BT 1999 Annual Report Download - page 38

FINANCIAL REVIEW
37
BT is required under its main licence to publish
disaggregated financial information for various activities of
the group, which have been used as the basis of charges
paid by other telecommunication operators in the UK for
the use of BT’s network. The activities presented separately
in the regulatory financial statements do not necessarily
correspond with any businesses separately managed,
funded or operated within the group. The results set out in
these statements for the 1998, 1997 and 1996 financial years
showed that the group’s operating profit is derived
predominantly from local, national and international calls,
after taking account of an operating deficit arising on the
provision of exchange lines.
For the 1999 financial year, BT has provided disaggregated
financial information in accordance with the requirements
of the US SFAS No. 131 which requires such information
to be analysed in a similar manner to that used by
management in managing the business. This information
is set out in note 35 to the financial statements. It should
be appreciated that this information is used internally as
part of the group’s system of management and
budgetary control over income and costs and the
absolute results for any one particular element are not
necessarily meaningful in isolation. In particular, capital
resource allocation is planned and managed using
capital project systems which are centralised in nature.
Tangible fixed assets
For the 2000 financial year, BT will be adopting FRS15
on tangible fixed assets. We do not foresee that the
introduction of this new financial reporting standard will
have any significant impact on our results.
Year 2000
The Year 2000 problem arises from the inability of many
computer-based systems to handle correctly the century
date change and other significant dates such as
29 February 2000. BT has recognised this issue for some
time and, in December 1995, established a programme to
tackle the problem. Working to guidelines defined by
the British Standards Institution, we set out to deploy
conformant systems, including those which support billing
and finance, into our computer and telecommunications
networks by 31 December 1998. We believe that we have
substantially achieved this aim and, subject to the risks
identified below, we plan to offer customers normal
levels of service during the transition into the year 2000
and beyond.
The programme is now in its final phase where the focus is
on the continuity of our business, including the completion
of all outstanding technical work, maintaining conformance
and regular, periodic reviews of our contingency plans to
manage the risks of the Year 2000 transition.
BT is working closely with other UK operators, Oftel, the
utilities and HM Government (including Action 2000, the
Government-appointed body dealing with Year 2000) to
ensure that not only is BT ready but also that its risks and
dependencies are fully understood.
BT has about 650 corporate systems and about 97% were
declared conformant by our target date of 31 December
1998. Our Year 2000 work incorporates supporting
the conformance programmes of our joint ventures.
However, progress on global services is complicated
by the group’s dependency on non-UK operators at the
national and local level. BT is part of the International
Telecommunications Union Taskforce to stimulate action
through information sharing, workshops in high-risk regions,
testing between operators and other initiatives with the UN,
the EU and IMF. We believe much progress has been made
around the world but concern exists for a minority of
international operators where information is sparse.
The total cost of the Year 2000 programme is expected to
be around £300 million, which is being funded by
displacement of other activities. The cost includes BT’s
own people. We believe that costs will be held within this
forecast as much of the spending had been completed by
31 March 1999. Costs to be incurred in the 2000 financial
year are estimated at around £70 million. Depending on
circumstances, there is likely to be increased demand for
our network services and, hence, costs may vary.
All Year 2000 related investigation, remedial work and
testing costs have been written off as incurred as these
relate to making existing computer software Year 2000
conformant.
As the technical work is almost complete, the risk of an
internal failure arising from a date-related problem has
been reduced. We believe the greatest risks are external
to the group and they include:
•the failure of parts of the services or systems of an
international operator could result in loss of revenue if
BT is unable to terminate a call or reconcile billing;
•potential congestion on the network. BT expects
demand for telecommunications services to exceed its
normal peak at the beginning of 2000 due to additional
celebrations and resulting emergencies. Other