Notes to the consolidated financial statements

27. FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES

Capital expenditure contracted for at the balance sheet date but not yet incurred was:

Future minimum operating lease payments for the group were as follows:

Operating lease commitments were mainly in respect of land and buildings. Leases have an average term of 24 years and rentals are fixed for an average of 24 years.
     At 31 March 2007, other than disclosed below, there were no contingent liabilities or guarantees other than those arising in the ordinary course of the group’s business and on these no material losses are anticipated. The group has insurance cover to certain limits for major risks on property and major claims in connection with legal liabilities arising in the course of its operations. Otherwise, the group generally carries its own risks.
     The group has provided guarantees relating to certain leases entered into by O2 UK Limited prior to its demerger with O2 on 19 November 2001. O2 plc has given BT a counterindemnity for these guarantees. The maximum likely exposure is US$82 million (2006: US$72 million), approximately £39 million (2006: £42 million) as at 31 March 2007, although this could increase by a further US$486 million (2006: US$545 million), approximately £248 million (2006: £314 million) in the event of credit default in respect of amounts used to defease future lease obligations. The guarantee lasts until O2 UK Limited has discharged all its obligations, which is expected to be when the lease ends on 30 January 2017.
     The company does not believe there are any pending legal proceedings which would have a material adverse effect on the financial position or results of operations of the group.
     There have been criminal proceedings in Italy against 21 defendants, including a former BT employee, in connection with the Italian UMTS auction. Blu, in which BT held a minority interest, participated in that auction process. On 20 July 2005, the former BT employee was found not culpable of the fraud charge brought by the Rome Public Prosecutor. All the other defendents were also acquitted. The Public Prosecutor is in the process of appealing the court’s decision. If the appeal is successful, BT could be held liable, with others, for any damages. The company has concluded that it would not be appropriate to make a provision in respect of any such claim.
     Following the European Commission’s formal investigation into the way the UK government set BT’s property rates and those paid by Kingston Communications, and whether the government complied with European Community treaty rules on state aid, the Commission concluded that no such state aid had been granted. The Commission’s decision has now been appealed, but the company continues to believe that any allegation of state aid is groundless, and that the appeal will not succeed.