BT 2014 Annual Report Download - page 47

44 The Strategic Report
Delivering our strategy
Investing for the future
In response to growing demand for cloud-based services, and as we seek
to sell more white-labelled products, we launched a new range of Hosted
Communications Services. A number of CPs are now selling this range
and we will add more products to it next year.
We further expanded our broadband, Ethernet and IP platforms,
including a new IP node in North America.
We are introducing Business one, a new online portal through which
CPs can manage their orders and faults for products such as broadband,
Ethernet and IP. Feedback from trial users this year has been very
positive, so next year we will roll it out to all customers. We also plan to
add more features and products to it.
We have developed solutions to support mobile operators as they deploy
small cell technologies. After successful customer trials, we received the
rst formal request for a proposal for a small cell solution. We expect
more to follow next year.
Financial performance
Year ended 31 March
2014
£m
2013a
£m
2012a
£m
Revenue 2,422 2,608 2,943
 Underlying revenue excluding transit (3)% (3)% (2)%
Operating costs 1,808 1,988 2,276
EBITDA 614 620 667
Depreciation and amortisation 245 254 259
Operating prot369 366 408
Capital expenditure 244 233 336
Operating cash ow 372 348 259
a 5estated, see note 1 to the consolidated Ƭnancial statements.
Total revenue declined 7% (201213 11%, or 10% excluding
the impact of ladder pricing, see page 49), mainly due to a £119m
(201213 £277m) reduction in transit revenue.
Underlying revenue excluding transit declined 3% (201213 3%,
or 1% excluding the impact of ladder pricing). This was primarily due to a
15% decline in broadband revenues, as lines continue to migrate to U,
and a 16% decline in traditional calls and lines revenue which includes
the impact of theNarrowband Market Review (NBMR). These eects
were partially oset by strong growth in IP services of 28% as well as
7% growth in managed solutions.
Revenue from managed solutions accounted for 37% of total revenue
this year, up from 32% last year.
EBITDA declined 1% (201213 7%, or 3% excluding the impact
of ladder pricing) as cost transformation helped to oset the impact
of lower revenues. Depreciation and amortisation were down 4%
(201213 2%) contributing to operating prot increasing 1%
(201213 10% decline).
Capital expenditure increased 5% (201213 31% decrease).
This wasprimarily due to higher spend on the IP platform (to increase
capacity to meet growing demand) and investment in systems to drive
future eciencies.
Operating cash ow increased 7% (201213 34%) principally due to
the timing of customer receipts.
Openreach
We are delivering the bre broadband rollout
on behalf of the group and are playing our part
in building Britains connected future, helping
businesses to grow and communities to prosper.
Openreach is responsible for providing services over the local loop
(sometimes known as the local access network or the last mile). This is
made up of the copper and bre connections between our exchanges,
and homes and businesses. We also oer backhaul products to connect
exchanges to CPs networks.
BTs Undertakings (more on page 49) commit us to selling our main
products and services to all CPs openly and equally and on the same
terms as we do to BTs own lines of business. To make this work properly,
Openreachs operational, engineering and systems capabilities are
separate from those of the rest of BT. Around 99.7% of Openreach
revenue is subject to these Undertakings.
Markets and customers
BT serves the wholesale telecoms customer segment in Great Britain
through Openreach and BT Wholesale. In Northern Ireland and the
Republic of Ireland, BT serves wholesale customers through BT Ireland.
Openreach has around 540 CP customers, the largest of which are other
BT lines of business (particularly BT Consumer and BT Business), Sky and
TalkTalk. Openreach does not sell directly to end-customers.
Our main competitor for consumer services is Virgin Media, whose
network covers just under half of UK homes. We have many competitors
in the business market, where the focus is on selling high capacity
data connections. Our main competitors are Virgin Media, Colt Group
andVodafone.
Products and services
Openreach sells three main products bre broadband, copper-based
services and Ethernet.
Fibre broadband
Our wholesale bre broadband product is called Generic Ethernet Access
(GEA). The FTTC variant of GEA uses copper for the nal connection
to the customer. It oers speeds of up to 80Mbps. The FTTP variant
oers faster speeds of up to 330Mbps and uses bre all the way to the
customer premises.
In April 2013, we launched FTTP-on-Demand. This lets end-customers
in FTTC areas get an FTTP connection if they need one  we think SMEs
will be especially interested in the faster speeds that this supports.
We have initially made FTTP-on-Demand available in 42 exchange areas,
and plan to make it available across our entire bre broadband footprint.
We have introduced more installation choices for our CP customers.
While we continue to oer managed installation of bre broadband
(which entails an Openreach engineer visiting a home or business site),
we now oer CPs the option of providing the service without
an Openreach engineer visit.
We also oer Fibre Voice Access which allows CPs to oer voice services
over FTTP that are similar in functionality to copper-based voice services.
Our bre broadband network can also carry broadcast and on-demand
internet protocol television (IPTV) services. We provide a multicast
service which cuts the cost of delivering broadcast TV over our network
and means CPs (generally triple-play providers) can prioritise broadcast
TV over other web trac.