John Fairfax Holdings Limited
ACN 008 663 161

F2INVESTMENT IN EISA AND OZEMAIL PORTAL

THURSDAY, 13 APRIL 2000

OPERATOR: Welcome to the Fairfax conference call. During the presentation, everyone except the guest speakers will be in listen-only mode. If assistance is required at any time, please press the star followed by the zero on your telephone and wait for a co-ordinator. The purpose of today's meeting is to discuss the Fairfax announcement released earlier today.

MR HILMER: Thank you. Thanks for being part of this teleconference. The purpose is to give you a chance to ask us questions. There are a number of our managers here. I will say a few words and then I will hand over to Nigel Dews who is responsible for F2. We also have Mark Bayliss with us, Chief Financial Officer, and Gail Hambly, our Corporate Counsel, and Bruce Wolpe, our Corporate Affairs Manager.

I think the fundamentals of the bill are pretty clear in terms of the announcement that we made. In effect, what we are doing is making an investment in eisa but importantly, what we are doing as a result of that investment is managing the portal, being the portal manager for eisa, and as a result of that or as a consequence of that, being responsible for the content, the functionality and having the ability to drive traffic and build our other web businesses through that relationship.

We think this is a very positive development of our business in a way that helps us build the traffic to one of those four priority vertical areas that we talked about. So let me hand over to Nigel to say a few more words of explanation and then we are happy to take questions.

MR DEWS: Thank you very much, Fred, and thanks very much for joining us. Just to follow up on what Fred said, it is a really significant development for us in F2 being able to manage the portal and get first contact with the 400,000 or so subscribers and the growth in that subscriber base from the combined eisa-OzEmail businesses will be actually terrific for our four areas of focus, directories, shopping, the classified super sites and financial services.

It also enables us to overnight put a significant boost under our traffic growth which has already grown some threefold in the last financial year, so it really takes us into a leadership position with the most dynamic ISP in the country.

MR HILMER: Thanks, Nigel. So at this point I think we would like to open the session to questions.

OPERATOR: Thank you, ladies and gentlemen, we will now begin the question and answer session of the conference. If you have a conference, please press the star followed by the (1) on your touch tone phone. If you wish to cancel your question, you may remove yourself from the queue by pressing the star followed by the two. Our first question comes from Mr Coleman of Salomon Smith Barney. Mr Coleman, please go ahead.

MR COLEMAN: Yes, good morning. I have two questions. The first is, could you elaborate on what the non-subscriber portal customer base comprises?

MR HILMER: If you want to ask us the second and then we will answer each of them.

MR COLEMAN: Okay, the second question is, can you elaborate on any further detail of the structure of the portal in terms of the management fee relationship? I take it that the portal remains 100 per cent owned by eisa and, I guess in that context, why was the deal structured under a management fee route as opposed to taking a direct interest in the portal business?

MR HILMER: Go ahead, Nigel.

MR DEWS: Just taking your first question first and elaborating on the non-portal customer base --

MR COLEMAN: No, the non-subscriber.

MR DEWS: The non-subscriber customer. I know exactly what you are talking about now. The subscriber customer base, of course, are those people who subscribe to use OzEmail or eisa as an ISP business. The non-subscriber customer base are those people who use the OzEmail ISP - sorry, the OzEmail star page as the preferred star page but don't actually prescribe to the ISP business of eisa OzEmail, so those people who are freely surfing the web and decide to use the OzEmail page to do something one way or the other.

Then, of course, as I am sure you are all aware, AOL has something like four to five times the number of users of its portal page than it does subscribers to its ISP service. Here, the numbers - well, of course, there is always some doubt over numbers, but the IMR numbers suggest that the portal customer base for OzEmail alone is over 900,000 customers and, of course, we know that their ISP business has some 4,000 customers.

As to your second question on the structure, yes, we will be manager of the portal. We will have an equivalent economic interest in the portal code - let's call it portal code for argument's sake today - with eisa which will be a separate entity. The details of that structure, the final details actually have to be worked out, but we will have full control over the content functionality marketing and an equivalent economic interest in that portal code business with eisa.

MR COLEMAN: Does that mean you particularly share economic interest?

MR DEWS: Yes, we will share economic interest and, in addition to that, we will take a management fee.

