Hi Chris,
Both your phones will become local cell phones for calls dialed out, but will remain foreign numbers for calls received. In other words, you will dial your friend as if he/she were still in Australia and your Australian friend will dial your number as if you were in Italy. This is what you and your friend will dial to reach each other:
You calling your friend: 00 61 4 ???? ???? (as you notice the starting zero in the Australian cell must be dropped)
Your friend calling you: 00 39 3?? ??? ????
Note that these calls between you and your friend will likely be pricey.
To dial French numbers just enter them the way locals do.