AAPT Business Data and Internet Division 14 March 2002

1
AAPTBusiness Data and Internet Division14
March 2002

• Graham Mitchell
• Group General Manager - Business Internet

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Background

• New division established 1 February 2002
• Division comprises
• Connect.com.au - Business ISP Ecommerce
  Provider, Wholesale ISP
• AAPT BCG - Voice Data Business in Corporate,
  Government and SME (excluding very small
  business) -Smartchat
• AAPT Wholesale - wholesales AAPTs voice, data
  and backbone
• AAPT Infrastructure - all network assets in AAPT
• Revenue p.a A700m (approx)
• Capex (HY1 01/02) A65m (approx)
• Staff 770 (approx)

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Focus of New Division

• Marshall all Telecom NZ resources to focus on
  business market (excludes Super Corporate -
  TCNZA) in Australia
• Leverage multiple sales channels to market for
  varying products
• Removes unnecessary duplications
• Create focus on lifting utilisation of existing
  assets
• Optimise future capital expenditure across all
  segments to highest value product/customer set
  first
• Leverages strong public IP expertise in Connect
  with Private IP (VicOne etc) in AAPT to deliver
  more powerful IP solutions

4
Building a Strategy to Deliver Operational
Cashflow Growth Higher Asset Utilisation

• Continued focus on operational cost reduction
• improved sales force effectiveness
• operational cashflow and gross margin to staff
  ratios
• remove unnecessary duplications
• Reduction in cost of service
• channelling capex where cost of service savings
  greatest
• continue re-negotiation with Telstra
• move to lower cost providers than Telstra

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Asset Utilisation Improvementover the last Six
Months

• DSL - over 50 increase in utilisation
• LMDS - 35 increase in utilisation
• Fibre Access - over 30 increase in utilisation

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Business Data IP Revenues Up 20 for Half
Year

• Strong performance in face of competition from
  Telstra, Optus and small players. (Optus Business
  Data Division achieved 12 growth in IP and
  Data revenues in same period)

Graph
(Note Includes AAPT Data, VicOne, Wholesale Data
Connect.com.au)
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AAPT Business Switched VoiceRevenues Up 31 for
Half Year

• Switched voice, which is the highest margin
  product group, continues to show strong revenue
  growth

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Graph
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Focus on Changing Revenue Mix

• In the last quarter focus has been applied to
  re-balancing product mix toward voice and data
  away from rebill
• Progress has been somewhat distorted by price
  rises for rebill which mask the true movement in
  volume

Graph
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Re-focus on Revenues that Drive Operating
Cashflows (EBITDA)

• Total revenue growth has slowed as the focus in
  the last Quarter has moved to re-balancing
  revenue mix to higher margin revenues to drive
  operating cashflow growth

Graph
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Improved Focus on Capex to DeliverReturns

• The Business Internet Division is targeting to
  be self-sufficient in funding capex from
  operational cashflow in the near term - Connect
  already is well on the way to achieving this goal

Graph
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Achievements

• Major Corporate Sales
• NSW Government, from 0 in June to 6m YTD
• Bendigo Bank, from 360k pa to 6m pa this year
• RACV, all AAPT infrastructure 5m pa
• Centrelink, outbound voice, national, F2M
  transition from Telstra - 5m pa
• VicOne
• Half-year revenue up 8.5
• LMDS deployed in 7 major Victorian regional
  centres
• Launch of new schools internet service
• Business Sales
• Revenue up 20
• Customer base reduced by 50 due to realignment
  of cost to serve
• Headcount down 30

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Achievements

• Wholesale
• Strong sales to ISPs of colocation, frame relay
  backbone and AAPT PRA access services
• Increased sales of fixed-wire voice through large
  switchless resellers
• Market Position
• AAPT recognised as the best performing
  Telecommunications vendor to Top 500 Corporates
  and Federal Government departments in an
  independent survey
• Three waves by East Partners saw AAPT rate 1st,
  2nd and 4th where Optus and Telstra never rated
  higher than 11th 12th respectively

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Achievements

• Connect
• Re-signed Tradegate contract to June 2003
  representing 17m per annum in E-Commerce revenue
  for services covering Australias import export
  processes
• Signed E-Commerce contract (AANX) with the
  Federated Chamber of Automotive Industries
  representing auto manufacturers and suppliers,
  representing 1.5m per annum in E-Commerce
  revenue (and 3m per annum in access revenue)
  when fully in place
• Contracted with On Q Business Systems to provide
  a 500 node VPN enabling IP based EFTPOS
  transactions for major retail chains and
  franchises first large scale VPN across public
  internet involving financial transactions

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Achievements

• Infrastructure
• Telstra settlement
• GSM interconnect, resale services (local calls),
  and other anticipated benefits totalling approx.
  7M FY01/02
• Vodafone settlement on GSM interconnect
• Anticipated saving of around 2M FY01/02
• Telstra tail replacement project activated
• Anticipated saving around 3M FY01/02
• AAPT DSL layer 2 service, XYZ Ltd and Nexstep
• Relocation of infrastructure to make better use
  of it
• Five LMDS Nodes moved to high market density
  areas and for VicOne
• Leased Optus backbone cutovers on track and
  delivering cost savings

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Forward Looking Strategy

• Continue to build IP and data business
• leveraging Connects strong position in the
  market
• utilising existing infrastructure to drive
  margins
• leveraging TCNZs international data networks
• combining the best of public and private IP to
  deliver innovative solutions to customers
• Continue the strong focus on switched voice
• AAPTs historical strength
• strong margins due to AAPT owning key assets such
  as domestic international backbone and switch
  capacity
• Market in better shape as resellers diminishing

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Forward Looking Strategy

• Wholesale to optimise returns to Networks
• voice, data and IP services to balance retail
  traffic patterns, therefore delivering stronger
  margins
• lowest cost to serve model hence margins are
  strong
• Focus on existing Infrastructure to optimise
  returns
• Focus sales force and products within existing
  infrastructure footprint
• leverage all infrastructure across TCNZs
  Australian group
• Supplement infrastructure from lower cost third
  parties

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Disclaimer This presentation contains not only
a review of operations, but also some forward
looking statements about Telecom and the
environment in which the company
operates. Because these statements are forward
looking, Telecoms actual results could differ
materially. The second quarter media release,
management commentary and various documents filed
with the US Securities Exchange Commission,
including the Annual Report on Form 20-F, contain
additional information about matters which
could cause Telecoms performance to differ from
any forward looking statements in this
presentation. Please read this presentation in
the wider context of material previously published
by Telecom and filed with the SEC.