Think of the potential... Making life easier™ ME77170_Inside FC 20/9/00 8:16 am Page 1 We are providing our report to shareholders in two parts: •Annual Review 2000 • Annual Report 2000 Both parts will be lodged with the Australian Stock Exchange (ASX) and the Australian Securities & Investments Commission (ASIC) and are available on the internet: http://www.telstra.com.au/investor/ This Annual Report is a detailed report that has been prepared by Telstra Corporation Limited (Telstra) as part of its statutory annual reporting obligations under section 314 of the Australian Corporations Law and to fulfil the Form 20-F annual reporting obligations of the United States Securities and Exchange Commission (SEC). The Annual Report does not represent or summarise all publicly available information in relation to Telstra. There is other publicly available information in relation to Telstra that has been notified to the ASX and the ASIC. Some of this information has also been lodged with the SEC. Copies of documents lodged with the ASX and ASIC may be obtained from the ASIC and copies of documents lodged with the SEC may be obtained from the SEC. Nothing in this Annual Report is or shall be taken to be an invitation or an application or offer to subscribe for or buy securities in Telstra. Terms used in this report: • We, Telstra and the Telstra Group - all mean Telstra Corporation Limited, an Australian corporation, and its controlled entities as a whole; and • Telstra Entity is the legal entity, Telstra Corporation Limited. Our fiscal year ends on 30 June. Unless we state differently, the following applies: • Year or a fiscal year means the year ended 30 June; and • 2000 means fiscal 2000 and similarly for other fiscal years. All amounts are expressed in Australian dollars (A$), unless otherwise stated. A glossary of other terms used is provided to assist with the general understanding of this report. See “Contents” page 1. Telstra Corporation Limited Australian Business Number: 33 051 775 556 Registered Office: 41/242 Exhibition Street Melbourne Vic 3000 Australia Telstra Corporation Limited and controlled entities Contents - Business Description and Financial Statements SEC Item(1) Page No. Exchange Rates . 2 Item 1 Description of Business. 3 - Overview . 3 - Strategy. 4 - Competitive and regulatory environment . 6 - Organisation . 7 - Marketing and customer service . 8 - Products and services. 11 - Pay television . 20 - International investments . 21 - Networks and systems . 22 - Employees . 30 - Competition . 31 - Regulation . 36 Item 2 Description of Property . 52 Item 3 Legal Proceedings . 53 Item 4 Control of Registrant . 55 - Distribution of shares. 55 - Twenty largest shareholders . 56 - Relationship with the Commonwealth of Australia . 56 Item 5 Nature of the Trading Market. 59 Item 6 Exchange Controls and Other Limitations Affecting Security Holders . 61 Item 7 Taxation. 66 Item 8 Selected Financial Data . 73 Statistical Data . 74 Item 9 Management’s Discussion and Analysis of Financial Condition and Results of Operations . 76 Item 9A Quantitative and Qualitative Disclosures about Market Risk . 115 Item 10 Directors and Officers of Registrant . 118 Corporate Governance . 122 Item 11 Compensation of Directors and Officers . 125 - Emoluments for Board Members and Senior Executives . 125 Directors’ Report. 129 Items 18 & 19(2) Financial Statements. 137 Directors’ Declaration . 252 Independent Audit Reports . 253 Occupational Health and Safety. 256 Freedom of Information . 258 Glossary . 260 Five Year Financial Summary. 264 (1) This document includes the disclosure requirements of the US Securities and Exchange Commission and will be lodged with the SEC as an Annual Report on Form 20-F. This column lists the item numbers required in Form 20-F and included in this report. The following items are omitted: Part I, Item 12: Options to Purchase Securities from Registrant or Subsidiaries; omitted as it is not applicable. Part I, Item 13: Interests of Management in Certain Transactions (refer Items 1 and 4). Part II, Item 14: Description of Securities to be Registered; omitted as it is not applicable. Part III, Item 15: Defaults upon Senior Securities; omitted as there have been no defaults. Part III, Item 16: Changes in Securities and Changes in Security for Registered Securities omitted as there have been no changes. Use of Proceeds omitted as not applicable. (2) All schedules have been omitted as they are not required under the applicable instructions or the substance of the required information is shown in the financial statements. There are no exhibits. 1 Telstra Corporation Limited and controlled entities Exchange Rates OurExchange Rates 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 2000 of A$1.00 =US$0.5971. These translations are indicative only and do not mean that the A$ amounts could be converted to US$ at the rate indicated. The table below shows 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: Year ended At period Average High Low 30 June end rate(1) 1996 0.7856 0.7627 0.8026 0.7100 1997 0.7550 0.7814 0.8180 0.7455 1998 0.6208 0.6805 0.7537 0.5867 1999 0.6611 0.6248 0.6712 0.5550 2000 0.5971 0.6238 0.6703 0.5685 (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 the shares on the Australian Stock Exchange (ASX). Consequently, this is likely to affect the market price of our American depositary shares (ADSs) and interim ADSs in the United States; and • the US$ amounts received by holders of ADSs and interim ADSs on conversion by the depositary of cash dividends paid in A$ on the shares underlying the ADSs and interim ADSs. 2 Telstra Corporation Limited and controlled entities Item 1: Description of Business OverviewItem 1: Description of Business We are Australia’s leading telecommunications and information services company with fiscal 2000 revenue of more than A$19 billion. We are one of Australia’s largest corporations and have one of the best-known brands in the country. We offer a full range of services and compete in all telecommunications markets throughout Australia. Our main activities are to provide: • telephone lines to homes and businesses; • local and long distance telephone calls in Australia and international calls to and from Australia; • mobile telecommunications services; • a comprehensive range of data, internet and on-line services; • wholesale services to other carriers and carriage service providers; • telephone directories (White Pages™ and Yellow Pages®); and • pay television services through an affiliate. Our fixed telephony network extends across Australia and serves virtually all Australian homes and most Australian businesses. It has optical fibre on all major traffic routes and has a fully digital switching capability that allows us to develop and deploy a full range of modern products and services. As well as our basic telephony network, we have a variety of other delivery platforms over which we provide our services, such as: • an integrated services digital network (ISDN); • switched, data, transaction and digital data networks; • a hybrid fibre co-axial cable broadband network that runs past 2.5 million homes; • internet protocol virtual private networks; and • international submarine cables and access to international satellite infrastructure. We are the largest mobile telecommunications provider in Australia, with GSM and CDMA digital networks, covering over 95% of the population and GSM international roaming to 75 countries. Recognising the importance of data services and the internet to the future and their potential to transform the nature of the telecommunications industry, we continuously review our business, operations and networks to assess the changes required to enable us to compete effectively in rapidly growing data markets. We are expanding our range of data products and developing our content-based businesses, such as internet and e-commerce, pay television services and directories. We have established strengths in products such as internet access and electronic directories. We have maintained our position as the largest internet service provider in Australia, with nearly 650,000 internet subscribers at 30 June 2000 and our Australian Yellow Pages® web site is one of the most frequently visited sites in Australia. We have devoted considerable resources over recent years to upgrade and modernise our networks and systems. This programme has increased our flexibility and expanded the range of products and services that we can offer our customers in our traditional telephony markets as well as mobile telecommunications and emerging data and internet markets. However, margin pressures in the traditional areas of the businesses have occurred and are expected to continue during.