased to
other operating expenses (2002: $353 million; 2001: $386 million).

30(f) Retirement benefits

Pension costs/benefits (defined as superannuation expense under AGAAP) for our
defined benefit plans are based on contributions payable to the plans for the
year, at rates determined by the actuary of the defined benefit plans. Refer to
note 22 for details of our superannuation plans.

For our defined benefit schemes, where scheme assets are greater than members'
vested entitlements, the difference is recorded as a prepaid pension asset.
Where there has been a shortfall in prior years of the net market value of the
scheme assets when compared to members' vested entitlements, we have provided
for the present value of any shortfall, to the extent that the shortfall
represents a present obligation.

Under USGAAP, pension costs/benefits for defined benefit plans are accounted for
under Statement of Financial Accounting Standards No. 87 (SFAS 87) "Employers'
Accounting for Pensions" and are calculated by an actuary using the projected
unit credit method. This method includes current service cost, interest cost,
return on plan assets and amortisation of transition assets. Aggregated
unrecorded gains and losses of the plans exceeding 10% of the greater of the
aggregated projected benefit obligation or the market value of the plan assets
are amortised over the average expected service period of active employees
expected to receive benefits under the plan.

We adopted SFAS 87 on 1 July 1992, as it was not feasible to adopt SFAS 87 from
its effective date of 1 July 1989. The transition asset recorded under SFAS 87
is being amortised from 1 July 1992 over 12 years, ending 30 June 2004. Where
scheme assets are greater than the present obligations relating to members'
vested entitlements, the difference is recognised as an asset in accordance with
USGAAP.

                                                                             313

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(f) Retirement benefits (continued)

The effect of the adjustments required by SFAS 87 to retirement benefit
expense/gain has been disclosed in the USGAAP reconciliations. If we had
reported our net periodic pension cost/benefit and the funded status of the
defined benefit superannuation plans in accordance with the accounting
principles and actuarial assumptions under USGAAP, the disclosures required are
as follows:

<TABLE>
<CAPTION>
                                                                   Telstra Group
-----------------------------------------------------------------------------------------
                                                                  Year ended 30 June
                                                              2003   2003    2002    2001
                                                      Note      $m   US$m      $m      $m
-----------------------------------------------------------------------------------------
<S>                                                   <C>   <C>     <C>    <C>     <C>
Net periodic pension (benefit)/cost (all funds
combined) The components of net periodic pension
cost for our defined benefit superannuation plans
are as follows:
Service cost on benefits earned...........................     337    226     333     380
Interest cost on projected benefit obligation.............     657    440     716     779
Expected return on assets.................................  (1,003)  (672) (1,292) (1,281)
Expenses and taxation.....................................      74     50      74      70
Member contributions for defined benefits.................    (113)   (76)   (109)   (113)
Amortisation of transition asset..........................     (84)   (56)    (85)    (87)
Amortisation of fund loss.................................      30     20      --      --
Transfers to CSL retirement scheme (i)....................       6      4      --      --
Settlement gain...........................................     (26)   (17)   (107)   (349)
                                                            -----------------------------
Net periodic pension benefit per USGAAP...................    (122)   (81)   (470)   (601)
Reverse amount expensed for AGAAP (labour
expense)..................................................      (8)    (5)     (2)    (14)
                                                            -----------------------------
Net periodic pension benefit USGAAP adjustment............    (130)   (86)   (472)   (615)
Writeback of superannuation additional
liability.............................................3(c)      --     --      --     725
                                                            -----------------------------
TOTAL USGAAP ADJUSTMENT - RETIREMENT BENEFIT
(GAIN)/EXPENSE............................................    (130)   (86)   (472)    110
                                                            =============================
We used the following major assumptions to account
for our defined benefit superannuation plans for
the years ended 30 June:
Discount rate.............................................    5.00%  5.00%   6.50%   6.00%
Expected rate of increase in future salaries..............    3.49%  3.49%   4.00%   3.50%
Expected long-term rate of return on assets...............    7.50%  7.50%   8.50%   8.50%
                                                            =============================
Reconciliation of change in benefit obligation
(all funds combined)
Projected benefit obligation at beginning of year.........   9,537  6,390   9,146   9,929
Service cost..............................................     337    226     333     380
Interest cost.............................................     657    440     716     779
Transfers to CSL retirement scheme (i)....................      80     54      --      --
Member contributions......................................     122     82     117      87
Benefit payments..........................................    (945)  (633)   (902) (1,196)
Curtailments loss.........................................       9      6      32      --
Foreign currency exchange rate changes....................     (12)    (8)     --      --
Actuarial loss/(gain).....................................     464    311      95    (833)
                                                            -----------------------------
Projected benefit obligation at end of year...............  10,249  6,868   9,537   9,146
                                                            -----------------------------
</TABLE>

314

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(f) Retirement benefits (continued)

                                                       Telstra Group
-------------------------------------------------------------------------------
                                                     Year ended 30 June
                                                   2003    2003    2002    2001
                                                     $m    US$m      $m      $m
-------------------------------------------------------------------------------
Reconciliation of change in fair value of plan
assets (all funds combined)
Fair value of plan assets at beginning
of year.......................................   12,208   8,179  13,502  13,486
Actual return on plan assets..................       53      36    (544)  1,068
Transfers to CSL retirement scheme (i)........       74      50      --      --
Employer contributions........................        8       5       2      14
Member contributions for defined benefits.....      113      76     109     113
Transfers/member contributions for
accumulation benefits.........................      122      82     117      87
Benefit payments..............................     (945)   (633)   (904) (1,196)
Plan expenses.................................      (13)     (9)    (13)    (14)
Foreign currency exchange rate changes........      (13)     (9)     --       -
Contribution tax..............................      (61)    (41)    (61)    (56)
                                                -------------------------------
Fair value of plan assets at end of year......   11,546   7,736  12,208  13,502
                                                -------------------------------
Reconciliation of funded status of plan (all
 funds combined)
Projected benefit obligation..................  (10,249) (6,868) (9,537) (9,146)
Plan assets at fair value.....................   11,546   7,736  12,208  13,502
                                                -------------------------------
Funded status.................................    1,297     868   2,671   4,356
Unrecognised net transition asset (ii)........      (79)    (53)   (169)   (255)
Unrecognised net actuarial
loss/(gain) (ii)..............................    2,999   2,010   1,585    (486)
                                                -------------------------------
Prepaid pension asset at 30 June..............    4,217   2,825   4,087   3,615
                                                ===============================

(i) On 1 December 2002, Telstra CSL Limited (CSL) established a new scheme known
as the HK CSL Retirement Scheme. Previously, CSL participated in the Pacific
Century CyberWorks (PCCW) Retirement Scheme, the scheme of its previous
immediate parent. The assets attributable to CSL of the previous scheme were
transferred to the HK CSL Retirement Scheme. Refer to note 22 for further
details.

(ii) Settlements recorded in net periodic pension benefit/cost have effected the
unrecognised net transition asset and the unrecognised net actuarial loss/(gain)
as follows:
(a) unrecognised transition asset; 2003: $1 million gain; 2002: $1 million gain;
2001: $6 million loss.
(b) unrecognised net actuarial gain; 2003: $26 million; 2002: $110 million;
fiscal 2001: $343 million.

30(g) Employee entitlements - Long Service Leave

Our employee entitlement provisions include a liability for long service leave.
Refer to note 1.18 (a) for a definition of long service leave. The assumptions
used to calculate this liability for AGAAP are consistent with those used under
SFAS 87 for USGAAP.

30(h) Enterprise bargaining agreements

Fiscal 2003 saw Telstra negotiate with its Staff Associations a new redundancy
agreement and six separate Business Unit Enterprise Agreements (the Agreements).
The Agreements provide improved operating efficiencies for both management and
staff and provide a firm basis for future productivity improvements and ability
to respond to our customers needs.

As provided for in the Agreements the staff covered by these Agreements received
a 2% salary increase in January 2003. A further four 2% increases will be paid
every six months, effective July 2003.

These Agreements are due to expire in June 2005 and implementation plans are
presently underway towards realising the benefits provided for by these new
Enterprise Agreements.

As at 30 June 2003 approximately 54% of full time staff were covered by the
Business Unit Enterprise Agreements and the Telstra Shop Agreement.

                                                                             315

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(i) Software assets developed for internal use

Under AGAAP, before 1 July 1996, we did not record costs associated with
software developed for internal use as software assets. From 1 July 1996, we
recorded costs (including borrowing costs) associated with software developed
for internal use as software assets. This policy is now the same as USGAAP.
These costs include direct labour (both internal and external) and other
directly associated costs.

To reflect the current policy as if it had always been in place for USGAAP
purposes before 1 July 1996 in the reconciliations of net income and
shareholders' equity to USGAAP, we originally recorded $1,370 million as
software assets and accumulated amortisation of $732 million. These assets have
been fully amortised and/or disposed of in full during fiscal 2001, therefore
there are no further reconciling items included in the reconciliation of net
income for fiscal 2003 (2002: $nil; 2001: $25 million).

30(j) Revenue recognition - cumulative adjustment

On 3 December 1999, the United States Securities Exchange Commission (SEC)
released "Staff Accounting Bulletin (SAB) No. 101 - Revenue Recognition", (SAB
101), which provides guidance on our recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. This guidance was adopted in
fiscal 2001 in our AGAAP financial statements, refer to note 1.2 for a
description of the initial impact of the change in the accounting policy and
note 1.19 for revenue accounting policies.

