The growth in cable operators' networks in the UK had an adverse effect on BT's share of the residential market until the 2001 financial year. BT experienced a small net annual reduction in residential exchange line connections as a result of increasing competition from these cable operators in certain geographic areas. As the cable operators are currently concentrating on increasing penetration in current markets rather than expanding their geographic coverage this is not expected to continue in the short-term.

The group has seen some diversion of demand from its fixed network as a result of the growth in mobile voice calls and other licensed operators' activities. This diversion may intensify now that BT's fixed line customers are able to pre-select their carrier.

Additionally, BT's Licence was amended in April 2000 to require BT to provide other operators with use of the lines connecting BT's local exchanges to its customers and allow operators to install equipment in BT's exchanges (local loop unbundling). As a result of an EU Regulation this amendment took effect from 30 December 2000.

For its operations as a whole, BT expects the competitive pressure to persist and it will continue to defend its market share vigorously and fairly.

The strength of the UK economy is an important determinant of BT's business volumes and the gross domestic product grew by 1.0% in the 2002 financial year, compared with 2.9% and 3.0% in the 2001 and 2000 financial years, respectively.