BTPLC Annual Report 2006 - Business review

Major corporate customers

Our core target market is 10,000 multi-site organisations including major companies with significant global requirements, together with large organisations in target local markets. We aim to provide them with networked IT services and a complete range of managed solutions.
     In the 2006 financial year, major corporate revenue increased by 16% to £6,880 million, with new wave revenue increasing by 35% and traditional revenue declining by 4%. The increase in new wave revenue for major corporate customers globally was driven by networked IT services, broadband and mobility. New wave revenue accounted for 59% of our total revenue in the major corporate market, compared with 51% in the 2005 financial year.
     The continued migration of our customers from traditional voice and data services to networked IT services enables us to build closer, high-value relationships with these customers, enabling them to manage their businesses more effectively and gain competitive advantage in their markets. Such relationships will, we believe, deliver long-term, profitable revenue, more than offsetting the decline in our traditional business revenue.
     As well as local, national and international communications services and higher-value broadband and internet products and services, we offer a comprehensive portfolio of networked IT services focused on messaging and conferencing, CRM (customer relationship management), convergence, outsourcing and security. We also offer consultancy services to help organisations understand network performance, operate their networks and applications efficiently and transform their businesses to gain advantage in the digital networked economy.
     Our extensive global communications network and strong partnerships enable us to serve customers in the key commercial centres around the world using a combination of direct sales and services capabilities and strategic partners.

Business customers

At 31 March 2006, in the UK we had around 1.5 million business customers, with more than eight million exchange lines.
     In the SME (small and medium-sized enterprises) market (typically companies with up to 500 employees), our strategy is to provide customers with tailored IT and communications products and services that enable them to manage their businesses more simply and efficiently.
     In the 2006 financial year, 23% of revenue was from new wave activities, compared with 19% in the 2005 financial year. However, we face challenging market conditions and, overall in the SME market during the 2006 financial year, revenue reduced by 5% to £2,324 million, primarily reflecting the impact of CPS (carrier pre-selection) and WLR (wholesale line rental).
     In April 2006, we announced that we had acquired dabs.com plc, one of the UK’s leading internet retailers of IT and technology products. dabs.com has around one million customers throughout the UK, and this move strengthens our online IT and digital products sales and service presence for SME and consumer customers.

Consumer customers

At 31 March 2006, we had over 18 million UK consumer customers with around 20 million residential customer lines (exchange line connections). In the 2006 financial year, consumer revenue declined by 5% to £5,296 million, primarily reflecting the impact of CPS, WLR and regulatory price reductions in mobile termination rates.
In the consumer market we aim to provide customers with a range of services that help them communicate more effectively, be entertained and manage their lives. By increasing revenue from broadband, mobility and internet services, we intend to reduce further our dependence on revenue and profit from traditional, fixed-line voice services. We also aim to maximise the returns from our traditional business and defend market share vigorously, through service offerings backed by innovative marketing and excellent quality of service.
Consumer new wave revenue grew by 55% from £412 million in the 2005 financial year to £638 million in the 2006 financial year, driven principally by broadband. Residential broadband customers increased by 52% to more than two million.

Wholesale customers

In the UK wholesale market, we provide network services and solutions to over 700 communications companies, including fixed and mobile network operators, ISPs (internet service providers) and other service providers. We interconnect with more than 150 other operators, as well as carrying transit traffic between telecommunications operators.
     In the 2006 financial year, external revenue from our wholesale activities increased by 13% to £4,996 million.
     In the UK, external revenue from our wholesale activities was £4,226 million in the 2006 financial year, compared with £3,820 million in the 2005 financial year.
     New wave revenue was £1,033 million, up 56% on the 2005 financial year. This increase was driven by the success of broadband as well as a strong emphasis on building innovative network solutions that help our wholesale customers grow their businesses and reduce their costs.
     We have a long and successful tradition of delivering network-based connectivity to the carrier and intermediate telecommunications markets throughout the UK, and have developed value-enhancing services and solutions. We have a number of agreements with service providers and mobile operators to upgrade their IP capability. In addition, we have used our expertise and geographic reach to provide bespoke data housing solutions.
     In our global carrier business, revenue was £691 million in the 2006 financial year, compared with £565 million in the 2005 financial year. This strong growth was mainly driven by revenue from Albacom which we acquired in February 2005. Our global carrier business customers include other fixed-line telecommunications operators, mobile operators and selected ISPs outside the UK.

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