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Please refer to page 13 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

AUSTRALIA

Fig 1 Telstra data inclusions on key post-paid plans

Source: Company data, Macquarie Research, Apr 2016

Fig 2 Optus data inclusions on key post-paid plans

Source: Company data, Macquarie Research, Apr 2016

Fig 3 Vodafone data inclusions on key post-paid plans

Note: $70 plan reintroduced in Feb 2016. Source: Company data, Macquarie Research, Apr 2016

6 April 2016 Macquarie Securities (Australia) Limited

Australian Mobile Market Plan tracker – Will content be king?

Event

We monitor activity in the Mobile sector via our Plan Tracker database.

Impact

Key changes in March: It wasn’t an overly active March period, but there were a couple of changes of note. Telstra increased its pricing modestly at the busy $80 and $95 price points, extending its premium over competitors. However, it also cut pricing for entry level post-paid plans, and added content inclusions across the range (see below). Optus “spaced” its data inclusions – by reducing data on its $80 plan from 8GB to 6GB and increasing included data on its $100 plan from 12GB to 15GB – which we think targets a number of outcomes. First, it creates a 9GB incentive to “trade-up” to the $100 price point (previously a 4GB difference), which would help support ARPU trends for Optus. In addition, for customers signing up to $80 plans, lower data inclusions increase the likelihood that they will require add-on data, which could also support ARPU. Vodafone added 1GB of data to its plans on a promotion, but changed little else. Elsewhere, the iPhone SE launched and we look at relative operator pricing for this device. In prepaid/ MVNO, it was a fairly quiet month, with some adjustments at Optus and Vaya.

Telstra ups the ante on content and add-ons: Telstra added a free 12-month subscription to the AFL Live Pass or NRL Digital Pass for Personal and SME mobile post-paid plans. These are worth $90 when bought stand-alone. This adds to a growing bundle of content, add-ons and options being offered by Telstra, which includes access to Telstra Air (WiFi), New Phone Feeling (‘new for old’ handset replacement after 12 months for $149) and subscriptions to Apple Music (iPhone customers only, ex-SE). By way of comparison, Telstra had no content or add-ons a year ago. Optus offers ‘new for old’ handset replacement (for $99) and free data sharing. It currently has no content bundles but is likely to add EPL packages later in the year. Vodafone offers 6-12 month subscriptions to one of Stan, Spotify or the SMH/The Age online for its mid to higher tier plans. Content and add-ons are an increasingly important battleground for telcos as they attempt to differentiate their product offerings and drive data usage.

Outlook

Telstra: Telstra continues to face challenges to its Mobiles division against a more competitive backdrop. This was evident in the 1H16 result, where ARPU trends were heavily impacted by the wash-through of reduced excess data charges. The impacts should be more pronounced in the second half, during which we have underlying mobile service revenues declining by 1.7% (pre-MTR impacts) and segment EBITDA down 2.7%. Telstra is retaining a ~20% premium for key post-paid plans (partly supported by content inclusions/add-ons), which may face more resistance given recent network issues. While broad earnings pressures remain, we see valuation support for Telstra from cash flow and yield in the context of the current macro backdrop (refer Telstra Corp – Stock-take on the yield thesis, 1 December 2015). Retain Neutral and $5.45/sh TP.

Amaysim: No change to our numbers from this update. The operating environment remains challenging and we continue to forecast year-end subscriber numbers of 949k, against guidance of 960-980k. This assumes a modest increase only in subscriber adds following the amaysim re-price, and presents a nearer term sentiment risk for the stock. Against that, we do see underlying value in amaysim’s customer base longer-term which we would expect to be realised via renegotiated wholesale deals or M&A. Maintain Outperform recommendation and $2/sh TP.

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http://www.macquarie.com/research/disclosures

Macquarie Wealth Management Australian Mobile Market

6 April 2016 2

Telstra ups the ante on content and add-ons

Content and add-ons are an increasingly important battleground for telcos as they attempt to

differentiate their product offerings and drive data usage.

Telstra added a free 12-month subscription to the AFL Live Pass or NRL Digital Pass for Personal

and SME mobile post-paid plans. These are worth $90 when bought stand-alone.

This adds to a growing bundle of content, add-ons and options being offered by Telstra, which

includes access to Telstra Air (WiFi), New Phone Feeling (‘new for old’ handset replacement after

12 months for $149) and subscriptions to Apple Music (iPhone customers only, ex-SE).

By way of comparison, Telstra had no content or add-ons a year ago.

Fig 4 Telstra content inclusions and plan add-ons

Source: Macquarie Research, April 2016

Optus offers ‘new for old’ handset replacement (for $99) and free data sharing. It currently has no

content bundles but is likely to add EPL packages later in the year.

Fig 5 Optus content inclusions and plan add-ons


Vodafone offers 6-12 month subscriptions to one of Stan, Spotify or the SMH/The Age online for

its mid to higher tier plans.

