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Executives

Mark Verbiest - Chairman

Simon Moutter - CEO

Maury Leyland - Non-Executive Director

Charles Sitch - Non-Executive Director

Justine Smyth - Non-Executive Director

Murray Horn - Non-Executive Director

Paul Berriman - Non-Executive Director

Kevin Roberts - Non-Executive Director

Analysts

Telecom New Zealand (OTCPK:NZTCY) Annual General Meeting Conference Call November 7, 2013 4:00 PM ET

Mark Verbiest

Cure and good morning, everybody. On behalf of the Board, management and staff Telecom, thank you for attending our 2013 Annual Meeting. My name is Mark Verbiest and I am the chairman of Telecom and I declare the meeting open. This is my second Annual Meeting as Telecom Chairman during an unprecedented period of change for the company and in the technology sector that's saying something.

In line with our way forward we've made some changes to the way we will conduct this our annual meeting to encourage a more direct and engaging conversation with you our shareholders. You will notice the more open and an informal stage layout, like Telecom, the Board is trying new things. We have to be more customer-focused and we want to have a more engaging relationship with you our shareholders. We hope also, of course, that you are all good customers and that you become seriously good ambassadors for your company too.

Today, I will recap on the last financial year, look ahead to how we see this year unfolding, provide some context to the transformational decisions being made at Telecom and offer a perspective on direction and progress. Following that, our CEO, Simon Moutter, will expand on our strategy for turning around this business, the extent of interventions that we've made to date and the shift in the business that is currently underway.

After that, we're going to get each of our fellow directors to talk briefly about why they are here to represent you. Then you will have the opportunity to put questions to us and that will followed by the formal resolutions that are before you today. And, of course, after the meeting concludes, we'd love you to join us for some refreshments and we'll continue the conversation.

However, before I proceed any further, let me make some introductions. On my left, Jolie Hodson, our CFO, who joined us in June of this year; members of the Telecom Board, Kevin Roberts, he's been on the Board since 2008; Paul Berriman, he has been on the Board since December 2011; Murray Horn, Board member since 2007; no introduction really needed, Simon Moutter, our CEO; and to my right, Justine Smyth, on the Board since December 2011; Charles Sitch, who also on the Board since December 2011; and Maury Leyland, the same, a Board member since 2011.

As I mentioned earlier, you'll be hearing briefly from all of the directors, some of whom are up for re-election later in the meeting. We also have present today, down in the front, representatives of KPMG, our auditors, and Russell McVeagh, our legal advisors.

Company Secretary has confirmed to me that the Notice of Meeting has been sent to shareholders and all persons entitled to receive it. The constitution prescribes a quorum requirement of two shareholders, obviously, we make that requirement.

Proxies have been appointed for the purposes of this meeting in respect of approximately 1.2 billion shares representing over 60% of the total number of shares. This represents participation by a high proportion of our shareholders and we'd like to thank shareholders for that solid participation in today's meeting. My fellow directors and myself intend to vote any discretionary proxies we may have received in favor of all of the resolutions one through four set out in the Notice of Meeting.

The financial statements for the 12-month period to June 2013 together with the Auditors Report are set out in the Annual Report, which was made available on our website on the 23rd of August this year. There are spare hard copies available today if any shareholder would like one.

So let me talk about the recent road so far. In the last financial year, we unveiled a new direction and strategy and commenced a transformational shift. The imperative for this was driven, in part, by the explosion of demand for digital services, data and mobility and by the industry sector changes that have intensified competition for Telecom and other technology companies around the world.

It was also driven by the constrains of Telecom's own legacy systems and by the uncompetitive cost and revenue structures that were weighted to a fixed line business that has been in systematic decline for many years and we had to address our cost base.

The opportunity to finally tackle this transformation free from the considerable demands of navigating our way through operational separation, and the demerger from Chorus, has seen us able to move more quickly and more decisively. The Board was deeply involved with Simon and his team in the development of the strategy and we fully endorse the lightening pace with which they have started. There is a lot of change underway in this business and the Board applauds management embracing it and really going for it. We've set a direction and strategy aimed at Telecom becoming a growing New Zealand company, winning by customers choosing to us to connect them at what the team call the Speed of Life.

Delivering on this ambition we think we will create a more valuable company for you and will contribute to a better future for New Zealand. It's about completing the shift from a traditional fixed and mobile infrastructure centric business to a future-orientated competitive provider of communications, entertainment and IT services and moving from being networkcentric to being customer and services centric.

The commencement of this change program is being reflected in our financial results for the FY '13 year. Our results announcement in last August in that we delivered a result that reflected several factors. It reflected the increased level of competition in the New Zealand market. It reflected deliberate calls we made to compete aggressively on price and through our brands to target market share and strengthen our customer base. And it reflected the ongoing decline in fixed line and fixed line margins.

We also made some deliberate moves to refocus our Gen-I business portfolio by divesting businesses such as Davanti and Auldhouse, consulting and training businesses, and investing in new businesses that we felt are more relevant to our future such as Revera. And we have made some tough calls to significantly reduce our operating costs in order to become more competitive.

All these factors, as we expected, negatively impacted our short term operating margins and revenues for FY '13 and contributed to what we are acutely aware for shareholders is not a great financial result. Total revenues were down, earnings were down, net earnings were down. The Board did, however, remain committed to maintaining a strong shareholder dividend, paying a full FY '13 dividend of $0.16 a share, which we expect to maintain in FY '14.

Despite the strong commitment and effort on the part of the team, we didn’t achieve the short-term financial objectives for the business. With this background and the desire to further improve the link between performance and shareholder outcomes, staff only received a low short term bonus for FY '13. So let me talk a little bit about the road ahead.

The FY '14 financial year will not get any easier; it will still remain challenging for management. Competition is intense and the market is continuing to evolve. What we are doing and what we have underway and there is no two ways about this. It's incredibly difficult and if the experience of other companies have already gone down this path is any guide, it will likely take several years of concentrated effort.

At the same time, there are signs that give us some confidence we are on the right track. The centrally-lead turnaround program to enable higher performance within the business is gathering pace. We are holding market share. A lot of tough calls including labor have been made. A lot of new market and branding plays have been launched. Our business portfolio has been adjusted and strategic progress is noticeable.

There is still a lot more hard work to come to bridge the gap between the declining parts of the business and the growth potential from new businesses we're investing in, as well as continuing to improve customer service and at the same time taking the action needed to get competitive to a competitive cost structure. There are lot of moving parts and it requires action on several fronts.

We also need to create the right long term incentives to achieve the challenging targets needed to succeed and ensure an even stronger link between organizational performance and shareholder outcomes. In particular to incentivize the team to execute the challenging turnaround program as fast as possible.