MR HILMER: There will be separate accounts for the portal and it will be separately structured, still to be determined. You know, that is the stage between the MOU and final documentation, but there will be separate accounts and we will have an equivalent economic interest. We will, in addition, be paid a management fee for our management of the portal.

MR COLEMAN: What sort of basis will underline the fee? Is that a revenue-based fee?

MR HILMER: It will be revenue based sharing. It will be a share of revenue.

OPERATOR: Our next question comes from Mr Swan from Ord Minnett, Sydney. Mr Swan, please go ahead.

MR SWAN: Thank you. Nigel, just wondering with regards to the portal that you are developing, will you be marketing that aggressively outside the ISP customer base and, if so, what does that mean going for losses within the Group?

MR DEWS: We are in the early stages in determining the marketing plans and exactly what we will do. We will certainly market it aggressively in conjunction with our sites, and we will market it aggressively in conjunction with the OzEmail eisa ISP business, and we will get substantial benefits to our overall marketing spend over the next few years as a result of the low cost cuts from acquisition that we get via our portal business relative to spending that money on traditional mass media.

So, you know, it is difficult for me to answer the second half of your question, but certainly in the first part there is substantial marketing benefits in the vicinity associated with the OzEmail business and, of course, all the marketing costs of the portal will be born in the portal code in the main.

MR SWAN: So the $30 million to $50 million on loan losses for the next couple of years are still in place for this deal?

MR HILMER: We would not expect to be spending less. We are very keen to build this business and, you know, this adds another dimension to the business, but the plans that we had to continue to build in those four key vertical areas are still firmly in place and we are going to be aggressively going for them and hoping we get more opportunities.

OPERATOR: Our next question comes from Mr Beale of ABN Amro, Sydney. Mr Beale, please go ahead.

MR BEALE: Yes, thank you. My question was partly answered in terms of the management fee about the criteria that you emplace that. But do you have any rough ball park figures what sort of amounts you would get from that? That is the first question. The second one is, I resume that means that any deal with Telstra is off?

MR HILMER: Yes, firstly, on the figures, being consistent we clearly have to make projections in order to do deals but they are not matters that we disclose, so I can't comment any more on the figures. In terms of deals with others being on or off, this is rapidly moving space and we continue to talk and others continue to talk and I can't comment or speculate on deals. We think this strengthens our business and that is good under any scenario.

MR BAYLISS: It is Mark Ballast here. Good morning. Just going back to the previous question that Fred answered, you have to think about Fairfax's economic interest in two different areas. First of all, it is the equivalent economic interest we will have with eisa in terms of portal code but also it is the management fee as well, so there really are two separate elements of sort of economic benefit here. It is not just a management fee. You have to consider the whole here.

OPERATOR: Thank you. Our next question comes from Mr Drummond of Credit Suisse First Boston in Sydney. Mr Drummond, please go ahead.

MR DRUMMOND: Thank you. I was wondering if you are not prepared to elaborate on the fees, Fred, perhaps you could mention what the revenues of the existing portals might be and also give us a sense of the page view data for the sites and the number of minutes, et cetera, or some of the operating metrics for them.

MR DEWS: Well, in terms of the revenue, the revenue of existing business, it is actually a question you should ask Damien Brady rather than me since, you know, we don't actually own that existing business. However, I can tell you that a portal business, we are confident that a portal business can be an attractive business in its own right but made a lot more attractive by the fact that we can channel that traffic in to our four key areas of focus and derive additional benefits as a result of that relationship. But it is certainly an attractive business in its own right.

Secondly, on the metrics, I mentioned earlier that that portal customer base or unique user base was measured by IMR to be somewhere north of 900,000 in the month of March and we know that the eisa OzEmail business has some 400,000 plus subscribers and with, you know, the integration of the eisa and OzEmail business it continues to grow rapidly.

MR HILMER: I think one of the things again is we are not so much looking back here as looking forward in what is rapidly changing space. The way we have looked at the business is to say we understand the way in which people use our sites, the revenue we are able to earn per unique user, the time that people spend, the stickiness of people on our sites and the attraction of us to eisa and the attraction of this deal to us is that we are bringing our content richness and those attributes to a very large traffic base. That is the way I think you should look at it. Rather than saying what is there, it is for what could be, given a proven operating profile on the web of f2 with its user relationships.