Jul-14 Feb-15 Sep-15 Mar-16

Peace of Mind Commitment

Presto (6m)

Presto (6m) or AFL or NRL Live Pass (12m)

AFL or NRL Live Pass (12m)

Apple Music (12m) (24m for higher plans)

Free data share SIM cards

New Phone Feeling

Unlimited Telstra Air WiFi (to 30 June)

Jul-14 Nov-14Feb-15May-15Sep-15Dec-15 Mar-16

25% discount on mobile broadband if bundled with mobile plan

Netflix subscription (6m)

$10 discount if bundled with broadband

Shared data

Cricket Australia Pass

New phone trade up


6 April 2016 3

Fig 6 Vodafone content inclusions and plan add-ons


Post-paid: Activity picks back up

The three mobile network operators made some changes in March, with Telstra altering its plan

costs and Optus and Vodafone modifying their data caps. Non-data inclusions changed slightly,

with the general trend being the addition, rather than removal, of inclusions.

Telstra

Telstra reduced the price of its cheapest plan (S) by between $3-5 across the iPhone 6 and 6S

models, while raising the prices of its mid-range M and L plans by $2-5 (fig 7).

Telstra also altered its inclusions for postpaid plans. It added a free 12-month subscription to the

AFL Live Pass or NRL Digital pass (valued at $90) for customers on a personal or small business

mobile plan or personal mobile broadband plan with a tablet. Telstra is also offering free data

(10GB/month) on Telstra Air after June 30 (note that customers can use unlimited Telstra Air data,

free of charge, until June 30). These postpaid plan inclusions are in addition to a free 12-month

subscription to Apple Music (normally $11.99/month) for iPhone plans (ex the SE model). As an

offset, Telstra removed its offer of up to five free data share sim cards (worth $40 each).

Telstra introduced its iPhone SE plans. Plans for the 64GB model range from $77/month to

$135/month.

Telstra’s Samsung Galaxy S6 and S7 postpaid plans were unchanged.

Fig 7 Telstra data inclusions on key post-paid plans

Source: Company websites, Macquarie Research, April 2016

Jul-14 Nov-14 Feb-15 May-15 Sep-15 Dec-15 Mar-16

Free Spotify or SMH access (6m)

Free Spotify, Stan or SMH access (6-12m)

Qantas Frequent Flyer points

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6 April 2016 4

Optus

Optus altered its data caps on postpaid plans, adding 0.5GB to its cheapest $40 plan (now

1GB/month), removing 2GB from its mid-tier $80 plan (now 6GB/month) and adding 2-3GB to its

higher-tier $100 and $120 plans (now 15GB/month and 20GB/month, respectively). This widens

the data gap between the mid-range and higher-range plans from 4GB/month to 9GB/month (fig

8).

This shift in the Optus plans during the month may look subtle on the surface, but is quite telling

on the state of the competitive dynamic. By removing 2GB of data from its $80 plan and adding

3GB to its $100 plan, Optus has widened the data gap between the two plans at a whopping 9GB

(6GB vs 15GB). We see 3 key implications of this:

First, Optus is reducing value on its popular $80 plan, potentially an indication that it had

included too much data at that point in recent times;

Second, the 9GB gap between the $80 and $100 plans offers a huge incentive for trade up,

and is clear evidence of Optus trying to migrate customers up to the $100 price point after

successfully moving much of their base from $60 to $80 in recent year;

Finally, Optus’ offer of 6GB and 15GB plans mirrors Telstra’s data inclusions and makes the

price differential more easily comparable/visible for consumers.

Other changes:

Optus is no longer discounting its most expensive plan, which has increased from $100/month

+ handset cost to $120/month + handset cost (having previously been $130/month).

Otherwise, postpaid plan costs were mostly unchanged;

Optus is offering free New Phone Trade Up on its postpaid plans, where customers can trade

in their old phone after 12 months and pay a $99 fee, in exchange for a new phone on a new

24-month postpaid plan. This is similar to Telstra’s New Phone Feeling (pay $149 after 12

months);

Optus is offering the first month free for new customers who sign up to a 24-month postpaid

plan with a new handset (My Plan Plus or My Plan Business) or existing customers who add a

new service (until 9 May);

New Optus customers can now cancel the service within 30 days, similar to Vodafone’s

Network Happiness Guarantee;

Optus launched its iPhone SE plans. Plans for the 64GB model range from $60/month to

$120/month;

Optus’ Samsung Galaxy S6 and S7 postpaid plans were unchanged (with the exception of the

repriced $120 plan).

Vodafone

Vodafone added a bonus 1GB/month to each of its postpaid plans, covering the $60 plan

(4GB/month), $70 plan (7GB/month), $80 plan (9GB/month), $100 plan (13GB/month) and $130

plan (21GB/month) (fig 9).

Separately:

Vodafone removed the 50% discount on first month access fees across its postpaid plans.

Vodafone’s iPhone 6 and 6s postpaid plan prices were unchanged.

Vodafone introduced its iPhone SE plans. Plans for the 64GB model range from $73/month to

$130/month.

Vodafone’s Samsung Galaxy S6 and S7 postpaid plans were unchanged.


6 April 2016 5

Fig 8 Optus data inclusions on key post-paid plans

Fig 9 Vodafone data inclusion on key post-paid plans

Source: Company data, Macquarie Research, April 2016 Note: Vodafone’s $70 plan was reintroduced in February 2016, after being removed mid-2015. Source: Company data, Macquarie Research, April 2016

Virgin

Virgin’s postpaid plans were unchanged in March.