With our longer term ambitions for Telecom in mind, we have been reworking the company's remuneration approach to do more to incent the sort of performance that will be needed to deliver truly superior shareholder returns within a three year timeframe. That's a seriously aggressive timeframe to transform a business of the size and scale of Telecom.

In line with this, yesterday, the Board agreed to proceed with some targeted one-off performance equity grants to the Chief Executive and some other senior Telecom managers only exercisable in the event they achieve some very challenging performance hurdles in the next three years.

Shareholders will have had to receive some aggressive total shareholder returns before this equity will vest. The hurdles work on a sliding scale from 40% vesting at a total shareholder return of 1.5x the cost of equity to 100% vesting at 2.2x the cost of equity. To try and put this in some context, for full vesting to occur, Telecom's shareholders would have had to receive shareholder returns over the three-year period greater than 20%, compounded annually. Most particularly, shareholders will have benefited big time before these incentives pay off.

Part of the success is also about having the right people and the Board has the utmost confidence in Simon and his team that they are the right people to tackle this challenge and the steps taken to date only reinforce that confidence. I'm also confident that we have a Board that has, since forming in late 2011, developed into a strong, cohesive group with a diverse mix of skills that fully backs the strategy, the CEO and the team.

Telecom is in a very different position to only a few years ago. Any structural advantages we had are long gone and the level of competition and the intensity of competition is growing. To make the strategic shift a new organization is needed. Once that starts -- it starts, I should say, with what the customer needs and wants are and then we will back from there. One that involves a total effort from the Board right through to the front line customer service teams. One that's about winning in key markets particularly mobile and data and then seeking to grow into new areas from there

It's not just about becoming more competitive and generating more cash through a focus on costs alone nor is it about just having simpler systems and processes. That work is a critical element of getting us back in the game. The pathway to longer term sustainable value also involves growth. We must invest carefully your funds into potential revenue growth areas needed for the long term particularly through our new operating units Telecom Digital Ventures and new initiatives such as our national Wi-Fi hotspots, a new use for telephone booths probably none of us ever imagined would ever occur and the purchase of Revera.

We know it can be done. Across the Tasman, Telstra have clearly demonstrated with a similar approach that it is possible for incumbent telcos with a sound strategy and disciplined execution over time to succeed in the markets of today.

The importance of telecommunications to New Zealand's social and economic progress is being increasingly recognized and the demand for data and mobility is rapidly growing. This raises the stakes and signals future opportunities. We intend to continue to execute on our strategic road map and operational program and from the Board perspective, everything we do is about driving sustainable growth and long term shareholder value over time, as you would expect.

As we said at the full-year results announcement, there are still a lot of moving parts in our business and this makes the provision of earnings guidance within a narrow range difficult at this time. However, I can assure you that the Board is comfortable with the progress that is currently being made and would like to reiterate that, subject to no adverse change in operating outlook, we still expect to pay a dividend of $0.16 a share for the FY '14 financial year.

Before I hand over to Simon to briefly address you, I would like to thank management and staff of Telecom for their ongoing commitment to reinventing Telecom as a growing New Zealand business. It's been a tough challenging time for them, but it's really energizing to be walking around the business and see the commitment and level of excitement that is slowly growing right from the frontline.

I'd like also to thank you, our shareholders, for your continued support. It's a privilege to serve as your Chairman. As shareholders, I encourage you to accept the fact that you yourselves are all brand ambassadors of the company and I'd encourage you to tell your family and friends about the way in which Telecom is changing and how competitive we're becoming. If you are not already a customer, give us a try and become an ambassador. Thank you.

Simon Moutter

Good morning, shareholders, and look, at last year at this meeting I was a couple of short months into the job and I recall actually making three promises to you. The first promise was that I would listen to the voice of New Zealanders, to the voice of our shareholders, to the voice of our customers before we made any real decisions about what we would do to set out after rebuilding the company and the success of this business.

The second promise is that we would set a very clear new strategic direction for the company and the third promise was that when we had done that, we would get after it with real vigor. And I stand here one year on and say I'm absolutely confident that we have delivered on all three of those promises.

And as the Chairman has pointed out, this is a time of incredible change, not just in our company, but in the industry that we operate in. We've got worldwide a revolution occurring today in data and in mobility, incredible mega trends around the birth of social networking, the view from customers that everything should be wireless and mobile, that we should be able to do everything we want to do anywhere, anytime, the emerging concepts of cloud computing and big data applications in our business markets are all new major trends.

These are huge disruptors to our industry and further impacted in New Zealand by the merger of our two largest competitors, Vodafone and TelstraClear occurring in the last year to a company vastly inferior to us, of course, but in a sort of similar and look-alike as a true whole of business competitor we've got the arrival of a meaningful third player in mobile, the dramatic change in our industry through the separation of Chorus from our business and you can see the level of uncertainty that that continues to create by the activity in the media over recent days.

So we had, emerging from that, a real very stark choice to make around the role we played in the industry in New Zealand and I think we would characterize that as a decision to be really the data pipes business to combine the access network with our big transport and international networks and mobile networking and set ourselves up as nothing more than a seller of big, fat, dumb data pipes or to move up the stream and become a true retailer of data and digital services and applications that make the most of those pipes.

That choice was a very stark one. The far easier choice was the former; the far more challenging choice was the later, but in the end, we opted for the more challenging choice in that it creates, in our view, a more valuable company long term and a much more valuable business for New Zealand.

New Zealand needs a strong Telecom that invests in the infrastructure that we do in a singular market focus and make sure that New Zealanders can benefit from all of this incredible technology. So that strategic shift now is well underway. It's really captured in a move from a company that was really a traditional provider of fixed and mobile telecommunications infrastructure to a new future-oriented, competitive retailer of digital services provided from our networks in the cloud and that is a very stark difference from a infrastructure company to retailer.

So we think about it as old Telecom to new Telecom, a reinvention in this business is appearing that sets us up for life as a retailer in an all digital world. And that means shaping our business around the rapidly changing and emerging needs of customers in this fast-changing, all-digital environment. To do that, we've adopted a multi-brand strategy, so we are not just Telecom today, we are Gen-I for big business, we are Telecom for mainstream New Zealand, we are Skinny for the value conscious market, we are Revera for buyers of cloud applications, we are AAPT for customers of our data products in Australia. So, we've a multi-brand company and we've chosen to continue to develop that multi-brand capability.

Big businesses have an enormous amount of inertia in them and the Telecom Group is by no means outside of that group. We have millions of customers, we deal in millions of transactions every day. We have hundreds of thousands of contracts with customers and suppliers. We have billions of dollars of assets, 1,700 IT platforms in this business. It is very hard to move an organization of that scale with several thousand employees too. So we are taking -- the only way you can move such a big organization with so much inertia embedded in is to take some very big and bold decisions in parallel, a lots of them and move and push very hard together.