In fiscal 2001, there were no differences in total net income between AGAAP and
USGAAP other than a reclassification of the cumulative effect on adoption of SAB
101 from sales revenue and direct cost of sales to the cumulative effect of
change in accounting principle, net of tax. In future years there will be no
further differences between USGAAP and AGAAP as we have aligned AGAAP revenue
recognition policies to accord with US requirements.

30(k) Mobile phone subsidies

Under AGAAP, from 1 July 1999, we changed our accounting policy relating to
subsidies provided to our customers when they purchase mobile phones. From this
date, we deferred the subsidy provided to customers who enter into mobile phone
contracts with a length of two years or greater. This policy was considered to
be inconsistent with industry practice in the United States and therefore $174
million of costs were expensed under USGAAP in fiscal 2000 and reversed as an
expense as the amounts were amortised under AGAAP during fiscal 2001 and fiscal
2002.

Due to changes in industry practice in the United States, this policy is now
consistent with USGAAP from fiscal 2001. The amounts recognised in the USGAAP
reconciliation of shareholders equity in fiscal 2000 have now been fully
reversed in fiscal 2002. From 1 July 2002 there are no further adjustments.

30(l) Income tax

Under AGAAP, timing differences are recorded in the statement of financial
position as deferred tax assets and liabilities using the liability method of
tax effect accounting. Future income tax benefits relating to tax losses and
timing differences are not recorded as an asset unless the benefit is considered
virtually certain of being realised.

Under USGAAP, deferred tax assets and liabilities are created for all temporary
differences between the accounting and tax bases of assets and liabilities that
will reverse during future taxable periods, including tax losses. Deferred tax
assets are reduced by a valuation allowance if, in the opinion of management, it
is more likely than not that some portion, or all of the deferred tax asset,
will not be realised. We increase or decrease our deferred tax balances for the
income tax effect of accounting differences included in our reconciliations of
net income and shareholders' equity to USGAAP.

AGAAP requires the effect of a change in the income tax rate to be included in
the calculation of deferred tax balances when the change has been announced by
the Treasurer of the Commonwealth. USGAAP requires the tax rate change to be
recognised in the year that the Australian Parliament has approved the
legislation and it has received royal assent from the Governor General of
Australia (Head of State).

For AGAAP, we classify all deferred tax balances as non current. For USGAAP, the
classification between current and non current is based on the statement of
financial position classification of the underlying net current and non current
asset or liability. Where there is no underlying asset or liability the
classification is based on when the temporary difference is expected to reverse.
The effect of this has been disclosed in the statement of financial position
measured and classified per USGAAP.

Under AGAAP and USGAAP we do not create deferred tax assets or liabilities for
temporary differences relating to investments where there is no intention of
disposing of the investment or where we are incapable of realising any benefit
or incurring any obligations due to tax law restrictions.

316

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using
USGAAP (continued)

30(l) Income tax (continued)

<TABLE>
<CAPTION>
                                                                        Telstra Group
-----------------------------------------------------------------------------------------------
                                                                        As at 30 June
                                                                2003     2003     2002     2001
                                                                  $m     US$m       $m       $m
-----------------------------------------------------------------------------------------------
<S>                                                           <C>      <C>      <C>      <C>
Future income tax benefit (deferred tax assets)
Property, plant and equipment..............................       33       22       33       46
Foreign exchange translation, hedge and other
finance costs..............................................      238      159       58       48
Employee entitlements......................................      252      169      331      275
Revenue received in advance................................       49       33        7       10
Inventory valuation........................................        9        6       --        6
Provisions.................................................       99       66      212       29
Tax losses.................................................       --       --       --        5
Other......................................................      171      115      104      145
                                                              ---------------------------------
Total deferred tax assets under USGAAP.....................      851      570      745      564
                                                              =================================
Deferred income tax (deferred tax liabilities)
Property, plant and equipment..............................    2,366    1,585    2,521    2,033
Foreign exchange translation, hedge and other
finance costs..............................................       --       --        1       19
Prepaid pension cost.......................................    1,265      847    1,226    1,085
Prepayments................................................        3        2        6        8
Expenditure accruals.......................................       --       --       69       --
Marketable securities......................................        1        1       27      102
Other......................................................       61       41       43      113
                                                              ---------------------------------
Total deferred tax liabilities under USGAAP................    3,696    2,476    3,893    3,360
                                                              ---------------------------------
Net deferred tax liability under USGAAP....................   (2,845)  (1,906)  (3,148)  (2,796)
                                                              =================================
Represented by:
AGAAP future income tax benefit - non current..............       --       --      132      114
AGAAP deferred income tax - non current....................   (1,814)  (1,215)  (1,987)  (1,573)
USGAAP/AGAAP income tax differences........................   (1,031)    (691)  (1,293)  (1,337)
                                                              ---------------------------------
Net deferred tax liability under USGAAP....................   (2,845)  (1,906)  (3,148)  (2,796)
                                                              =================================
Reported as follows for the USGAAP statement of
financial position:
Current deferred tax asset (future income tax benefit).....      169      113      307      183
Current deferred tax liability (deferred income tax).......       (3)      (2)      (6)     (12)
                                                              ---------------------------------
NET CURRENT DEFERRED TAX ASSET (FUTURE INCOME TAX
BENEFIT)...................................................      166      111      301      171
                                                              ---------------------------------
Non current deferred tax asset (future income tax
benefit)...................................................      682      457      438      381
Non current deferred tax liability (deferred income tax)...   (3,693)  (2,474)  (3,887)  (3,348)
                                                              ---------------------------------
NET NON CURRENT DEFERRED TAX LIABILITY (DEFERRED
INCOME TAX)................................................   (3,011)  (2,017)  (3,449)  (2,967)
                                                              ---------------------------------
                                                              (2,845)  (1,906)  (3,148)  (2,796)
                                                              =================================
The components of income tax expense for USGAAP are:
Current tax expense........................................    1,567    1,051    1,608    1,498
Deferred tax expense.......................................     (180)    (121)     235      540
(Over)/under provision in prior year.......................      (28)     (19)      16        6
                                                              ---------------------------------
Income tax expense for USGAAP..............................    1,359      911    1,859    2,044
                                                              =================================
</TABLE>

                                                                             317

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(m) Employee share plans and compensation expenses

Our employee and executive share plans are described in note 19. AGAAP does not
require certain employee compensation and option expenses to be recorded in the
statement of financial performance for our employee share plans.

Under USGAAP, we have adopted Statement of Financial Accounting Standards No.123
(SFAS 123) "Accounting for Stock Based Compensation,". Under this method,
compensation expense is calculated based on the fair value of options on the
grant date and recognised over the associated service period, which is usually
the vesting period. USGAAP requires that shares issued under TESOP97 and TESOP99
in conjunction with non-recourse loans be accounted for as options. In addition
options, restricted shares, performance rights and deferred shares issued under
the Telstra Growthshare executive compensation scheme are also accounted for as
options.

In fiscal 2003, there was no additional compensation expense included in the
reconciliation of net income for USGAAP (2002: $41 million; 2001: $9 million). A
life to date expense of $333 million is recorded as additional paid in capital
in total shareholders equity for USGAAP. The outstanding balance of the loans
for TESOP97 and TESOP99 provided to employees is deducted from shareholders'
equity rather than classified as a receivable. The Telstra Growthshare trust
loan is not reclassified as it is not linked to non-recourse loans.

There is no income tax effect on the additional compensation expense for USGAAP
as it is a permanent difference (non taxable) for TESOP97, TESOP99 and
Growthshare schemes.

A brief description of the schemes and details of options granted and
outstanding under each scheme are as follows:

TESOP General

Options allocated to employees under the TESOP schemes all vested immediately
upon grant and will expire at the earlier of repayment of the loan balance or
the termination of employment. Employee compensation expense has been recognised
on inception of the TESOP97 scheme (fiscal 1998 and subsequent loyalty share
issues) and TESOP99 scheme (fiscal 2000 and subsequent loyalty share issues).
Dividends on both TESOP schemes are not recorded as further compensation expense
as their forecasted value was included when calculating the initial option
valuations.

For fiscal 2002 and 2001, only the TESOP97 options are dilutive for the USGAAP
earnings per share calculation as the exercise price of the TESOP99 options was
above the average Telstra share price.

TESOP97
There were 98,547,625 options outstanding at 30 June 2000.
FISCAL 2001 options exercised 24,324,500 - resulting in 74,223,125
options outstanding at 30 June 2001.
FISCAL 2002 options exercised 10,749,750 - resulting in 63,473,375
options outstanding at 30 June 2002.
FISCAL 2003 options exercised 9,141,250 - resulting in 54,332,125 options
outstanding at 30 June 2003.

At 30 June 2003, the weighted average expected life of the options was 2 years.
The weighted average price of the option at 30 June 2003, 30 June 2002 and 30
June 2001 was $1.58.

TESOP99
There were 16,816,400 options outstanding at 30 June 2000.
FISCAL 2001 options exercised 1,150,000 - resulting in 15,666,400
options outstanding at 30 June 2001.
FISCAL 2002 options exercised 700,900 - resulting in 14,965,500 options
outstanding at 30 June 2002.
FISCAL 2003 options exercised 136,900 - resulting in 14,828,600 options
outstanding at 30 June 2003.

At 30 June 2003, the weighted average expected life of the options was 4 years.
The weighted average price of the option at 30 June 2003, 30 June 2002 and 30
June 2001 was $3.53.

