Years ended, or as at, 31 March		2002		2001
Group turnover		£12,085	m	£12,063	m
Group operating profit		£1,102	m	£888	m
No. of employees ('000)		50.8		53.6
Note - before goodwill amortisation and exceptional items

BT Retail is the UK's largest communications service provider, by market share, to the residential and business markets. It trades under one of the UK's leading brands - BT - and is the prime channel to market for the other businesses in the BT group.

BT Retail supplies business and residential customers with a wide range of communication products and services, including voice, data, internet and multimedia services. It also offers a comprehensive range of managed and packaged communications solutions.

BT Retail's strategy, which has customer satisfaction as its cornerstone, aims simultaneously to achieve the goals of reducing costs and improving customer satisfaction. During the 2002 financial year, BT Retail made significant progress in implementing its strategy with the aim of:

• minimising the decline in revenue from its traditional core business;
• growing existing new-wave revenue and developing fresh initiatives;
• establishing brand extension opportunities in adjacent markets; and
• improving its efficiency.

Voice services
In the residential, fixed-voice call market, BT Retail's share remained stable over the year at 73%, having fallen from 79% in mid-1999 to 74% by mid-2000. Within the business sector, there was a reduced level of market share loss, with a market share of around 48%.

As at 31 March 2002, BT Retail had more than 28 million customer lines (exchange line connections). Some eight million of these were business lines and lines for other service providers; the remainder were for residential customers.

Exchange line turnover, comprising rental and connection charges, accounted for approximately 30% of our revenues in the 2002 financial year. The number of BT Group's business lines grew by 1.3% over the year, with high-speed ISDN services being the main driver behind this growth. Despite competition from other fixed-line providers, the number of residential lines increased marginally (by 0.3%), reversing the previous declining trend, due to a combination of customers installing second lines and customers returning to us from other operators.

In a highly competitive market, BT Retail has developed innovative pricing packages designed to meet the needs of small, medium and major businesses and residential customers.

During the 2002 financial year, BT Retail further developed its innovative BT Together pricing package, which offers reduced rate calls and other benefits for a fixed monthly fee. To date, more than 10 million customers have signed up for the package. The scheme was enhanced to include the option of unmetered UK calls at evenings and weekends. An option including unmetered off-peak internet calls (SurfTime) was also made available. The UK calls package offers more than 6,000 hours of unmetered national calls per year for every BT customer. This new addition to the BT Together family has so far attracted 610,000 customers.

As at 31 March 2002, 71% of residential customer call minutes were made by BT Together package subscribers.

In the residential market, the successful rollout of pricing packages contributed to stabilising our share of the fixed-line voice market and improving customers' perception of price and value for money.

In June 2001, BT Answer 1571, a free answering service for all our residential customers, was launched. This service, which takes messages if a person is out, engaged on another call or surfing the internet, has proved highly successful; more than five million customers had signed up for this service by 31 March 2002.

As well as adding to our call packages and range of services, we listened to our customers and made it easier for them to understand how their charges had been calculated, by introducing a new and clearer bill. This had the added advantage of being more environmentally friendly than its predecessor, saving up to 730 tonnes of paper a year.

New-wave business
Existing new-wave business, including ISDN lines, customer premises equipment, digital private circuits and conferencing, showed growth of 10%.

In December 2001, BT Retail announced a target of a 4% per annum increase in incremental revenue from existing new-wave business by the 2005 financial year.

In addition, it announced a plan to introduce a number of new-wave initiatives to generate incremental revenue of £825 million by the 2005 financial year. These include:

• a stronger push into broadband products and services, with the announcement in April 2002 of BT Broadband, which redraws the way internet access is sold. BT Broadband, which will be widely available from Autumn 2002, allows customers always-on, high-speed direct access to the internet over a single home phone line. It strips out services like e-mail, free personal web space and content. This leaves customers free to create a portfolio of services and content they want, and means that they do not have to pay for services they may not need;
• an increased focus on mobile solutions, working with mmO2 and other partners; and
• wireless local area network (LAN) solutions for businesses and consumers.

In April 2002, BT Retail announced that it would be launching a new portfolio of mobile services in June 2002. This will mean a wide range of products for business customers and the creation of a new service provider business in the mobile market, giving unified billing and customer service for the first time under the BT brand. As part of BT Retail's mobility strategy, it was also announced that we planned to build the UK's first public access wireless LAN network by installing around 400 'hotspots' (access points in airports, stations, hotels, etc.) by June 2003. We estimate that there will be up to 4,000 sites by June 2005 and we will be working closely with our partners Motorola and Cisco to build the new network.

