Turnover from discontinued activities includes the results of mmO2, demerged on 19 November 2001, Japan Telecom and J-Phone Communications, sold in June and July 2001, and Yell, sold on 22 June 2001.

Total group turnover, excluding BT's share of the ventures' turnover, increased marginally by 0.6% in the 2002 financial year to £20,559 million after growth of 9% in the 2001 financial year. The increase in turnover from continuing activities was offset by the decline in turnover from discontinued activities.

The group's turnover by product is analysed as follows:

Group turnover	2002 £m	2001 £m	2000 £m
Fixed-network calls	5,266	5,655	5,908
Exchange lines	3,926	3,674	3,526
Receipts from other operators	3,113	2,814	1,974
Private services	1,039	1,091	1,135
Solutions	1,661	1,074	915
Customer premises equipment supply	688	726	847
Other sales and services	2,754	2,107	1,820
Continuing activities	18,447	17,141	16,125
Discontinued activities and intra-group	2,112	3,286	2,590
Group turnover	20,559	20,427	18,715

Turnover from fixed-network calls declined by 7% to £5,266 million in the 2002 financial year compared to a decline of 4% to £5,655 million in the 2001 financial year. Fixed-network calls comprise all calls by customers made from fixed lines in the UK, including outbound international calls. In the 2002 and 2001 financial years, call volume growth was more than offset by the effect of significant price reductions.

Turnover from exchange lines grew by 7% to £3,926 million in the 2002 financial year after growth of 4% in the 2001 financial year to £3,674 million. The number of business lines grew by 1.3% and 5% in the 2002 and 2001 financial years, with high speed ISDN services being the main driver behind this growth. The number of residential lines has been broadly flat during the period under review. Competition from other fixed line providers has largely been offset by the success of the BT Together packages and customers returning to BT. Overall, BT's total fixed-network lines grew by 0.6% to 29.1 million in the 2002 financial year after growth of 1.3% in the 2001 financial year.

Turnover from receipts from other operators for interconnect charges increased by 11% to £3,113 million in the 2002 financial year compared to 43% growth in the 2001 financial year, reflecting the reduced growth in interconnect volumes. This turnover mainly comprises the income BT generates from other UK operators for passing calls from one operator to another and for terminating calls on BT's network. In the 2000 financial year, it also included receipts from international operators for incoming international and transit calls which BT received before this activity was transferred to Concert in early January 2000. From that date, this turnover includes receipts from Concert for terminating incoming calls into the UK and handling Concert's UK multinational customer domestic traffic. The increase in turnover, in the 2002 and 2001 financial years, primarily reflects the growing market share of BT's UK competitors, particularly mobile phone operators, and the increasing level of traffic flowing through and into BT from their networks. There has been a large corresponding increase in the payments made by BT to these operators for traffic passing to their networks. Although growth has been rapid, with volumes growing at 12% and 50% for the 2002 and 2001 financial years, BT Wholesale's interconnect business does not provide the group with the same overall level of margin as its UK retail business.

Private services turnover decreased by 5% to £1,039 million in the 2002 financial year after declining by 4% in the 2001 financial year.

Turnover from the external sales outsourcing and systems integration services grew by 55% to
£1,661 million in the 2002 financial year after growth of 17% in the 2001 financial year.

Turnover from BT's other sales and services has grown by 31% to £2,754 million in the 2002 financial year after growth of 16% in the 2001 financial year. The increase includes the results of the BT Ignite European Connectivity and UK IP revenues.

Total turnover
Total turnover from continuing activities in the 2002 financial year of £21,815 million includes BT's proportionate share of its ventures' turnover of £4,049 million before adjusting for trading between the Concert joint venture and the BT group. This total turnover grew by 4% in the 2002 financial year after growing by 16% in the 2001 financial year.

Other operating income
As part of the arrangements for the establishment of Concert, BT had been seconding staff and providing administrative and other services from its launch in early January 2000. The income from these services totalled £135 million in the 2002 financial year, £168 million in the 2001 financial year and £79 million in the 2000 financial year.

Operating costs
Total operating costs from continuing activities increased by 30% in the 2002 financial year to
£18,854 million after increasing by 12% in the 2001 financial year. As a percentage of group turnover from continuing activities, operating costs from continuing activities, excluding goodwill amortisation and exceptional items, increased from 80% in the 2000 financial year to 84% in the 2001 financial year and to 87% in the 2002 financial year. In all three financial years, net exceptional costs were incurred. These amounted to £2,696 million, £7 million and £64 million in the 2002, 2001 and 2000 financial years, respectively. These exceptional costs are considered separately in the discussion which follows.

Operating costs	2002 £m	2001 £m	2000 £m
Continuing activities:
Staff costs	4,260)	4,069)	3,959)
Own work capitalised	(623)	(642)	(475)
Depreciation	2,974)	2,689)	2,446)
Goodwill and other intangibles amortisation	124)	91)	10)
Payments to telecommunications operators	4,289)	3,736)	2,992)
Other operating costs	5,134)	4,550)	3,989)
Total operating costs from continuing activities before exceptional costs	16,158)	14,493)	12,921)
Exceptional costs	2,696)	7)	64)
Total operating costs from continuing activities	18,854)	14,500)	12,985)
Total operating costs from discontinued activities	2,546)	6,259)	2,374)
Total operating costs	21,400)	20,759)	15,359)

Staff costs increased by 5% in the 2002 financial year to £4,260 million after increasing by 3% in the 2001 financial year. In the 2002 financial year, the numbers employed in the continuing activities decreased by 8,200 to 108,600 at 31 March 2002 after decreasing by 4,000 in the 2001 financial year. Higher pension costs and the annual pay awards were the main reasons for the increase in staff costs.