TESOP99 loyalty shares

In fiscal 2001 we recognised compensation expense of $8 million for loyalty
shares issued to employees by the Commonwealth.

Telstra Growthshare General

The Telstra Growthshare options issued under all schemes vest when the
performance hurdles have been reached and the executive pays the exercise price
per share. The Growthshare restricted share options, performance right options
and deferred share options allocated to employees under all schemes vest when
the performance hurdles have been reached or period of service completed.

For USGAAP compensation expense is measured in the year that the options are
granted less any compensation expense paid under AGAAP based on calculated
"option values" for Growthshare options, restricted share options, performance
right options and deferred share options. An allowance is made for expected
resignations and cancellations when calculating the various option values.

These options, restricted share options, performance right options and deferred
share options are not dilutive for earnings per share calculations.

318

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(m) Employee share plans and compensation expense (continued)

Telstra Growthshare 2000
There were 2,708,000 options and 463,500 restricted share options outstanding at
30 June 2000.
FISCAL 2001 options lapsed 445,333 - resulting in 2,262,667 options outstanding
at 30 June 2001. Fiscal 2001 restricted share options lapsed 89,500 - resulting
in 374,000 restricted share options outstanding as at 30 June 2001.
FISCAL 2002 options lapsed 137,000 - resulting in 2,125,667 options outstanding
at 30 June 2002. Restricted share options lapsed 23,312 - resulting in 350,688
restricted share options outstanding as at 30 June 2002.
FISCAL 2003 options lapsed 591,945 - resulting in 1,533,722 options outstanding
at 30 June 2003. Restricted share options lapsed 90,410 - resulting in 260,278
restricted share options outstanding at 30 June 2003.

Telstra Growthshare 2001
FISCAL 2001 options granted - 4,852,910, options lapsed 366,742 - resulting in
4,486,168 options outstanding at 30 June 2001. In addition restricted share
options of 1,005,771 were granted with 76,013 lapsing resulting in 929,758
restricted share options outstanding at 30 June 2001.
FISCAL 2002 options lapsed 296,617 resulting in 4,189,551 options outstanding at
30 June 2002. Restricted share options lapsed 59,058 - resulting in 870,700
restricted share options outstanding as at 30 June 2002.
FISCAL 2003 options lapsed 668,891 resulting in 3,520,660 options outstanding at
30 June 2003. Restricted share options lapsed 132,740 - resulting in 737,960
restricted share options outstanding at 30 June 2003.

Telstra Growthshare 2002
FISCAL 2002 options granted - 39,102,000, options lapsed 532,305 resulting in
38,569,695 options outstanding at 30 June 2002. In addition, performance rights
options of 3,704,300 were granted with 50,859 lapsing resulting in 3,653,441
performance rights options outstanding at 30 June 2002.
FISCAL 2003 options lapsed 4,298,750 resulting in 34,270,945 options outstanding
at 30 June 2003. Performance rights options lapsed 406,286 - resulting in
3,247,155 performance rights options outstanding at 30 June 2003.

Telstra Growthshare 2003
FISCAL 2003 deferred share options of 2,145,100 were granted with 8,925
exercised and 91,577 lapsing resulting in 2,044,598 deferred share options
outstanding at 30 June 2003. In addition, 4,290,200 performance right options
were granted with 211,774 lapsing resulting in 4,078,426 performance right
options outstanding at 30 June 2003.

For the valuation methodology and assumptions regarding Telstra Growthshare
issues, refer to note 19(c).

30(n) Redundancy and restructuring provisions

In fiscal 2000, under AGAAP, we recorded a provision for redundancy and
restructuring of $486 million before tax. The amount charged for income tax
expense was $175 million with a net amount after tax of $311 million. We
satisfied the AGAAP requirements for recording this provision. However, under
USGAAP, we did not meet the stricter requirements imposed on us to be able to
record the provision. By fiscal 2002, this provision had been fully utilised.
Therefore, we reversed the AGAAP provision in the reconciliation of
shareholders' equity to USGAAP for fiscal 2001 and recognised the movement in
this provision in fiscal 2002 as an expense in the reconciliation to net income
of $94 million (2001:$392 million).

Redundancy and restructuring disclosures for fiscal 1997 program

The disclosures required by USGAAP for the redundancy and restructuring
provision recorded by us are as follows:

In fiscal 1997, we approved a plan to reduce the number of employees by
approximately 25,500 to approximately 51,000 employees by 30 June 2000. In June
1998, we also approved a three year plan, to 30 June 2001, which included an
additional reduction of approximately 2,000 employees by redundancy. We effected
the reduction in employees through a combination of natural attrition and
outsourcing (approximately 6,700 employees) and voluntary redundancy offers and
involuntary terminations (approximately 20,800 employees). Reductions have
occurred primarily in sales and service areas, communication assets, broadband
rollout construction areas and field operations and maintenance staff.

The total estimated cost of the fiscal 1997 redundancy program was $1,320
million including estimated severance and award payments of $1,043 million and
estimated career and transition costs of $277 million. There has been no
reversal of costs no longer required to the statement of financial performance.

                                                                             319

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(n) Redundancy and restructuring provisions (continued)

Career transition costs include payments to employees who are in the
outplacement process and amounts paid to third parties for the outplacement
program.

In future periods, the expected number of 80 redundancies and payments of $3
million still remains as a provision balance. For fiscal 2002, staff unrelated
to the 1997 program were made redundant and their costs were charged as an
expense.

                                                Telstra Group
-------------------------------------------------------------------
                                                As at 30 June
                                             2003     2002     2001
                                           Number   Number   Number
-------------------------------------------------------------------
Accepted offers for redundancy
or involuntary redundancies..........          --       --        8
Expected redundancies................          80       80       88
                                           ========================

We have made the following payments which have been charged against the
provision for redundancy and restructuring:

                                                Telstra Group
-------------------------------------------------------------------
                                                As at 30 June
                                             2003     2002     2001
                                               $m       $m       $m
-------------------------------------------------------------------
Severance payments...................          --       --        1
Career transition and other
employee costs.......................          --        1        8
                                           ========================

The fiscal 1997 redundancy and restructuring provision has been substantially
utilised as at 30 June 2003. The $3 million provision balance remains due to
contractual obligations Telstra has with third parties in relation to
outsourcing agreements, superannuation arrangements and surplus leased space.

The impact of redundancies has been taken into consideration in the SFAS 87
calculation in note 30(f) Retirement benefits.

30(o) Derivative financial instruments and hedging activities

Our risk management policies and objectives of entering into derivative
financial instruments have been disclosed in note 29, "Additional financial
instrument disclosures."

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), as amended by Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities". SFAS 133 requires us to recognise all of our
derivative instruments as either assets or liabilities in the statement of
financial position at fair value. The accounting for changes in the fair value
(i.e. gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, we must designate the hedging
instrument, based upon the exposure being hedged, as a fair value hedge, cash
flow hedge or a hedge of a net investment in a foreign operation.

For derivative instruments that are designated and qualify as a fair value hedge
(i.e., hedging the exposure to changes in the fair value of an asset or a
liability or an identified portion thereof that is attributable to a particular
risk), the gain or loss on the derivative instrument, as well as the offsetting
loss or gain on the hedged item attributable to the hedged risk, are recognised
in net income during the period of the change in fair values. For derivative
instruments that are designated and qualify as a cash flow hedge (i.e., hedging
the exposure to variability in expected future cash flows that is attributable
to a particular risk), the effective portion of the gain or loss on the
derivative instrument is reported as a component of accumulated other
comprehensive income and reclassified into net income in the same period or
periods during which the hedged transaction affects net income. The remaining
gain or loss on the derivative instrument in excess of the cumulative change in
the present value of future cash flows of the hedged item, if any, is recognised
in net income during the period of change. For derivative instruments that are
designated and qualify as a hedge of a net investment in a foreign currency, the
gain or loss is that reported in other comprehensive income as part of the
cumulative translation adjustment to the extent it is effective. For derivative
instruments not designated as hedging instruments, the gain or loss is
recognised in net income during the period of change.

320

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(o) Derivative financial instruments and hedging activities (continued)

Effective 1 July 2000, we adopted SFAS 133 in the reconciliations to financial
reports prepared using USGAAP. On adoption we recognised, as a cumulative effect
of change in accounting principle, a charge of $27 million, before tax, in the
statement of financial performance measured and classified per USGAAP and a
charge of $47 million, before tax, in other comprehensive income. The basis of
accounting for the adjustments made on adoption, in either the statement of
financial performance or other comprehensive income, is dependent upon the
hedging relationships that existed for the particular derivative instrument
prior to adoption.

We enter into forward foreign exchange contracts to hedge certain firm
commitments denominated in foreign currencies relating to our capital
expenditure programs. Under AGAAP, realised gains and losses on termination of
these hedges are recognised as a net cost of the equipment acquired.

We are not able to identify specific forward foreign exchange contracts with
specific capital expenditure contracts to meet the designation criteria in SFAS
133. As a result, changes in fair value of the forward foreign exchange
contracts are required to be recognised in net income for USGAAP purposes. We
have recorded a marked to market gain of $5 million in other income per USGAAP
for the forward foreign exchange contracts outstanding at 30 June 2003 (2002:
$11 million loss; 2001:$4 million gain). We also recorded an additional
adjustment of $1 million, net of tax, in other income per USGAAP to reverse net
realised foreign exchange gains capitalised in property, plant and equipment in
fiscal 2003 under AGAAP (2002:$1 million loss, 2001:$14 million gain).

