BT Retail

     Revenue in the 2007 financial year was £8,414 million, compared with £8,507 million in the 2006 financial year. Revenue grew year on year in the final two quarters of the 2007 financial year – the first time in four years.

     At a time when convergent, new wave products and services are radically reshaping the communications industry, customers of all kinds have more choice than ever before. However, more choice can also mean more complexity and more confusion and, consequently, the possibility of customers missing out on the benefits. BT Retail aims to offer customers straightforward and complete services that compete on value not price, backed by levels of customer service that differentiate us from our competitors. And this applies as much to traditional services such as telephone calls as it does to new broadband and mobility services.

Consumer customers
At 31 March 2007, we had more than 16.2 million UK consumer customers with around 19.3 million residential customer lines (voice, ISDN (integrated services digital network) and broadband). In the 2007 financial year, consumer revenue declined by 3% to £5,124 million, primarily reflecting the impact of CPS (carrier pre-selection) and WLR (wholesale line rental). However, the rate of revenue decline has been slowing and ARPU (average revenue per user) is strong.

     In the consumer market we aim to provide customers with a range of services that help them communicate more effectively, access entertainment 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.

New wave services for consumers
Consumer new wave revenue grew by 34% to £858 million in the 2007 financial year, driven principally by broadband. Residential broadband customers increased by 32% to 2.8 million.
     BT offers a family of broadband packages designed to meet the diverse needs of our customers, simply and cost effectively in a highly competitive market. We believe that the broadband experience is about much more than having basic access to the internet; customers want their broadband connection to offer a range of exciting content and secure, robust services as standard, without having to pay extra for these features.
     In June 2006, we launched BT Total Broadband, a comprehensive broadband package offering download speeds of up to 8Mb and giving customers free internet voice calls, free video calls and a suite of security software, all brought together through the BT Home Hub. Customers have the choice of three options and can enjoy ultra-fast download speeds and free evening and weekend UK voice calls with our BT Broadband Talk service.
     BT Total Broadband also includes 250 free BT Openzone Wi-Fi minutes a month, giving customers access to thousands of BT Openzone hotspots. At 31 March 2007, 2.4 million of our residential broadband customers had signed up for BT Total Broadband, more than half of whom had opted for our premium packages.
     Combined with the BT Home Hub – a device that connects wirelessly to PCs and other broadband devices – BT Total Broadband enables customers to experience the full range of broadband services at home or when out and about.
     With the launch of BT Vision in December 2006, we are helping to define next-generation television, which is made possible by the convergence of digital broadcast TV and broadband technology. Customers are now able to watch what they want, when they want. BT Vision, which does not require a regular monthly subscription, is the first widely available TV service of its kind. The service is delivered via a new set-top box – the V-box – which contains a personal digital recorder able to store up to 80 hours of content, and pause or rewind live TV.
     In December 2006, we announced that BT Vision customers will have access to live FA Premiership and Scottish Premier League football from the beginning of the 2007/08 season. Under an agreement with leading pay TV sports broadcaster, Setanta, BT Vision will carry 46 live Premiership games a season. The fact that BT Vision already had the rights to 242 ‘near live’ Premiership games means that 75% of all Premiership games will be shown in full. Customers will also be able – via BT Vision’s replay TV service – to access a selection of terrestrial programmes released in the previous week. Other content deals have been signed with a wide range of leading entertainment companies, including Warner Brothers, Disney, Universal Pictures, Dreamworks, Channel 4, HBO, BBC Worldwide, Paramount, Warner Music Group, EMI, Universal Music, Sony, BMG and the History Channel and the National Geographic Channel.

Convergent services for consumers
We are also playing a lead role in the development of internet telephony or VolP (voice over IP). In January 2007, we achieved the milestone of one million registered consumer customers for our VoIP services – BT Broadband Talk and BT Softphone – six months ahead of schedule. BT Broadband Talk enables customers to make and receive broadband calls using an ordinary phone; BT Softphone is for users making calls over their PCs. Both services offer high-definition sound. At 31 March 2007, the two services had 1.4 million customers.
     In the consumer mobility market our strategy is to build a foundation for the delivery of fixed/mobile convergent solutions.
     BT Fusion (launched in June 2005) is the world’s first intelligent mobile service that switches calls to a BT broadband line when the user is at home, offering customers the convenience of mobile in combination with the cost and quality advantages of a fixed-line phone. BT Fusion brings with it a range of mobile services including text and picture messaging. In January 2007, we launched BT Fusion Wi-Fi handsets. Users of this service can make calls at home or out and about at our BT Openzone hotspots at substantially reduced cost.

