BT 2006 Annual Report Download - page 31

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GROUP RESULTS
Whilst driving the transformation of the business, the group has
continued to make progress in growing earnings per share
before specific items which at 19.5 pence were 8% ahead of the
2005 financial year.
The pace of our transformation was demonstrated by the
38% growth in new wave revenue to £6,282 million. New wave
revenue represented 32% of revenue in the 2006 financial year
compared to 25% in the 2005 financial year and is mainly
generated from networked IT services, broadband and mobility.
In the 2006 financial year the growth in new wave revenue of
38% more than offset the 5% decline in traditional revenue to
£13,232 million. The continued decline in traditional revenue
reflects regulatory intervention, competition, price reductions
and also technological changes that we are using to drive
customers from traditional services to new wave services, such
as broadband and IPVPN.
In the 2006 and 2005 financial years mobile operators were
required to reduce their fees for terminating calls and these
regulatory reductions were passed on to BT customers resulting
in lower revenues. The net effect, however, was profit neutral as
payments to mobile operators were reduced by the same
amount. In the 2006 financial year total revenue of £19,514
million was up 7% after excluding the £227 million (2005 –
£397 million) impact of these regulatory reductions to mobile
termination rates. Total revenue increased by 6% including the
effect of these reductions.
The table below analyses revenue by customer segment.
Major corporate includes the external revenue of BT Global
Services’ major corporate customers, excluding the global
carrier business. Business includes the external revenue of BT
Retail from SME (smaller and medium sized enterprise)
customers. Consumer includes the external revenue of BT Retail
from consumer customers. Wholesale includes the external
revenue of BT Wholesale and BT Global Services’ global carrier
business.
2006
£m
2005
£m
Revenue by customer segment
Major corporate 6,880 5,936
Business 2,324 2,442
Consumer 5,296 5,599
Wholesale 4,996 4,427
Other 18 25
19,514 18,429
Major corporate (UK and international) revenue increased by
16% to £6,880 million in the 2006 financial year driven by the
growth in new wave revenue. This reflects the continued
migration from traditional voice only services to networked IT
services contracts and an increase in mobility and broadband
revenue. New wave revenue increased by 35% to £4,067 million
and represented 59% of all major corporate revenue compared
to 51% in the 2005 financial year. Networked IT services
contract wins in the 2006 financial year were £5.4 billion. We
believe these wins in the 2006 financial year, combined with
the £7.7 billion of contracts won in the 2005 financial year, are
building the foundation for future revenue growth as we
increase the level of networked IT services provided to major
corporate customers.
Revenue from business (smaller and medium sized
enterprise) customers in the 2006 financial year reduced by 5%
to £2,324 million. This decline reflects the continued
penetration of Carrier pre-selection (CPS) and the impact of
customers switching from traditional telephony services to new
wave services, including broadband. New wave revenue in this
segment increased by 16% to £544 million driven mainly by the
31% growth in the number of BT Business Broadband
customers to 453,000 at 31 March 2006. The expansion of the
BT Business Plan portfolio continued during the year with the
number of locations increasing by 15% to 513,000. This,
together with our 83 BT Local Businesses, offset some of the
decline in traditional revenue.
Consumer revenue in the 2006 financial year was 5% lower
at £5,296 million. New wave consumer revenue increased by
55% to £638 million, driven by growth of broadband and
mobility. Residential broadband connections increased 52% to
2,028,000 at 31 March 2006. Traditional consumer revenue
declined by 10% reflecting the shift towards new wave
products.
The proportion of contracted revenues has been increasing.
By 31 March 2006, more than 2 million customers had signed
up for BT Together Options 2 and 3, and 67% (2005 – 64%) of
consumer call revenue was under contract. There are now
16.2 million BT Together customers on Option 1, 2 and 3
packages. The underlying 12 months rolling average revenue
per customer household (net of mobile termination charges) of
£251 in the 2006 financial year was 1% lower than the 2005
financial year.
Wholesale (UK and global carrier) revenue in the 2006
financial year increased by 13% to £4,996 million. New wave
revenue in the UK wholesale business increased by 56% driven
by the continuing growth in broadband. Global carrier revenue
increased by 22% in the 2006 financial year and reflects the
increase in call termination revenues outside the UK.
In the UK BT had 7.9 million wholesale broadband DSL
connections, including LLU lines, at 31 March 2006
representing an increase of 2.9 million connections in the year.
Group operating costs before specific items increased by 7%
to £17,108 million in the 2006 financial year. Excluding
acquisitions, group operating costs before specific items
Operating and financial review BT Group plc Annual Report and Form 20-F 2006 29