BT Report 2001



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The results of associates and joint ventures by line of business
for the 2001 financial year are as follows:


	Share of turnover Łm	Share of operating profit (loss) before exceptional items and goodwill amortisation Łm

BT Wireless	539	(228	)
BT Ignite	391	(119	)
Concert	2,576	19
BTopenworld	45	(69	)
Japanese and other investments	6,386	517

	9,937	120

BT Wireless’s ventures comprised BT’s mobile interests in Germany and The Netherlands until their full acquisition. BT Ignite’s ventures comprise BT’s fixed and data networks in those areas. Concert is the global joint venture with AT&T launched in January 2000. BTopenworld’s ventures comprise new and developing internet operations in the UK, Spain and Italy. BT Retail, BT Wholesale and Yell do not have any significant associates or joint ventures.

BT’s share of its ventures’ turnover rose from Ł1,270 million in the 1999 financial year to Ł3,364 million in the 2000 financial year and to Ł9,937 million in the 2001 financial year, including sales by the principal venture to BT. This growth was due to our establishment and acquisition of interests in ventures in North America, Europe and Asia Pacific over the past three years. Acquisitions of interests contributed Ł6,133 million of the growth in the 2001 financial year and Ł1,229 million of the growth in the 2000 financial year. In the 2001 financial year, Ł9,677 million of the total arose from ventures located outside the UK, compared with Ł3,164 million in the 2000 financial year and Ł1,149 million in the 1999 financial year. The principal contributors in the 2001 financial year were Japan Telecom and J-Phone (Ł4,542 million), Concert (Ł2,576 million), Cegetel (Ł860 million), Viag Interkom (Ł449 million to February 2001), Airtel (Ł286 million) and LG Telecom (Ł281 million). The main contributors in the 2000 financial year were Cegetel (Ł727 million), Concert (Ł583 million from January 2000), Japan Telecom (Ł501 million from September 1999), Viag Interkom (Ł296 million), Airtel (Ł250 million) and a full year’s contribution from LG Telecom (Ł200 million). In the 1999 financial year, the main contributors were Cegetel (Ł578 million), Airtel (Ł157 million), Viag Interkom (Ł82 million) and LG Telecom (Ł81 million from October 1998).

The group’s share of its ventures’ operating losses totalled Ł12 million in the 2001 financial year, before Ł385 million goodwill amortisation and impairment. The results included an exceptional write off of Ł132 million for subscriber acquisition costs. The comparable losses, before goodwill amortisation, amounted to Ł316 million in the 2000 financial year and Ł325 million in the 1999 financial year. The underlying improvement in the 2001 financial year was mainly due to the investment in the J-Phone companies in May 2000.

The principal loss in all three years arose in Viag Interkom, before it became a wholly-owned subsidiary in February 2001, in developing its networks to compete in the German market. BT’s share of these losses was Ł277 million (for 11 months), Ł240 million and Ł193 million in the 2001, 2000 and 1999 financial years, respectively. Telfort also incurred losses in every year before it became a wholly-owned subsidiary in June 2000, as it had been developing its fixed and mobile networks in the Netherlands. In the 2001 financial year, other losses were mainly incurred by Blu and Albacom in Italy and British Interactive Broadcasting (BIB) in the UK until our interest was diluted in June 2000. BIB launched its new Open interactive digital TV service in the UK in autumn 1999 after a period of development. Ventures returning operating profits in the 2001 financial year mainly comprised Japan Telecom and J-Phone, together with Concert, Cegetel in France, Airtel in Spain, and Maxis Communications in Malaysia. We have agreed in principle to sell our interest in Maxis.

BT’s share of the operating profits of Japan Telecom and J-Phone totalled Ł473 million before goodwill amortisation, interest, tax and minority interests deductions, in the 2001 financial year. This profit was mainly derived from BT’s investment in the J-Phone companies which was made in May 2000. After goodwill amortisation, interest, tax and minority interest deductions, the profit attributable to BT shareholders amounted to Ł39 million for the 2001 financial year. Shortly before the 2001 financial year end, BT reduced its economic interest in the J-Phone companies and after the year-end reduced its direct interest in Japan Telecom. We have now agreed to sell these investments.

We have aligned the accounting of all the BT Wireless operating units during the 2001 financial year; this has resulted in an exceptional write off of previously capitalised costs in certain non-UK operations of which Ł132 million related to deferred subscriber acquisition costs in the ventures.

Concert’s operating profit before goodwill amortisation and exceptional items attributable to BT was Ł19 million for the 2001 financial year on our share of turnover of Ł2,576 million. Concert’s performance deteriorated as the year progressed and, in the final quarter, it moved into losses for the first time. The performance was impacted by bad debt provisions as its customers have weakened financially, along with depreciation from increased investment in cable systems. The competitive pressure on margins is continuing and management action is being taken to improve the performance of the business. The new management of Concert have already taken action, including the reduction of headcount. As currently structured, losses are likely to be significant in the 2002 financial year. BT and AT&T are discussing various options relating to Concert, including ways to improve the performance of the business and strengthen the scope of the relationship and various strategic alternatives to the Concert joint venture. See “Discussions with AT&T regarding Concert and BT Ignite” .

In the 2000 financial year, losses, other than those already noted, were mainly incurred by BIB and Albacom. Ventures returning operating profits in the 2000 financial year included Concert, Airtel, Cegetel, Japan Telecom and Maxis Communications. In the 1999 financial year, the other losses were incurred by Albacom, BIB and LG Telecom in the Republic of Korea, which has been a BT joint venture since October 1998.

Goodwill amortisation has been increasing as a result of new acquisitions in ventures. In the 2001 financial year, the charge totalled Ł185 million compared with Ł84 million in the 2000 financial year and Ł17 million in the 1999 financial year, which was the first year in which BT adopted FRS 10. This trend is not expected to continue since we have not made any major acquisitions of interests in ventures since May 2000. We consider that goodwill arising in Asian ventures became impaired during the 2001 financial year, and we have incurred an exceptional impairment charge of Ł200 million.

As a consequence of the termination of the BT/MCI merger agreement and the then-prospective MCI/WorldCom merger, BT ceased treating MCI as an associate on 31 October 1997, although we held the investment until its sale to WorldCom in September 1998.