BTPLC Annual Report 2006 - Business review - Pursue profitable growth in new wave markets

In the 2006 financial year, 32% of our revenue was from new wave activities – networked IT services, broadband and mobility.

Build on our networked IT services capability

Our strategy in the networked IT services market is to reinforce BT’s position as a global player capable of competing with the world’s best in selected markets. Our portfolio of services includes IP infrastructure, CRM, security, applications, managed mobility, hosting and outsourcing.
In recent years, we have developed a track record of winning and delivering complex, large-scale networked IT services contracts for large business customers and other organisations (including the public and government sectors) around the world. We have shown that we have the experience and expertise to help our customers succeed in a world in which business applications are increasingly being networked and networks are seen as increasingly vital to productivity and competitive advantage.
We are, for example, playing a prominent role in the NHS National Programme for IT, delivering:

•	the national broadband network (N3) – we successfully installed more than 14,000 connections on the N3 ahead of schedule
•	the spine transactional and messaging database – which now has about 200,000 registered users
•	the London local service provider IT systems – we deployed the first patient administration system specifically designed for the NHS National Programme.

     In March 2005, we announced that BT had won a contract worth up to £1.5 billion over eight and half years to provide and manage secure data networks for Reuters’ products and services worldwide. In accordance with the contract, the parties have tested a number of Reuters’ products over the BT IP-enabled MPLS (multi-protocol label switching) network and have started its migration process in a number of countries.
     In May 2006, we were awarded a three-year extension – worth around an additional £270 million – to the existing contract to deliver Unilever’s voice, data and mobile services around the world until 2012. The original contract, announced in November 2002 and with an estimated value of £670 million over seven years, was the first comprehensive global telecommunications outsourcing contract won by BT and is one of our largest and most significant global deals.
     In the 2006 financial year, we secured networked IT services orders in the UK and internationally worth £5.4 billion, including a number of major contracts:

•	in June 2005, we signed a contract worth approximately €175 million over a seven-year period with leading global brewer InBev, for the outsourcing of its communications infrastructure – data and voice – around the world
•	in July 2005, we signed a two-year contract to manage Microsoft’s OneCall call centre routing initiative. Under the agreement, we will design, build, deploy and manage a solution to unify the majority of Microsoft’s contact centres around the world into a single, networked contact centre environment
•	in December 2005, we reached agreement with the Department for Work and Pensions (DWP) on the simplification of the contracts that the Department inherited when it was created from the former Department of Social Security and the Department for Education and Employment. Under the agreement, we will supply services based on modern, reliable IP communications that take advantage of our 21CN programme to deliver consistent and flexible services which will, we believe, lead to substantial efficiencies and new capabilities for the DWP and its clients
•	in February 2006, we completed an agreement to become Fiat’s supplier of global telecommunications services in 40 countries, in a deal worth approximately €450 million over almost five years. (See also Acquisitions and disposals in the 2006 financial year)

BT is listed in the leader quadrant in the Gartner Magic Quadrants for Global and pan-European NSPs (network service providers), and in 2005 was listed for the first time in the leader quadrant for Asia Pacific NSPs. Gartner’s reports evaluate the NSPs operating in the various regions for their completeness of vision and ability to execute, and BT was consistently ranked in the top five. The NSPs that score well are those that go the extra mile to deliver superior service quality through their pan-regional networks, local service and support and service level commitments.
Networked IT services revenue for the 2006 financial year was £4,065 million, a rise of 33% on the 2005 financial year.

Deliver on broadband

In the 2006 financial year, we continued our drive to enhance the awareness, availability and attractiveness of broadband. As at 31 March 2006, in the highly competitive retail market, our market share of consumer and business DSL (digital subscriber line) and LLU (local loop unbundling) broadband connections in the UK was 33% (2.6 million connections).