Virgin launched its iPhone SE plans. Plans for the 64GB model range from $53/month to

$130/month.

iPhone SE plans released

iPhone SE plans were released over the past month, with Telstra maintaining a significant price

premium (of over 20%) compared to the other three major operators (despite Telstra often offering

lower data inclusions). The premium is partly justified by Telstra’s attractive set of additional non-

data inclusions (such as free Telstra Air WiFi and a free 12-month subscription to the AFL or NRL

live app).

A quick comparison of iPhone SE postpaid plans (64GB model) at key price points illustrates

Telstra’s premium:

For postpaid plans offering 2-4GB/month, Telstra’s premium is 26% to Optus (with Optus

offering an additional 0.5GB), 12% to Vodafone (with Vodafone offering an additional 1.5GB)

and 17% to Virgin (with Virgin offering an additional 1.5GB).

For postpaid plans offering 6-7GB/month, Telstra’s premium is 23% to Optus, 27% to

Vodafone (with Vodafone offering an additional 1GB) and 23% to Virgin (with Virgin offering

an additional 2GB).

This premia does not account for content and other add-ons which clearly contribute to

Telstra’s value proposition, as do other intangibles such as perceptions of network coverage

and quality.

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6 April 2016 6

Fig 10 Comparison of iPhone SE plans (64GB model) offering 6-7GB/month

Telstra Optus Vodafone

Plan L ($95) My Plan Plus ($80) $70 plan Handset cost $3 $0 $7 Bundled cost $98 $80 $77 Data 6GB 6GB 7GB Voice Unlimited Unlimited (and 300 intern’l mins) Unlimited

Extras

Free Telstra Air WiFi until 30 Jun (free 10GB/month after 30 Jun)

New customers can cancel plan after 30d

Network Guarantee (can cancel plan after 30d)

Free 12m subscription to AFL or NRL live app

$10 discount if bundled with broadband

Free New Phone Feeling Free New Phone Trade Up

Source: Company data, Macquarie Research, April 2016

Handset subsidy – Telstra withdrew value for mid-tier plans but added it at the lower end

Telstra’s pricing premium for mid-range iPhone plans (3-4GB/month) rose by $4/month to

$17/month. While small in isolation, directionally this is a positive for Telstra (assuming it can

sustain subscriber trends), and arguably also positive for the overall industry. We nonetheless

continue to believe that the market remains competitive, particularly in the areas of data

allowances and non-data inclusions.

Fig 11 Bundled plan costs (for mid-tier iPhone plans offering 3-4GB/month): Telstra’s premium rises to $17

Note that the mid-tier iPhone plans that we track changed in September from the iPhone 6 to the iPhone 6S plans. Source: Company data, Macquarie Research, April 2016.

Telstra’s premium for mid-range iPhone plans (6-9GB/month) rose by $3/month to $20/month,

driven by the increase in the cost of Telstra’s postpaid plans (fig 12). This pricing gap may be

exploited by consumers if sustained, potentially resulting in users spinning down or choosing the

more heavily subsidised offering.

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Competition following Optus MyPlan+ releases

Bundled plan costs grew steadily until mid-2015

iPhone 6 launchiPhone 6S launch

iPhone 5S launch


6 April 2016 7

Fig 12 Bundled plan costs (for mid-tier iPhone plans offering 6-9GB/month): Telstra’s premium grows

Note that the mid-tier iPhone plans that we track changed in September from the iPhone 6 to the iPhone 6S plans. Source: Company data, Macquarie Research, April 2016.

Figures 13 and 14 show net service revenue (which nets out the wholesale handset cost) at each

of the above price points. While the charts demonstrate the more moderate upward trend in net

service revenues, they also further illustrate the path of Telstra’s pricing premium.

Fig 13 Net service revenues (for mid-tier iPhone plans offering 3-4GB/month)


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Competition following Optus

MyPlan+ releases iPhone 6 launch

iPhone 6S launch

iPhone 5S launch

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iPhone 6 launch

iPhone 6S launch

iPhone 5S launch


6 April 2016 8

Fig 14 Net service revenues (for mid-tier iPhone plans offering 6-9GB/month)


Prepaid market calmer

Competitive pressures in the prepaid market stabilised in March, with no major changes to the

prepaid plans of the three MNOs or Virgin.

Quiet MNVO market with some adjustments at Optus and Vaya

Optus changes plans

Optus reduced its sim only plans from four to three;

At the $50 price point, Optus removed double data on a 5GB allowance (for a previous total of

10GB), replacing it with a 6GB limit;

At the $60 price point, Optus increased the data limit by 2GB to 9GB, but lowered the international

calling inclusions to selected countries from unlimited to 500 minutes.

Vaya revamps plans

Vaya expanded its month-to-month sim-only offering from six plans to eight plans, with the cost of

data falling moderately. This pushes the Vaya offering deeper into the high-data segment that the

amaysim hero-plans have focussed on.

Vaya’s new product set is essentially its four base Power Plans, with the option to pay an

additional $2/month to increase the call inclusions from $650/month to Unlimited.

Details of the new plans are as follows:

There are now four Power Plans ranging from $18-34/month (1.5GB – 7.0GB), compared to

three plans previously ranging from $18-28/month (1.5GB – 3.0GB). Power Plans come with

$650/month standard talk, unlimited standard SMS and excess data charges of $10/GB.

Similarly, there are now four Unlimited Plans, instead of three. The Unlimited plans have

identical features to the Power Plans, except that the standard talk inclusion is unlimited

(rather than capped at $650/month).