And a big factor on that is getting ourselves the way we operate this business, our people and our organizational culture to be a leaner, faster-moving organization much more relying to a modern world-class retailer than yesterday's infrastructure company. So, to do that, we are running around four very straight forward strategic priorities and I would like to just give you a little bit of a progress update on these.

So revolutionizing customer experiences is about taking our customers online and on device, it's moving to the new way that most of our customers want to deal with us, which is not to ring call centers and not to buy complicated products, but in fact to be able to engage with us off their smart phone, off their tablet or off their computer to buy and change their plans, to get help and assistance and to make their choices with us online and on device. To do that is about building the 24x7 anywhere, anytime data networking capability that enables that, that makes all of those devices able to connect with us at any point in time.

And we are also working vigorously to transform the way we construct our plans and products to make them easier for customers to understand, easier to buy, easier to use and a lot easier to understand when it turns up on a bill at home. And some incredible examples of that with the re-pricing of our portfolios across the board in broadband and in mobile and revolutionizing the way we do international data roaming where we moved to cap rate constructs, which are far simpler and much higher value to regular travelers today.

Simplify the business is a theme around much sharper, simplified products and services much easier for customers to understand. For our staff, it's about a simplified HR framework, a simplified way of working together that allows us to make decisions more quickly to people better understand their accountability and to better understand what they do to deliver to customers every day. We've thrown out the textbook on performance management in Telecom and we are reinventing a new way of working that enables our people to move with more confidence and more surety about delivering outcomes.

For our systems, our processes and our cost structures, as Mark alluded to, we have created a centralized program we badge it the turnaround program. We have a Chief Turnaround Officer reporting direct to me who runs the Turnaround Office and we are taking a highly disciplined approach to running with that expert and an independent focus to work on all of our processes and systems simplify them and enable the business to be a much more productive organization.

The third theme is to win key markets. So we don’t see ourselves as taking every market, we are making quite clear market choices about the sort of the markets that we should be in and that our brands are well set up to performing. To achieve that is a mission to become a world-class micro segmented, micro marketed. The best retailers on the planet today don’t really think in broad segments like we used to, business customers consumer customers, they think in very, very small segments.

And perhaps the world's best retailer today is Amazon, who thinks about customer as a segment of one. Amazon knows enough about your personal preferences to be able to market directly to you as an individual. Now, that is a very long strategic journey for an organization like us, but we are on that path and you can see some of those emerging segmentation decisions occurring today.

We're very much focused on our big business customer base, we increased the size of that base this year by adding a 1,000 SME customers into it who a sophisticated buyers, so we beefed up the Gen-I business unit and the mission for Gen-I and its market is to maintain its very, very strong market share of big business network, data applications, telecommunications and ICT.

In the small and medium business area, we've made a very significant move to detach that sub-segment from the main Telecom brand that centers now around a new channel model we call the Telecom business hubs and it has its own communication vehicles and a very explicit support structure inside the organization, which is increasingly focused on meeting the needs of small and medium enterprise. In an ownership model where the owners of those hubs can make the claim of local like you are to the similar size businesses they serve in each of our markets around the regions.

A key market for the main brands of Telecom, the Telecom and Skinny brands is the young mobile and Auckland markets. These are areas where we must improve our market share and so a lot of work we've done over recent months is to being reset our brands and our core go-to-market propositions to be more appealing to younger people, to be more appealing to Aucklanders, to be more appealing to the mobile buyer, which are the lead sets for us.

So you can see those moves in the makeover of the Telecom brand. The opening video was our most recent advertising. It's younger focused, it's more energetic, it's more ethnically diverse. We're moving to widen the appeal of the brand Telecom to the younger Auckland market.

And we've recently re-launched and powered up the Skinny brand, we're aiming to make Skinny a very big brand in New Zealand. We've powered that up in a no-frills, straight-forward mobile offer targeted at the value-conscious prepaid mobile customer in New Zealand. You can think of it as a little bit like the pick-and-save of the super market world that is the purpose of Skinny. So these compelling brands and propositions are critical to us and you will see more and more innovation from the company over time as we focus more tightly on specific segments.

The fourth dimension of strategy is winning the future and say this goes to the point that Mark raised about -- you know, it is one thing to get our current organization set and our cost right and our profitability improve; it s another thing altogether to make sure in their cost (inaudible) and our profitability improve. It is another thing altogether to make sure we've got this business back on a path that is running with global trends and can deliver us some long term growth.

So we've made a number of very strong decisions to set the business up to follow those big global mega trends I referred to earlier in the address. So we've set up a Telecom Digital Ventures unit, it operates on very much an Internet business model outside of the core Telecom business. It's focused today on delivering the Wi-Fi networks. It's creating a mobile wallet and mobile commerce capability that will come to market next year.

It's working our big data plays with big business customers investing in creation of smart home capabilities. We have a lot of staff trailing very innovative stuff right down to a robotic lawnmower that would be something that would be quite useful. So we'd all enjoy one of those, I'm sure. We've got a lot of work on how we can bring our networking and connectivity capability to bear for the benefit of a number of industry verticals, particularly health and the rural market, for example, and the Digital Ventures team are working on our Internet video capability as well.

In the Revera business and further ups in the business market, we have made some very conscious decisions to exit yesterday's business activities in Davanti and Auldhouse and what we were doing in significant part in Australia with Gen-i, we have reduced their focus and we are refocusing Gen-i in New Zealand on the cloud on as-a-service offerings, which is the new way people consume IT services in the business market. And in mobile applications, partnerships with the likes of SAP and Cisco. So a very big shift in the core approach in Gen-i.

We're also focusing on educating our customers to be able -- an education generally, because all very well having all of this technology, but actually we do find there are a lot of customers are not yet in a position to understand how they make the most of it. And so a good example that you might see are the Tech in a Sec videos, the messaging that runs before the news or around the news every night on TV, those education videos are helping New Zealanders learn to use that technology. And I have to tell you -- and this is the plain truth -- even my wife said last night, Simon, I just learned something from one of your Tech in a Sec video. So that's a good step forward. So we've got her on board, we are doing okay. She is not my strongest supporter sometimes.

So, look, we're very focused on that and we're very proud to have won the Network for Learning business, so we are in the process right now of building out a fantastic network linking every school in New Zealand in a closed virtual private very high speed data network that is going to be the basis of incredible change in the way education is delivered to young New Zealanders in coming years. So we're very proud to be the government's partner in the Network for Learning.

And of course, we have massive ongoing investment in data networking capability nationwide. We launch 4G networking mobile in Auckland, Wellington and Christchurch next week. We have a range of Ultra mobile services to utilize those with being the fastest and easily the fastest mover on the government's fiber broadband network today. We were strongly out on that much earlier than our major competitors. We are pushing the VDSL product, the higher speed copper broadband product. We can sell that as practically as fast as Chorus can build it.