Broadband for wholesale customers

In early April 2005, we reached our target of five million broadband lines one year ahead of schedule. At 31 March 2006, we had 7.9 million lines, including those provided via BT Retail and LLU. In total, 5,501 exchanges had been upgraded by 31 March 2006, making broadband available to 99.7% of the UK’s homes and businesses.
     We continue to look for commercially viable ways of bringing broadband to those customers for whom availability remains an issue. We are, for example, exploring the feasibility of installing broadband equipment at locations closer to the customer than the BT exchange, as well as the possibility of delivering broadband over existing fibre cables. Both trials will run until summer 2006.
     As a demonstration of our commitment to delivering higher speed broadband to UK consumers, 59% of wholesale broadband lines were 2Mbit/s at 31 March 2006, compared with 17% a year earlier.
     Having conducted trials of broadband speeds of up to 8Mbit/s in association with a number of service providers, we launched BT ADSL (asymmetric digital subscriber line) Max and BT ADSL Max Premium broadband services nationally with effect from 31 March 2006. By upgrading more than 5,300 exchanges across the UK to support this service, we are providing the UK market with a stable, high-speed broadband service across the widest national footprint in the world.
     Although the broadband speed that can be supported on an individual line is governed by a wide range of physical factors, our trials suggest that 78% of BT phone lines should support rates of at least 4Mbit/s. In addition, we have enhanced broadband line stability to ensure that customers can run more bandwidth-hungry applications, including video, gaming and music downloads, at the same time as sending/receiving e-mails and surfing the internet.

Broadband for consumers

We offer a family of broadband packages designed to meet the diverse needs of our customers, simply and cost effectively in a highly competitive market. In October 2005, in partnership with Yahoo!, we simplified our broadband packages into four options, each of which offers new and existing customers a premium Yahoo! broadband experience, enhanced security features and the option of cheap internet telephony.
     We are helping to define next-generation television – which is being made possible by the convergence of digital broadcast TV and broadband technology. During the 2006 financial year, we put in place a number of the key building blocks designed to enable us to launch the BT Vision broadband TV service in autumn 2006. Microsoft will help to provide the software platform over which BT Vision will run and the set top boxes will be provided by Philips, Europe’s largest electronics company.
     The service aims to combine access to digital terrestrial channels, an extensive video-on-demand library, catch-up TV and a range of interactive services, offering customers choice, convenience and control over their home entertainment. Other services which should be available at launch or shortly afterwards will include: personal video recording; more than 30 digital terrestrial TV channels; communications services – instant messaging, chat and video telephony on the TV, and interactive services – online gaming, retail opportunities and community services – all without the need to pay an up-front subscription.
     We have signed content deals with BBC Worldwide, Paramount, Warner Music Group, Endemol, i-concerts, Eagle Rock, Cartoon Network, National Geographic Channel, HIT Entertainment and Nelvana.
     We are also playing a lead role in the development of internet telephony or VolP (voice over IP). International calls made with BT Communicator – which enables customers to make voice calls over the internet using a PC or laptop – are proving cheaper than those offered by many other suppliers. BT Communicator comes with Yahoo! Messenger which provides access to a range of features including instant messaging, e-mails and texts. BT Broadband Talk enables customers to make and receive broadband calls using an ordinary phone. We aim to introduce an enhanced VoIP offering, featuring high-definition sound quality, in June 2006.

Broadband for business customers

Broadband is increasingly critical to the success of small and medium businesses and BT Business Broadband remained the leading internet service provider for SMEs in the UK. At the end of the 2006 financial year, we had 453,000 BT Business Broadband customers.
     We recognise that businesses need solutions that combine fast and reliable access with superior support and a range of business applications and services. Many of these customers opt for such value-added services as the Internet Security Pack and the Internet Business Pack.
     In October 2005, as part of our drive to encourage broadband take-up in the SME market, we launched our most comprehensive broadband package for business to date, offering reduced prices, increased value and higher levels of support than were previously available, including support for LAN (local area network) and IT equipment that customers connect to their broadband line. At 31 March 2006, we were providing remote support for 24,000 PCs for SME customers. Customer feedback has been extremely positive, with an average 99% satisfaction level.
     In the 2006 financial year, we invested in platforms that will enable us to offer a wider range of services using Microsoft’s Connected Services Framework. BT Business E-mail was the first service to be launched on this platform and provides ‘anywhere access’ to critical business information, supported by advanced security and collaboration features, and there were 12,000 users of this service at 31 March 2006. In January 2006, we launched BT Business Broadband Voice, our first ‘flat top’ internet telephone or VoIP call package for broadband customers.