MR DEWS: Now, a great portal with all the search and functionality services that come with the portal will help us to continue to circulate that traffic around the network and derive economic benefits from not only our four vehicles but also from our share in that portal, and the more we can continue to recirculate that traffic the greater contribution there is to reducing the marketing spend and, as we all know, marketing is one of the biggest barriers to entry in this space.

MR DRUMMOND: What, then, would be the sort of percentage left in traffic that you would be hoping to achieve from this transaction?

MR DEWS: I am sorry, could you repeat that question?

MR DRUMMOND: What's the percentage increase in traffic that we would expect?

MR DEWS: Look, it is big. It is very big. Look, I would give you the numbers as they stand, you know, today. They have a portal customer base, according to IMR of over 900,000, and we have one of somewhere north of 1.3 million, and you can't just add the two of those together because some of those will be the same people. But at the end of the day as the potential share of those are not, our sites are not currently promoted directly from the OzEmail home page. As a result of this deal, they will be, and that will make a significant difference to our traffic.

MR DRUMMOND: And who gets bumped from the OzEmail and eisa sites, or are there any restrictions on those people being bumped if you intend to?

MR DEWS: It is very important that what we do is provide an integrated offering that meets consumers' needs, and we are not going to be doing, you know, short-term things that results in sort of a reduced or denigrated consumer experience as a result of this position because what happens is that we end up running a portal that runs out of steam.

What we will be doing is actively promoting our content because and where it is best of breed on that portal home page, in conjunction with best-of-breed content in other categories. As we are not currently the manager, we haven't made a full assessment of what will and won't be there in the future, but we certainly have, as manager, the ability to control and ensure that best-of-breed content is there to the benefit of the consumers.

MR BAYLISS: Lachlan, it is Mark here. Just to sort of tie this back to, you know, some of the strategic points that Fred, Nigel and I have talked about in the past, I mean, this is a classic example of, you know, Fairfax going out and attracting audiences and then realising value from those audiences, and I think this is a very, very good example of a manifestation of that, both in terms of realising value in terms of incremental revenues that will flow not only to the existing vertical structure that is within f2, but, you know, the extra revenue potential there is in the portal as well.

OPERATOR: Thank you. Our next question comes again from Mr Coleman of Salomon Smith Barney. Mr Coleman, please go ahead.

MR COLEMAN: Oh, sorry, just two follow-up questions. The first is on the capital structure of eisa, I guess, as it stands, or as it will stand after the deal. You have indicated an equity capitalisation of $800 million on the company through your 5 per cent investment. Is there any debt capital envisaged in the capital structure? That's question one. The second question is, just to clarify, f2 effectively will control the eisa home page, so you will be controlling the first page. Is that correct?

MR DEWS: Yes. Just to take the two questions in turn, you know, we are not able to comment on the capital structure. It is just really a question you should ask Damien Brady, but the second question, yes, we will control the eisa home page.

MR COLEMAN: Thank you.

OPERATOR: Thanks. I would like to remind participants before I introduce the next question that if you do have any questions please press the star followed by the one. Our next question comes in Mr McLeod of Merrills in Sydney. Mr McLeod, please go ahead.

MR McLEOD: Thank you. Two quick questions. Can you first outline if today's announcement changes the strategy for the existing portals you have, Sydney Today and Melbourne Today? Are they intended to be merged into this OzEmail site or will they continue to run separately? And, secondly, just to clarify whether this is an exclusive or non-exclusive arrangement that might see you do similar deals with other ISPs over time. Thank you.

MR DEWS: Yes. Thanks, Andrew. I would take the first question first. Look, what we did with Sydney and Melbourne Today was put our toe in the water in the portal space. We learnt a lot about being a portal and what is important and what is not. And we launched both of those and have spent quite a bit of time analysing the results and the impact of those services.

The local features of those portals will be incorporated into the new portals so the services that are offered will become part of our start page through the new portal code. We won't continue to roll out a separate network of local portals, but there will certainly be significant local services offered consistent with our strategy by which we actually, you know, rely to a large degree on our national net or local net as a sort of competitive advantage.

The ability to combine that with a vehicle that gives us significant national reach in OzEmail, you know, being the largest ISP in both Queensland and South Australia, for example, will really give us a massive reef up in our reach.

