Annual Review and summary financial statement

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Annual review > Chief Executive's review 

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Ben Verwaayen

Chief Executive's review

We live in an era of greater customer choice than we have ever seen before. This choice is good for customers and good for our industry.

 

Changes in technology are leading to changes in people’s behaviour. People are, for example, spending more time on the internet and sending information by email, where once they would have used the phone or fax.

This transformation is putting converged services at the heart of our offering, enabling our customers to communicate wherever they happen to be.

As we move from a narrowband to a broadband world, we are offering a new mix of products and services in new markets – ICT, broadband, mobility and managed services.

“Technology substitution” is also having a significant impact in our traditional voice markets where fixed-to-fixed voice revenues were down in both the consumer and business markets.

This is both a challenge and an opportunity. We have to respond to those changes in technology, the market and behaviour, at the same time as working to accelerate them. We have to be absolutely focused on defending and reinventing our traditional markets, through imaginative sales and marketing, through delivering the right products at the right prices. And we have to follow our customers where they want to go, offering them new, flexible services that match their changing personal and business needs.

Customer satisfaction
Our passion for customers is at the heart of everything we do.

A year ago we launched our brand promise to make every customer experience “simple and complete”. This is essential to driving down customer dissatisfaction, which remains a critical goal for us. In the 2004 financial year, we reduced dissatisfaction by 22%.

As customer dissatisfaction is driven down, so is the cost of failure. A great customer experience – and cost savings – really can be two sides of the same coin. Getting things right for customers the first time keeps them loyal, contributes to cost effectiveness, and boosts our reputation.

New wave business
ICT used to be an aspiration; it’s now a reality. We had a superb year with ICT orders worth more than £7 billion – up 59% on just a year ago. The three deals we signed with the NHS, for example – expected to be worth more than £2.1 billion – indicate our strength in this market. 

I believe that we have something very special to offer – the ability to act as “the telco inside” our customers’ organisations. We offer our customers – businesses and other large organisations, including local and national government – the chance to enhance their productivity, through expert management of their information systems, desktop to desktop.

And we have a full range of network-centric ICT solutions depending on what our customers want – from full service assurance across their ICT infrastructure, through monitoring levels of service throughout their operations, to validation of their networks, data centres and desktops.

Broadband
It’s been a tremendous year for broadband as well. People were sceptical when we said we’d reach two million DSL wholesale lines by the summer of 2004. What nobody expected was that we would achieve two million in February 2004. As at 14 May 2004, we had 2.45 million – and climbing. The UK is now moving towards the top of the broadband league.

And our programme for upgrading our exchanges to broadband has been extremely effective in bringing the benefits of this amazing technology to some of the remoter parts of the UK. In April 2004, we announced a roll-out plan that will bring broadband to 99.6% of the UK’s homes and businesses.

The announcement, in May 2004, that we will redesign and reduce the cost of our local loop unbundling product, should encourage investment in broadband infrastructure and promote innovation. It’s a major move towards the telecommunications market of the future.

In the consumer broadband market we’ve teamed up with Yahoo! to offer compelling, world-class content and launched a suite of new products that will enable customers to get the most from broadband. A couple of years ago we were among the first to offer a broadband connection for less than £30 a month. This year we’ve broken the £20 barrier, with an entry-level broadband product for just £19.99 a month.

Mobility
We also stepped back into the consumer mobility market with BT Mobile Home Plan and we established the high street presence that will enable us to offer converged products and services in the future.

Again, our goal is to offer communications flexibility, enabling our customers to communicate the information they choose, in the way that they choose, using whatever communications device they choose. 

In May 2004, we announced that we will be working with Vodafone UK to dismantle the barriers between fixed and mobile services, by offering fully converged, fixed/mobile services in the business and consumer mobile markets. Our customers will benefit from being able to communicate and access the same information and services however and wherever they want; whether they are connected to a fixed network or on the move.

For our larger business customers we also offer convergence, managing their fixed and mobile communications seamlessly.