Create convergent mobility solutions

In a convergent world, individuals and businesses increasingly need to connect and communicate whenever and wherever they happen to be, using whatever devices they choose.
     Our aim is to offer all our customers the right combination of the quality, reliability, cost advantages and bandwidth associated with fixed-line communications, and the convenience, personalisation and flexibility associated with mobile communications.
     BT is both an MVNO (mobile virtual network operator) and a service provider in the business and consumer mobility markets. At 31 March 2006, BT Mobile had over 340,000 GSM and BT Fusion business and consumer connections.
     BT Openzone is one of the leading providers of Wi-Fi services in the UK and Ireland. We operate our own network of high-quality sites and offer more wholesale and roaming connections than any other UK Wi-Fi network operator. Recently awarded the Brainheart European Wi-Fi award in recognition of its contribution to the growth of the European Wi-Fi industry, BT Openzone offers customers a high-speed, wireless broadband connection over which they can access the internet to work, talk or play.
     We have already built BT Openzone networks in Westminster and Cardiff and we have announced our intention to Wi-Fi enable a further ten cities by the end of the 2007 financial year.
     At 31 March 2006, our BT Openzone customers had access to around 8,400 hotspots throughout the UK and Ireland and more than 30,000 globally.
     Revenue in the mobility market in the 2006 financial year was £292 million, an increase of 42% on the 2005 financial year.

Mobility for consumers

In the consumer mobility market our strategy is to build a foundation for the delivery of fixed/mobile convergent solutions.
     BT Fusion (launched in June 2005) is the world’s first intelligent mobile service that switches calls to a BT broadband line when the user is at home, offering customers the convenience of mobile in combination with the cost and quality advantages of a fixed-line phone. BT Fusion brings with it a range of mobile services including text and picture messaging. Users can connect PCs, laptops, games consoles, printers and broadband wirelessly via the BT Hub that comes with BT Fusion. At 31 March 2006, there were 24,000 consumer BT Fusion connections.
     In July 2005, the 3G network we built and operate for 3 in the Republic of Ireland was launched. The contract with 3 requires the development of 700 new radio sites to achieve its coverage targets. At 31 March 2006, the network for advanced 3G services covered more than 70% of the population of the Republic of Ireland. BT Ireland is building on its success in this market to offer wholesale services to other mobile operators in Ireland.
     In November 2005, we joined forces with Nintendo to provide Wi-Fi access to users of Nintendo’s DS wireless games console, a move which will enable users to play games around the world for free and will, we believe, bring Wi-Fi to a mass market.

Mobility for business and major corporate customers

Our strategy is to integrate traditional fixed, mobile and IP services to offer a single communications solution to our customers – both through commercial packaging and through the exploitation of technological convergence.
In addition, we provide a range of managed mobile services to UK and global customers who either outsource their mobile communications entirely or rely on BT to provide specific managed services.
During the 2006 financial year, we launched a number of new services designed to integrate customers’ fixed and mobile communications services, including:

•	BT Business Plan with Mobile, launched in March 2006, offers small and medium businesses one bill, an annual 5% discount on combined fixed and mobile calls, capped rates on fixed-line calls and preferential rates on mobile-to-mobile and mobile-to-the-office calls. The package also includes BT Billing Analyst, which helps businesses to monitor and control their call spend
•	in February 2006, we launched a version of BT Fusion for SMEs, enabling them to benefit from the convenience of a mobile phone while enjoying rates similar to those for fixed lines.

Mobility for wholesale customers

In the 2006 financial year, we saw continued growth in the UK wholesale mobile arena – increasing the volume and value of wireless-originated traffic over our network.
     In February 2006, we announced that Virgin Mobile will be the first operator to sign up to the BT Movio broadcast digital TV and radio service, making it the first mobile operator in Europe to offer its customers digital TV and radio content on a mobile device using broadcast technology.
     We have also developed a strategic relationship with Microsoft to enable a secure and efficient environment for delivering broadcast services on a mobile handset. Microsoft’s Windows Media technologies will enable BT Movio to deliver high-quality audio and video content over a DAB (digital audio broadcast) network using minimal bandwidth. The BT Movio service also incorporates Windows Media DRM (digital rights management) technology to ensure secure delivery of premium video and music content.
     BT Movio is the first wholesale mobile broadcast TV offering of its kind in Europe and we plan to make it available to all mobile operators in the UK.
     In June 2005, selected mobile phone users in Cardiff became the first in the UK to benefit from our innovative new mobile delivery system, Microconnect Distributed Antenna – part of our growing portfolio of low-power, mobile coverage solutions for mobile operators, designed to minimise the visual impact of masts and cabinets in city centres and heritage sites. 3 became the first mobile operator in the UK to take advantage of the system that enables operators to share small antennas, and in December 2005, Selfridges’ London store became the first in the UK to use the Microconnect In-Building service.

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