BT 2016 Annual Report Download - page 52

56 BT Group plc
Annual Report 2016
may not only fail to complement one another but in some cases,
may even become a substitute for one another. An example of
this is the risk that ‘over‑the‑top’ services (being those which
are provided by a third party to the end‑user device) develop
substitutes for our own products and services. Another example
is VoIP, a technology that is already established in the business
customer market and which has now reached the consumer
market. The availability of mobile handsets with VoIP functionality
may adversely aect our pricing structures and market share in
our mobile voice telephony business. If we don’t appropriately
anticipate the demand for new technologies, and adapt our
strategies, service oering and cost structures accordingly, we
may be unable to compete eectively, which may have an adverse
eect on our business and operations.
Supplier and joint venture failure
EE has a number of suppliers identified as critical. EE is also party
to a complex and critical network‑sharing arrangement with
Hutchison 3G UK Limited. The failure of this joint operation to fully
support our interests and goals, or any material disruption to the
operation of the EE network sharing arrangement, could cause
significant harm to our business.
As demand for smartphone and tablet products increases around
the world, there could be shortages in the volume of devices
produced as a result of insucient manufacturing capacity, the
lack of availability of internal components such as processors or
major supply chain disruptions. This may result in delays in the
supply chain which in turn may have an adverse eect on our
business and operations.
Regulation and spectrum
Regulators, including Ofcom, set annual licence fees for spectrum
bands used by EE for voice calls, and data services. In future
spectrum auctions, the costs of acquiring spectrum could increase
or we may be unsuccessful in our bids. Any significant increases in
spectrum pricing which apply to us could have a material adverse
eect on our business and results of operations.
EE has been found to have significant market power in some areas
of wholesale call termination following market reviews and, as
is the case for all MNOs, EE’s wholesale mobile termination rates
are therefore regulated by Ofcom. The scope and form of the
regulation is reviewed every three years.
EE is also subject to UK and European Union consumer‑focused
regulation in areas including: the international roaming services
provided by EE; processes for consumer switching and non‑
geographic numbering call services. This regulation may aect
the group’s market share, competitive position, future profitability
and cash.
As technology and market dynamics develop and as the mobile
business of EE is integrated into BT, a wider range of existing
regulations will apply to us and a broader range of new and/or
modified regulations may be directed at us.
Network, licence and technology investment
EE (as well as the rest of BT to a lesser extent), has made
substantial investments in the acquisition of licences and EE
has invested in its mobile networks, including modernising its
2G network, the upgrade of its 3G network and the continued
expansion of its 4G network. We expect to continue to make
significant investments in our mobile networks due to increased
usage and the need to oer new services and greater functionality.
We may acquire new spectrum licences with licence conditions,
which may include network coverage obligations or increased
licence fees. Accordingly, the rate of our capital expenditure and
costs in future years could increase and exceed those expected
or experienced to date.
There can be no assurance that new services will be introduced
according to anticipated schedules or that the level of demand for
new services will justify the cost of setting them up (in particular,
the cost of new spectrum licences and network infrastructure,
for example, for 4G services and subsequent evolutions). Failure
or a delay in completing networks and launching new services, or
increases in the associated costs, could have an adverse eect on
our business and operations and could result in significant write
downs of the value of network spectrum or other licences or other
network‑related investments.
If the current economic climate worsens, we may decide, or be
required, to scale back capital expenditure. A lasting reduction in
capital expenditure levels below certain thresholds could aect our
ability to invest in mobile telecommunications networks (including
additional spectrum), new technology and other BT businesses and
so could have an adverse eect on our future growth and the value
of radio spectrum.
Transmission of radio waves from mobile telephones,
transmitters and associated equipment
Media reports have suggested that radio frequency emissions
from wireless mobile devices and mobile telecommunications
sites may cause health issues, including cancer, and may interfere
with some electronic medical devices, including hearing aids and
pacemakers. Research and studies are ongoing. According to the
World Health Organisation’s Fact Sheet Number 193, last reviewed
in October 2014, there are no known adverse eects on health
from emissions at levels below internationally recognised health
and safety standards. However, we cannot provide assurance
that research in the future will not establish links between radio
frequency emissions and health risks.
Whether or not research or studies conclude that there is a
link between radio frequency emissions and health, popular
concerns about radio frequency emissions may discourage the
use of wireless devices, impairing our ability to retain customers
and attract new customers, and may result in restrictions on the
location and operation of mobile communications sites and the
usage of our wireless technology. These concerns could also lead to
litigation against us. Any restrictions on use or litigation could have
an adverse eect on our business and operations.