The allocation for employee share ownership, included within staff costs, was £25 million in the 2002 financial year. The allocation for the 2001 financial year was £32 million.

Early leaver costs, before exceptional items, of £191 million were incurred in the 2002 financial year, compared with £118 million in the 2001 financial year and £59 million in the 2000 financial year. This reflects BT's continued focus on reducing headcount and improving operational efficiencies. In view of a pension fund accounting surplus, which for accounting purposes includes any provision for pension costs in the group's balance sheet, and in accordance with BT's accounting policies, early leaver charges for the two financial years 2001 and 2000 do not include the costs of the incremental pension benefits provided to early leavers, which totalled £429 million and £140 million, respectively. In the 2002 financial year £140 million of the cost of incremental pension benefits was charged against the pension fund accounting surplus, to the extent available, and the balance of £21 million was charged to the profit and loss account. Under the NewStart programme launched in the fourth quarter of 2001, BT employees who leave in advance of normal retirement age receive a leaving payment rather than a redundancy payment and the incremental pension benefits have been scaled down. This should reduce the future level of early leaver costs.

The depreciation charge increased by 11% in the 2002 financial year to £2,974 million after increasing by 10% in the 2001 financial year, a reduction in the assumed asset lives, reflecting BT's continuing high level of investment in its networks and broadband investment.

Goodwill amortisation in respect of subsidiaries and businesses acquired since 1 April 1998, when BT adopted FRS 10, and amortisation of other intangibles amounted to £124 million in the 2002 financial year compared with £91 million in the 2001 financial year and £10 million in the 2000 financial year.

Payments to other telecommunication operators grew by 15% in the 2002 financial year to £4,289 million after increasing by 25% in the 2001 financial year. The growth in these payments reflects the growing number of calls originating on or passing through BT's networks and terminating on UK competitors' fixed and mobile networks. This is due, in particular, to the increase in mobile phone usage and internet-related calls. The payments include those made to Concert for the delivery of BT's outgoing international calls from early January 2000 and those made by BT to international operators for outgoing and transit calls prior to that time.

Other operating costs, which rose by 13% in the 2002 financial year to £5,134 million after increasing by 14% in the 2001 financial year, include the maintenance and support of the networks, accommodation and marketing costs, the cost of sales of customer premises equipment and redundancy costs.

The exceptional items within operating costs from continuing activities for the 2002 financial year totalled £2,696 million and are shown in the table below.

Exceptional operating costs	2002 £m	2001 £m	2000 £m
Impairment of goodwill and tangible fixed assets of BT Ignite
European activities	2,202	200)	-
Concert unwind costs	172	-)	-
BT Retail call centre rationalisation	68	-)	-
BT Wholesale bad debt expense	79	-)	-
mmO2 demerger costs	98	-)	-
Other	77	(193)	64
Total attributable to continuing activities	2,696	7)	64
Total attributable to discontinued activities	11	2,850)	47
Total exceptional operating costs	2,707	2,857)	111

The most significant item in the 2002 financial year was the impairment of goodwill and tangible fixed assets in BT Ignite's European activities. In the light of our announcement that BT Ignite was streamlining its activities to focus on multi-site corporate customers with European activities and the assimilation of BT's share of Concert's activities, an impairment review of BT Ignite's investment in its European activities was performed. As a result, a goodwill impairment charge of £1,939 million and a tangible fixed asset impairment charge of £263 million has been recognised. The goodwill in BT Ignite's European activities has been fully written down.

Exceptional items within operating costs in the 2002 financial year also include:

• costs of £172 million associated with the unwind of the Concert global venture, discussed further and can be found by following this link;
• charges of £68 million in relation to the BT Retail call centre rationalisation programme, reducing the number of call centres from 104 to 30 over the next two years. In addition, unprovided costs of £50 million are expected to be incurred in future years;
• bad debt charges of £79 million, in BT Wholesale, as a result of severe liquidity problems in the TMT sector during the latter part of the year, in addition to increased bad debt charges taken through normal operating activities;
• costs of £98 million associated with the demerger of mmO2; and
• other charges of £77 million including impairment of payphone assets.

The most significant item in the 2001 financial year was the impairment of goodwill in Viag Interkom. The acquisition of the 55% interest in the company was completed for £8,770 million in February 2001 and goodwill of £4,992 million arose on this transaction. The impairment review resulted in an impairment in goodwill of £3,000 million, of which £200 million related to BT's continuing activities.

Other exceptional items within operating costs in the 2001 financial year included a credit of £193 million for the refund of rates on BT's infrastructure following a successful legal action taken by BT in 2000 to challenge the rateable valuations on which it was charged for its network assets.

In the 2000 financial year, there were exceptional costs of £64 million involved in the work to ensure that BT's business became fully independent of MCI Communications, a former associated company. In addition there were £47 million costs for the exit of BT Cellnet's analogue network in the 2000 financial year.