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Background
Telephone services in almost all of the UK
were, until 1981, provided by the Post Office, which was a government department
until 1969, when it was established as a state public corporation. In 1981, the
postal and telecommunications services of the Post Office became the responsibility
of two separate corporations, with British Telecommunications – under the trading name of British Telecom – taking
over the telecommunications business.
As a result of the Telecommunications Act 1984, British Telecommunications plc was incorporated in England and Wales as a public limited company, wholly owned by the UK Government.
In November 1984, the UK Government offered 3,012 million ordinary shares (50.2% of the total issued ordinary shares) to the public. British Telecom shares made their debut on the London
Stock Exchange on 3 December 1984. From April 1991, British Telecommunications plc traded as BT.
In December 1991, the UK Government sold over half its remaining shares in BT, retaining a holding of about 22%. It sold this residual holding in July 1993.
In 1985, Cellnet, the mobile phone operator, was
launched as a joint venture between British Telecom and Securicor, which held
40% of the company. BT acquired
full control of Cellnet (now O2UK – part
of
mmO2 plc)
by acquiring Securicor’s minority holding in November
1999.
In January 2000, BT and AT&T
established Concert as a 50/50 joint venture serving customers around the
world and transferred their trans-border assets and operations to Concert.
| 2002
restructuring |
| During the 2002 financial
year, we substantially completed a radical restructuring programme, the
key elements of which were: |
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the UK’s largest-ever rights issue – raising £5.9
billion |
|
the demerger of the majority
of BT’s
mobile businesses |
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the disposal of significant non-core businesses
and assets |
|
the
unwind of Concert, BT’s joint venture with AT&T |
|
the creation of customer-focused lines
of business. |
| This
restructuring resulted in a significant reduction of our debt levels. |
Demerger
of mmO2
On 19 November 2001, we completed the demerger of
mmO2, comprising what were BT’s wholly-owned mobile
assets in Europe.
Concert
On 1 April 2002, we completed the unwind of Concert.
The assets taken back into our ownership have been rationalised
and integrated with our existing operations with the aim of optimising
performance of the business and simplifying the product set for
our customers.
Acquisitions
and disposals prior to the 2004 financial year
Between the 1999 and 2002 financial years, we
made a number of significant acquisitions, including a stake in
J-Phone Communications and Japan Telecom and control of Viag Interkom
in Germany.
During the 2002
financial year, reflecting the change in the group’s strategy,
we disposed of a number of businesses and assets, including Yell
– our international directories and e-commerce business –
and our stakes in Japan Telecom, J-Phone Communications and Airtel
– the Spanish wireless operator.
In January 2003,
we completed the sale of our 26% stake in Cegetel Groupe SA, the
leading alternative fixed-line operator in France, to Vivendi
Universal for £2.6 billion in cash. After accounting for
goodwill written back from reserves, BT realised a profit of approximately
£1.5 billion before an exceptional interest charge of £0.3
billion on closing out fixed interest rate swaps.
Also in the
2003 financial year, we disposed of a number of non-core investments,
including our stakes in BSkyB, Mediaset, Blu and SmarTone.
Acquisitions
and disposals in the 2004 financial year
In July 2003, BT received full repayment of loan
notes issued by Yell plc, the principal and accrued interest totalling
£109 million. The notes, redeemable in 2013 and
accruing interest at LIBOR, became repayable, in full, on the
IPO (initial public offering) of Yell.
In December
2003, BT issued bonds worth £99 million, maturing in December
2008, which are exchangeable into our 16.6% holding in LG Telecom
(LGT) shares. LGT is a wireless telecommunications service provider
in the Republic of Korea. At a 17.5% premium to LGT’s current
share price at the time of issue and a coupon of 0.75%, this was
an efficient way to monetise our shareholding in LGT.
In December
2003, we sold our 7.8% stake in Inmarsat Ventures – a provider
of global mobile satellite communication services – for a
total cash consideration of £67 million.
In January 2004,
we acquired the UK operations of NSB Retail Systems, a supplier
of software products and services to the retail market for a consideration
of £17 million. We also became NSB’s exclusive distributor
in the UK and Ireland.
Also in January 2004
we announced an offer for the entire issued, and to be issued,
share capital of Transcomm plc, at a price of 15.5 pence per share,
valuing the company at £16 million. Transcomm is one of
the leading providers of data-only wireless services in the UK.
