BT 2001 Annual Report Download - page 60

Risk Factors
be able to make an economic return from our investment in the
company.
Our investments in third generation mobile licences and
networks may not generate an economic return.
We have invested approximately »10 billion in 3G licences
in the 2001 ¢nancial year, principally in Germany and the
United Kingdom. These licences are for the use of particular
parts of the radio spectrum for 20 year periods and are required
to enable us to provide advanced mobile data services to our
customers. We have given undertakings to build a mobile
network infrastructure to give a certain level of geographic
coverage in Germany, the United Kingdom and The
Netherlands. We expect that this will require a further
investment of up to »10 billion over a ¢ve year period.
Completion of this investment may be hindered by more
stringent planning controls over the siting of masts,
particularly in rural areas. In addition, we expect BT Wireless
to apply for a 3G licence in the Republic of Ireland which will
entail further licence and roll out costs.
The technology for the new services is not yet fully
developed by the suppliers of the handsets and other equipment
to be used by us and our competitors in providing the services.
Developing 3G technology may take longer than we anticipate
and prove not to be superior to the existing technologies. The
size of the market for these services is as yet unknown and
may fall short of the industry’s expectations. We cannot be
certain that the demand for such services will justify the
related costs. In some locations, the investment, although
required under the licences, may not be commercially desirable.
In addition, we have a number of signi¢cant competitors in
each geographic market.
We expect to roll out our 3G network at the same time that
many of our competitors roll out their own 3G networks
throughout Europe. This, combined with the limited number of
suppliers of 3G network equipment, is likely to create high
demand for, and may extend the delivery times of, such
equipment, which may cause delays in the construction of our
3G networks.
The potential level of competition, together with these
uncertainties, means that we cannot give our shareholders any
assurance that we will make an economic return from our
investments in 3G licences or networks. In the event that we
fail to generate signi¢cant revenue from our planned 3G mobile
service o¡erings, we may not be able to meet ¢nancial
obligationsincurredinrelationtothe3Gnetworkorotherwise
and our business, ¢nancial condition and results of operations
may su¡er.
We face strong competition in the UK fixed network
services.
We continue to have a signi¢cant market share in some
aspects of the UK ¢xed network services. In particular,
approximately 82% of exchange lines in the United Kingdom
were in our network as at 31 March 2001. Regulators are
attempting to promote competition in this area by allowing
other operators to site equipment in or adjacent to our
exchanges (local loop unbundling) and to make it easier for our
customers to route some or all of their calls over competitors’
networks (carrier pre-selection). Reduction in our market share
in the ¢xed network may lead to a fall in the group’s turnover
and an adverse e¡ect on pro¢tability. Unlike other operators,
we continue to be obliged by the current regulatory regime to
serve customers in the United Kingdom, whether or not such
provision of service is economic, and the two competitive
measures described above may have the e¡ect of accelerating
the diversion of our more pro¢table existing customers without
us being able to reduce our costs commensurately. These
changes in the regulatory environment and ensuing increased
competition on our ¢xed network may cause adverse e¡ects on
our business, results of operations, ¢nancial condition and
prospects.
If we are subject to significant price controls, we may lose
market share, competitive advantage and our future
profitability may be affected.
Most of our ¢xed network activities in the United Kingdom
are subject to signi¢cant regulatory controls. The controls
regulate, among other things, the prices we may charge for our
services and the extent to which we have to provide services to
our competitors. In recent years, the e¡ect of these controls has
been to cause us to reduce our prices. In addition, the
regulators are considering bringing our UK wireless operations
under wider price control which may have the e¡ect of further
reducing the prices we can charge for mobile services. We
cannot assure our shareholders that the regulatory authorities
will not increase the severity of the price controls, or extend the
services to which controls apply, or extend the services which
we have to provide our competitors. These controls may
adversely a¡ect our market share, the severity of competition
and our future pro¢tability.
Our business depends on our ability to exploit
technological advances quickly and successfully.
We operate in an industry with a recent history of fast
technological changes. We expect that new products and
technologies will emerge and that existing products and
technologies will develop further. We cannot predict the actual
e¡ect of these technological changes on our business or on our
60 BT Annual report and Form 20-F