Unlimited Plans cost $2/month more than the Power Plans at each price point.

Vaya’s current promotion across both its Power and Unlimited Plans is a $2/month discount for the

first six months of the plan.

Aside from changes at Vaya and Optus, amaysim removed its $45 plan and Telstra is now offering

free data (10GB/month) on Telstra Air after June 30 (note that customers can use unlimited

Telstra Air data, free of charge, until June 30). Refer fig 15 for a comparison of current MVNO

offers.

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iPhone 6 launch iPhone 6S launch

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6 April 2016 9

Fig 15 Comparison of BYO month-to-month and prepaid mobile plans with data allowances of 1.5GB and above

Provider BYO Plan Network access up to

Monthly Cost

Data (GB)

Cost/GB

Voice (stand. nat.)

SMS (stand. nat.)

Notes

amaysim Unlimited Optus 4G

$25 1.5 $17 Unlimited Unlimited Unltd standard intern'l mins (10 countries) + Unltd standard intern'l SMS (32 countries)



$50 9.0 $6 Unlimited Unlimited Unltd standard intern'l mins (10 countries) + 300 intern'l mins (selected countries) + Unltd standard intern'l SMS (32 countries)

Vaya (New plans)

Power Plan S

Optus 4G

$18 1.5 $12 $650 Unlimited $2 discount for first 6m + Free sim & delivery (worth $20) Power Plan M $20 2.0 $10 $650 Unlimited $2 discount for first 6m + Free sim & delivery (worth $20) Power Plan L $26 3.0 $9 $650 Unlimited $2 discount for first 6m + Free sim & delivery (worth $20) Power Plan XL $34 7.0 $5 $650 Unlimited $2 discount for first 6m + Free sim & delivery (worth $20) Unlimited S $20 1.5 $13 Unlimited Unlimited $2 discount for first 6m + Free sim & delivery (worth $20) Unlimited M $22 2.0 $11 Unlimited Unlimited $2 discount for first 6m + Free sim & delivery (worth $20) Unlimited L $28 3.0 $9 Unlimited Unlimited $2 discount for first 6m + Free sim & delivery (worth $20) Unlimited XL $36 7.0 $5 Unlimited Unlimited $2 discount for first 6m + Free sim & delivery (worth $20)

Vaya (Old plans)

Power Plan 18

Optus 4G

$18 1.5 $12 $650 Unlimited First mnth free + Free sim & delivery (worth $20) Power Plan 22 $22 2.0 $11 $650 Unlimited First mnth free + Free sim & delivery (worth $20) Power Plan 28 $28 3.0 $9 $650 Unlimited First mnth free + Free sim & delivery (worth $20)

Unlimited Plan 24 $24 1.5 $16 Unlimited Unlimited $4 discount for first 4m for new registrations + Free sim & delivery (worth $20)



Optus My Plan Plus Sim Only

Optus 4G $35 1.5 $23 Unlimited Unlimited $10 fixed bundle discount $50 6.0 $8 Unlimited Unlimited 300 intern'l mins to selected countries + $10 fixed bundle discount $60 9.0 $7 Unlimited Unlimited 500 intern'l mins to selected countries + $10 fixed bundle discount

Telstra Go Mobile Casual Telstra 4G $50 2.5 $20 $1,000 Unlimited

+2.5GB for new customers + Free Telstra Air until 30 Jun & free 10GB/m after 30 Jun

$70 7.0 $10 Unlimited Unlimited +3GB for new customers + Free Telstra Air until 30 Jun & free 10GB/m after 30 Jun

Vodafone Sim-Only Red Vodafone 4G

$40 3.0 $13 Unlimited Unlimited Inc unltd intern'l text + 90 intern'l mins (selected countries)

$50 4.0 $13 Unlimited Unlimited +6GB (until 3 May) + Unltd intern'l text + Unltd intern'l mins (10 countries) + 90 intern'l mins (selected countries)



Virgin Mobile* Month-to-month Postpaid

Optus 4G

$40 3.0 $13 Unlimited Unlimited +3GB for new users (to 4 May) + 1GB if stream Guvera + 2GB if stream Presto (up to 6m) + 1m free Presto + $200 intern'l calls/text




Dodo Mobile 4G Sim Only

Optus 4G $30 2.5 $12

$700 call/SMS $700 call/SMS

$24.90 sim cost.

$40 4.0 $10 Unlimited Unlimited $24.90 sim cost. $50 5.0 $10 Unlimited Unlimited $24.90 sim cost.

TPG Telecom T4G Sim Only Vodafone 4G $20 1.5 $13 $550 call/SMS

50% off first 6m for new users (until 30 Jun) + Inc intern'l calls/text. $10 sim cost.

$30 2.0 $15 Unlimited Unlimited $10 sim cost. $40 5.0 $8 Unlimited Unlimited $10 sim cost.

iiNet Sim Only Optus 4G

$20 2.0 $10 $400 call/SMS $10 sim cost. $30 2.0 $15 Unlimited Unlimited $10 sim cost. $40 7.0 $6 Unlimited Unlimited Inc $300 intern'l mins. $10 sim cost. $50 9.0 $6 Unlimited Unlimited Inc $300 intern'l mins. $10 sim cost.