The second question you had was about other deals. Look, we will continue to distribute our key verticals through other portals as we currently do today and we will continue to pursue additional deals. For example, our CitySearch directory product is distributed by Yahoo, and it is also distributed by Look Smart. Some of our classified verticals are distributed by telstra.com, and we will continue to pursue those where they make sense for both partners, but the portal we want to be number one in the broad portal distribution space will be this one, and we will be working very hard to make that happen in the narrow band space. In both broad band and WAF, we are free to continue to pursue whatever the best opportunities are.

MR WADDINGTON: That's great, thank you.

OPERATOR: Thank you. Our next question comes from Mr Kopsiopsis from Westpac Investment Managers in Sydney. Please go ahead.

MR KOPSIOPSIS: Oh, hi, George Kopsiopsis here from Westpac. Could you please explain if this deal is conditional on the eisa OzEmail deal being completed, and let's just assume it was not completed, do you have room to renegotiate?

MR DEWS: Yes, it is conditional on the deal being completed.

MR KOPSIOPSIS: Right. Okay. Thank you.

OPERATOR: And our next question comes from Mr Swan of Ord Minnett, Sydney. Mr Swan, please go ahead.

MR SWAN: Thank you. Just one follow-up question. Disney is obviously involved in this deal as well in bringing their content in. What say do they have in portal code in terms of where they content is positioned and what is included?

MR DEWS: We are the managers of portal code, and we will be making the content decisions and ensuring that we have got best of breed in all categories. Having said all that, we really welcome Disney and think they have fantastic content, and you could not get a better set of brands and content partners to be part of this portal in the international space. There is a large gap called entertainment, which they will fill beautifully.

MR SWAN: Thanks.

OPERATOR: Thank you, ladies and gentlemen. If you have any additional questions, please press the star followed by the one. Our next question comes from Mr Drummond of Credit Suisse First Boston, Sydney. Mr Drummond, please go ahead.

MR DRUMMOND: Thank you. I am just wondering where does ANZWERS, the search component of the OzEmail site, where does that fit in? Is that part of the deal or how does that come into it? And also in terms of the investment in ISA itself, I mean, what sort of fundamentals are you looking at there in terms of first subvaluations or other sort of criteria that you set in making that investment?

MR DEWS: Let's take the first question on ANZWERS. ANZWERS is one of the most popular search engines in Australia. It was a top 10 site in the latest IMR survey for March. It will be a terrific and continue to be a terrific attribute to the portal. It will remain owned by eisa and will be distributed on the portal, more than likely will certainly be distributed on the portal. It is a terrific search property, built for Australians, built for local audiences and very, very key to our and consistent with our view that local audiences want to see and search for things with a local interpretation.

MR DRUMMOND: Will that be so as part of a common marketing with the portal or separately?

MR DEWS: As I said earlier, the marketing strategy is obviously yet to be fully fleshed out, but, you know, it is anticipated to continue to be marketed along with the portal services. There was another question. Sorry, what was the second question?

MR DRUMMOND: Investment criteria.

MR DEWS: Oh, what were the investment criteria that we used, the returns. Yeah, we basically looked to see that over time we would be building an asset of value in terms of both its own valuation and its spin-off effects on our other businesses that clearly had more than adequate headroom to allow for the risks in this sort of space.

MR HILMER: Lachlan, as you can imagine, we did our usual show-me-the-business case on this, you know, and looking very carefully at the investment we have made and what sort of return we can hope to achieve from that investment. As we said earlier, I think that comes from a number of different areas. It comes not only from the investment in eisa but it comes from, you know, the economic interest that we have in portal codes. So there are a number of different value streams here, and as you would expect us to do, you know, we looked long and hard at the payback in terms of investment that we are going to make and we are very, very happy with that paper.

OPERATOR: Thank you. Our next question comes from Ms Robinson of J.B. Were in Melbourne. Ms Robinson, please go ahead.

MS ROBINSON: Thank you. I just had a couple questions. Firstly, a follow-on from the Disney discussion. How exactly is Disney going to get paid? Do they also have equity in portal code or do they get a cash flow stream? And, secondly, in terms of actually expanding your geographic reach, the content that you need to have access to or acquire, is that a Fairfax issue or is that a sort of portal code issue, in other words, would you be looking to buy - sorry, Fairfax - other content in other markets outside, you know, Sydney, Melbourne, primarily?

MR DEWS: Thanks, Lorraine. I mean, take the two parts separately. First of all, how is Disney getting compensated. It is really a question for Damien.

MS ROBINSON: Mm-mm.

