BT 2009 Annual Report Download - page 18

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
16 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Other revenue increased by 6% to £1,470m in 2009 (2008:
£1,382m, 2007: £1,345m), driven by growth in BT Conferencing
and the acquisition of Wire One in May 2008.
Gross profit increased by 2% in 2009 to £3,186m (2008:
£3,114m, 2007: £2,938m), compared with an increase of 6% in
2008. Gross profit margin increased by 0.9% to 38% in 2009,
showing steady growth across all three years under review (2008:
37%, 2007: 35%).
SG&A costs were £1,552m in 2009, compared with £1,619m in
2008 and £1,581m in 2007. The 4% reduction in SG&A costs was
driven by a focus on cost transformation, labour efficiency and
supplier savings, being partially offset by the integration of
acquisitions and foreign exchange. Excluding the impact of
acquisitions of £34m and foreign exchange movements of £12m,
underlying SG&A costs of £1,506m reduced by 7% in 2009. The
increase in SG&A costs in 2008 was driven by extra investment in
product development, marketing and acquisitions, the impact of
which was partly offset by savings from cost efficiency
programmes.
The above factors resulted in EBITDA increasing by 9% to
£1,634m in 2009 (2008: £1,495m, 2007: £1,357m), and a 15%
improvement in operating profit to £1,209m in 2009 (2008:
£1,050m, 2007: £912m).
BT Wholesale
Business overview
BT Wholesale’s strategy is to transform itself from a traditional,
high-volume product wholesaler, to a next generation
communications products wholesaler and managed solutions
provider. We are establishing BT as a leading provider of innovative
managed network solutions that will enable our customers to serve
their customers, manage their costs and transform their businesses.
This means helping our customers operate in a ‘network lite’ way. If
they have their own infrastructure and platforms, we can manage
them. If they do not, we can provide them.
Our customers gain access to BT’s platforms, skills, investment and
technology, and can benefit from the economies of scale we bring.
BT Wholesale has around 700 customers in the UK, comprising
fixed and mobile operators, internet service providers and other
communications providers (CPs). BT Wholesale leads the wholesale
sector worldwide, working closely with the Global Telecoms
Markets unit of BT Global Services to meet our wholesale
customers’ global requirements.
We manage around 60% of the ADSL broadband lines traffic in
the UK and support the voice requirements of more than a third of
all homes and businesses. We also play a central role in helping
mobile operators manage the connections between their base
stations and the core UK network.
Market context
Increasingly, our customers are positioning their businesses as
service providers rather than network operators. Many of the
services they provide are extremely bandwidth hungry and this
presents CPs with a challenge. Particularly at a time of economic
downturn, they may be reluctant to commit to the high levels of
capital investment that network renewal requires. This presents
BT Wholesale with opportunities to supply a range of managed
network and outsourced services.
Consolidation continues to impact BT Wholesale’s market, as do
broadband volume decreases resulting from LLU migrations.
Regulation also continues to have a major impact on our business,
including the reduction in mobile termination rates internationally.
Operational performance
Managed network solutions
To date, we have signed managed network solutions contracts with
eight of our top 15 customers by revenue. These contracts are
typically for between three and five years and enable us to build
long-term, mutually beneficial relationships.
In the year, we signed managed network solutions contracts
worth a projected total of £1.2bn over their lifetimes. These
included:
in June 2008, we announced a three-year deal with Sky to
provide it with wholesale voice services to support over one
million Sky Talk customers and in February 2009 we announced
an agreement to provide Sky with a managed directory enquiries
service
in August 2008, we signed a five-year managed network
solutions agreement with Mobile Broadband Network Limited
(MBNL) on behalf of the joint venture partners 3 UK and T-Mobile
UK to provide and manage high-speed connectivity between
their base stations and our core national network in the UK.
The managed network solutions business is growing rapidly and
accounted for 15% of BT Wholesale’s external revenue in 2009, up
from 8% the previous year.
White label managed services
At 31 March 2009, 4.1m UK homes and businesses were receiving
voice and broadband services through our ‘white label’ platforms.
White label managed services are provided to customers who have
not invested in their own infrastructure but who want to enter new
markets quickly. These customers market such services under their
own brands, even though we frequently manage them end to end,
from taking orders to issuing bills. Our customers for such services
include the Post Office and Scottish and Southern Electricity.
Wholesale products
Wholesale Ethernet
BT Wholesale offers high-speed Ethernet services across the widest
national footprint in the UK market. Enabled by 21CN, these
services offer customers high-speed data connectivity, resilience
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2
4
6
8
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2007 2008 2009
BT’s retail broadband
External wholesale
broadband
LLU
DSL broadband connections year end (m)
BUSINESS AND FINANCIAL REVIEWS