ALDImobile Value Packs Telstra 3G $25 1.5 $17 700 min 50k SMS +0.5GB wknd data + Inc free wknd calls. $5 sim cost. $35 4.0 $9 43,200 min 50k SMS +1GB wknd data + Inc 1.5h intern'l calls. $5 sim cost. $45 6.0 $8 43,200 min 50k SMS +1GB wknd data + Inc 3h intern'l calls. $5 sim cost.

Boost Mobile UNLTD Telstra 4G $40 3.0 $13 Unlimited Unlimited +2GB wknd data. $2 sim cost.

Lycamobile

All in one M

Telstra 3G

$19 1.5 $13 200 min 100 All in one L $25 2.0 $13 300 min 100 All in one XL $35 2.0 $18 1,000 min Unlimited Saver Plan XL $90 3.0 $30 1,000 min Unlimited Inc intern'l calls to selected countries.

Lebara National

Vodafone 3G+ $30 2.5 $12 Unlimited Unlimited

Mega $40 5.0 $8 Unlimited Unlimited 500 intern'l mins. Unlimited $50 2.5 $20 Unlimited Unlimited

Kogan 3XL

Vodafone 3G $30 3.0 $10 Unlimited Unlimited $9 recharge (until 29 Apr) + $4.90 sim cost.

5XL $37 5.0 $7 Unlimited Unlimited $11 recharge (until 29 Apr) + $4.90 sim cost.

Woolworths Woolworths Connect

Telstra 3G $30 3.0 $10 $1,000 Unlimited

+2GB bonus (until 30 Apr) + 10% off recharges for Woolworths Rewards members.

$45 6.0 $8 Unlimited Unlimited +2GB bonus (until 30 Apr) + Inc $200 intern'l calls + 10% off recharges for Woolworths Rewards members.

*Virgin is a wholly owned subsidiary of Singtel Optus. Source: Macquarie Research, April 2016


6 April 2016 10

Stocks mentioned in this report:

Telstra Corporation (TLS AU, $5.22, Neutral, TP: A$5.45)

amaysim Australia (AYS AU, A$1.88, Outperform, TP: A$2.00)

Vodafone (VOD LN, 216p, Outperform, TP: 235p)


6 April 2016 11


Telstra Corporation (TLS) $5.22Interim 1H15 2H15 1H16 2H16e Full year FY15 FY16e FY17e FY18e

Income (ex PSAA payments) $m 12,938.0 13,506.0 13,450.0 14,426.6 Income (ex PSAA payments) $m 26,444.0 27,876.6 28,460.2 28,598.9

Opex $m 7,687.0 8,194.0 8,266.0 9,294.6 Opex $m 15,881.0 17,560.6 18,091.3 18,284.0

EBITDA $m 5,251.0 5,312.0 5,184.0 5,131.9 EBITDA $m 10,563.0 10,315.9 10,368.9 10,314.9

D&A $m 1,989.0 1,994.0 2,038.0 2,015.2 D&A $m 3,983.0 4,053.2 4,133.9 4,181.1

EBIT $m 3,262.0 3,318.0 3,146.0 3,116.8 EBIT $m 6,580.0 6,262.8 6,235.0 6,133.8

Associates $m -10.0 29.0 -5.0 20.7 Associates $m 19.0 15.7 18.0 25.7

EBIT incl. assoc $m 3,252.0 3,347.0 3,141.0 3,137.5 EBIT incl. assoc $m 6,599.0 6,278.5 6,253.0 6,159.4

Net Interest Expense $m 353.0 336.0 340.0 360.9 Net Interest Expense $m 689.0 700.9 725.5 722.3

Pre-Tax Profit $m 2,899.0 3,011.0 2,801.0 2,776.6 Pre-Tax Profit $m 5,910.0 5,577.6 5,527.4 5,437.2

Tax Expense $m 853.2 884.9 835.7 832.9 Tax Expense $m 1,738.1 1,668.6 1,597.7 1,569.3

Net Profit $m 2,045.8 2,126.1 1,965.3 1,943.7 Net Profit $m 4,171.9 3,909.0 3,929.7 3,867.8

Minority Interests $m 33.0 41.0 42.0 78.0 Minority Interests $m 74.0 120.0 178.8 185.5

Adjusted Earnings $m 2,012.8 2,085.1 1,923.3 1,865.7 Adjusted Earnings $m 4,097.9 3,789.0 3,750.9 3,682.3

NRIs (net of tax) $m 72.2 60.9 169.7 242.8 NRIs (net of tax) $m 133.1 412.5 948.5 2,035.7

Reported Earnings $m 2,085.0 2,146.0 2,093.0 2,108.5 Reported Earnings $m 4,231.0 4,201.5 4,699.4 5,718.0

EPS (Adj/dil) cps 16.3 17.1 15.7 15.3 EPS (Adj/dil) cps 33.4 31.0 31.0 31.1

EPS Grow th % 6.6% 2.8% (3.6%) (10.3%) EPS Grow th % 4.6% (7.1%) 0.1% 0.2%

Ordinary DPS cps 15.0 15.5 15.5 16.0 Ordinary DPS cps 30.5 31.5 32.0 32.0

Special DPS cps - - - - Special DPS cps 0.0 0.0 0.0 4.0

Total DPS cps 15.0 15.5 15.5 16.0 Total DPS cps 30.5 31.5 32.0 36.0

Dividend yield % 2.9% 3.0% 3.0% 3.1% Dividend yield % 5.8% 6.0% 6.1% 6.9%

Payout ratio (adj) % 91.9% 90.9% 98.5% 104.6% Payout ratio (adj) % 91.4% 101.5% 103.1% 115.8%

