BT 2010 Annual Report Download - page 33

REVIEW OF THE YEAR OUR LINES OF BUSINESS
31BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
Net operating costs decreased by 6% (2009: 5% decrease), partly
due to the decline in revenue and lower mobile termination rates,
but also due to the impact of our cost efficiency programmes
principally through reductions in our total labour resource.
Adjusted EBITDA remained broadly flat at £1,279m (2009: 9%
decrease), reflecting the delivery of our cost efficiency programmes
and growth in managed network services revenue offsetting the
decline in traditional products such as broadband.
Depreciation and amortisation decreased by 1% to £680m
(2009: 23% decrease). The slowdown in the rate of decrease was
due to certain legacy assets becoming fully depreciated in 2010.
Adjusted operating profit increased by 1% (2009: 15% increase)
due to the slight improvement in EBITDA and the lower level of
depreciation and amortisation.
Capital expenditure decreased 25% to £325m in 2010 (2009:
17% decrease), reflecting improved procurement terms and more
stringent investment return criteria.
Operating cash flow increased by 2% to £844m in 2010 (2009:
3% increase) due primarily to the reduction in capital expenditure,
although this was partially offset by the negative impact of intra-
group VAT settlements with Openreach.
Openreach
Business overview
Openreach was created in 2006 and is responsible for the crucial
‘first mile’ of the UK telecommunications network – the copper
wires and fibre connecting homes and businesses to their local
telephone exchange via fixed line local and backhaul connections.
It offers all Openreach CP customers (currently more than 480,
including other BT lines of business) fair, equal and open access to
its networks.
Openreach operates in a competitive environment both from
other providers of fixed network capacity and substitution into the
mobile market, and many of our products’ prices are covered by
regulation. Our performance is influenced by economic conditions,
as recessionary periods increase the risk of business failure and loss
of line rental, and low activity in the housing market reduces churn
and hence connections. In prior years, poor weather had a
significant impact on the network increasing faults, but following
improvements in sealing the network, it is now only affected by
severe weather conditions.
Our 19,000 field engineers work on behalf of all CPs, enabling
them to provide their customers with a range of services from
analogue telephone lines to complex networked IT services.
To meet our customers’ requirements with a greater degree of
flexibility and efficiency, an agreement was reached with the CWU to
introduce more flexible working hours, effective from April 2010.
Openreach operates a fleet of more than 20,000 vehicles and is
committed to finding innovative ways to minimise its environmental
impact. During the year we equipped more than 13,000 vans with
satellite location technology that, together with improved business
practices, will save time, reduce our carbon footprint and improve
our responsiveness to customer needs. The fuel consumed by BT’s
commercial fleet reduced by 10% compared with 2009.
Products and services
We offer our customers a range of products that meet their needs –
from Ethernet to fibre-based broadband. Our products and services
are designed to provide our customers with the tools they need to
meet the increasing demands of their customers today, while helping
them to plan their services of the future.
Wholesale line rental (WLR)
WLR enables CPs to offer telephony services with their own brand
and pricing structure over BT’s network. At 31 March 2010,
Openreach was providing 17.9m WLR lines to other BT lines of
business, and 6m to other CPs. Of the lines provided to other CPs,
4.8m were WLR analogue lines (up 6% on 2009) and 1.2m were
WLR digital channels (up 11% on 2009).
Local loop unbundling (LLU)
LLU enables CPs to use the lines connecting BT exchanges to end
users’ premises, and to install their own equipment in those
exchanges. In 2009, 84% of UK premises were served by an
unbundled exchange. At 31 March 2010, there were 14.8m
unbundled lines in the UK, up 7% on the previous year. Of these,
8.2m were for other BT lines of business to support broadband
services and 6.6m were for other CPs. More than 30 CPs are
providing unbundled services, and Openreach is fulfilling more than
94,000 LLU orders a week.
Ethernet
Openreach’s Ethernet products offer CPs a wide choice of high-
bandwidth circuits to build or extend their customers’ data
networks. We made major reductions in the connection and rental
charges of services in our Ethernet portfolio in February 2009 and
January 2010, which have improved the access and backhaul
markets in the UK, and support the growth of data-intensive
applications.
Phase 1
Phase 2
Phase 3
Phase 4a
Phase 4b
Phase 5
Fibre-based broadband roll out
Exchanges announced to date for fibre-based broadband services.