We have a nationwide Wi-Fi network going commercial at the moment that is an extreme differentiator, there is no competitor in the market, it has Wi-Fi like we do and that will enable customers to use more and more data and keep our costs in train and allows them to use all of those exciting new services.

And we just turned on a new co-network called Optical Transport, this is switching of light waves in our nationwide fiber networks that lifts the speed of our network up and down New Zealand to five terra bits a second which is truly world-leading capability and that is what is going to facilitate these incredible volumes of data that run up and down the country over the next few years.

So we are absolutely picking up speed in this business. We have got a lot of work to do and a lot work on the reset of such a major reset of strategy and I confidently stand here today and say I don’t think there is a major company in New Zealand that is moving as fast to change and get set around the future as we are right now. So we're seeing some (inaudible)

As we said, as Mark noted we are holding our market shares for the first time in many years, we think we're gaining market share in mobile and holding on broadband. We have the turnaround program absolutely underway. We have big changes going on to our brands, our technology platforms, our portfolio of businesses, our performance management approach through the organization. We've shifted the pace of the organization from monthly in arrears process, which is how a normal infrastructure business will operate - monthly reporting, monthly meeting cycle, monthly actioning down to daily -- that process runs daily now in our retail businesses and weekly (inaudible) initiatives so that we maintain a very higher rate of change and improvement through the business.

We're totally focused on outcomes in our processes, and we ride across old processes over and over again to get us to an outcome. And we have embraced companywide what we call the owner's mindset on your behalf we are talking a culture that is the owner's mindset and we look at every decision we make today based on the relative cash-on-cash returns available from the use of our precious capital.

And all of that is not change for change's sake. We have a burning ambition and a real ambition to win and we know it can be done. As Mark noted, our competitor -- our comparable company, Telstra, across the ditch has achieved meaningful turnaround, but we look very hard and learn from other companies around the world who were like us and who have improved and you know Verizon, TDC in Denmark are good examples. We have explored a lot of their territory and are trying to replicate the steps they've taken.

We've very committed to execution. We know we won't get everything right, but we're willing to make a few mistakes on the journey and we will respond very quickly when we don’t get it right. It's a hard business to get every decision right. So we will tend to play some options. We know we need both cost out and growth opportunities and we will not lose focus on the growth possibilities ahead.

We have got now the best-performing, lowest-cost-per-gigabyte data network in New Zealand and that will enable us to continue to deliver the results. We're seeing already improved results, we see our brand favorability and customer feedback rapidly improving in New Zealand. We see our market shares are much stronger than they have been for a long time. We are absolutely winning the race in New Zealand to cloud and as-a-service business models in the big business client base. We are easily the biggest and best all data network coming to market right now.

We have made a mess of cost base reduction and that is allowing us to respond competitively on price in the market without damaging your returns. And I can confidently say our staff are absolutely going for it. So, as Mark said, we'd love you to be customers and I know you are not all our customers, so it's his job to make the request. It's my job to put the pressure on you. So when we're out there, you will get hit on by a few of our reps. We would love to have you on board, so if you're willing to give us your contact details, we'll put a fantastic rep in place to contact you afterwards and see if we can get to your home, your business activity across to Telecom Group.

And look, I wanted to close with another personal commitment to you. Now, we do have a real ambition to win. I am here to stay the course on this. I have a leadership team who is absolutely committed to delivering this turnaround and getting this company back onto a growth curve. We need to do that for you, our shareholders, we need to do it for our employees who are tired of losing to and want to be part of a winning organization and we need to do that for New Zealand. New Zealand needs a strong Telecom and we aim to deliver and will stay the course and make sure that happens soon.

So, thank you for hearing me.

Mark Verbiest

Thank you, Simon, and look if some of you might have been exhausted by the energy that Simon's displaying today, let me assure you he is like that everyday, so that should give you a lot of confidence about the speed and the commitment on the part of him and his team.

Ladies and gentlemen, as I said earlier, each of the directors would like to give you a brief snippet of their own perspective on Telecom and we thought it would start with the three directors that are up for re-election. When we get to the formal part of the meeting about the re-election, you'll have the opportunity to ask any questions you might like to ask of them then, but I'll first ask Maury Leyland to speak.

Maury Leyland

Thank you, Mark, and good morning, everybody. Telecom's demerger two years ago was a defining event that meant that Telecom could take a much more active role in its future and had the opportunity to build the culture and the operating model to support that. The challenge today, of course, is that the industry faces demand growth in areas where there isn’t a revenue model to match that. Customers want more data and services while old business models were designed to deliver telephones. The behavior of us all has changed. We entertain ourselves, we shop, we interact very differently and we're all using devices and data to do that.

So for Telecom to win it must be fit to meet the customer needs of not only to today, but most certainly tomorrow. The changes that Simon have led to date show that Telecom is now right on the game, but there is a great deal more to do. In order to succeed, the company must prioritize its resources to support its strategy. It must focus on hitting milestones that deliver the change required for the customer and must then convert that into value for shareholders.

And this no small ask. It requires a great deal of stamina on behalf of the CEO, the leadership team and everybody involved. It also requires the attention and focus of the Board. Staying the course, adjusting strategy, where required, mitigating risk and ensuring alignment across the whole company are critical roles.

I joined the Telecom Board two years ago and have been a senior executive at Fonterra since 2005 where I'm parallely Group Director of Strategy. I've also been on the Board of Transpower New Zealand. Prior to joining Fonterra, I spent nine years with the Boston Consulting Group where I worked with large companies across Australasia and around the Pacific. I'm an engineer and I cut my professional teeth as a member of Team New Zealand's design team during its successful challenge in '95.

It's the opportunity to use my experience of working on large, complex, ultra-competitive challenges which is the reason that I'm keen to continue to support Telecom win this race. I have a lot of confidence in the journey that the company now has underway and I'm putting myself forward for re-election today for the privilege of playing my part to continue on that journey. Thank you.

Charles Sitch

Good morning. My name is Charles Sitch. I've spent 15 years in the telecommunications industry as a senior partner at McKinsey, which is a management consulting firm. And I had clients in Australia, New Zealand, and the United States. Now, wanted to spend two or three minutes to give you a kind of a potted kind of summary of where I think telecommunications is going around the world.

Very, very simply there's two things going on. Revenue is flat. It's true of every—I'm talking now about developed world telecommunications companies. Revenue is flat, but data transmission is going through the roof. So in the last five years the volume of data transmitted across networks has grown 50 times, not 50%, 50 times. So to put that in real terms, I heard overnight because I listen to -- I watch -- read The New York Times online -- as you can now with modern technology -- that Blockbuster video, which when I was living in the United States had 10,000 stores, went broke. It closed its last store yesterday. Now all that carriage of video data doesn’t happened with a person going and collecting from the store, it happens online. That's the kind of thing, the reason why volume of data is growing.

