BT 2014 Annual Report Download - page 56

53
The Strategic Report
Delivering our strategy
Delivering our strategy
Communications industry regulation
Our activities across all the jurisdictions in which we operate can be
impacted by regulation. In the UK where, following detailed market
analysis, we are found to have signicant market power, Ofcom can
require us to provide wholesale services at regulated prices and service
levels. It can also require us to make retrospective repayments to
other CPs where we are found to have set prices outside regulatory
requirements, and can impose nes on us for non-compliance with the
regulatory rules, including competition law.
Outside the UK, general licensing requirements can restrict the extent
to which we can enter markets and compete. Regulation will also
dene the terms on which we can purchase key wholesale services
from others.
In the UK, risks can come from periodic market reviews (which might
introduce tighter regulatory constraints), new charge controls, or
CPs disputing or complaining about our pricing, products or services.
Outside the UK, regulators can investigate our licensing requirements
and whether our services comply with their rules.
Impact
Regulatory requirements and constraints can directly impact our
ability to compete eectively and earn revenues. Regulatory risks are
highest in the UK. Based on the latest Regulatory Financial Statements
for 201213, around £5.5bn of our revenue (of which £3.0bn is to
downstream parts of BT) is from wholesale markets where we have
been found to have signicant market power and which are currently
subject to regulatory charge controls. Most of these controls require
us to reduce our prices annually. Controls are usually set for three years
and will therefore constrain revenues during that period.
Other CPs can ask Ofcom to resolve disputes with us about current or
historic prices. Where Ofcom nds that these prices are, or have been,
set at levels above those required under the regulatory framework, we
may need to make retrospective repayments to CPs.
We may from time-to-time be required to provide new services, or
existing services on improved terms, to wholesale customers on a non-
discriminatory basis. This could increase our costs. Regulation outside
the UK can impact our revenue by limiting our ability to compete
through overly-restrictive licensing requirements or ineective
regulation of access to other CP networks.
Changes over the last year
Over the last year, we have seen regulatory activity in a number of
areas which are summarised in Regulation on page 48. A number of
these rulings will reduce our future pricing.
Risk mitigation
We have a team of regulatory specialists (including accountants and
economists) who, together with legal experts and external advisors,
continuously monitor and review the scope for regulatory changes
and potential future disputes. This team maintains a dialogue with
regulators and with other key inuencers to ensure our positions are
understood and to drive for fair and proportionate regulation. We are
also able to appeal any regulatory decisions where we believe errors
have been made.
Business integrity and ethics
We are committed to maintaining high standards of ethical behaviour,
and have a ero tolerance approach to bribery and corruption. We have
to comply with a wide range of local and international anti-corruption
and bribery laws. In particular, the UK Bribery Act and the US Foreign
and Corrupt Practices Act (FCPA) provide comprehensive anti-bribery
legislation. Both have extraterritorial reach and so cover our global
operations. As we expand internationally, we are increasingly operating
in countries identied as having a higher risk of bribery and corruption.
We also have to ensure that we comply with trade sanctions, and
import and export controls.
Impact
Failure by our employees or associated persons (such as suppliers or
agents) to comply with anti-corruption and bribery and sanctions
legislation could result in substantial penalties, criminal prosecution
and signicant damage to our reputation. This could in turn impact our
future revenue and cash ow, the extent of which would depend on
the nature of the breach, the legislation concerned and any associated
penalties. Allegations of corruption or bribery, or violation of sanctions
regulations, could also lead to reputational and brand damage with
investors, regulators and customers.
Changes over the last year
The importance of conducting business ethically is becoming
increasingly recognised across the globe as more countries introduce
anti-corruption and bribery legislation. There have yet to be any
signicant judgments resulting from the UK Bribery Act, but there
have been many signicant enforcement actions brought under the US
FCPA.
Comprehensive sanctions remain on Iran, Syria, Cuba, Sudan and North
Korea. The European Union adopted additional restrictive measures
against the Syrian regime and new sanctions on Russia.
Risk mitigation
We have a number of controls to address risk in this area. These include
a comprehensive anti-corruption and bribery programme, and The
Way We Work, our statement of business practices, which is available
in 14 languages and was refreshed this year to give greater guidance
to our people. We ask all our people to sign up to its principles and
our anti-corruption and bribery policy. We have specic policies
covering gifts and hospitality, charitable donations and sponsorship.
We run a training programme with a particular focus on roles such as
procurement and sales.
We regularly assess our business integrity risks to make sure that the
appropriate mitigation is in place. We operate a condential hotline
which was externally reviewed during the year. Our internal audit team
regularly runs checks on our business. We also use external providers to
carry out assessments in areas we believe to be higher risk, to ensure
our policies are understood and the controls are functioning. We
conduct due diligence checks on third parties including suppliers and
agents. Procurement contracts include anti-corruption and bribery
clauses.
This year we implemented a policy mandating the use of our internal
shipping system to arrange all international exports. The system
conducts compliance checks and ags any orders which require an
export licence.