Years ended, or as at, 31 March		2002		2001
Group turnover		£12,256	m	£11,728	m
Group operating profit		£2,242	m	£2,538	m
No. of employees ('000)		29.8		30.0
Note - before goodwill amortisation and exceptional items

BT Wholesale provides network services and solutions within the UK to communication companies, network operators and service providers, and to other BT lines of business.

Its 29,800 skilled employees manage the largest capacity communications network in the UK, with the greatest geographical reach and customer coverage. 120 million copper pair kilometres and six million optical fibre kilometres give it the ability to touch virtually every home and business in the country. Its 900 local and trunk exchanges handle an average of 300 million calls every day.

The 2002 financial year was characterised by:

• the launch of a bold plan to accelerate the growth of BT Wholesale's new broadband business;
• good progress in growing new business sales and the wholesale "one-stop shop"; and
• the successful delivery of a strong performance, despite the difficult trading conditions in the UK TMT sector, through a focus on operating free cash flow.

Changing market conditions
As a result of the reversal in world markets following the dot.com crash, which has been especially pronounced in the communications industry, the wholesale telecommunications market is experiencing its most significant slowdown in many years. Approximately 5% of BT Wholesale's UK customers have gone into administration or the like, resulting in around £200 million of lost external sales.

Consequently, BT Wholesale's external turnover growth (including mm02 as external) has slowed substantially, from over 30% in the 2001 financial year to below 19% in the 2002 financial year. Its internal turnover (mainly with BT Retail and BT Ignite) reduced by 1% in the 2002 financial year.

However, BT Wholesale responded quickly to the changed market conditions by cutting its capital expenditure from £2,273 million in the 2001 financial year to £1,974 million in 2002. This enabled it to grow free cash flow by 9% in the 2002 financial year in a tough market.

Strategic objectives
Throughout the 2002 financial year, BT Wholesale continued to drive its strategic objectives to:

• evolve the UK network from a predominantly fixed-voice technology towards data, Internet Protocol (IP) and mobile technologies;
• create a portfolio that will enable it to sustain traditional product revenues, while migrating its customers up the value chain to more advanced services, and providing a "one-stop shop"; and
• become the number one provider in the high-growth UK broadband market.

BT Wholesale has continued to invest in its network in a highly focused way, using new technology to grow scale and capabilities for the future. A total of 70 next-generation switches (NGS) have now been deployed to replace the trunk exchange network. In January 2002, the world's first hybrid NGS, using voice over asynchronous transfer mode (ATM) technology, was brought into service.

In addition, more than 700 digital local exchanges have now been enabled to redirect all internet-type calls originating from BT customers. These calls are grouped together and routed directly to BT's Dial IP platform and other operators' networks. This enhanced functionality in BT Wholesale's switched network is enabling the evolution from circuit switch and voice to packetised data and IP.

In line with its strategy to migrate customers towards more advanced services, BT Wholesale generated over £100 million from new business revenues, comprising sales of broadband and data products, network facilities management, and content and applications solutions. This represented a growth of 240%, compared with the previous financial year, and resulted from opportunities continuing to be sought and won through deeper customer relationships with the leading fixed and mobile operators and strategic customer and supplier partnerships.

In addition, BT Wholesale continues to invest in e-business channels to improve its responsiveness to competitive market needs and to reduce costs.

Broadband
BT Wholesale's most notable achievements in the 2002 financial year have been in the broadband arena. From 1 June 2001, we vested the end-to-end management of broadband digital subscriber line (DSL) in BT Wholesale. This move was designed to bring all elements of broadband DSL delivery under one management team, including platform development, product development and in-life management, implementation and service assurance, marketing and channel development. Since then, BT Wholesale has:

• met its target of enabling more than 1,000 exchanges for DSL services to ensure that over 60% of UK households are connected to a DSL-enabled exchange;
• announced plans to enable a further 100 exchanges, extending coverage to 66%;
• launched a series of product enhancements, including a self-install version of asymmetric DSL (ADSL) in January 2002, enabling more than 150 service provider customers to market attractive broadband product offerings;
• promoted broadband through joint marketing programmes with its service provider customers; and
• progressively reduced the price of wholesale broadband through a sustained programme of cost reductions based on scale economics, e-business automation, process improvements, improved network design and lower equipment costs. These culminated in significant price reductions announced in February 2002, which are expected to stimulate demand for one million broadband lines in the UK by Summer 2003.

So, even in a difficult year, BT Wholesale made a major contribution to the financial performance of BT and set out its aim to be the number one provider of wholesale broadband in the UK.