We enter into interest rate swaps to manage our exposure to interest rate risk
relating to our outstanding short-term commercial paper. SFAS 133 does not allow
us to consider the interest rate swaps used to manage our interest rate exposure
as hedges. As a result, changes in the fair values of these interest rate swaps
are required to be included in the reconciliation of net income to USGAAP. We
have recorded a marked to market loss of $128 million, before tax, as an expense
in other income per USGAAP for changes in fair value of interest rate swap
contracts outstanding at 30 June 2003 (2002: $17 million gain; 2001:$77 million
loss).

We enter into cross currency interest rate swaps to hedge our exposure to the
risk of overall changes in fair value relating to interest rate and foreign
currency risk of our foreign currency borrowings. During fiscal 2003, 2002 and
2001, the ineffective portion of our hedging instruments (inclusive of the time
value of money) was taken to the statement of financial performance.

During the year ended 30 June 2003, we reclassified $17 million of losses, net
of tax, from accumulated other comprehensive income to other income (2002: $15
million; 2001:$15 million). At 30 June 2003 there are no remaining losses
recorded in accumulated other comprehensive income related to the repayment of
borrowings that have been hedged by interest rate and cross currency swaps in
cash flow hedging relationships prior to the adoption of SFAS 133.

PCCW Converting Note

As a part of our strategic alliance with PCCW, we purchased a US$750 million
convertible note issued by PCCW in February 2001. This convertible note was
convertible at our option into PCCW common stock at a conversion price of
HK$6.886 per share. This note was redeemed on 28 June 2002 in consideration for
the remaining 40% interest in CSL and a new converting note with a face value of
US$190 million.

During the year ended 30 June 2003 we redeemed US$143 million of this converting
note in return for entering into a capacity prepayment agreement with Reach Ltd
as discussed in note 30(b).

Under AGAAP, the initial values of the converting notes are recorded at face
value in other non-current receivables. The old convertible note was, and the
newly issued note will, continue to be carried at the face value, adjusted for
accrued interest and any provision for permanent diminution considered
necessary. Any foreign exchange gains and losses on translation of the
converting note to A$ are recorded in the statement of financial performance in
operating expenses.

Our conversion option contained in the original note was classified as an
embedded derivative under SFAS 133 as its underlying risk, relating to changes
in the value of PCCW common stock, was not clearly and closely related to
changes in the underlying risk of the note, namely changes in interest rates.
The note portion of the instrument was classified as an available-for-sale
security (refer note 30(b)) with changes in fair value being recorded in other
comprehensive income. The fair value of the option in the original note was
written off in full before redemption. We recorded a loss of $10 million in
fiscal 2002 and $63 million in fiscal 2001.

The newly issued note is also classified as an  available-for-sale  security and
is disclosed in note 30(b).

                                                                             321

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(o) Derivative financial instruments and hedging activities (continued)

TelstraClear SFAS 133 adjustments

In November 2001, the underlying debt of TesltraClear was restructured and
effectively cancelled and replaced with a new credit facility. The swap
contracts were not restructured. As a result, the transition adjustment has been
amortised over the maturity schedule of the restructured debt (to June 2002),
resulting in amortisation for fiscal 2002 of $3 million.

At June 2002, the change in fair value of the interest rate swap contract of $1
million was recorded as interest income.

30(p) Sale of Global Wholesale Business to Reach Ltd

In fiscal 2001, as a part of the strategic alliance with PCCW, a joint venture
entity, Reach Ltd, was formed through the combination of our international
wholesale business and certain other wholesale assets together with certain PCCW
assets. Under AGAAP, the investment in the joint venture entity was recognised
at its cost of acquisition, being the fair value of the assets transferred net
of cash received and including acquisition costs. The gain on sale of the Global
Wholesale Business, measured as the difference between the cost of the
investment and the net book values of the net assets transferred, was deferred
to the extent of our ownership interest retained in the joint venture entity, in
this case being 50%.

For US GAAP purposes, the investment in joint venture entities should be
recorded at the net book value of the assets and liabilities transferred,
reduced by the amount of any cash received by the investor. Where the resultant
investment carrying value would be a negative amount, the excess credit is
recognised as an adjustment to the amount of goodwill on other components of the
interdependent transactions - in this case a reduction of $30 million on the CSL
goodwill (refer note 30(r)). Also, for USGAAP, there were differences in the
fair valuation of the net assets. These related to pre-1996 capitalised
interest, assembled work force and other fair value adjustments.

The total effect of these differences reduces shareholders' equity under USGAAP
by $882 million as at 30 June 2003 (2002: $882 million; 2001:$882 million). In
fiscal 2001, this adjustment reduced the reconciliation of net income to USGAAP
by $882 million.

30(q) Equity accounting and write-off adjustments for Reach Ltd

USGAAP adjustments made on the sale of the Global Wholesale Business to REACH in
30(p) above, will result in ongoing differences in the reconciliations of net
income and shareholders' equity to USGAAP.

Under AGAAP, 50% of the profit after tax was deferred and accounted for in the
investment carrying value. The deferred gain was to be recognised in the
statement of financial performance on a straight line basis over a period of 20
years. For fiscal 2003, this adjustment was $22 million up to the date of
write-off of REACH (refer below) and has been reversed for USGAAP (2002: $44
million; 2001: $18 million). Under AGAAP there is no further recognition of this
amount due to the write-off.

For USGAAP equity accounting, there is also a calculation of notional negative
goodwill at inception that is required to be amortised over the life of the
investment. This notional goodwill is determined by comparing the investment
carrying value to 50% of the net assets/(liabilities) of the REACH joint
venture. This amount, similar to AGAAP, is not separately recognised in the
statement of financial position, however, it is included in the investment
carrying amount. This notional goodwill has been written off with the write-off
of the REACH investment (refer below).

Write-off of REACH investment

As discussed in notes 3 and 24, as at 31 December 2002, we wrote off the entire
carrying amount of our investment in REACH. In accordance with Accounting
Principles Board Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock", where there is evidence that would indicate a loss
in value of an investment that is other than a temporary decline, the loss in
value should be recognised. Such factors include, but are not limited to, a
current fair value of an investment that is less than its carrying amount and
the inability of the investee to sustain an earnings capacity that would justify
the carrying amount of the investment.

A discounted cash flow model has been used to calculate the fair value of our
investment in REACH and as a result the carrying amount has been written down to
zero. For AGAAP, this resulted in a write-off of $965 million. However, due to
GAAP differences discussed above and in note 30(p), under USGAAP the write-off
of the investment was $203 million. Therefore, an additional net adjustment of
$762 million was recognised in the reconciliations of net income and
shareholders equity to USGAAP. Please refer to note 3 for further explanation of
the write down made under AGAAP.

322

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(q) Equity accounting and write-off adjustments for Reach Ltd (continued)

Subsequent to the write-off of our investment in REACH, we made a capacity
prepayment of $230 million (US$143 million) and hence we continue to equity
account for our share of losses and net assets from REACH under USGAAP as
discussed in note 30(b). For fiscal 2003, the adjustment required to take
account of our share of the equity accounting losses of REACH is $82 million in
the reconciliation of net income to USGAAP.

In fiscal 2003 and 2002, there is also a difference due to the adoption of SFAS
133 for REACH. Our share of the SFAS 133 accumulated other comprehensive loss of
REACH has decreased the receivable by $22 million (2002: $12 million).

The total net adjustment in the reconciliation of net income to USGAAP in fiscal
2003 for all of these differences is an increase of $665 million (2002: $36
million; 2001: $17 million). The total net adjustment included in the
reconciliation of shareholders' equity to USGAAP is $696 million (2002: $41
million; 2001:$17 million).

30(r) Consolidation adjustment for Telstra CSL Limited (CSL)

There are several adjustments that need to be made for the consolidation of CSL
for USGAAP purposes.

For AGAAP, gains/losses on a hedge for the purchase of CSL are included in the
cost of the acquisition, thereby effecting the determination of goodwill. For
USGAAP, gains/losses on hedges of a purchase business combination are recognised
in net income. Accordingly, in fiscal 2001, hedging losses of $30 million that
were included in the cost of acquisition of CSL for AGAAP, have been recognised
in the net income under USGAAP.

For AGAAP, purchase price allocations in an acquisition accounted for as a
business combination are not tax effected. The tax effect of basis differences
arising from purchase price allocations (fair value adjustments) will be
recognised in net income as those basis differences reverse. For USGAAP, such
basis differences are treated as temporary differences and tax-effected as part
of the acquisition accounting.

For AGAAP, acquisition costs of $999 million were written off on acquisition of
CSL in January 2001. In fiscal 2002 and 2001, USGAAP did not allow such a write
off, unless it could be supported by an analysis of the undiscounted cash flows
of the entity. As a result of an analysis of undiscounted cash flows relating to
CSL, a goodwill write off was not supportable under USGAAP in fiscal 2002 and
2001. Accordingly, in fiscal 2001 the goodwill write off was reversed in the
reconciliation of net income to USGAAP and is carried forward as a difference in
the reconciliation of shareholders' equity to USGAAP. This amount was also
amortised in fiscal 2002 for USGAAP. For fiscal 2003 $309 million of goodwill
was recorded as an impairment loss under USGAAP, based on the transitional
goodwill impairment test. Refer to note 30(t) for further information as to the
accounting requirements and basis of the impairment.

