BT 2014 Annual Report Download - page 44

41
The Strategic Report
Delivering our strategy
Delivering our strategy
Investing for the future
The launch of BT Sport was our largest investment this year. It
• increases customer loyalty. More than 1m of our broadband and BT
Sport customers take a pay-TV service from another service provider.
BT Sport makes them less likely to change their broadband provider
• allows us to grow our customer base among sport-centric UK
households and
• provides us with a new revenue stream  we charge consumers
who do not take our broadband packages and we charge pubs and
clubs for a commercial licence. We also make money from advertising
and sponsorship.
We have continued to strengthen our sports oering including securing
exclusive live broadcast rights such as to the UEFA Champions eague
and UEFA Europa eague for three years from summer 2015.
To improve BT TV, we have also added third-party content and
channels such as Comedy Central HD, Discovery HD, Disney Channel and
SkyMovies.
Financial performance
Year ended 31 March
2014
£m
2013a
£m
2012a
£m
Revenue 4,019 3,846 3,925
Operating costs 3,186 2,878 3,043
EBITDA 833 968 882
Depreciation and amortisation 219 248 252
Operating prot 614 720 630
Capital expenditure 211 241 271
Operating cash ow 472 655 592
a 5estated, see note 1 to the consolidated Ƭnancial statements.
Revenue increased 4% (201213 2% decrease), the most in over ten
years, driven by growth in broadband and TV revenue and a reduction in
our customer line loss. These reect the benet of BT Sport following its
launch in August.
Calls and lines revenue declined 2% (201213 7%). The lower rate
of decline was driven by slower line loss and the performance of our
Plusnetbusiness.
Broadband and TV revenue increased 18% (201213 12%) with
continued growth in volumes.
Other revenue increased 5% (201213 2%). The improvement reects
growth in the devices business, partly reecting the success of the
BT6500 nuisance call blocking telephone.
Operating costs increased 11% (201213 5% decrease) reecting our
investment in BT Sport of around £450m, partly oset by eciencies
from our cost transformation programmes.
As a result EBITDA decreased 14% (201213 10% increase).
Depreciation and amortisation decreased 12% (201213 2%) due to
the lower level of capital expenditure in recent years. Operating prot
decreased 15% (201213 14% increase).
Capital expenditure decreased 12% (201213 11%).
Operating cash ow decreased 28% (201213 11% increase)
reecting our investment in BT Sport and the deposit of around
£60m paid for the UEFA Champions eague and UEFA Europa eague
broadcast rights.
BT Wholesale
BT is Europes largestb wholesale telecoms provider.
In Great Britain, BT Wholesale serves more than
1,400 CP customers.
BT Wholesale sells voice, broadband and data communications products
and services to xed and mobile network operators and other service
providers in Great Britain. (BT serves these customers in Northern Ireland
and the Republic of Ireland through BT Ireland, and elsewhere in the
world through BT Global Services.)
Our managed solutions combine these products with third-party
components and our own professional services such as network solution
design, build, migration and operation eld services and programme
management. We also oer industry-specic services to media
companies and broadcasters.
BT Wholesale is structured around its customers. Our largest customers
are supported by dedicated client teams. Smaller customers are served
by a desk-based sales force. These are all in turn supported by specialist
functions covering business development, contract management,
product management and customer service.
Markets and customers
We provide our products and services to more than 1,400 CPs, including
the UKs largest xed and mobile operators, internet service providers
and broadcasters.
Customers include the mobile network operators O2 (Telefónica), 3 and
Vodafone the major xed network operators Sky, TalkTalk and Virgin
Media and other signicant service providers including Colt Group, Daisy
Group and KCOM Group. Major overseas operators also use our services
to provide solutions in Great Britain to their customers.
The key trends in our wholesale markets are
• Portfolio evolution towards IP-based services  CPs are increasingly
migrating their services to IP and other new technologies. They are
replacing leased lines with Ethernet circuits and adopting VoIP.
While our margins on IP-based services are lower than on more
traditional products, this trend allows us to help our larger customers
address the mounting cost and risk associated with their legacy
networks. We can also help them migrate from old to new, by using our
IP Exchange service for example.
• Continuing local loop unbundling (LLU) by Sky and TalkTalk 
these CPs use us to provide services to their end-users beyond the
reach of their own networks. As their networks expand, this reduces
the number of end-users BT Wholesale can support. On the other
hand, another CPs closure of its own U network this year led to a
substantial migration of lines to our services.
• Increased competition  our biggest competitors are TalkTalk, Virgin
Media and Vodafone. This year we have seen more competition in the
data connectivity market in particular. As major CPs increase their
focus on the wholesale market, we expect competition to continue
tointensify.
• Demand for bandwidth across our broadband, Ethernet and media
networks is growing  this is being driven by the rollout of 4G mobile
networks, growing video usage across all kinds of networks and the
growth of HD content (both on-demand and live event viewing).
The challenge for the industry is to translate this demand into higher
revenue to recoup the higher cost of provision.
b See chart on page 18.