5. Operating costs

	2003		2002		2001
Total Group	£m		£m		£m
Staff costs:
Wages and salaries	3,621		4,013		3,954
Social security costs	275		304		313
Pension costsa (note 31)	322		382		326
Employee share ownershipb	36		25		32
Total staff costs	4,254		4,724		4,625
Own work capitalised	(583	)	(659	)	(693	)
Depreciation (note 21)	3,011		3,680		3,045
Amortisation and impairment of goodwill and other intangibles (note 20)	24		2,321		3,386
Payments to telecommunications operators	3,846		4,299		3,802
Other operating costs	5,818		7,035		6,594
Total operating costs	16,370		21,400		20,759
Operating costs included the following:
Early leaver costsc	276		252		118
Research and development	380		362		364
Rental costs relating to operating leases, including plant and equipment hire
of £34 million (2002 – £51 million, 2001 – £15 million)	395		283		166
Foreign currency gains	(12	)	(1	)	(50	)
Amortisation of goodwill and exceptional items comprising:
Property rationalisation provision	198		–		–
Goodwill impairment in subsidiary undertakings	–		1,955		3,000
Asset impairments	–		324		–
Costs relating to the Concert unwind	–		172		–
Costs relating to the demerger of mmO2	–		109		–
BT Retail call centre rationalisation costs	–		68		–
BT Wholesale bad debt costs	–		79		–
Credit for rates refunds, relating to prior years	–		–		(193	)
Write off of subscriber acquisition costsd	–		–		7
Write off of Viag Interkom IT systems	–		–		43
Total exceptional items	198		2,707		2,857
Goodwill amortisation	20		352		373
Total amortisation of goodwill and exceptional items	218		3,059		3,230

a No charge for the cost of providing incremental pension benefits for employees taking early retirement was made in the year ended 31 March 2001 in view of the combined surplus in the BT Pension Scheme and the amount provided for pension costs within provisions for liabilities and charges.

b Amount set aside for the year for allocation of ordinary shares in the company to eligible employees.

c Includes £61 million of leaver costs associated with the rationalisation of the BT Retail call centres in the year ended 31 March 2002.

d The accounting of all the mmO2 operating units was aligned; this resulted in a write off of previously capitalised costs in certain non-UK operations.

The directors believe that the nature of the group’s business is such that the analysis of operating costs required by the Companies Act 1985 is not appropriate. As required by the Act, the directors have therefore adapted the prescribed format so that operating costs are disclosed in a manner appropriate to the group’s principal activity.

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