Goodwill under AGAAP is translated at its historical foreign currency
translation rate as the goodwill arises in $A. Under USGAAP, using the current
rate method, goodwill is translated at the spot rate at year end. Amortisation
of goodwill is translated using the weighted average rate. Adjustments have been
made to restate amortisation at the weighted average exchange rate and to adjust
the ending goodwill balance for fluctuations in the Hong Kong dollar, being
CSL's functional currency.

The net adjustments above resulted in an increase to goodwill amortisation
expense for USGAAP in fiscal 2002 of $52 million and in fiscal 2001 of $23
million. For fiscal 2003 goodwill under USGAAP is no longer amortised, refer
note 30(t).

30(s) Fair Value and General Reserve adjustments

In AGAAP, when we acquire a controlled entity, we are required to restate the
net identifiable assets of that controlled entity to fair value. To the extent
we have an equity accounted ownership interest in the company prior to
consolidation, we are required to recognise our share of the reserve created on
consolidation. In USGAAP, this fair value adjustment is offset against goodwill
on consolidation. For fiscal 2002, the adjustment to the reconciliation to
shareholders equity was $54 million.

In AGAAP, the effect of dilutions of ownership due to equity transactions
conducted by third parties are recorded in a reserve. In USGAAP, this is treated
as a sale of ownership interest and taken to net income. In fiscal 2003, the
adjustment to net income was $2 million loss (2002: $19 million loss).

In AGAAP, we also have a share of a foreign associated entity's general reserve
credit of $2 million in fiscal 2002. For USGAAP purposes this reserve has been
transferred to the foreign currency translation reserve.

                                                                             323

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(t) Goodwill adjustments and other intangible assets

We adopted Statement of Financial Accounting Standard No. 142 (SFAS 142),
"Goodwill and Other Intangible Assets", on 1 July 2002. Under SFAS 142, goodwill
is no longer amortised but reviewed for impairment annually, or more frequently
if certain impairment indicators or triggers arise. Goodwill is tested for
impairment at a "reporting unit" level and we have assigned goodwill to
reporting units in accordance with the net goodwill balances by legal entity
included in Note 13.

We completed the initial step of the transitional impairment test within six
months of adoption of SFAS 142, using a discounted cash flow technique to
calculate the fair value of the reporting units to identify any impairment in
the carrying value of goodwill. As a result we have recorded an impairment loss
of $309 million relating to the USGAAP carrying value of goodwill in CSL as a
cumulative effect of a change in accounting principle.

At 30 June 2003, we identified a further impairment in the USGAAP carrying value
of the goodwill in CSL under SFAS 142. The fair value of CSL was determined
using a discounted cash flow technique. As a result, under USGAAP we have
recognised an additional impairment loss of $85 million.

Under AGAAP, goodwill is still amortised over its useful life and we have
reversed the goodwill amortised of $178 million for the year ended 30 June 2003
in the reconciliations of net income and shareholders' equity to USGAAP.

The following table represents adjusted net income per USGAAP and adjusted
earnings per share to exclude amortisation expense for goodwill that is no
longer amortised:

                                                Telstra Group
-------------------------------------------------------------------
                                              Year ended 30 June
                                             2003     2002     2001
                                               $m       $m       $m
-------------------------------------------------------------------
Net income per USGAAP................       3,450    3,898    3,576
Goodwill amortisation expense........          --      262      126
                                           ------------------------
ADJUSTED NET INCOME PER
USGAAP...............................       3,450    4,160    3,702
                                           ========================
                                            CENTS    CENTS    CENTS
                                           ------------------------
Adjusted basic earnings per
share per USGAAP (cents).............        27.0     32.5     29.0
Adjusted diluted earnings per
share per USGAAP (cents).............        26.9     32.4     28.9
                                           ========================

The following table represents the estimated aggregate amortisation expense for
other intangible assets which are still amortised under USGAAP. These items are
brandnames, customer bases, and patents, trademarks and licences:

                                      Telstra Group
-------------------------------------------------------------
                                    Year ended 30 June
                             2004   2005   2006   2007   2008
                               $m     $m     $m     $m     $m
-------------------------------------------------------------
Estimated aggregate
amortisation expense          136    136    130     95     58
                             ================================

30(u) Consolidation

AGAAP requires consolidation of an entity where we are able to dominate decision
making, directly or indirectly, relating to the financial and operating policies
of that entity to enable it to operate with us in achieving our objectives.
Ownership percentage as a single factor does not determine consolidation under
AGAAP.

Under USGAAP, prior to the adoption of FIN 46 (refer to note 30(w) for further
information), the usual condition for a controlling financial interest is
ownership of a majority voting interest, and, therefore, as a general rule
ownership by one company, directly or indirectly, of over fifty per cent of the
outstanding voting shares of another company is a condition pointing towards
consolidation.

USGAAP also provides for exemptions from consolidation where control is likely
to be temporary or where control does not rest with majority owners.

Also, in certain circumstances, an investment may not be consolidated when the
investor owns a majority of the voting stock, but the minority shareholder or
shareholders have certain approval, veto or participating rights.

Our AGAAP consolidation policy does not result in material differences between
the consolidation policy applicable under USGAAP, and therefore we have not made
any adjustments to the USGAAP reconciliation.

324

<PAGE>

                             Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(v) Recently issued Australian accounting standards

A number of new accounting standards have been issued by the Australian
Accounting Standards Board (AASB) that have not yet been adopted for AGAAP. A
summary of the standards appears in note 1.3.

Some of these standards, once adopted, will result in certain adjustments in the
reconciliations of net income to USGAAP and shareholders' equity to USGAAP no
longer being required.

The more significant changes are:

Income tax

AASB 1020 "Income taxes" has been amended to introduce the balance sheet
liability method currently adopted in USGAAP. Although conceptually AASB 1020
will bring AGAAP in closer alignment with USGAAP, management have not yet
determined the impact the adoption of AASB 1020 will have on our financial
position, results of operations or cash flows.

Adoption of International Financial Reporting Standards

The Australian Financial Reporting Council (FRC) has determined that Australian
entities adopt International Financial Reporting Standards (IFRS) from 1 January
2005. This will involve completing a first time set of financial statements
under IFRS for the half-year ended 31 December 2005 and for the financial year
ended 30 June 2006.

Management have not yet determined the impact the adoption of IFRS will have on
our financial position, results of operations or cash flows.

30(w) Recently issued United States accounting standards

Revenue Arrangements with Multiple Deliverables

In November 2002, the Emerging Issues Task Force reached a consensus on Issue
No. 00-21 (EITF 00-21), "Revenue Arrangements with Multiple Deliverables", and
is effective for fiscal years beginning after 15 June 2003. EITF 00-21
prescribes the determination of multiple revenue-generating activities and
whether those activities contain more than one unit of accounting. Revenue from
arrangements involving multiple deliverables that contain more than one unit of
accounting must be allocated among the units based on their relative fair
values. Management have not yet determined the effect, if any, the adoption of
EITF 00-21 will have on our financial position, results of operations or cash
flows.

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146 (SFAS 146) "Accounting for Costs Associated with Exit or Disposal
Activities", effective for fiscal years beginning after 31 December 2002. SFAS
146 requires that a liability for a cost that is associated with an exit or
disposal activity be recognised when the liability is incurred. Under SFAS 146,
the FASB determined that an entity's commitment to a plan does not, by itself,
create a present obligation to other parties that meets the definition of a
liability. SFAS 146 also establishes that fair value is the objective for the
initial measurement of the liability. Management have not yet determined the
effect, if any, the adoption of SFAS 146 will have on our financial position,
results of operations or cash flows.

Amendment of SFAS 133 on Derivative Instruments and Hedging Activities

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 149
(SFAS 149), "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. Statement 149 clarifies
under what circumstances a contract with an initial net investment meets the
characteristics of a derivative as discussed in SFAS 133. In addition, it
clarifies when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS 149 amends certain other existing
pronouncements. Those changes will result in more consistent reporting of
contracts that are derivatives in their entirety or that contain embedded
derivatives that warrant separate accounting. SFAS 149 is generally effective
for contracts entered into or modified after 30 June 2003 and for hedging
relationships designated after 30 June 2003. The guidance should be applied
prospectively. Management have not yet determined the effect, if any, the
adoption of SFAS 149 will have on our financial position, results of operations
or cash flows.

                                                                             325

<PAGE>

Telstra Corporation Limited and controlled entities


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

30. United States generally accepted accounting principles disclosures
(continued)

Notes to the reconciliations to financial reports prepared using USGAAP
(continued)

30(w) Recently issued United States accounting standards (continued)

Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150
(SFAS 150), "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." SFAS 150 affects the issuer's accounting for
three types of freestanding financial instruments. One type is manditorily
redeemable shares, which the issuing company is obligated to buy back in
exchange for cash or other assets. A second type, which includes put options and
forward purchase contracts, involves instruments that do or may require the
issuer to buy back some of its shares in exchange for cash or other assets. The
third type of instruments that are liabilities under this Statement is
obligations that can be settled with shares, the monetary value of which is
fixed, tied solely or predominately to a variable such as a market index, or
varies inversely with the value of the issuer's shares. SFAS 150 does not apply
to features embedded in a financial instrument that is not a derivative in its
entirety. This Statement is effective for financial instruments entered into or
modified after 31 May 2003, and otherwise is effective at the beginning of the
first interim period beginning after 15 June 2003. Management have not yet
determined the impact, if any, the adoption of SFAS 150 will have on our
financial position, results of operations or cash flows.