FCF/sh cps 1.6 20.1 9.7 23.1 FCF/sh cps 21.5 32.8 34.8 51.1

FCFE yield (annualised) % 0.6% 7.7% 3.7% 8.9% FCFE yield (annualised) % 4.1% 6.3% 6.7% 9.8%

EBITDA margin % 40.6% 39.3% 38.5% 35.6% EBITDA margin % 39.9% 37.0% 36.4% 36.1%

EBIT margin % 25.2% 24.6% 23.4% 21.6% EBIT margin % 24.9% 22.5% 21.9% 21.4%

EBITDA grow th % (0.4%) -% (1.3%) (3.4%) EBITDA grow th % (0.2%) (2.3%) 0.5% (0.5%)

EBIT Grow th % 0.2% (1.7%) (3.6%) (6.1%) EBIT Grow th % (0.8%) (4.8%) (0.4%) (1.6%)

Profit and Loss Ratios FY15 FY16e FY17e FY18e Cashflow Analysis FY15 FY16e FY17e FY18e

Income grow th (ex PSAA payments) % 3.0% 5.4% 2.1% 0.5% EBITDA $m 10,563.0 10,315.9 10,368.9 10,314.9

% of EBITDA in 1H % 49.7% 50.3% 49.1% 49.3% Ch in Working Capital $m (467.0) 171.1 (0.5) (1.8)

Effective tax rate % 30.0% 30.0% 29.0% 29.0% Net Interest Paid $m (749.0) (742.9) (725.5) (722.3)

PER (adj) x 15.6 16.8 16.8 16.8 Tax Paid $m (1,755.0) (1,929.3) (1,985.1) (2,400.8)

EV/EBIT x 11.8 12.4 12.6 12.6 Other $m 154.0 375.3 1,321.9 2,853.1

EV/EBITDA x 7.4 7.5 7.6 7.5 Operating Cashflow $m 7,746.0 8,190.1 8,979.6 10,043.2

EV/Sales x 3.0 2.9 2.8 2.8 Acquisitions $m (1,104.0) (299.0) (500.0) (500.0)

Capex $m (5,102.0) (4,190.0) (4,775.7) (3,993.3)

Balance Sheet Ratios FY15 FY16e FY17e FY18e Asset Sales $m 94.0 257.0 - -

Other $m 69.0 109.0 - -

ROE % 30.2% 29.6% 33.1% 39.9% Investing Cashflow $m (6,043.0) (4,123.0) (5,275.7) (4,493.3)

ROFE % 22.9% 21.2% 20.4% 19.9% Dividends Paid $m (3,700.0) (3,789.0) (3,881.8) (4,051.5)

ROA % 16.6% 15.3% 14.9% 14.7% Equity movements $m (604.0) (317.0) (900.0) (1,500.0)

Net Debt (pro-forma) $m 13566.0 14120.8 15198.7 15200.3 Debt movements $m (1,667.0) 796.8 1,077.9 1.6

Net Debt/Equity x 1.3 1.4 1.5 1.5 Other $m 5.0 - - -

Net Debt/EBITDA x 0.9 1.0 1.0 1.0 Financing Cashflow $m (5,966.0) (3,309.1) (3,703.9) (5,549.9)

Interest Cover (EBIT) x 9.8 9.8 10.5 12.5

EFPOWA m 12276.7 12213.1 12085.6 11845.6 Net Cashflow $m (4,263.0) 758.0 - -

Divisional revenue estimates FY15 FY16e FY17e FY18e Balance Sheet FY15 FY16e FY17e FY18e

Fixed $m 7188.0 7002.0 6577.4 6055.4 Cash $m 1,396.0 2,171.0 2,171.0 2,171.0

Mobiles $m 10654.0 10866.7 10980.0 11109.0 Receivables $m 5,892.0 6,372.2 6,374.9 6,384.0

Data & IP $m 3417.0 3916.9 3949.8 3950.5 Inventories $m 491.0 468.6 468.8 469.7

NAS $m 2418.0 2877.4 3165.2 3323.4 Investments $m 137.0 396.0 896.0 1,396.0

Media $m 931.0 995.0 1093.0 1206.6 PP&E $m 20,450.0 20,620.8 21,262.6 21,074.8

International $m 0.0 0.0 0.0 0.0 Intangibles $m 9,332.0 9,511.0 9,511.0 9,511.0

Other sales revenue $m 1237.0 1502.4 1863.0 1929.0 Other Assets $m 2,747.0 3,035.7 3,053.7 3,079.4

Foxtel $m 125.0 125.0 125.0 125.0 Total Assets $m 40,445.0 42,575.4 43,738.0 44,085.8

Other revenue $m 53.0 10.6 10.6 10.6 Payables $m 4,119.0 4,682.0 4,684.3 4,692.5

Total revenue $m 26023.0 27295.9 27763.8 27709.5 Short Term Debt $m 1,496.0 1,888.0 1,888.0 1,888.0