So there is juxtaposition, if you like, that revenue's flat, but the volume of data is going up with that speed. There's a mismatch of supply and demand. So, who's making money in the industry at the moment? Well, it's the content providers, so people like Premier League, Disneyland, Twitter, which also listed last night or this morning in the New York Stock Exchange. It didn’t exist six years ago, I think they got $26 a share, this morning's it's a $18 billion-company today. I read in the paper this morning that your software company Xero with $70 million in revenue -- this is a content provider -- is worth more than Telecom at the moment who's got $4 billion revenue, they've got $70 million.

So it gives you a sense as to the extent to which the market's really valuing content. And, of course, these guys, the guys who provide these beautiful little devices, so they're making money. The Apple story is extraordinary. So at one end of our network, the guys providing the data are making the money, and the other hand end, the guys who are changing our lives with these devices are making money.

So, what in the face of this kind (inaudible) today Mark and Simon have described this dramatic change in the industry, what are telcos around the world doing? Well, first of all, they're becoming very, very efficient. So they're taking cost out and becoming really lean and tick Telecom, we're doing that. The second thing is that they're using what they call this term big data - really high-end mathematical analytics to find opportunities in sales and marketing and exploit those. AT&T is amazing at that. Telefónica in Spain's amazing at that. We're getting better at that.

They're also continuing to invest in their networks, so Simon mentioned about the new 4G making sure that we've got the highest grade fiber-optic and wireless to support this huge data volume. They're investing in verticals. I think Simon mentioned investing in healthcare, so they're very sophisticated in hooking up doctors and medicos and patients and hospitals and medical centers; we're doing that. And they're also doing what you call value-added solutions around not just being dumb pipe, but providing solutions around the carriage of data, so Simon mentioned cloud computing.

The 25-million-dollar question is will there be a world in the future where telcos can price data properly and I think there's some encouraging signs. Ten years ago, the fiber that goes underneath the ocean that links Auckland and Sydney was 1% lit that means in technical terms, meaning no one was really using it and we couldn’t price it properly. Now the demand for the fiber-optic cables, submarine cable is extreme and prices are (inaudible) way back.

I think just sort of Economics 101 that eventually supply and demand will come back into equilibrium and this huge amount of volume of data that we do carry we'll be able to price much better forward. And if that occurs and I think it will, there's encouraging signs that would put us in a very, very good place.

So, that's a two or three minute part of history of the telecommunications industry at the moment. I would say that one of the criteria I had for myself when coming on the Telecom Board was that we be as good as anybody in the world in telecommunications. And I think Simon and his team are meeting that criteria. We're 77th in the world in size, in revenue and operating profit, but I can't think of a thing that other good telcos are doing that we're not doing at the moment and that gives me a lot of comfort. Thank you.

Justine Smyth

Thanks, Charles. When taking on government's role, it's really important to me that I feel a real passion for the company and the role it can play in New Zealand. And that's why I was delighted to join the Board of Telecom and at that time in my delight decided to purchase a good chunk of shares in the company. So I've got great vested interest as you do in seeing us succeed.

My background is in finance and business management, firstly, as a partner in Deloitte a and then Group Finance Director at Lion Nathan. I've grown a retail clothing business with brands across New Zealand and Australia, I currently sit on the Board of the Auckland Airport and in the Financial Markets Authority and I chair the New Zealand Breast Cancer Foundation. These entities all in their own right have a significant role to play in the New Zealand economy. And it's that background that underpins my contribution as a director.

You've heard today that Telecom must continue to accelerate its rate of change and make bold decisions. This is being reflected in the human resources and remuneration approach of the Board's subcommittee which I chair. We're focused on simplifying the business and reducing costs with tough calls and we've reduced the number of employees from 7,600 to 6,300 over the past year which is a substantial reduction.

As Simon said, we've departed from the HR text book and dramatically simplified the performance management and remuneration processes to help drive better organizational outcomes. We've reviewed the incentive structures realizing that delivering on our ambitions will take time, but confident that these initiatives will help us on our path.

It's a privilege to stand for re-election to the Board of Telecom and if elected I commit to work diligently alongside my fellow directors and with management and staff to making a difference to deliver strong returns to shareholders. Thank you.

Mark Verbiest

Maury, Charles and Justine. I thank Maury, Grant Dalton could have done with you in San Francisco, maybe. And as I said earlier on, these three are up for re-election later in the meeting and you'll have the opportunity to answer any questions of them then. I'll now ask Dr. Larry Horn to address you.

Murray Horn

Thank you, Mark. When the company was split two years ago, they gave us an opportunity to focus exclusively on the business rather than have half our attention on meeting a series of regulatory commitments that we had to give the government. The new Board and management has seized their opportunity. Our initial focus has been on reducing costs, to serve our customers and therefore to be able to hold and grow our market share.

One of the most pleasing things for me in the last 12 months is that we have stopped walking backwards slowly on market share. We are either holding or growing our share and that is really encouraging.

The reality is for us though in the short term that our revenues will continue to decline, so we have to continue to reduce cost to maintain our profitability. We're doing that. The new team is doing that faster and with less risk than we've ever done before. Moreover, these cost reductions are not one-off and neither do they compromise our long-term health. Indeed, the fact that we are holding or growing market share is a sign that we're well placed for the future and we have far more costs savings to come.

However, we can't shrink our way to victory. We're starting to create options to hold, to diversify, and then to ultimately increase our revenues and our investments in cloud and 4G and in Digital Ventures are a sign of our intent to do that. We're acutely aware of execution risk. Having lived through XT, I’m personally very acutely aware of execution risk. However, I can say and I'm Chairman of the Audit and Risk Management Committee, and we take risk management very seriously. We're in a much better shape to execute what is a still a very challenging agenda of change inside the company than we were three or four years ago. Much better shape.

We also remain committed to doing what Telecom has always done very well. We're committed to maintain a strong credit rating because that gives us financial flexibility, which is especially important when financial markets are cut up rough as they have done several times in the last few years. We're also committed to maintaining a high standard of transparency in financial reporting. We do that because that builds trust amongst investors and others that we can and will deliver on our promises. As a director, those are my commitments to you.

Paul Berriman

Thank you, Murray. Good morning, fellow shareholders. I come from PCCW, the former incumbent telco in Hong Kong. Ten years ago, it was in a similar position to Telecom. PCCW is now the biggest pay-TV company as well as the largest integrated fixed and mobile and broadband operator in Hong Kong. And, by the way, that's with five fixed mobile and pay-TV competitors in the same market, with five 4G operators already. It's a vivid illustration of how things can change.

