BT 2016 Annual Report Download - page 51

Overview The Strategic Report Governance Financial statements Additional information
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EE acquisition risks
Our acquisition of EE has introduced additional risks
for BT beyond those captured in our principal risks and
uncertainties. This year, given the acquisition has only
recently completed, we’ve set out these risks separately.
As the EE risks become more embedded in our Enterprise
Risk Management framework, we’ll integrate the
reporting of these risks into our review of our principal
risks and uncertainties.
Risks related to the acquisition
Although a number of the risks EE faces are similar in nature to
those potentially impacting BT, there are also distinct risks that
the group now faces that BT has not previously perceived to be
significant threats.
This section outlines some of those new risks and uncertainties,
but it is not exhaustive.
Realising acquisition synergies
We are targeting significant synergies from the acquisition,
including operating cost savings and capital expenditure savings.
Integrating the respective businesses is also expected to give rise
to further benefits. These include fixed‑mobile convergence,
the ability to serve customers through a single, seamless platform
supported by a single IP network, and being able to oer BT
products to EE customers and EE products to BT customers.
The group’s success will depend, in part, on the eectiveness of
the integration process and the ability to realise the anticipated
benefits and synergies from combining the businesses. Some of
the potential challenges in integrating the businesses may not
be known at this stage. If these challenges cannot be overcome,
for example because of unforeseen diculties in implementing
fixed‑mobile convergence or a lack of customer demand for the
oerings, the anticipated benefits of the acquisition will not be
fully achieved.
Realisation of synergies will depend partly on the rapid and
ecient management and co‑ordination of the activities of the
group’s businesses. We may experience diculties in integrating EE
with our existing businesses and may not realise, or it might take
longer than expected to realise, certain or all of the perceived
benefits of the acquisition. There’s also a risk that synergy
benefits and growth opportunities from the acquisition may
fail to materialise, or may be materially lower than have been
estimated. In addition, the costs of generating these synergies
may exceed expectations. Further, we may not achieve the revenue
or profitability that justify the original investment, which could
result in material, non‑cash write‑downs. Failure to deliver the
anticipated synergies and business opportunities could have a
material adverse eect on our businesses, financial conditions and
results of operations, including our ability to support our pension
deficit, service our debt or to pay dividends.
Competition in the mobile market
Competition in the UK mobile telecommunications market is
intense. Competition results from, among other things, the
existence of established mobile network operators, market entry of
alternative and lower cost carriers (such as mobile virtual network
operators), technology developments (such as Voice over Internet
Protocol (VoIP)), and the ability of other providers to bundle
mobile phone services with dierent products and content (such
as broadband and pay‑TV). In particular, technologies such as
VoIP and so‑called ‘over‑the‑top’ platforms (such as iMessage,
Facetime, Blackberry Messenger, WhatsApp and Facebook
Messenger) could reduce voice and/or text messaging trac on
mobile networks, which could lead to significant price and revenue
reductions.
Increased competition has led to a decline in the prices which EE
charges for its mobile services and is expected to lead to further
declines in pricing in the future. Competition could also lead to
a reduction in the rate at which we add new mobile customers,
a decrease in the size of our mobile market share and a decline
in the group’s service revenue as customers choose to receive
telecommunications services or other competing services from
other providers. Also, there’s a risk of increased customer churn as
a result of the transition away from the legacy T‑Mobile and
Orange brands and any potential changes to the branding in
future. Churn could also increase as a result of potential Ofcom
changes to the mobile switching regime in the UK. An increase in
churn rates could adversely aect profitability because we would
experience lower revenue and/or additional selling costs to replace
customers or recapture lost revenue.
Delays in the deployment of new technologies
Our operations will depend partly on the successful deployment of
continuously evolving telecommunications technologies, including
handsets and network compatibility and components.
EE uses technologies from a number of vendors and incurs
significant capital expenditure deploying these technologies. There
can be no assurance that common standards and specifications
will be achieved, that there will be interoperability across networks,
that technologies will be developed according to anticipated
schedules, that they’ll perform according to expectations or that
they will achieve commercial acceptance. The introduction of
software and other network components may also be delayed.
The failure of vendor performance or technology performance
to meet our expectations or the failure of a technology to
achieve commercial acceptance could result in additional capital
expenditure, or a reduction in profitability.
Technology change and market acceptance
We may not succeed in making customers suciently aware of
existing and future services or in creating customer acceptance
of these services at the prices we would want to charge. Also,
we may not identify trends correctly, or may not be able to bring
new services to market as quickly or price‑competitively as our
competitors.
These risks exist in the mobile telecommunications area
(eg mobile data services) and in non‑mobile telecommunications
areas (eg mobile payment services based on contactless
technology) where there is a risk that dierences in the regulatory
treatment of dierent operators, based on their choice of
technology, could put us at a competitive disadvantage.
Further, as a result of rapid technological progress and the
trend towards technological convergence, new and established
information and telecommunications technologies or products