Long Term Debt $m 14,138.0 15,075.8 16,153.7 16,155.3

Snapshot Current Provisions $m 1,254.0 1,224.0 1,224.0 1,224.0

Current price $ 5.22 Other Liabilities $m 4,928.0 4,960.0 5,085.0 5,210.0

EFPOWA # 12,225.6 Total Liabilities $m 25,935.0 27,829.8 29,035.1 29,169.8

Market cap $m 63,817.5 Shareholders Funds $m 14,103.0 14,272.6 14,230.0 14,443.0

Net debt $m 14,545.0 Minority Interests $m 407.0 465.0 465.0 465.0

EV $m 78,362.5 Shaereholder Equity $m 14,510.0 14,737.6 14,695.0 14,908.0


6 April 2016 12


amaysim (AYS) $1.88Interim 1H15 2H15 1H16 2H16e Full year FY15 FY16e FY17e FY18e

Revenue $m 99.5 113.1 117.3 145.9 Revenue $m 212.6 263.1 305.0 327.4

Opex $m 94.9 101.3 104.7 127.5 Opex $m 196.2 232.2 264.2 281.2

EBITDA $m 4.6 11.8 12.6 18.3 EBITDA $m 16.4 30.9 40.9 46.2

D&A $m 1.1 1.2 1.4 1.6 D&A $m 2.2 3.1 3.3 3.3

EBIT $m 3.5 10.7 11.2 16.7 EBIT $m 14.2 27.8 37.6 42.9

Associates $m 0.0 0.0 0.0 0.0 Associates $m 0.0 0.0 0.0 0.0

EBIT incl. assoc $m 3.5 10.7 11.2 16.7 EBIT incl. assoc $m 14.2 27.8 37.6 42.9

Net Interest Expense $m -0.1 -0.2 -0.2 -0.1 Net Interest Expense $m -0.3 -0.3 -0.1 -0.1

Pre-Tax Profit $m 3.7 10.9 11.4 16.7 Pre-Tax Profit $m 14.5 28.1 37.7 43.0

Tax Expense $m 1.4 2.9 3.4 5.3 Tax Expense $m 4.3 8.8 11.5 13.1

Net Profit $m 2.3 8.0 8.0 11.4 Net Profit $m 10.2 19.3 26.2 29.9

Minority Interests $m 0.0 0.0 0.0 0.0 Minority Interests $m 0.0 0.0 0.0 0.0

Adjusted Earnings $m 2.3 8.0 8.0 11.4 Adjusted Earnings $m 10.2 19.3 26.2 29.9

NRIs (net of tax) $m 0.0 0.0 -6.9 0.0 NRIs (net of tax) $m 0.0 -6.9 0.0 0.0

Amortisation of PPA $m -0.4 -0.4 -0.4 -0.3 Amortisation of PPA $m -0.7 -0.7 -0.7 -0.7

Reported Earnings $m 1.9 7.6 0.7 11.1 Reported Earnings $m 9.5 11.8 25.5 29.2

EPS (Adj/dil) cps 1.3 4.5 4.5 6.3 EPS (Adj/dil) cps 5.8 10.9 14.4 16.4

EPS Grow th % nmf nmf 253.8% 40.5% EPS Grow th % nmf 87.6% 32.9% 13.3%

DPS cps 0.0 0.0 3.0 5.1 DPS cps -% 814.4% 1082.6% 1226.7%

Dividend yield % -% -% 1.6% 2.7% Dividend yield % -% 4.3% 5.8% 6.5%

Payout ratio (adj) % -% -% 66.4% 81.1% Payout ratio (adj) % -% 75.0% 75.0% 75.0%

FCF/sh cps 1.0 9.1 -0.6 40.5 FCF/sh cps 10.1 39.9 9.0 11.6

FCFE yield % 1.1% 9.7% (0.6%) 43.1% FCFE yield % 5.4% 21.2% 4.8% 6.2%

EBITDA margin % 4.6% 10.4% 10.7% 12.6% EBITDA margin % 7.7% 11.7% 13.4% 14.1%

EBIT margin % 3.6% 9.4% 9.5% 11.4% EBIT margin % 6.7% 10.6% 12.3% 13.1%

EBITDA grow th % nmf nmf 173.5% 55.2% EBITDA grow th % nmf 88.4% 32.3% 13.1%

EBIT grow th % nmf nmf 214.6% 56.6% EBIT grow th % nmf 96.1% 34.9% 14.2%

Key assumptions 1H15 2H15 1H16 2H16e Key assumptions FY15 FY16e FY17e FY18e

Total subscribers 000s 679.0 718.0 764.0 949.0 Total subscribers 000s 718.0 949.0 1,017.8 1,052.8

Subscriber grow th % 36.9% 16.0% 12.5% 32.2% Subscriber grow th % 16.0% 32.2% 7.3% 3.4%

Net subscriber adds 000s 60 39 46 185 Net subscriber adds 000s 99 231 69 35

Churn % 3.6% 3.4% 3.0% 3.0% Churn % 3.5% 3.0% 3.0% 3.0%

ARPU $ 25.2 27.1 26.3 25.7 ARPU $ 26.1 26.0 25.8 26.4

Profit and Loss Ratios FY15 FY16e FY17e FY18e Cashflow Analysis FY15 FY16e FY17e FY18e

Revenue grow th % 66.0% 23.8% 15.9% 7.3% EBITDA $m 16.4 20.9 40.9 46.2

% of EBITDA in 1H % 28.0% 40.7% 47.9% 50.8% Ch in Working Capital $m -2.3 5.5 2.9 1.7