The last two decades have been tumultuous for telcos around the world and Charles gave some good illustrations there. The changes from regulated monopolies to full market competition have been hard. Traditional access products have become commoditized markets and these markets have been distorted and the incumbent telcos have had to sit and watch other people eat their lunch.

Due to the market characteristics and the regulatory situation in New Zealand, these changes have occurred here some six or seven years behind other developed countries. Nevertheless, operators in other countries are starting on a new road to prosperity and, in some cases, restoring profitability. How have they done this and can the same apply to Telecom New Zealand?

In most cases, it's been a case of defend, innovate, and grow. First, tie down cost to stay price competitive and retain more customers through a better understanding of them. Then, ultimately, innovate in new areas for new revenue growth. With the pressures of the regulatory environment and the de-merger, Telecom has until now been largely focused on costs. It's now time to start eating someone else's lunch. Telecom Digital Ventures will develop value adds to our existing networks, which can produce true new avenue and growth, no longer just a dumb pipe. We should start to see the benefits of these in the next couple of years.

One of my jobs is to bring that overseas experience from one of the most competitive markets in the world to help guide Telecom and Telecom Digital Ventures along this path whilst minimizing the risks. Watch out for these new services and watch how Telecom can transform itself. We are all aligned with this vision - Board, management alike. And thank you again for the opportunity to participate in this. Thank you.

Kevin Roberts

Thanks very much, Paul. I've been in New Zealand long enough, have been on the Board long enough to live through and see all these changes that people have been talking about just like you. It's been one hell of a trip. Telecom's in business now where we're a retail services provider and we're competing in the real world of freedom of choice. And that's a very exciting position for us to be in.

For retail service providers having brilliant brands that connect is the key to winning. You've got to have brands that people connect with, that they love it, that they desire, that they trust and that they believe in.

We've adopted a multi-brand strategy, as Simon said, with each brand being repositioned now to make them absolutely compelling for all customers. Gen-i is being reset as the leader in business network, IT and cloud services. Skinny is being relaunched as something that really matters for younger people to get a grip on, to really feel strong affection and bonding to us and the key Telecom Retail brand itself is being overhauled to broaden its appeal everywhere.

We feel very, very strongly about that. We think we've got the answers and we're ready to rock. Telecom is on the right path, we'll not be diverted from it and our job's pretty simple when you boil it all down. It's to make our brands and our company irresistible to all New Zealanders. And I know you're going to help us do that, right. Thank you very much.

Mark Verbiest

Thank you, Kevin. I hope you listening to our directors today has given you at least a snippet of the various perspectives and insights that they bring from where they come from to the Board.

Ladies & gentlemen, we now turn to the part of the meeting where you have the opportunity to raise questions. I encourage you to ask any questions that you might have during this part of the meeting, because the only further opportunity to ask will relate specifically to the matters that are the subject of formal resolutions as outlined in the Notice of Meeting.

Before I open up questions from the floor, I'd like to take this opportunity to remind you that this meeting is being webcast, so you will also be heard by an audience side of this room.

I would now like to give any shareholder present today the opportunity to ask questions of the Board or auditors. I suggest that if you have a personal customer matter to discuss that you speak to one of our service representatives at the customer service disk that is in the registration area you would have passed on your way in, at the conclusion of the meeting. And they will be more than happy to assist you with your questions and possibly transfer you to other services too.

The directors are also happy to answer questions from shareholders during refreshments at the conclusion of the meeting. Could I ask that any person wishing to speak move to the microphone nearest to you and hand your voting paper to the Telecom staff member so that they can read up your name prior to your asking your question. And I ask in the interest of fairness to all shareholders attending that anyone wishing to speak should be as concise as possible and be considerate to other shareholders wishing to ask questions. And so, for the sake of good order also, I would ask that shareholders speak once to give other shareholders a reasonable opportunity to ask questions that you may have. So the floor is open.

Question-and-Answer Session

Operator

Mr. Chairman, Joe would like to ask a question.

Unidentified Analyst

Over the last two months I've watched the Telecom share price track down. With the changes that you're making and improved results, are you confident that this will start tracking up by over the next 12 months?

Unidentified Company Speaker

Let me say that we would not be embarking on cost that we are, if we went confident that we were on the right track. I think the price today is reflecting, if you like, uncertainty on the pad of investors and analysts who are rightly saying, we want to see your runs on the Board. And I think until that occurs and when that occurs you would expect to see that lift.

Operator

(inaudible) would like to ask a question.

Unidentified Analyst

Sorry, Mr. (inaudible). Just a couple -- one question. That is relation to the Southern Cross cable. Charles has mentioned the incredible amount of demand that is on this -- between here and Australia. There were the bad comments in the annual report about the Southern Cross, about it being timing price and capacity and difficult to predict the level of Southern Cross sales any particular year and the fact that its perhaps running near the end of its life. There has been lot of media about competitor being setup and large amounts of money being able to made by the entrepreneurs who are wanting to put that forward. And what is the position today with Southern Cross?

Unidentified Company Speaker

Well, I will start off and Simon Moutter might add to it. Southern Cross is far from being the end of its life; it has got a lot more life left in it. And we continue to get a good somewhat lumpy dividend stream as a result of the sales that it makes. It is lumpy and it is unpredictable, and hence the comments on the annul report because by nature and particularly, given the phenomenon that Charles is talking about, the sales that are made by Southern Cross to its customers are very, very large and so it is not like a regular sale of a commodity that might occur in another business. As I say, it has got a lot more life.

I think what you are also seeing is an expansion of traffic coming from parts of the world other than the U.S. now. Most international traffic into New Zealand used to come from the U.S., is a far greater proportion that is starting to come from Asia through Australia and elsewhere and hence we've committed to making an investment with Telstra and Vodafone and a another trans-Tasman cable. So the prices are going down.

And the other points -- but the volume, if you like of capacity sales is going up. And so it still leads to we would expect a reasonable dividend stream coming from that investment for some time.

And just a further comment, because we often hear in the media about Southern Cross's pricing. Southern Cross is independent of Telecom, we do not control it. It prices though on the basis of the Australian market. Those are the prices that customers, its New Zealand customers pay. The Australian market in submarine cables is highly competitive. So New Zealand is not getting ripped off and Simon might be able to confirm this, but my understanding is that the international component and what all of you who the customers might see in end date bill is about 5%.

Simon Moutter

Well, less than that actually. So in a typical broadband bundle of $75 which is typical household would take today, the cost of Southern Cross embedded net is just over $1. So it's not a meaningful impact on the price of broadband. And another little instincts fact for you is that the price per gigabyte on the Southern Cross has fallen and since the cable was fused, brought to market by 99%. So the price today is 1% of what it was a little over 10 years ago, when the cable came to market. So its certainly meeting the market (inaudible).

Unidentified Company Speaker

Yeah. But it is -- it has been and continues to be a great asset and investment of shareholding in Southern Cross.