Accounting for Contingencies

In accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5),
"Accounting for Contingencies", and FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others", we are required to recognise and
measure at fair value a liability for certain guarantees we issue at the
inception of the guarantee. This applies to all guarantees issued or modified by
us after 31 December 2002.

Under AGAAP, we do not recognise our guarantees that we issue in the statement
of financial position. They are disclosed as contingent liabilities in note 21.

We have reviewed our guarantees issued or modified after 31 December 2002 and
determined that the liability to be recognised under those guarantees is not
material. Therefore, no adjustment has been made to the USGAAP reconciliation.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation
of Variable Interest Entities". FIN 46 requires a beneficiary to consolidate a
variable interest entity if it is the primary beneficiary of that entity. The
primary beneficiary is defined as having a variable interest in a variable
interest entity that will absorb a majority of the entity's expected losses if
they occur, receive a majority of the entity's expected residual returns if they
occur, or both.

We own 100% of the equity of Telstra ESOP Trustee Pty Ltd and Telstra
Growthshare Pty Ltd, the corporate trustees for the Telstra Employee Share
Ownership Plan Trust (TESOP97), the Telstra Employee Share Ownership Plan Trust
II (TESOP99) and the Telstra Growthshare Trust. Under AGAAP we do not
consolidate or equity account these trusts as we do not control or significantly
influence the trusts. Refer to note 1 and note 24 for further information.

TESOP97, TESOP99 and the Telstra Growthshare Trust are considered to be variable
interest entities under FIN 46. Our maximum potential exposure to loss as a
result of our involvement with TESOP97, TESOP99 and the Telstra Growthshare
Trust at 30 June 2003 is $88 million. We are currently determining whether we
are the primary beneficiary of the trusts. We are also still in the process of
considering other potential variable interest entities. Management have not yet
determined the full impact, if any, the adoption of FIN 46 on 1 July 2003 will
have on our financial position, results of operations or cash flows.

326

<PAGE>

                             Telstra Corporation Limited and controlled entities


Directors' Declaration
--------------------------------------------------------------------------------

This directors' declaration is required by the Corporations Act 2001 of
Australia.

The directors of Telstra Corporation Limited have made a resolution that
declared:

(a)  the financial statements and notes, set out on pages 176 to 326 of Telstra
     Corporation Limited and the Telstra Group:

     (i)   comply with the Accounting Standards, Corporations Regulations and
     Urgent Issues Group Consensus Views;

     (ii)  give a true and fair view of the financial position as at 30 June
     2003 and performance, as represented by the results of the operations and
     cash flows, for the year ended 30 June 2003; and

     (iii) in the directors' opinion, have been made out in accordance with the
     Corporations Act 2001.

(b)  at the date of this declaration, in the directors' opinion, there are
     reasonable grounds to believe that Telstra Corporation Limited will be able
     to pay its debts as and when they become due and payable in Australia; and

(c)  at the date of this declaration there are reasonable grounds to believe
     that the members of the extended closed group identified in note 23(1) to
     the full financial statements, as parties to a Deed of Cross Guarantee,
     will be able to meet any obligations or liabilities to which they are, or
     may become subject to, under the Deed of Cross Guarantee described in note
     23(1).

For and on behalf of the board


/s/ Robert C Mansfield                    /s/ Ziggy Switkowski
--------------------------------------    --------------------------------------
Robert C Mansfield                        Ziggy Switkowski
Chairman                                  Chief Executive Officer and
                                          Managing Director

Date: 28 August 2003
Melbourne, Australia

                                                                             327

<PAGE>

Telstra Corporation Limited and controlled entities


Independent Audit Report to the Members of Telstra Corporation Limited
--------------------------------------------------------------------------------

This report is included solely for the purpose of incorporation in Telstra
Corporation Limited's Annual Report 2003 as filed with the Australian Stock
Exchange and the Australian Securities and Investments Commission.

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of
financial performance, statement of cash flows, statement of changes in
shareholders' equity, accompanying notes to the financial statements, and the
directors' declaration for Telstra Corporation Limited (the Telstra Entity) and
the consolidated entity, for the year ended 30 June 2003. The consolidated
entity comprises both the Telstra Entity and the entities it controlled during
that year (the Telstra Group).

The directors of the Telstra Entity are responsible for preparing a financial
report that gives a true and fair view of the financial position and performance
of the Telstra Entity and the Telstra Group, and that complies with Accounting
Standards in Australia, in accordance with the Corporations Act 2001. This
includes responsibility for the maintenance of adequate accounting records and
internal controls that are designed to prevent and detect fraud and error, and
for the accounting policies and accounting estimates inherent in the financial
report.

Audit Approach

I have conducted an independent audit of the financial report in order to
express an opinion on it to the members of the Telstra Entity.

The audit was conducted in accordance with the Australian National Audit Office
Auditing Standards, which incorporate the Australian Auditing Standards, and in
accordance with auditing standards generally accepted in the United States of
America, in order to provide reasonable assurance as to whether the financial
report is free of material misstatement. The nature of an audit is influenced by
factors such as the use of professional judgement, selective testing, the
inherent limitations of internal control, and the availability of persuasive
rather than conclusive evidence. Therefore, an audit cannot guarantee that all
material misstatements have been detected.

Audit procedures were performed to assess whether, "in all material resepects,"
the financial report presents fairly, in accordance with the Corporations Act
2001, Accounting Standards and, other mandatory professional reporting
requirements in Australia, a view that is consistent with my understanding of
the Telstra Entity's and the Telstra Group's financial position, and their
performance as represented by the results of their operations and cash flows.

I formed my audit opinion on the basis of these procedures, which included:

..  examining, on a test basis, information to provide evidence supporting the
   amounts and other disclosures in the financial report, and
..  assessing the appropriateness of the accounting policies and disclosures used
   and the reasonableness of significant accounting estimates made by the
   directors.

I have also audited the explanation and quantification of the major differences
between accounting principles generally accepted in Australia compared to
accounting principles generally accepted in the United States of America, which
is presented in note 30 to the financial report. I have audited note 30 in order
to form an opinion whether, "in all material respects", it presents fairly, in
accordance with Accounting Standards and other mandatory professional reporting
requirements in Australia and generally accepted accounting procedures in the
United States of America, the major differences between accounting principles
generally accepted in Australia and accounting principles generally accepted in
the United States of America.

While I considered the effectiveness of management's internal controls over
financial reporting when determining the nature and extent of the procedures,
the audit was not designed to provide assurance on internal controls

Audit procedures were performed to assess whether the substance of business
transactions was accurately reflected in the financial report. These and the
other procedures did not include consideration or judgement of the
appropriateness or reasonableness of the business plans or strategies adopted by
the directors and management of the Telstra Entity.

Independence

I am independent of the Telstra Entity, and have met the independence
requirements of Australian professional ethical pronouncements and the
Corporations Act 2001.

328

<PAGE>

                             Telstra Corporation Limited and controlled entities


Independent Audit Report to the Members of Telstra Corporation Limited
(continued)
--------------------------------------------------------------------------------

Audit opinion

In my opinion, the financial report of the Telstra Entity is in accordance with:

(a)  the Corporations Act 2001 including:

     (i)  giving a true and fair view of the financial position of the Telstra
          Entity and the Telstra Group as at 30 June 2003 and of their
          performance for the year ended on that date; and

     (ii) complying with Accounting Standards in Australia and the Corporations
          Regulations 2001; and

(b)  other mandatory professional reporting requirements in Australia.

Further, in my opinion, note 30 to the financial report presents fairly the
major differences between accounting principles generally accepted in Australia
and accounting principles generally accepted in the United States of America.


/s/ P. J. Barrett
--------------------------------------
P. J. Barrett
Auditor-General

Date: 28 August 2003
Melbourne, Australia

                                                                             329

<PAGE>

Telstra Corporation Limited and controlled entities


Report of Independent Accountants to the Shareholders and Board of Directors of
Telstra Corporation Limited
--------------------------------------------------------------------------------

This report is included solely for the purpose of incorporation in Telstra
Corporation Limited's Annual Report 2003 on Form 20-F as required by the United
States Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder.

We have audited the accompanying consolidated statements of financial position
of Telstra Corporation Limited and its subsidiaries as of 30 June 2003 and 2002,
and the related consolidated statements of financial performance, changes in
shareholders' equity and cash flows for each of the three years in the period
ended 30 June 2003, all expressed in Australian dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Australia and the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Telstra
Corporation Limited and its subsidiaries at 30 June 2003 and 2002, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended 30 June 2003, in conformity with accounting principles
generally accepted in Australia.

Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income expressed in Australian dollars for each of the three
years in the periods ended 30 June 2003, and the determination of consolidated
shareholders' equity, also expressed in Australian dollars, at 30 June 2003, 30
June 2002 and 30 June 2001, to the extent summarised in note 30 to the
consolidated financial statements.

As discussed in note 1 to the consolidated financial statements, in 2001 Telstra
Corporation Limited and its subsidiaries changed their accounting for service
activation and certain installation fee revenues.


/s/ Ernst & Young
--------------------------------------
Ernst & Young

Date: 28 August 2003
Melbourne, Australia

330

<PAGE>

                             Telstra Corporation Limited and controlled entities


Corporate Social Responsibility
--------------------------------------------------------------------------------

At Telstra we believe that corporate social responsibility is a values-based
approach to how we do business, leading us beyond legal compliance to make a
positive contribution to the industries and communities in which we participate.
Being a successful company is not just about financial performance, it is also
about being a good corporate citizen, living our Telstra Values in every
decision we make, every day.

