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BT Wholesale is the line of business within BT that provides network services and solutions within the UK. Its customers include communications companies, fixed and mobile network operators, internet and other service providers. The customer base includes BT’s lines of business, BT Retail and BT Global Services. The majority of BT Wholesale’s turnover is internal (2005 – 58%, 2004 – 61%, 2003 – 62%) and mainly represents trading with BT Retail. External turnover is derived from providing wholesale products and solutions to other operators interconnecting with BT’s UK fixed network. In the 2005 financial year, turnover totalled £8,979 million, an increase of 1% over the 2004 financial year, after a reduction of 4% to £8,883 million in the 2004 financial year. External turnover increased by 10% to £3,812 million in the 2005 financial year (an increase of 17% excluding the impact of regulatory reductions to mobile termination rates). This follows a decline of 1% in the 2004 financial year to £3,473 million (an increase of 2% excluding the impact of regulatory reductions to mobile termination rates). The increase in the 2005 financial year reflects particularly strong growth in new wave revenues, mainly broadband. The regulatory price reductions on mobile termination rates have no impact on profitability. External turnover from traditional products increased by 1% in the 2005 financial year compared to a decline of 5% in the 2004 financial year. Excluding the impact of regulatory reductions to mobile termination rates turnover was up 10% in the 2005 financial year and down 2% in the 2004 financial year. The growth in traditional turnover was mainly driven by growth in private circuits, wholesale access and interconnect traffic. Turnover from partial private circuits of £191 million increased by 26% in the 2005 financial year after an increase of 43% in the 2004 financial year to £152 million. This reflects the continuing trend of customers migrating from lower bandwidth products to less expensive alternatives such as partial private circuits and short haul data services. Substitution to broadband has resulted in the continued declining trend in Flat Rate Internet Access Call Origination revenues with turnover of £57 million in the 2005 financial year (2004 – £78 million, 2003 – £84 million). Wholesale access revenues have increased by £65 million in the 2005 financial year as a result of increased volumes from other service providers. Conveyance and low margin transit revenues of £2,014 million decreased by 2% compared to the 2004 financial year and at £2,054 million decreased by 1% in the 2004 financial year with the impact of regulatory price reductions being offset by increased call volumes. New wave turnover, including broadband and managed services, at £664 million in the 2005 financial year, showed strong growth of 84% following growth of 54% in the 2004 financial year. Broadband revenues grew by 158% year on year. Wholesale broadband DSL lines more than doubled during the 2005 financial year and reached 5 million DSL lines in the first week of April 2005 which is a year ahead of our target. In the 2004 financial year wholesale DSL lines grew by 177% to over 2.2 million lines. Internal turnover decreased by 4% to £5,167 million in the 2005 financial year after a decrease of 6% to £5,410 million in the 2004 financial year. The reduction reflects the impact of lower volumes of calls, lines and private circuits, and lower regulatory prices being reflected in internal charges. Gross variable profit of £6,817 million marginally increased compared to £6,791 million for the 2004 financial year after a decrease of 6% compared to the 2003 financial year reflecting sales volume changes and changes in sales mix. In the 2005 financial year, network and selling, general and administration costs, excluding leaver costs, decreased by £20 million, following a decrease of £174 million in the 2004 financial year. Activity levels in the network, driven by broadband volumes, have increased in both the 2005 and 2004 financial years. The financial impact of this increased activity has been mitigated by a series of cost reduction programmes focusing on efficiency, discretionary cost management and process improvements. The number of employees in BT Wholesale at 31 March 2005 and 31 March 2004 was 28,300 and 27,800, respectively. EBITDA before exceptional items at £3,849 million in the 2005 financial year was 1% higher than in the 2004 financial year following a reduction of 5% to £3,802 million in the 2004 financial year. EBITDA margins before exceptional items were maintained at 43% across all three financial years. Leaver costs were £45 million in the 2005 financial year (2004 – £46 million, 2003 – £131 million). Depreciation costs were broadly flat at £1,909 million in the 2005 financial year and £1,919 million in the 2004 financial year. Operating profit before goodwill amortisation and exceptional items at £1,940 million increased by 3% in the 2005 financial year. This was after a reduction of 9% to £1,883 million in the 2004 financial year. The operating profit margin, before exceptional items, remained broadly flat at 21.6% and 21.2% in the 2005 and 2004 financial years, respectively. Capital expenditure on plant and equipment at £1,973 million increased by 9% in the 2005 financial year and follows an increase of 10% in the 2004 financial year. This reflects increased expenditure to support the rapid growth in broadband and investment to support the transformation of the group’s network.
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