     At 31 March 2007, over seven million customers had signed up for BT Privacy, a caller display service which enables customers to preview incoming call numbers and filter out unwanted calls – up 90% on the 2006 financial year. All BT Privacy customers can be added to the Telephone Preference Service register which filters out most unsolicited marketing calls.
     At 31 March 2007, we had almost 500,000 customers registered on BT Text – the text-to-speech service that enables users to send and receive texts on their home landline phones.
     Since autumn 2005, almost three million customers have registered to have their Friends & Family calling circle automatically updated to ensure that the numbers they dial most frequently attract maximum discounts.

Business customers
At 31 March 2007, in the UK we had around 1.5 million business customers, with around 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 converged IT and communications services that help them to manage their businesses more simply and efficiently. By providing innovative communications solutions and new levels of support to our business customers, we believe that we can help them to gain competitive advantage in their markets.
     Overall in the SME market during the 2007 financial year, revenue grew by 1% to £2,353 million. 29% of revenue was from new wave activity, compared with 23% in the 2006 financial year.

New wave and value-added services for business and major corporate customers
Broadband is increasingly critical to the success of small and medium-sized businesses and BT Business Broadband remained the leading internet service provider for SMEs in the UK.
     In the 2007 financial year, broadband revenues in the business sector grew by 14% and 48% of new business broadband customers had contracts for a minimum of two years. At the end of the 2007 financial year, we had around 700,000 business broadband customers.
     However, businesses need more than basic broadband access – over 95% of our broadband sales are now made with value-added services attached.
     Our BT Business Broadband Voice service is demonstrating the possibilities of VoIP for businesses. At 31 March 2007, we were signing up around 2,000 new BT Business Broadband Voice customers a week.
     BT Business IT Support Manager enables business customers who want help installing BT Business Broadband to book an engineer to visit their premises and/or provide after-sales support. At 31 March 2007, more than 23,000 PCs were supported in this way.
     BT Business IT Manager gives SME customers the equivalent of their own IT manager at a fraction of the cost. Customers can choose the level of service that suits their business, ranging from advice over the phone or the remote running of software applications to help with installing PCs and networks and developing more complex, long-term solutions.
     In January 2007, we launched BT Business Total Broadband, a comprehensive broadband package designed specifically for SMEs. In addition to download speeds of up to 8Mb, BT Business Total Broadband customers get a free BT Broadband Voice additional line offer, which gives capped UK and international calls over the internet, and security software, including anti-virus and firewall applications for all office PCs. BT Business Total Broadband offers Option 2 and 3 customers 250 free BT Openzone wireless minutes a month, along with the Business Essentials package which is designed to make it easier for SMEs to run their business. The package includes ten Business Email Lite mailboxes, 20Mb of webspace and access to BT Workspace Lite, which enables everyone in the business to store, access and share information. Customers also have the support of a free, dedicated helpdesk, 24 hours a day, seven days a week.

Converged services for business and major corporate customers
In the mobility market, our strategy is to integrate traditional fixed, mobile and IP services to offer a single communications solution to our customers – through commercial packaging and through the exploitation of technological convergence. In addition, we provide a range of managed mobile services to UK and global customers who either outsource their mobile communications entirely or rely on BT to provide specific managed services.
     During the 2007 financial year, we launched a number of new services designed to integrate business and corporate customers’ fixed and mobile communications services, including BT Fusion Wi-Fi for Business – a single mobile device, designed for the SME market, which offers a two-way handover between Wi-Fi and mobile telephony. The benefits include high-speed access to business applications, free access to all fixed and mobile messages stored in one place and cheaper call rates.
     In April 2007, we launched BT Office Anywhere, a service that gives users the functions of a Windows PC but in a smartphone small enough to fit in the pocket. Because, unlike other smartphones, it comes with VoIP, BT Office Anywhere also offers free hour-long internet phone calls to UK landlines, plus capped calls to UK mobiles and international landlines from BT Openzone Wi-Fi hotspots in the UK and Ireland, from home and office networks, and from around the globe wherever users have access to a compatible wireless network.