On 31 October 2003, Telstra released its first corporate social responsibility
report. The report, which was prepared with reference to internationally
recognised reporting guidelines, aims to provide an overview of Telstra's
impact, performance and future commitments across four categories - the
community, environment, economy and industry:

     .  Here for the community - In fire, floods, drought and, more recently,
        tragedies such as the Bali bombing, Telstra was there to help by way of
        donation, community support and prompt restoration of services. We are
        involved with communities across Australia and overseas through
        activities such as our 4000-strong volunteer network, Telstra Friends;
        our philanthropic trust for children and young people, the Telstra
        Foundation; disaster relief activities; and numerous sports, arts and
        community sponsorships. Telstra also helped set up the Australian
        Farmhand Appeal which started in October 2002 and raised approximately
        $23.5 million for drought stricken farmers.

     .  Here for the environment - Like any large company, Telstra is a big
        consumer of energy and other resources such as paper. We are focused on
        measuring and minimising that consumption. Our environment policy
        includes programs for waste management, reduction in greenhouse
        emissions, recycling initiatives and improvements in the use of
        resources.

     .  Here for the economy - Telstra has a significant impact on the economy.
        We are a major taxpayer, we pay dividends to shareholders, reinvest
        profits into our network and develop new opportunities for our business,
        often resulting in a benefit to the overall industry. Our diverse
        workforce is spread across metropolitan, regional and remote areas and
        internationally. Managing our costs, including their impact on our
        workforce levels, remains one of the most challenging issues facing
        Telstra as we continue to strive for excellent and cost-competitive
        service to customers.

     .  Here for industry - Telstra is a leader in the Australian
        telecommunications industry. We support programs that foster growth and
        development in areas such as broadband internet and mobile
        communications as well as other new technologies. We are also leading
        the development and introduction of industry-related consumer services
        and products which benefit society. For example, we established a
        national program educating drivers about the safe use of mobile phones,
        deterrent programs for mobile phone theft and a campaign on mobile phone
        etiquette.

                                                                             331

<PAGE>

Telstra Corporation Limited and controlled entities


Occupational Health and Safety
--------------------------------------------------------------------------------

We believe that all workplace disease and injury is preventable and we are
committed to providing a safe workplace, one that is free from injury and
disease. To assist in achieving these aims, we have developed and implemented
our own Telstra Care health and safety management system based on the
Australian/ New Zealand Standard AS/NZS 4804:2001 Occupational Health and Safety
Management Systems - General Guidelines on Principles, Systems and Supporting
Techniques.

This system focuses on leadership in safety, together with measurable
accountabilities, through all levels of management. It is underpinned by
targeted training and a rigorous schedule of occupational health and safety
audits. Since its inception in 1997, additional tools, resources and training
courses have enhanced the Telstra health and safety management system ensuring
we have continually improved safety at work.

In the past year, our activities have included:

     .  continuing our extensive external safety audit program - the audits
        focus primarily on leadership and many are commenced without prior
        notice to the workplace;

     .  further enhancement of our contractor management processes to ensure
        that contractors' safety performance is a criteria used in their
        selection and in the monitoring of ongoing work; and

     .  participating in external safety activities to benefit industry as a
        whole (eg. the development of Call Centre guidelines and review of
        health and safety representatives training).

As a result of widespread prevention activities, Telstra's lost-time injuries
reduced by 30% compared with the previous year and the lost-time injury
frequency rate reduced from 6.7 to 4.9 (excludes NDC).

For the 2003 fiscal year, in accordance with section 74 of the Occupational
Health and Safety (Commonwealth Employment) Act 1991(Cwth), the following
notices of accidents and dangerous occurrences were recorded:

Incidents

-------------------------------------------------
              Serious      Prescribed  Dangerous
Fatality  personal injury  incapacity  occurrence
-------------------------------------------------
       0        33             7           261
-------------------------------------------------

Notices and directions

------------------------------------------------------------------
Type                                                       Number
------------------------------------------------------------------
Provisional improvement notices (section 29)                 0
Directions not to disturb workplace (section 45)             0
Prohibition notices issued by investigators (section 46)     0
Improvement notices issued (section 47)                      0
------------------------------------------------------------------

332

<PAGE>

                             Telstra Corporation Limited and controlled entities


Environment
--------------------------------------------------------------------------------

In providing our diverse range of telecommunications products and services,
Telstra impacts on the environment in a number of ways - from the
direct impacts on land as a result of construction and maintenance of our
networks to the resources used and the waste produced as a result of business
operations and the packaging associated with our products.

Our goal is to minimise our environmental impact and, in doing so, set the
standard for environmental performance in our industry and to pursue and achieve
world's best practice in environmental management.

Our activities promote ecologically sustainable development (ESD) in a number of
ways. In particular, the provision of telecommunications services has the
potential to reduce the impact of our activities and the activities of our
customers on the environment in the following ways:

     .  minimising reliance on transport (and its associated environmental
        impacts) by opting for "real-time" audio and visual communications;

     .  providing increased opportunity for communities to interact better;

     .  replacing paper-based and resource-intensive ways of transferring
        information; and

     .  improving the dissemination of information and ideas locally and
        globally.

To minimise our impact on the environment, Telstra has an environmental
management system. During fiscal 2003 we began the process of integrating our
environmental management system with our health and safety management system to
provide a single, comprehensive, efficient and robust system.

The application of our environmental management system, together with the
engagement of staff, has led to continued improvement in our environmental
performance. Initiatives carried out in fiscal 2003 include:

     .  continued commitment to the Greenhouse Challenge;

     .  completing a comprehensive audit of product packaging under our National
        Packaging Covenant Action Plan;

     .  commencing Green Purchasing - requiring all our suppliers and
        contractors to meet stipulated environmental conditions and supporting
        them to improve their environmental performance;

     .  recycling more than 1,800 tonnes of paper, avoiding disposal in
        landfill; and

     .  recycling thousands of kilograms of mobile phones from Telstra shops and
        more than 60% of directories through the Book Muncher/(R)/ initiative by
        Sensis.

More information on Telstra's environmental management system, policy and
performance is available at www.telstra.com.au/environment.

                                                                             333

<PAGE>

Telstra Corporation Limited and controlled entities


Freedom of Information
--------------------------------------------------------------------------------

Freedom of Information Act 1982 (Cwth)

This statement is made in accordance with section 8 of the Freedom of
Information Act 1982 (Cwth) (FOI Act). The FOI Act gives a right of access,
subject to exemptions and exceptions, to documents of the Telstra Entity.

We are exempt from the operation of the FOI Act in relation to documents in
respect of our commercial activities.

Functions

The particulars and functions of the Telstra Entity are set out in detail in
this annual report. From time to time the Telstra Entity may make decisions
regarding the supply of telecommunications services and matters incidental,
ancillary or complementary to the supply of telecommunications services that may
affect members of the public.

Organisation

An outline of our organisation is given under "Information on the Company -
Organisational structure".

Consultative arrangements

Consultative arrangements exist between us, a number of user groups for specific
products, as well as a wide range of groups including:

     .  our Consumer Consultative Council (residential, Single Office and Home
        Office customers); and
     .  our Disability Forum and Disability Equipment Program Customer Advisory
        Group (customers with a disability).

We also liaise with:

     .  the National Farmers Federation (rural and regional customers); and
     .  the Australian Telecommunications Users Group (business and general).

Categories of documents

We produce and/or retain numerous documents, including documents that are
available to the public free of charge.

Documents available to the public free of charge include Telstra's Customer
Service Charter, our Standard Form of Agreement with customers, product and
service brochures and our annual report. These and certain other categories of
documents are available from our website, www.telstra.com.

The categories of documents that we produce and/or retain relate to the
provision of telephone lines and customer premises equipment to homes and
businesses, the provision of local, long distance and international telephone
calls, the provision of payphones and provision of mobile, data, internet and
online services. There are also documents relating to wholesale services
provided to other carriers and carriage service providers.

334

<PAGE>

                             Telstra Corporation Limited and controlled entities


Freedom of Information
--------------------------------------------------------------------------------

Freedom of information requests

Initial enquiries concerning requests for access to documents or amendment of
personal records under the FOI Act may be directed to:

Telstra's Information Access Unit
Locked Bag 5691
Melbourne Vic 3001

or:

Information Access Unit
Telstra Corporation Limited
Level 38
242 Exhibition Street
Melbourne Vic 3000

Telephone enquiries should be directed to the Information Access Manager on (03)
9632 3376.

