BT 2010 Annual Report Download - page 32

REVIEW OF THE YEAR OUR LINES OF BUSINESS
30 BT GROUP PLC ANNUAL REPORT & FORM 20-F
In 2010 we signed MNS contracts with a total order value of
£1.8bn (2009: £1.3bn), including:
A 10-year network outsourcing agreement with KCOM Group to
provide the operator with a fully-managed, national operational
capability and a new streamlined portfolio of next generation
products and services
A long-term agreement to provide O2with fixed line broadband
services to enable it to offer fixed line services to the SME market
in the UK for the first time
A long-term contract with Vodafone UK to enable it to introduce
unified communications to UK SMEs
A five-year agreement to consolidate O2’s core fixed and mobile
networks in the UK into one cost-effective network using BT’s IP
network platform.
We also signed a major international voice services agreement with
Tata Communications that allows both parties to benefit from
shared resources and lower costs as part of a global supply
agreement.
In April 2010 BT Wholesale signed a major MNS contract with
Orange UK to take on the management and development of its UK
fixed line broadband infrastructure for consumers and SMEs. Over
the next 15 months we will migrate Orange UK’s LLU-based
customers to the BT Wholesale broadband platform.
Around half of BT Wholesale’s activity in the UK remains subject
to UK and European Union industry regulation and regulatory
pricing. During 2010 mobile termination rates across Europe were
MNS as a growing proportion of external revenue
(%)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010
0
5
10
15
20
25
30
35
40
2010 External revenue by customer
Mobile 42%
Fixed 29%
ISP 18%
Reseller 8%
Broadcast 3%
reduced, eroding some £140m from BT Wholesale’s 2010 revenue,
but with no impact on profitability.
Financial performance
2010 2009a2008a
£m £m £m
Revenue 4,450 4,658 4,959
Internal revenue 1,227 1,228 1,252
External revenue 3,223 3,430 3,707
Net operating costs 3,171 3,381 3,553
Adjusted EBITDA 1,279 1,277 1,406
Depreciation and
amortisation 680 686 893
Adjusted operating profit 599 591 513
Capital expenditure 325 435 522
Operating cash flow 844 824 800
aRestated. See page 101.
In 2010 revenue declined by 4% to £4,450m (2009: 6% decline),
an improvement in the rate of decline. The overall decrease
principally reflects reductions in transit revenue, largely driven by
the decline in mobile termination rates, which has no impact on
EBITDA. Excluding transit, revenue declined by 1% compared with
2009.
2010 2009a2008a
£m £m £m
Products and services
Transit, conveyance and
WLR 1,521 1,828 2,113
Managed network services 715 518 295
Broadband and convergence 431 482 624
Calls and lines 306 385 462
Other products and services 250 217 213
Total external revenue 3,223 3,430 3,707
Internal revenue 1,227 1,228 1,252
4,450 4,658 4,959
aRestated. See page 101.
Transit, conveyance and WLR revenue decreased by 17% (2009:
13% decrease). This decline has arisen principally as a result of the
price impact of mobile termination rate reductions.
Broadband and convergence revenue decreased by 11% due to
the continued trend of CPs switching to LLU provided by
Openreach although the rate of decline slowed compared with 23%
in 2009 as the majority of the LLU migration took place in that
year.
These declines have been partially offset by an increase of 38%
in MNS revenue (2009: 43% increase).
Calls and lines revenue decreased by 20% (2009: 17% decrease)
reflecting lower circuit volumes and the substitution impact as
customers migrate to long-term MNS contract arrangements.
Other products and services revenue increased by 15% (2009:
2% increase).