BT Wholesale

In 2008, BT Wholesale revenue declined by 8% to £4,959 million (2007: £5,386 million, 2006: £5,194 million). The fall in revenue in 2008 includes a decline in broadband revenue of £149 million, as well as a decrease in low margin transit and premium rate services revenue of £136 million. The increases in revenue in 2007 and 2006 primarily reflected growth in revenues from our broadband products and services.
     Revenue from our new wave products and services decreased by 19% to £921 million in 2008 (2007: £1,132 million, 2006: £971 million) due primarily to the decline in broadband as well as the loss of Short Haul Data Circuit revenues to Openreach. In 2008, revenue from broadband services decreased by 19% to £624 million (2007: £771 million, 2006: £618 million) primarily as a result of price reductions on our IPstream broadband service (£62 million reduction) and a continued trend of certain communications providers switching to LLU provided by Openreach (£81 million reduction).
     Revenue from our traditional products decreased by 6% to £2,786 million in 2008, (2007: £2,977 million, 2006: £2,986 million). The reduction in revenue was largely due to the decline in transit and premium rate service volumes and traditional circuits. The reduction in transit revenue is due to communications providers building their own networks and bypassing our network. Our internal revenue fell 2% to £1,252 million in 2008 (2007: £1,277 million, 2006: £1,237 million) driven by reduced line card access electronic sales to Openreach.
     Although we continue to defend our traditional business and strengthen our position in supporting the mobile sector, our focus is increasingly on the provision of innovative managed network solutions. As our customers transform their businesses we are supporting them, and delivering our own growth, through the delivery of long-term managed solutions. These solutions enable our customers to avoid the capital and operational risk associated with upgrading to next generation networks and services.
     Gross profit decreased by 8% to £1,650 million in 2008 (2007: £1,796 million, 2006: £1,754 million) reflecting the impact on our business of market factors discussed above. We reduced the gross margin impact of our revenue declines through focused margin management initiatives. The impact of some of the downward trends on our revenue and profit margin has been offset by our continued focus on reducing costs. In 2008, S,G&A costs decreased 14% to £255 million (2007: £296 million, 2006: £307 million) compared with a decrease of 4% in 2007. The reduction in costs is the result of an ongoing drive for headcount and associated efficiencies as we continue our journey to having a world class cost base. Savings have been delivered through focused and specifically targeted projects, which have eliminated duplication and complexity in the business. We also continue to align our resources more effectively with the evolving needs of our customers.
     EBITDA was £1,395 million in 2008 (2007: £1,500 million, 2006: £1,447 million) a decrease of 7%. In 2008, 2007 and 2006 we maintained a flat EBITDA margin at 28%.
     Depreciation and amortisation decreased by 2% in 2008 to £893 million (2007: £908 million, 2006: £838 million). Operating profit decreased by 15% to £502 million in 2008, compared with a decrease of 3% to £592 million in 2007 (2006: £609 million).

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