MR DEWS: But, as I said, we will be taking an interest. You should talk to Damien about those arrangements. Secondly, on the content front --

MR HILMER: Can I just say that they are not a partner in the portal.

MR DEWS: They are not a partner in the portal, absolutely not a partner.

MR HILMER: The economic interest in the portal will be held by eisa as a whole and by (inaudible).

MR DEWS: And no-one else.

MR HILMER: They do not have an economic interest.

MR DEWS: That's correct. How new content gets on the portal can be by one of three ways. They can be eisa partners. They can be f2, f2 or f2 partners. They can be eisa or eisa properties or we can choose those portal codes to develop content within the portal code structure. That content will be managed by us and what gets on the portal will be determined by us as the manager.

MS ROBINSON: Thank you.

OPERATOR: Thank you. Our next question comes from Mr Tony Water of CCZ Equities. Mr Water, please go ahead.

MR WATER: Yeah, hi. Just in those 900,000 unique users that you mentioned for the portal, does that include an aggregation of ANZWERS and also what is the amount of minutes spent per unique user?

MR DEWS: First of all, the data that I have quoted to you comes from IMR in the month of March. It does not include - well, it does and it doesn't. But let me tell you exactly what it is. It is people who have been to the OzEmail home page, Australians who have visited the OzEmail home page, and they may go there to use ANZWERS, they may go there to use other services that are available from that page. We haven't taken all the users of ANZWERS and added that to all the users of the home page. That is purely just the users of the home page and that IMR data was published one day last week.

MR WATER: And the economic interest that you are taking in this portal, is it a 50 per cent economic interest in the portal itself or what's the percent?

MR DEWS: It's an equivalent economic interest to eisa.

MR WATER: Right. Okay. And unique users, sorry, unique, the minutes per unique user on those IMR figures?

MR DEWS: I wish I could tell you that. I don't know that because I don't have access to OzEmail servers but that sort of data actually unfortunately isn't published.

MR WATER: Okay. Thanks.

OPERATOR: Thank you. Ladies and gentlemen. If you have any additional questions please press the star followed by the one. Our next question comes again from Ms Robinson of J.B. Were in Melbourne. Ms Robinson, please go ahead.

MS ROBINSON:Thank you. Just one quick follow-up question. With your stake in eisa what will you be pushing them to do strategically particularly looking at broad band, WAF and so on? With your influence that you will have on the Board of eisa itself, what are you basically suggesting that they need to do strategically to move forward?

MR DEWS: Look, at this point in time we are not yet on the eisa Board yet and the transaction isn't complete, it is very difficult to answer, Lorraine. What we thought was very important, though, was to have a good link between portal code as a separate economic entity and the ISP business, which will be providing a large part of that traffic. We want to contribute to the Board and help grow the value of the eisa business as much as any other Board member.

MR HILMER: But as a matter of process, Lorraine, we wouldn't talk as one Board member about a strategy for the Company, and we wouldn't have a public debate about where we wanted the Company to go. We have a very good working relationship or we wouldn't be moving forward and it is something that, you know, the eisa strategy will be announced by eisa and we will feel comfortable about our involvement with it.

MS ROBINSON: Thank you.

OPERATOR: Thank you. Our next question comes from Mr Beale from ABN Amro Sydney. Mr Beale, please go ahead.

MR BEALE: Thank you. Just to follow up on that point you made, the one before last, as a result of the - you say you don't have access at the moment to OzEmail servers, but as a result of the deal you presumably will, won't you, in other words you will have information on customer use and access?

MR DEWS: Sure. We certainly will.

MR BEALE: Yeah, right. Okay. Thank you.

OPERATOR: Thank you, ladies and gentlemen. I will open the lines up for questions one more time. Once again, if you wish to ask a question, please press the star followed by the one. I would like to advise that there are no further questions, and I now hand back to Mr Hilmer for his closing remarks.

MR HILMER: All right, well, thank you very much. We appreciated the chance to catch up with you in this way. It is, I think, an effective and efficient first for us in doing this. You know, if you have follow-on questions, you should be in touch with Mark and part of the normal briefings, but, as I say, we appreciate the opportunity to have had a chance to talk about what we think is a very good step forward in building our f2 business. Thank you.

MR DEWS: Thanks very much.

OPERATOR: Thank you, ladies and gentlemen, that concludes the conference. You may now disconnect.

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