Traditional services for business customers
At 31 March 2007, BT Business Plan had almost 600,000 locations, up 16% on the 2006 financial year, and accounted for 57% of call revenues from business customers.
     Customers of BT Business Plan (excluding the lite option) can also sign up to receive BT Assurance Plus, free of charge. The benefits of BT Assurance Plus include: the fixing of any problems the next working day, including Saturday; a dedicated support team and a Freefone fault reporting number; and the option of call diversion to a mobile phone, another fixed line or a personalised mailbox.

Convergent services in the wider community
Increasingly, we are extending the power of convergent broadband and mobile services out of the home and office and into the community more widely. BT Openzone is one of the leading providers of Wi-Fi services in the UK and Ireland. We operate our own network of high-quality sites, which include hotspots at Thistle, Ramada Jarvis and Hilton hotels, main train stations, British Airways lounges, BAA airports and RoadChef and Welcome Break service stations – and offer more wholesale and roaming connections than any other UK Wi-Fi network operator. BT Openzone offers customers a high-speed, wireless broadband connection over which they can access the internet to work, talk or play. At 31 March 2007, our BT Openzone customers had access to around 10,000 hotspots in key locations in the UK and Ireland and more than 40,000 globally.
     We are also leading the way in building ‘wireless cities’ throughout the UK, in order to ensure that local residents, businesses, tourists and local government employees are always best connected, wherever they are, whatever they happen to be doing and whatever device they happen to be using. In May 2006, we announced the creation of our wireless cities programme, which committed us to Wi-Fi enabling 12 cities by the end of March 2007. We achieved this ahead of schedule.
     In December 2006, Ofcom published a consultation document setting out its proposals for the award of available wireless spectrum at a frequency ideally suited to the provision of wireless broadband services, including those outside the home and office. This award will be made through an auction which could take place in late 2007. We believe it is important for the UK that this spectrum is developed for wireless broadband services and new applications, as is happening in many other parts of the world.

Enterprises
BT Enterprises consists of six businesses – BT Conferencing, BT Directories, BT Payphones, BT redcare (monitoring and tracking facilities), BT Expedite (a specialist retail division offering store integration solutions and services) and dabs.com – which build on BT’s existing strengths to generate innovation and growth in a range of communications-related markets. Revenues in the 2007 financial year were £710 million, up 32% on the 2006 financial year.
     BT Conferencing, for example, is now the number one conferencing service provider in Europe. It has 300,000 customers around the world for its comprehensive portfolio of audio, video and internet conferencing services and products, backed up by high quality service and support.
     dabs.com, a leading internet-based retailer of IT and technology products, is a key part of our strategy to strengthen our online sales and services capabilities in both the consumer and SME markets. (See Acquisitions and disposals in the 2007 financial year) dabs.com has a product portfolio of around 15,000 lines from the world’s leading manufacturers, including HP, Canon, Toshiba, Sony, Fujitsu Siemens, Microsoft and BT. During the 2007 financial year, revenue from dabs.com grew by 18%.

BT Ireland
BT has a long track record in Ireland, North and South, where we have successfully run two separate operating units for a number of years. In the 2006 financial year, we merged these two divisions to create BT Ireland – a single, integrated business serving the whole of Ireland. Our vision for this business is to become the leading provider of networked IT and converged IP services on the island of Ireland. In the 2007 financial year, BT Ireland generated revenues of £738 million.
     BT Ireland operates across four principal markets – consumer, business, major business and wholesale – delivering innovative broadband packages and complex IT services to customers, large and small.
     BT Ireland was recently named as the second largest IT services company on the island with a strong focus on managed and converged solutions. In the financial services sector, for example, it supports 13 of the 16 largest Irish and international companies.
     BT Ireland also has a significant wholesale business, supporting other leading operators, fixed and mobile. Further growth comes from infrastructure and transmission solutions including, for example, the build and management of Hutchison’s 3G network in Ireland.
     In the consumer and SME markets, we are positioned as one of the leading players in Northern Ireland and one of the leading alternative providers in the Republic of Ireland, offering competitive broadband and added value services.