And the growth of Wi-Fi (wireless broadband) suggests that it could well be one of those technologies which rapidly becomes a part of our customers’ lives. Once they’ve experienced it, they find it hard to imagine life without it.

Traditional business
Given the impact of new technology and increasing competition, voice call volumes may no longer be the absolute guide to the health of the company that they once were, but they remain a fundamental part of our business and we are bringing an innovative approach to product development, sales and marketing in the voice calls business. Robust defence doesn’t mean retreat, it means seizing new opportunities.

BT Together, for example, has been a major success with around nine million customers. During the year, we announced that we will be abolishing the standard rate for our existing customers from 1 July 2004, and launched an enhanced range of option packages. In the business calls market BT Business Plan has had similar success – customer numbers were up from 20,000 to 175,000 in the year. And BT Local Business is demonstrating that getting close to our customers can deliver significant revenue benefits.

Cost leadership
Cost leadership is vital to the accelerating transformation of BT. 

We can and must operate as efficiently and effectively as possible, benchmarking our costs against those of other European telecommunications companies. Most recently, these comparisons showed that our costs are better than average for large telecommunications companies but that we still have some way to go to achieve best-in-class costs. In the last three years, we’ve made major reductions in the costs of our operations and we’ve identified a further £1 billion that can be achieved.

Our Hands Off Access Network (HOAN) project, for example, is helping to improve network efficiency by minimising manual network intervention and reducing the need for exchange visits.

This is not about cutting corners or compromising on service, but about finding innovative, cost-effective new ways to meet customers’ needs.

And, over the next few years, we’ll be creating the 21st century network. We are transforming our networks, converging them on to a modern, single, multi-purpose platform that will enable us to reduce costs, meet customers’ changing needs and improve customer satisfaction. The 21st century network will offer higher performance in return for lower operating costs.

Our people
Of course, without the commitment and hard work of BT people, our strategy would be nothing more than words on the page.

A year ago, we introduced our new values – trustworthy, helpful, inspiring, straightforward, heart. Since then, our people have translated those values into action, driving down customer dissatisfaction, defending the traditional business and winning business in new markets.

We’re very proud of what they’ve done and of what they are continuing to do.

Signature

Ben Verwaayen
Chief Executive
19 May 2004

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BT’s
strategic
imperatives

Keep a relentless focus on improving customer satisfaction

We must strive to lead the market in customer satisfaction, and provide all our customers with a simple and complete experience that meets their needs, first time, every time.

We aim to manage relationships with our customers so well that we become their partner of choice for new services.

Put broadband at the heart of BT

Broadband is a transformational technology, and the platform from which we will deliver new services.

Our priorities include:

Bullethelping to build Broadband Britain;

Bulletextending our range of access products;

Bulletdeveloping new added-value services.

Create mobility services and solutions

We will respond to growing customer demand for converged and seamless, fixed and mobile services, by creating a radical new wave of mobile services and solutions. We will use our existing capabilities and partner with leading mobile operators to create sustainable growth in this highly competitive market.

Transform our network for the 21st century

We are working to create the 21st century network – a customer-focused, intelligent, flexible network to be operated at best cost that will enable communications in a range of formats across an internet protocol-based network. The main focus will be on ensuring that customer communications are seamless, secure and offer multi-device capability.

Achieve competitive advantage through cost leadership

Achieving cost leadership will give us the flexibility both to compete effectively in our traditional markets and to invest in new business opportunities. We must eliminate duplication, streamline our activities, and raise our operations to the levels achieved by the best worldwide.

Lead the world in network-centric ICT solutions

The ICT market is experiencing rapid growth, as networking issues become ever more important in delivering increased productivity and competitive advantage for our customers. We are seizing the opportunity to move from our core network skills into the adjacent ICT market.

Reinvent our traditional business

Our traditional markets face major change – in customer demands, in technology and in regulatory conditions. Reinventing our traditional business means challenging existing models and creating new ways to compete more effectively. 

Motivate our people and live our values

People not strategies create shareholder value and delight customers. We aim to create a high-performance culture where everyone is motivated to succeed and clear about the contribution they make to the achievement of our strategic objectives. 

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