Effective Tax Rate % 30.5% 31.7% 30.9% 30.9% Net Interest Paid $m -0.2 0.3 0.1 0.1

PER (adj) x 32.5 17.3 13.0 11.5 Tax Paid $m 0.0 0.0 -4.1 -11.8

EV/EBIT x 23.4 19.1 9.1 8.0 Other $m 4.2 47.9 -20.3 -11.9

EV/EBITDA x 19.3 10.6 8.2 7.3 Operating Cashflow $m 18.1 74.6 19.4 24.4

EV/Sales x 1.5 1.2 1.1 1.0 Acquisitions $m -8.3 -70.1 0.0 0.0

Capex $m -0.3 -3.0 -3.0 -3.2

Balance Sheet Ratios FY15 FY16e FY17e FY18e Asset Sales $m 0.2 0.0 0.0 0.0

Other $m 0.0 0.0 0.0 0.0

ROE % -201.9% 164.4% 125.5% 106.1% Investing Cashflow $m -8.4 -73.1 -3.0 -3.2

ROFE % -76.6% 393.4% 230.3% 175.5% Dividends Paid $m 0.0 -5.3 -18.7 -21.7

ROA % 25.8% 37.1% 43.3% 46.7% Equity movements $m 0.0 12.9 0.0 0.0

Net Debt $m -15.0 -10.0 -7.8 -7.2 Debt movements $m 0.0 0.0 0.0 0.0

Net Debt/Equity x 0.0 0.0 0.0 0.0 Other $m -2.1 -14.1 0.0 0.0

Net Debt/EBITDA x -0.9 -0.3 -0.2 -0.2 Financing Cashflow $m -2.1 -6.5 -18.7 -21.7

Interest Cover (EBIT) x -45.0 -102.1 -274.9 -447.6

EFPOWA m 176.2 179.5 182.7 182.7 Net Cashflow $m 7.6 -5.0 -2.3 -0.5

Cost estimates FY15 FY16e FY17e FY18e Balance Sheet FY15 FY16e FY17e FY18e

Revenue $m 212.6 263.1 305.0 327.4 Cash $m 15.0 10.0 7.8 7.2

Cost of sales $m 153.1 183.1 214.1 231.8 Receivables $m 12.6 16.9 18.2 19.0

Gross profit $m 59.5 80.0 90.9 95.6 Inventories $m 0.0 0.0 0.0 0.0

Employee costs $m 17.8 21.9 23.5 23.0 Investments $m 0.0 0.0 0.0 0.0

Marketing costs $m 13.1 12.0 14.3 13.9 PP&E $m 0.6 0.2 4.9 4.8

Facilities & IT costs $m 5.5 6.0 6.1 6.2 Intangibles $m 8.0 7.7 7.0 6.3

Other costs $m 6.5 9.2 6.2 6.3 Other Assets $m 16.8 41.7 49.7 60.2

Total opex $m 42.9 49.1 50.0 49.4 Total Assets $m 53.0 76.6 87.5 97.6

EBITDA $m 16.6 30.9 40.9 46.2 Payables $m 51.0 55.2 59.3 61.9

Short Term Debt $m 0.0 0.0 0.0 0.0

Long Term Debt $m 0.0 0.0 0.0 0.0

Snapshot Current Provisions $m 0.5 0.5 0.5 0.5

Current price $ 1.88 Other Liabilities $m 4.2 4.0 4.0 4.0

EFPOWA # 176.2 Total Liabilities $m 55.7 59.6 63.8 66.3

Market cap $m 331.3 Shareholders Funds $m -2.6 16.9 23.8 31.3

Net debt $m -16.6 Minority Interests $m 0.0 0.0 0.0 0.0

EV $m 314.7 Shaereholder Equity $m -2.6 16.9 23.8 31.3


6 April 2016 13

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be

expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 December 2015

AU/NZ Asia RSA USA CA EUR Outperform 50.68% 61.04% 53.16% 47.90% 65.22% 43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients)

Neutral 31.51% 24.66% 34.18% 47.70% 29.71% 34.62% (for global coverage by Macquarie, 5.02% of stocks followed are investment banking clients)

Underperform 17.81% 14.30% 12.66% 4.39% 5.07% 21.79% (for global coverage by Macquarie, 3.78% of stocks followed are investment banking clients)

TLS AU vs ASX 100, & rec history

(all figures in AUD currency unless noted)

AYS AU vs Small Ordinaries, & rec history

(all figures in AUD currency unless noted)

VOD LN vs FTSE 100, & rec history

(all figures in GBP currency unless noted)

Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, April 2016

12-month target price methodology

TLS AU: A$5.45 based on a DCF methodology

AYS AU: A$2.00 based on a Sum of Parts methodology

VOD LN: £2.35 based on a EV/EBITDA methodology

Company-specific disclosures: TLS AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Telstra Corporation Limited's equity securities. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Telstra Corporation Ltd with investment advisory services in the past 24 months, for which it received compensation. AYS AU: MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed a public offering of securities of Amaysim Australia Pty Ltd in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Amaysim Australia Pty Ltd in the past 12 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.

Target price risk disclosures: TLS AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. AYS AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. VOD LN: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. Regulation and technological obsolescence are also risks. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.


6 April 2016 14

Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”) an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research, , is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures © Macquarie Group

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