In March 2004, the offer was declared wholly unconditional and
in April 2004, more than 90% of Transcomm’s shareholders
had accepted the offer, enabling us compulsorily to purchase the
remaining shares in the company.
How BT operates
BT consists principally of three lines of business: BT Retail, BT Wholesale and BT Global Services.
BT
Retail and BT Wholesale operate almost entirely within the UK, addressing the
consumer, major corporate, business and wholesale markets, and offer a broad
spectrum of communications
products and services. BT Global Services is BT’s managed services and solutions
provider, serving the needs of global, multi-site corporations and European multi-site
organisations. These three lines of business are focused on providing a simple
and complete experience for our customers.
Consumer includes the external turnover of BT Retail from consumer customers.
Major corporate includes the external turnover of BT Retail from major corporate
customers, and the external turnover of BT Global Services, excluding the global
carrier business.
Business includes the external turnover of BT Retail from SME customers.
Wholesale includes the external
turnover of BT Wholesale
and BT Global Services’ global carrier business.
Further
analysis of group turnover by customer segment and between new
wave and traditional turnover is provided in the Financial
review.
Consumer customers
As at 31 March 2004, BT had approximately
19 million UK consumer customers with more than 20 million residential customer
lines (exchange line connections). In the 2004 financial year, consumer revenues
declined by 2%
to £5,974 million.
Our strategy in the consumer market is to defend traditional revenues and market share vigorously through innovative service offerings backed by innovative marketing and excellent quality
of service, at the same time as driving for new wave revenues, particularly in the areas of ICT, broadband and mobility.
Underlying
12 month rolling average revenue per customer household (net of mobile termination
charges) was £268 in the 2004 financial year, compared with £271
in the 2003
financial year.
In
the consumer market, new wave revenues grew by 135% from £95 million in the 2003 financial year to £223
million in the 2004 financial year, driven principally by
broadband.
The number of UK consumer DSL (digital subscriber line) lines grew by 132%.
Business customers
As at 31 March 2004, we had over one million business
customers worldwide, with more than nine million exchange lines.
In the 2004 financial
year, major corporate revenues increased by 2% to £5,909
million. The increase in new wave turnover of 21% to £2,452
million was driven by ICT, broadband and by mobility, not only
in the UK but also globally.
Our strategy
in the major corporate market is to drive a continued migration
from traditional voice-only services to managed ICT solutions.
This enables us to build closer and more integrated relationships
with our customers, enabling them to manage their communications
spend more effectively and gain competitive advantage in their
markets.
In the SME market
(companies with between one and 500 employees), our strategy is
to provide business customers with tailored communications products
and services that enable them to manage their business more simply
and efficiently. Although we increased the number of BT Business
Plan customers, the contraction of the fixed-call market and regulation-driven
price cuts in our telephony services reduced our traditional turnover.
This reduction was only partially offset by robust and continued
turnover growth in new wave services. Overall, in the SME market
during the 2004 financial year, revenues reduced by 4% to £2,600
million.
Wholesale customers
In the 2004 financial year, turnover from
our wholesale activities totalled £4,002 million, a decline of 3%.
In
the UK, external turnover from BT Wholesale activities was £3,445 million in the 2004 financial year, compared with £3,525
million in the 2003 financial year.
New
wave revenues were £361 million, up 54% on the 2003 financial year. This
growth has been achieved through broadband and the provision of tailored managed
services to UK wholesale
customers.
In the coming year, our strategic emphasis for growth will continue to move from the capital-intensive products of our traditional portfolio to broadband, ICT and mobility.
We aim to provide the right solution, be it application, service or product, for our wholesale customers in order that we can continue to build our new wave revenues.
In
our global carrier business, revenues were £557 million in the 2004 financial year, down from £585
million in the 2003 financial year. Our global carrier business customers include
other fixed-line telecommunications operators, mobile operators and selected
internet service providers.
Report structure
For the purposes of this Business
review, we are reporting on each of our strategic priorities.
For financial reporting
purposes, we continue to report by line of business (see Financial
review).
| Other businesses |
| As at 31 March 2004, we held
stakes in a number of other businesses, including: |
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stakes
in three satellite entities – Eutelsat, Intelsat and New Skies |
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a 16.6% stake in LG Telecom, a mobile
cellular telephone operator in the Republic of Korea |
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an 11.9% stake in StarHub, a fixed and
mobile communications operator and pay-TV operator in Singapore. |
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