Simon Moutter

And will be with us in strong for at least another 10 years. No question about that. These cables can be upgraded by adding more electronics on to the end of them and Southern Cross has more potential upgrades as it runs out of capacity to be sold, it can be upgraded again in future.

Operator

Would like to make a comment. Mr. Shaw?

Unidentified Analyst

I would like to make a comment. You're doing all these fancy, fantastic things. I presume you have research and development department or is that not --

Unidentified Company Speaker

There is Digital Ventures unit I would say, that's where the expertise (inaudible).

Unidentified Analyst

(inaudible). The AGM report, do you have to have that, such a bulky? I mean, so the average person here would look at the front pipe just as far as it goes, and a plough through that is all done, takes time. And you wonder, God, what is all this rubbish here for?

Unidentified Company Speaker

Mr. Shaw, let me assure you we have a lot of sympathy with you. We have reporting requirements as long as we have a U.S. registration. That means that we have to put the information that you seen in annual report. And then, we -- it is fair to say, I think we can do a bit to improve how we disclose particularly, our financials going forward and we will take your comments on board.

Simon Moutter

Yeah, we are trying to get off the U.S. registration to minimize its stuff too, so.

Unidentified Company Speaker

Yeah, surely we can do something for just the overly average guy, who happens to be a shareholder. This building you lease it, correct?

Unidentified Company Speaker

Correct.

Unidentified Company Speaker

Yes.

Unidentified Analyst

How much did that cost?

Unidentified Company Speaker

A few million a year.

Unidentified Analyst

10 million a year?

Unidentified Company Speaker

A few million.

Unidentified Analyst

A few million?

Unidentified Company Speaker

(inaudible).

Unidentified Analyst

Okay. 10 million would not be far away then?

Unidentified Company Speaker

Might not be.

Unidentified Analyst

The auditor. I presume the auditor and the CFO are on the same page. Can you give the same figure that he does or vice versa?

Unidentified Company Speaker

Absolutely. I think we would be old seriously concerned if that was not the case Mr. Shaw.

Unidentified Analyst

Well, I do hope so. This country is obsessed with borrowing. Often (inaudible) day. I only hope that you people (inaudible) are age on that, it is a serious matter and the future could be a bit dicey. We do not know yet.

Unidentified Company Speaker

Well, we are -- sorry, got a little a sniff of that from Maria. I think we very committed to maintaining our current sort of A band credit rating. We want to be in a stable position so that we can wither any sort of international storm that might have carry in the debt markets and still access debt funding when we need it. Thank you. Shanta?

Shanta

Mr. Chairman, John Rendall's would like to ask question.

Unidentified Company Speaker

John?

John Rendall

Hi. Good morning.

Unidentified Company Speaker

Good morning.

John Rendall

I am part of the social media world and there is a lot of talk around the future, engaging younger customers in particular. What is being done in the social media from a strategic level to sort of engage those new consumers?

Unidentified Company Speaker

We have in our retail marketing group, people with the expertise in social media and increasingly you will see a future for communicating products and services are reaching markets embracing increasingly the social media. We already are active. We would tick most boxes in terms of all presence and participation in social media. But I think our retail team will have much higher ambitions for the role that they can play. And where I talked earlier about simplifying, and going online and on device. Social media will play a very important part of reaching and interacting with customers, providing service and promoting our products and services through those channels, which are so pervasively used by particularly the younger market and we did stress that that was one of our key target market. So you can be sure and be active, I think we know we are not perfect but we are starving. Hey guys, (inaudible).

Operator

Mr. Chairman, (inaudible) got a question.

Unidentified Analyst

Good morning. My first question is, do you have a trouble attracting the type of IT and talent that you need, given how Zero and Duran Health in particular are operating the market?

Unidentified Company Speaker

To-date, we have not had any difficulty. We are not implication developing IT, so the Zero is an organization that is building software. We do not team to do software. We are mostly about delivery of software application, so our IT centricity is around platforms that run and manage IT network. So we draw from a different group and to-date we have proven successful in attracting the sort of talent we need to do that.

Unidentified Analyst

It is about the performance management that you were going to meet a total shareholders returns. One of the easiest ways you can make the returns look good is the share price to drop really low because you are just comparing since to the share price. I would like to say a weighting following on from the first person's question. An actual mark in the sand for the share price because, as I said, it drops down to $2 a year, that's fantastic. It is a mix between the share price and the dividend cents per share.

Unidentified Company Speaker

Well, both are taken into account in the context of total shareholders return, and obviously, they sit year-on-year. So the benchmark is what the situation was at the start of the year and (inaudible) what happened during end as a result of the end of the year.

Unidentified Analyst

Yeah, I understand that. However, if the share price was to drop, the return would look excellent and you could come along and say we have achieved a very good total shareholder return and they close our dividend yield as (inaudible) --

Unidentified Company Speaker

I think on a multiyear basis people would see through that pretty quickly.

Unidentified Analyst

Yeah. Sometimes those figures can be slightly misleading and people can convey or get confuse when I hear the total shareholders returns have gone up, the all I can see is decrease in share price.

Unidentified Company Speaker

Understand what you're saying. Thank you.

Operator

Mr. Chairman, Colin (inaudible) has a question.

Unidentified Analyst

Now, that the authenticity has spread out, I have a (inaudible) Helensville, (inaudible) that way, why is some of those places still on toll calls and not just on ordinary call like (inaudible)?

Unidentified Company Speaker

I think the user base who is simply making toll calls today is just a such a rapidly shrinking part of the business. So most people today will use the mobiles for calling. So it is not really an issue that we pay lot of attention to, to be honest, in the last (inaudible).

Unidentified Analyst

I do not actually live in those areas, I live five miles from the city. But people living down at the -- a lot of them do not like using mobiles and they got to have toll call.

Unidentified Company Speaker

Well, yeah. But even then it is you can buy from Telecom a bundle for $14 fixed price per month all the calling nationwide, so it is not exactly a lot of money.

Unidentified Analyst

And on the license hours, you were talking about a -- was it a Wi-Fi network?

Unidentified Company Speaker

Okay. A remote control modem.

Unidentified Analyst

Do you think you would be able to give one to Len Brown so you could (inaudible)?

Unidentified Company Speaker

A very good thought. I like that. It is (inaudible). Billy?

Operator

Martin Gary has a question.

Martin Gary

Yeah, it's a comment actually. I have been to quite a few meetings and I think this is the first time I have seen such an impressive talk from each of the directors and I have been impressed with that. And all of you seemed very committed and I am really looking forward to seeing hopefully the runs come up on the Board as well. Thank you.

Unidentified Company Speaker

Okay. Thank you very much.

Operator

Mr. Chairman, Mr. Noel Thompson would like to raise a question.

Noel Thompson

Mr. Chairman, regulation has called a typical issue with the moment.