Other examples of this new-wave strategy include:

• a major initiative, e-payphones, was announced in December 2001. This involves a partnership with Marconi to launch the world's largest public network of multimedia payphone terminals. We will install 28,000 of the new Marconi-built terminals, which will offer full internet access, e-mail and text messaging. Rollout started in April 2002, with 3,000 terminals planned to be in place in the UK within a year;
• during the 2002 financial year, we connected up to 2,000 SMEs a week to broadband. An NOP Research Group poll in February 2002 confirmed BT as the number one internet service provider for businesses with between one and 49 employees. During the 2002 financial year, we connected a UK business to the internet every five minutes, on average; and
• our commitment to broadband for SMEs led to our enthusiastic involvement in the ACT NOW programme in Cornwall, a demand-led initiative to encourage businesses in the county to gain the support they need to move into the new broadband economy. The £12.5 million project includes around £5.25 million of European funding and will run for three years. The project could act as a blueprint for the development of broadband in other regions of the UK where, without this kind of partnership approach, deployment would be uneconomic.

An area of focus for new-wave initiatives is the public sector, where:

• we continued to work with the National Health Service to provide electronic links into doctors' surgeries and hospitals, leading to faster and easier booking of hospital beds and appointments, and the shortening of hospital waiting lists;
• the National College for School Leadership Online was underpinned by an infrastructure developed and hosted by us. This flagship Government initiative is being rolled out to all school leaders and offers quality training, advice, resources and guidance at the touch of a button;
• Liverpool City Council chose us to be its partner in the 'e-transformation' of its services. Via Liverpool Direct, a range of solutions is resulting in a step change in the quality of services being delivered to the city's inhabitants; and
• Bracknell Forest Borough Council chose us to provide a single, multi-functional smart card, enabling residents to obtain local services, including transport, attendance records and meals in schools, and leisure activities in sports centres.

Brand extension
BT Retail embarked on three brand extension initiatives in the 2002 financial year, linking-up with market leaders:

• a partnership deal with the leading UK digital TV broadcasters to provide our customers with attractive digital television offers alongside their telephony and internet needs. To date, these deals have generated more than 300,000 leads for the TV partners;
• strategic alliances with Cisco, Dell, Microsoft and O2 UK to provide hassle-free, integrated information and communications technology (ICT) solutions for SMEs. As at 31 March 2002, more than 900 companies had signed up for the packages, generating revenue of more than £33 million; and
• a strategic partnership deal with Siebel Systems, a world-leading provider of customer relationship management (CRM) applications software. This also involved launching Contact Central, a new-generation, multimedia contact centre solution for SMEs. Since its launch in October 2001, £108 million in new revenue has been achieved in the field of CRM.

In extending into the CRM field, BT Retail also linked up with other key players, including Accenture, Nortel, Avaya, Cap Gemini Ernst and Young, CosmoCom, Extraprise, Genesys and MarketBridge.

Net-centricity
BT Retail's website (accessed through www.bt.com) provides residential and business customers with an e-commerce channel through which they can access information and services.

The site is a key part of BT Retail's drive to become more net-centric, by giving its customers increased opportunities to deal with the company over the internet. This gives customers a choice of more ways to contact us and results in significant cost efficiencies.

www.bt.com is one of the largest sites of its type in the UK, with 2.5 million registered users at 31 March 2002. Orders for more than £71 million worth of products and services were made or initiated through the site during the 2002 financial year.

Customer satisfaction
Delivering customer satisfaction is the cornerstone of BT Retail's strategy. BT Retail's key objective is to provide customers with a significantly better experience than any of its main competitors by March 2003.

Performance is measured monthly and, during the 2002 financial year, the SME and consumer segments each achieved better customer satisfaction scores than competitors in nine months out of 12. The major business sector, for which a customer satisfaction tracker has only been in place since May 2001, bettered the competition nine times in the first 11 months of the survey's operation.

Service is a key driver of customer satisfaction and, during the 2002 financial year, there was sustained improvement in several areas. Consumer provision was 3.9% better (in terms of the percentage of customers satisfied overall) than in the 2001 financial year, while there were improvements of 2.2% in business provision and 3.9% in consumer repair, with a slight decline of 0.6% in business repair.

These achievements were driven by a number of key initiatives including:

• reducing repeat faults through better focus and coaching, and by our engineers using their new laptop computers to help them in their work. The result was a 19% reduction in repeat faults in the three months ending 31 March 2002, compared with the same period in the 2001 financial year;
• keeping customers informed by giving them a clear commitment when a job starts and keeping them in the picture at all stages until it is completed to their satisfaction. 4.5% more customers were satisfied with the quality of communication with us than at the same time last year;
• contingency planning to cope with peaks of activity caused by bad weather and other surges of demand. As a result, peaks of work were fewer and less acute than in the previous year, with the workstack of outstanding faults being, on average, 20% lower; and
• encouraging customer-centric behaviours by adopting an end-to-end approach, covering job definition and recruitment through to coaching and performance management. This approach was implemented across the '150' customer service function and piloted among the engineering community.

Towards the end of the 2002 financial year, BT Retail announced a key initiative in its drive to improve customer service and increase efficiency - a plan to create a network of 30 next-generation multi-function contact centres. A total of £100 million will be spent on the new centres, which will be multimedia, have more seats and use leading-edge CRM technology to provide consistent standards, a better customer experience, a state-of-the-art working environment and significant cost savings.

As part of the project, more than 50 existing call centres will close over the next two years.