BT 2008 Annual Report Download - page 101

100 BT Group plc Annual Report & Form 20-F
1. Segmental analysis
Primary reporting format – business segments
The group’s principal activities include: the provision of networked IT services; local, national and international telecommunications
services; broadband and internet products and services; and converged fixed/mobile products and services.
The group is organised into four customer-facing lines of business, BT Global Services, BT Retail, BT Wholesale and Openreach,
which are supported by two internal functional units, BT Operate and BT Design.
The activities of each of the customer facing lines of business are as follows:
BT Global Services serves major corporate and carrier organisations across the world providing high-performance managed
networked IT services, application management, professional services and outsourcing solutions.
BT Retail serves consumer customers and small and medium sized enterprises (SMEs) in the UK, providing a range of innovative
communications products and services. BT Retail also includes BT Ireland, which operates across the major corporate, SME, consumer
and wholesale markets throughout the Republic of Ireland and Northern Ireland, and Enterprises, which comprises a number of
individual businesses such as BT Conferencing, BT Directories and BT Payphones.
BT Wholesale provides services to UK communications providers through a diverse portfolio ranging from nationally available
broadband, voice and data connectivity services and interconnect to bespoke, fully managed network outsourcing and value added
solutions.
Openreach is responsible for the crucial ‘first mile’ connecting communications provider customers to their local telephone
exchange, giving them open and economic access to the UK network. Openreach products are sold on an equivalent basis to BT
lines of business and other communications providers at the same arm’s length prices, with the BT lines of business being treated no
differently than any other customer with regard to terms and conditions or acccess to systems and data.
Business transformation
With effect from 1 October 2007, the group changed the presentation of its financial results to reflect the reorganisation of the
business that has taken place in 2008. The segment results for 2007 and 2006 have therefore been restated to provide a consistent
presentation for all years. The reorganisation has not impacted overall group results.
The new organisational structure is based around two new internal functional units, namely BT Design and BT Operate. BT Design
and BT Operate support the existing four customer facing lines of business. BT Design is responsible for the development and
deployment of the platforms, systems and processes which support our services and BT Operate is responsible for their operation.
Neither BT Design nor BT Operate are reportable segments, and the reportable segments continue to be the customer facing lines of
business. Neither BT Design nor BT Operate generate any revenue and both operate on a cost recovery basis. The costs incurred by
BT Design and BT Operate are allocated to the customer facing lines of business in line with the services they provide. The
depreciation and amortisation incurred by BT Operate in relation to the networks and systems they manage and operate on behalf
of the customer facing lines of business are allocated to the lines of business based on their expected utilisation. The assets
managed by BT Operate and their capital expenditure in the year are also allocated to the lines of business in a manner consistent
with the depreciation and amortisation. Accordingly, the segmental results do not necessarily reflect the operating results of the
lines of business as if they were independent business operations.
The historical results of the lines of business have changed, however, reflecting changes to the structure of intra-group trading
arrangements and the allocation of costs between the lines of business. The main change to the intra-group trading arrangements is
that a significant amount of intra-group trading has been eliminated. The exception to this is Openreach as trading between
Openreach and the other customer facing lines of business has not been impacted by the group’s reorganisation.
Intra-group revenue generated from the sale of regulated products and services is based on the market price. Intra-group
revenue generated from the sale of other products and services is agreed between the relevant lines of business.
In addition to the four customer facing lines of business, the remaining operations of the group are aggregated and included
within the ‘other’ category to reconcile to the consolidated results of the group. Included within other is any over or under recovery
of costs by BT Design and BT Operate, as well as the other group functions and operations.
Revenue by line of business
BT Global
Services BT Retail BT Wholesale Openreach Other Intra-group Total
Year ended 31 March 2008 £m £m £m £m £m £m £m
.....................................................................................................................................................................................................................................
External revenue 7,889 8,194 3,707 886 28 – 20,704
Internal revenue – 283 1,252 4,380 – (5,915) –
Total revenue 7,889 8,477 4,959 5,266 28 (5,915) 20,704
BT Global
Services BT Retail BT Wholesale Openreach Other Intra-group Total
Year ended 31 March 2007 (restated) £m £m £m £m £m £m £m
.....................................................................................................................................................................................................................................
External revenue 7,312 8,100 4,109 685 17 – 20,223
Internal revenue – 246 1,277 4,538 – (6,061) –
Total revenue 7,312 8,346 5,386 5,223 17 (6,061) 20,223
Consolidated financial statementsConsolidated financial statements
Notes to the consolidated financial statements