Unidentified Company Speaker

Of course.

Noel Thompson

I understand Telecom still subject to some regulation in the copper loop business. Is that really holding you back too much? I mean in the annual report it talks about that being in effect for the next three years.

Unidentified Company Speaker

We face an input cost disadvantage which I will get Simon to expand on, until the end next year. But it's more, it is not us that -- it is not us being regulated, it is more the price that we pay, like all other service retail service providers pay is regulated particularly, in the copper space.

Unidentified Company Speaker

So our business today, we are mostly a consumer of regulated into products from Core.

Unidentified Company Speaker

Yes.

Unidentified Company Speaker

So we are Core's customer and we bought a number of regulated products, packages them up and resell them as products to our customers embedded in them but there are couple of the areas, as Mack emphasized there is one are of particular disadvantage that we are not committed to unbundled, the local loops and consume those which gives us a cost disadvantage. We only have one year to run, it was part of the demerger deal and we effectively ignore it. We price to the market, irrespective of if it hurts that returns in the near term but eventually, that will neutralize. So we are not worried about that, it is effectively 12 months to go.

Other than that, regulation is not a big factor for us. And I can tell you we have -- we do not spend and have not spend one single minute of leadership team time in this company since is started talking about regulation. We never do, we are talking only and working on customers. You will not see us put their name in these debates that are occurring around regulation. We are keeping the Telecom brand away from them. We just adopt a reasonable stance looking for reasonable outcomes.

And to the extent to which regulation limits as today is very, very smaller. We have some termination rate rules between our fixed mobile networks with competitors and we have some rules that we need to comply with some of the older PST in type products that we still act as the wholesaler for because we are in -- we have the -- we are in the IT and the technology that supports them. We will resell those to competitors but it is not really a factor in our business today.

Unidentified Analyst

Well, the other question sort of rammed that as well. So if the regulator gets away with cost (inaudible), is it an advantage for Telecom or no?

Simon Moutter

Okay. It is, we are the biggest buyer of those broadband inputs, so naturally you would assume that a lower price would mean a lower cost for us. I think the difficulty in us giving you any view of whether that is a benefit to the company or not is that we don't until markets play out, we do not know how much that cost benefit flows through to end customer versus has any benefits to the company. And so, it is very, very hard to form an opinion on that and we won't get there until much later in piece and we see where this all lands anyway, so it is clearly very much up in the air at the moment.

Unidentified Shareholder

Yeah, the point of asking that question was, as a shareholder, we could watch this action taking place and have an idea of where Telecom fits within that. Yeah, thank you.

Simon Moutter

Okay.

Mark Verbiest

Right. Thank you, it looks like there are no further questions. So we now come to the formal matters requiring resolution which are outlined in the Notice of meeting. As I said earlier, there will be the opportunity to ask any questions on each matter being put to shareholders. When I call for questions again, can I ask that you go to a microphone and give your cards to the Telecom staff member so that we can properly engage with you?

Now, moving to the resolutions, I propose to call a poll on each of them. The polls will be conducted at the end of formal business. Each resolution is clearly set out in the Notice of Meeting. They are all ordinary resolutions and as such only require a simple majority of votes to be cast to be passed.

Firstly, if I could turn to matters relating to the company's auditors, KPMG. Companies Act sets out a procedure for the re-appointment of auditors. Under that procedure, the auditors are automatically reappointed. The motion concerning the fixing of the auditors' remuneration seeks your approval to delegate authority for us to be able to fix the remuneration.

I can say that the statutory audit fees for the June 2013 year were $2.754 million plus disbursements for both New Zealand and other overseas operations. The fee for this year's statutory audit has been set at $1.6 million for the New Zealand business and AUD475,000 for Australian related operations. Across the board, basically we are looking at a 10% reduction on the fee for FY'13.

I now propose that directors are authorized to fix the remuneration of the auditors, KPMG, are there any questions concerning the motion.?

Ladies and gentlemen, the poll authorizing the directors to fix the auditors' remuneration will be conducted at the end of formal business.

Resolution 2, the re-election of Maury Leyland. Maury is retiring by rotation in accordance with listing rules and offers herself for re-election. The Board recommends Maury two years as Telecom director and unanimously supports her re-election. You heard from her earlier in the meeting and Maury's credentials are outlined in more detail in the Notice of Meeting.

I now propose Maury Leyland be re-elected as a director of the company. Are there any questions or matters of discussion concerning the motion?

No? Ladies and gentlemen the poll on the re-election Maury will be conducted at the end of formal business.

Charles Sitch is also retiring by rotation in accordance with listing rules and offers himself for re-election. The Board recommends Charles to you as a Telecom director and unanimously supports his re-election. You've heard from Charles earlier in the meeting and again his credentials are well laid out in the Notice of Meeting.

I now propose that Charles Sitch be re-elected as a director of the company. Are there any matters of discussion or questions?

No? Again, I will -- the poll on Charles' re-election will be conducted at the end of the formal business.

Finally, Justine Smyth is retiring by rotation in accordance with listing rules and offers herself for re-election. The Board recommends Justine to you as a Telecom director and unanimously supports her re-election. You've heard it from her earlier and her credentials again are set out in more detail on the Notice of Meeting.

I now propose Justine Smyth be re-elected as a director. Are there any matters or questions for discussion?

No? Ladies and gentlemen, the poll on the re-election of Justine will be conducted at the end of formal business.

We will now conduct the poll. The polls on the matters described in the Notice of Meeting. The company's auditors KPMG will act as scrutineers. You should all have a voting paper. For most of you, this is the back page of the proxy form that accompanied your copy of the Notice of Meeting. Others of you who may have had a voting paper printed for you at the registration desk on your arrival. If you don’t have a voting paper, please put up your hand and we will get a Telecom staff member to assist you.

Please complete the voting paper by ticking for, against or abstain in the appropriate place in the voting paper for each resolution and sign the voting paper. Do not tick the proxy discretion box. If you have any difficulty, again, please raise your hand and we will have a staff member come and assist you.

Ballot boxes and collectors will be available to you at the conclusion of the meeting and are situated at the back of the room and to the side of the aisles. Voting papers should be placed in the ballot boxes on your way out.

Ladies and gentlemen, thank you for your attendance at our Annual Meeting today. We will be announcing the results of the polls to the stock exchanges and media this afternoon. If any of you have any questions about Telecom products or services, unashamedly I'm going to say again, we have customer services reps outside and they are only too happy to help you. If you prefer, you can complete a query form that is available at the customer services desks and a Telecom staff will contact you later.

Thank you again for your attendance today. I now invite you to meet with us and the auditors to take refreshments. They are going to be served in a room to my right. The meeting will close on completion of the voting procedures and once again can I remind you to put your voting papers in the ballot boxes. Thank you again.

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