BT 2002 Annual Report Download - page 43

of the network to enable customers to bene®t from
advanced services and improving the network's capacity to
carry high-speed data. We had installed ADSL equipment in
1,010 UK exchanges by 31 March 2002 as the continuation
of our plan to roll out this equipment to all our major local
exchanges. We are progressively changing the ®xed
network from one based on switched technologies to a
modern network based on the internet protocol (IP). In the
2002 ®nancial year 13 trunk exchanges in the core network
were cut-over to Next Generation Switches (NGSs) which
have double the capacity of the earlier exchanges. This
brought the total of NGSs to 70 by 31 March 2002. Plans
are in place for the upgrade and expansion of 23 of the
switches to include Voice over Asynchronous Transfer
Mode (VoATM) switching by March 2003, which potentially
doubles the port capacity of each switch. Investment in the
access network continued to be driven by demand for both
new copper and ®bre lines and by quality and resilience
improvement programmes.
Capital expenditure in relation to the group's
discontinued activities amounted to £808 million,
£1,129 million and £520 million in the 2002, 2001 and 2000
®nancial years, respectively. Prior to the demerger, mmO2
continued improving the quality and capacity of its digital
GSM network. In April 2000, we purchased one of the ®ve
3G licences in the UK Government's auction for £4.03
billion, which we paid in May 2000. A third generation
mobile licence in the Netherlands was awarded to Telfort in
July 2000 for £267 million.
Of the capital expenditure, £634 million was in Europe,
outside UK, in the 2002 ®nancial year and £632 million was
spent there in the 2001 ®nancial year, following our
acquisition of Esat, Telfort and Viag Interkom, in building out
their networks. In the 2000 ®nancial year, £233 million was
incurred in North America mainly by Concert
Communications before the establishment of the Concert
global venture in January 2000.
The group expects capital expenditure in the 2003
®nancial year to be below £3 billion. Contracts placed for
ongoing capital expenditure totalled £740 million at 31
March 2002. We plan to continue to spend on our IP
backbone network, in providing web hosting facilities and
continuing the expansion of our networks to meet the
projected broadband demand. We are focusing capital
expenditure on projects with higher and more immediate
®nancial returns. BT expects that future capital expenditure
will be provided from net cash in¯ows from operating
activities, and, if required, by external ®nancing.
Acquisitions
The total amount invested in the 2002 ®nancial year,
including further funding of existing ventures, was
£1,131 million. We made only one signi®cant acquisition,
being the purchase in April 2001 of the 49.5% interest in
Esat Digifone that we did not already own, from Telenor, for
£869 million under an agreement made in early 2000.
During December 2001, Mediaset exercised a put option in
respect of its 9% interest in Blu, an Italian mobile phone
operator. BT has reviewed the carrying value of its
investment and provision has been made for the associated
impairment and exit costs.
During the 2001 ®nancial year, BT completed a number
of acquisitions of businesses, mainly located outside the
UK. The total amount invested, including further funding of
existing ventures, was £14,501 million.
In April 2000, we took an equity interest, jointly with
Japan Telecom, in a number of regional Japanese mobile
phone companies (J-Phone Communications). Instead of
investing directly in J-Phone Communications, we
guaranteed bank loans to that group totalling £782 million at
31 March 2001. As noted above, we have now sold our
interests to Vodafone for £3.7 billion. In June 2000, we
acquired for £1,207 million our partner's 50% interest in
Telfort, the communications joint venture which we
established in the Netherlands in 1997. The wireless
business of Telfort was demerged with mmO2 in November
2001. In the 2002 ®nancial year the remaining goodwill was
written off.
In the ®nal quarter of the 2001 ®nancial year, we
acquired the 55% interest in Viag Interkom that we did not
already own under agreements made in August 2000. In
January 2001, we acquired a 10% interest in Viag Interkom
including its share of the German third generation licence
from Telenor for £1,611 million, and in February 2001, we
acquired the remaining 45% interest from E.ON for £7,148
million, including its share of the cost of the licence.
Goodwill of £4,992 million arose on the transactions. In the
light of falling equity valuations for wireless companies in the
2001 ®nancial year, we carried out impairment reviews of
the carrying values of Viag Interkom and other major
wireless interests at that time. As discussed above, we
recognised a £3,000 million goodwill impairment in Viag
Interkom of which £200 million related to the ®xed network
business remaining in the BT Group after the mmO2
demerger. In the 2002 ®nancial year the remaining goodwill
was written off.
During the 2000 ®nancial year, BT also completed a
number of acquisitions of businesses or interests in
ventures. The total amount invested, including deferred
considerations and further funding of existing ventures, was
£8,755 million. The investment in the Concert global
venture, in the form of assets contributed, was additional to
this.
In November 1999, we completed the acquisition of the
40% minority interest in BT Cellnet held by Securicor. The
total cost of this acquisition was £3,173 million, including
legal fees and other expenses. BT Cellnet was demerged as
a signi®cant part of mmO2 in November 2001.
BT acquired jointly with AT&T a 30% interest in Japan
Telecom for £1,254 million in August 1999, with BT having
an economic interest of 20%. Concurrent with this
transaction, BT sold its Japanese subsidiary to Japan
Telecom.
In Canada, BT acquired an effective 9% economic
interest in AT&T Canada. In conjunction with AT&T, we
jointly purchased 33% of Rogers Wireless (formerly Rogers
Financial review
42 BT Group Annual Report and Form 20-F 2002