                                                                             335

<PAGE>

Telstra Corporation Limited and controlled entities


Glossary
--------------------------------------------------------------------------------

1xRTT (One Times Radio Transmission Technology): 3G development of CDMA
technology for high speed packet switched data

2.5G: technology designed to expand the bandwidth and data handling capacity of
existing mobile telephony systems such as GSM using GPRS

3G: third generation technology designed to further expand the bandwidth and
functionality of existing mobile telephony systems beyond 2.5G

ACA: Australian Communications Authority

ACCC: Australian Competition and Consumer Commission

Access line: a fixed or wireless local access connection between a customer's
premises and a carrier's local switch

ACIF: Australian Communications Industry Forum

ACT: Australian Capital Territory

ADR: American depositary receipt

ADS: American depositary share

ADSL (Asymmetric Digital Subscriber Line): a technology for transmitting digital
information at a high bandwidth on existing phone lines

AGAAP: generally accepted accounting principles in Australia

ARPANSA (Australian Radiation Protection and Nuclear Safety Agency): a
Commonwealth Government agency responsible for protecting the health and safety
of people and the environment from the harmful effects of radiation

ARPU: average revenue per user

ASX: Australian Stock Exchange Limited

ATM (Asynchronous Transfer Mode): a high bandwidth, low delay technology for
transmitting voice, data and video signals

Bandwidth: the capacity of a communication link

Broadband network: a network to support subscription television and online
services

Carriage service provider: a person that supplies a telecommunications service
to the public using Carrier network infrastructure

Carrier: a licensed owner of certain specified transmission infrastructure that
is used to supply telecommunications carriage services to the public; any person
holding a carrier licence

CDMA (Code Division Multiple Access): a mobile telephone system based on digital
transmission

Churn (where expressed as a rate): the rate at which subscribers to a service
disconnect from the service. Churn is usually expressed as total disconnects for
a period divided by the average number of customers for that period

Churn (where expressed as an activity): the transfer of a customer's
telecommunications service from one supplier to another. In the case of a
transfer involving a resale arrangement, no disconnection occurs and a churn
relates to a change in the legal entity responsible for a telecommunications
service or account

336

<PAGE>

                             Telstra Corporation Limited and controlled entities


Glossary
--------------------------------------------------------------------------------

Communications Minister: the Commonwealth Minister for Communications,
Information Technology and the Arts

Commonwealth: Commonwealth of Australia

Corporations Act and Australian Corporations Act: Corporations Act 2001 (Cwth)

CPE: customer premises equipment

CSG: customer service guarantee

CSL: Hong Kong CSL Limited

DDSO: digital data service obligation

Declared Services: a particular telecommunications service, or other service
that facilitates the supply of services, that is subject to the regulated access
regime. The ACCC has the responsibility for determining declared services, based
on public inquiries

e-commerce: e-commerce includes buying and selling electronically over a network

EFTPOS: electronic funds transfer at point of sale

EME: electromagnetic energy

Frame relay: a packet switching technology for voice, data and video signals
which uses packets of varying length, or frames. Frame relay can be used with
any data protocol

Government: the Government of the Commonwealth of Australia

GPRS (General Packet Radio Service): a service that will allow compatible mobile
phones and mobile data devices to access internet and other data networks on a
packet basis. The devices can remain connected to the net and send or receive
data information and e-mail at any time

GSM (Global System for Mobile Communications): a mobile telephone system based
on digital transmission

HFC: hybrid-fibre coaxial

IN: intelligent network

INP: inbound number portability

IP: internet protocol

IP-VPN: internet protocol virtual private network

ISDN (Integrated Services Digital Network): a digital service providing switched
and dedicated integrated access to voice, data and video

ISP (Internet Service Provider): an internet service provider provides the link
between an end user and the internet by means of a dial-up or broadband service.
An ISP is also likely to provide help desk, web hosting and e-mail services to
the end user. An ISP may connect to the internet via their own backbone or via
services acquired from an internet access provider

                                                                             337

<PAGE>

Telstra Corporation Limited and controlled entities


Glossary
--------------------------------------------------------------------------------

LAN (local area network): a short distance data communications network used to
link computers and other equipment

MNP: mobile number portability

Number portability: the ability of end users to keep their telephone number when
they change their telephone service provider

PABX (Private Automated Branch Exchange): telephone equipment on a customer's
premises seen as terminal equipment on the public network

Preselection: the ability of a customer to choose a service provider to provide
a basket of services including national and international long distance and
fixed to mobile services. Preselection is on a "permanent" basis when the
customer selects a provider for all calls placed without an override code

PSTN (Public Switched Telephone Network): our national fixed network delivering
basic and enhanced telephone service

REACH: Reach Ltd, a 50:50 joint venture with PCCW Limited

RDN: routed data network

Reseller: non-carrier providers of telecommunications services

SDN: switched data network

SIO: services in operation

SME: small and medium enterprises

SMS: short messaging service

TCW: Telstra Country Wide

Telecommunications Act: Telecommunications Act 1997 (Cwth)

Telstra: Telstra Corporation Limited and its controlled entities as a whole

Telstra: a registered trade mark of the Telstra Entity

Telstra Act: Telstra Corporation Act 1991 (Cwth)

Telstra Entity: Telstra Corporation Limited

TIO: Telecommunications Industry Ombudsman

TPA: Trade Practices Act 1974 (Cwth)

TSLRIC: total service long run incremental cost

ULL (Unconditioned Local Loop): one or more twisted copper pairs between the
exchange and the network boundary at a customer's premises

US: United States of America

USGAAP: generally accepted accounting principles in the US

338

<PAGE>

                             Telstra Corporation Limited and controlled entities


Glossary
--------------------------------------------------------------------------------

USO (Universal Service Obligation): obligation imposed on carriers to ensure
that standard telecommunications services are reasonably available to all
persons in the universal service area

WAN: wide area network

WAP: wireless application protocol

WDM: wave division multiplexing

WHO: World Health Organisation

Wireless Local Loop: a range of radio technologies used to provide fixed access
to customers in lieu of copper

xDSL: term used to describe various forms of digital subscriber line
technologies that can provide very high speed service using existing copper
lines

/TM/: Trade Mark of Telstra Corporation Limited ABN 33 051 775 556

/(R)/: Registered Trade Mark of Telstra Corporation Limited ABN 33 051 775 556

/^/: Iridium is a registered Trade Mark of Iridium Satellite LLC

/#/: RiskMetrics is a registered Trade Mark of Benfield Greig Australia Pty Ltd

*: CHESS is a registered Trade Mark of McDonnell Information Systems Group Plc

                                                                             339

<PAGE>

Telstra Corporation Limited and controlled entities


Total Year Financial Summary
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                                2003      2002      2001      2000      1999
                                                 A$m       A$m       A$m       A$m       A$m
--------------------------------------------------------------------------------------------
<S>                                           <C>       <C>       <C>       <C>       <C>
Sales revenue                                 20,495    20,196    18,679    19,343    17,571
Total revenue (including interest)            21,700    20,928    23,086    20,567    18,218
EBITDA/(1)/................................    9,170     9,483     9,834     8,563     8,351
Profit before income tax expense...........    4,928     5,446     6,297     5,349     5,320
Net profit after minorities................    3,429     3,661     4,058     3,677     3,486
Dividends..................................    3,345     2,830     2,445     2,316     4,247
Total assets...............................   35,599    38,219    38,003    30,578    27,780
Gross debt.................................   12,272    13,726    13,990     9,821     7,211
Net debt...................................   10,972    12,268    12,505     8,877     6,118
Shareholders' equity.......................   15,422    14,106    13,722    11,602    10,294
Operating cash flows.......................    7,057     7,098     6,599     6,547     6,574
Investing cash flows.......................   (2,492)   (3,258)   (6,370)   (4,896)   (4,064)
Financing cash flows.......................   (4,317)   (3,817)       94    (1,881)   (2,484)
Net movement...............................      248        23       323      (230)       26
Capital expenditure and investments
(including capitalised interest)...........   (3,437)   (3,777)   (7,712)   (5,428)   (4,478)
Financial ratios                                 %         %         %         %         %
Return on average assets...................     16.3      17.5      21.6      21.1      22.4
Return on average equity/(2)/..............     23.2      26.8      32.7      33.7      29.9
Interest cover (times).....................      6.4       7.0       9.0       8.5       9.4
Gross debt to capitalisation/(2) & (3)/....     44.3      49.3      50.5      45.8      36.9
Net debt to capitalisation/(2) & (4)/......     41.6      46.5      47.7      43.3      37.3

----------
<FN>
<F1>

/(1)/ Net profit before interest received/receivable, interest expense
      (borrowing costs), depreciation and amortisation and income tax expense.
<F2>
/(2)/ Excludes the effect of the special dividend of A$2,059 million provided
      for in the financial statements as at 30 June 1999.
<F3>

/(3)/ Based on gross debt (total current and non-current borrowings) as a
      percentage of gross debt plus shareholders' equity.
<F4>
/(4)/ Based on net debt (gross debt less liquid interest-bearing assets) as a
      percentage of net debt plus shareholders' equity.
</FN>
</TABLE>

340

<PAGE>

Item 19.

EXHIBIT INDEX


Telstra Corporation Limited Constitution                        Exhibit  1

Employment Contract -- Ziggy Switkowski                         Exhibit  4.1

Employment Contract -- Ted Pretty                               Exhibit  4.2

Rule 13a-14(a) Certifications                                   Exhibit 12

Rule 13a-14(b) Certifications                                   Exhibit 13

<PAGE>


SIGNATURE

     The registrant hereby certifies that it meets the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.


                                        TELSTRA CORPORATION LIMTED
                                                (Registrant)


                                        \s\ John Stanhope
                                        Name: John Stanhope
                                        Title: Chief Financial Officer/GMD
                                               Finance and Administration


Dated: December 23, 2003

<PAGE>


EXHIBIT INDEX


Telstra Corporation Limited Constitution                        Exhibit  1

Employment Contract -- Ziggy Switkowski                         Exhibit  4.1

Employment Contract -- Ted Pretty                               Exhibit  4.2

Rule 13a-14(a) Certifications                                   Exhibit 12

Rule 13a-14(b) Certifications                                   Exhibit 13