BT Group Management Discusses Q4 2013 Results - Earnings Call Transcript

May.11.13 | About: BT Group (BT)

BT Group (NYSE:BT)

Q4 2013 Earnings Call

May 10, 2013 4:00 am ET

Executives

Michael Rake - Chairman, Chairman of Nominating & Governance Committee, Chairman of Committee for Sustainable & Responsible Business and Member of Bt Pensions Committee

Anthony Everard Ashiantha Chanmugam - Principal Financial Officer, Group Finance Director, Director and Member of Operating Committee

Ian Paul Livingston - Chief Executive Officer, Executive Director, Chairman of Operating Committee and Member of BT Pensions Committee

Gavin E. Patterson - Executive Director, Member of Committee for Sustainable & Responsible Business, Member of Operating Committee and Chief Executive of BT Retail

Olivia Garfield - Chief Executive Officer of Openreach

Clive Selley - Chief Information Officer, Chief Executive of Bt Innovate & Design and Member of Operating Committee

Nigel Stagg - Chief Executive Officer of BT Wholesale and Member of Operating Committee

Jake Humphrey

Clare Balding

Luis Alvarez - Chief Executive Officer of BT Global Services

Analysts

Nick Lyall - UBS Investment Bank, Research Division

Stephen Paul Malcolm - Arete Research Services LLP

Stuart Gordon - Berenberg, Research Division

Guy R. Peddy - Macquarie Research

John Karidis - Oriel Securities Ltd., Research Division

Andrew Lee - Goldman Sachs Group Inc., Research Division

Carl Murdock-Smith - JPMorgan Cazenove Limited, Research Division

James Ratzer - New Street Research LLP

Maurice Patrick - Barclays Capital, Research Division

Paul Sidney - Crédit Suisse AG, Research Division

Giasone Salati - Espirito Santo Investment Bank, Research Division

Lawrence J. Sugarman - Liberum Capital Limited, Research Division

James Britton - Nomura Securities Co. Ltd., Research Division

Stephen Paul Malcolm - Evolution Securities Limited, Research Division

Mandeep Singh

Wilton Fry - BofA Merrill Lynch, Research Division

Simon Weeden - Citigroup Inc, Research Division

David-A Wright - Deutsche Bank AG, Research Division

Carl Murdock-Smith - JP Morgan Chase & Co, Research Division

Unknown Executive

Ladies and gentlemen, welcome to the BT Centre Auditorium and to BT's results presentation. Can you please make sure that you have all mobile devices switched off? There are no fire alarms planned for today, and in the event of an alarm sounding, would you please leave the auditorium by the 2 fire exits at the front of the room? Before we start, we need to draw your attention to the usual disclaimer on forward-looking statements. Please see this slide and our latest Annual Report and Form 20-F for examples of the factors that can cause actual results to differ from any forward-looking statements we may make.

Michael Rake

Good morning, everybody, and thank you very much for coming. Four years ago, we set out our strategy to make BT a better business with a better feature. And today, we're going to take some time to update you on these plans. Ian and Tony will cover the financial results and update you on our group strategy. Tony then will talk about our cost transformation progress and plans for the future, and each of the chief executives of our business units will take you through their businesses and future plans in some detail. We also have a few product demonstrations, which will bring to life what we're talking about today, and we will have time over lunch for you to take a look at some of these.

So let's look at the review of the year. Overall, as you've seen, it has been a good year. We have delivered good financial results and made progress in a number of areas. And we have again reduced our cost, with OpEx and CapEx down by over GBP 1 billion. On customer service, whilst our global operations have done well, we have not hit our targets in the U.K. This is partly due to the terrible weather, which meant we have more faults in the network and more delays to customer orders, where we're working hard to improve this and the overall resilience of our networks. We've continued to make a number of very important investments this year, including acceleration of the rollout of our fiber network, investing -- proving our TV proposition and launching yesterday BT Sport, acquiring mobile spectrum and continuing to expand in the high-growth regions overseas, where Global Services operates. Our aim is to deliver good financial results while making investments for the long term. And this progress in this year has enabled us to continue to reward our shareholders.

If we look at the full year 2012, '13 -- '12, '13 results, well, our revenue for the year was down 5% on an underlying basis, excluding low margin transit work. It was down 3%, and as you will hear later, we actually had a good performance in Q4. You will also hear later about some of the things that our lines of business are doing to improve this revenue trend. But as well as this self-help, we need to make sure that the competitive and regulatory environment is fair here in the U.K., in the European Union and across the Atlantic. As a global business, we need to have fair access to others' networks much as they have here in the U.K. And therefore, as an organization, we will continue to push for level playing fields and lobby hard to see reductions in tariff and nontariff barriers to trade around the world. In terms of our profits, our cost-cutting means despite the decline in revenue, we have again grown EBITDA. And this has contributed to 12% growth in our earnings per share. We delivered GBP 2.3 billion of free cash flow while at the same time investing in the business. This has allowed us to lower our net debt by over GBP 1 billion in the year, and we will continue to focus on reducing our debt going forward.

If we look at these results versus outlook, in spite -- there have been economic challenges and tougher regulations that meant that we did not achieve the revenue expectations that we set out at the start of the year, but we did deliver improvement in revenue trend in the second half of the year. And the efficiencies we delivered in the year meant that EBITDA and free cash flow both in line with our outlook for the year and ahead of market expectations.

So what does this mean for our shareholders? The board is recommending a final dividend of 6.5p, up 14%, giving a full year dividend of 9.5p, which is also up 14%. This is towards the top end of our outlook of 10% to 15% growth, reflecting a good financial performance this year. We remain committed to progressive, sustainable dividends. And our plan remains to grow dividend per share by 10% to 15% for the next 2 years. We completed our planned shared buyback of about GBP 300 million in the year, which was to counteract the dilutive effect of maturing share plans. And we will purchase another GBP 300 million of shares in the next 2 years to deal with other share plans that mature.

In this respect, I am really delighted that 20,000 of our people benefited from share plans in the year, making a gain of over GBP 8,000 each on average. Our people make a real difference. It is down to their hard work that we've had another solid year. Not only this but across the world, our people give back to our communities. And this year, they have spent more than 40,000 days volunteering. One of our key aims is to be a responsible and sustainable business leader, and Ian will talk later about the 3 goals that we have set to achieve this. But now, I'll turn it over to Tony to talk about the financial results. Tony?

Anthony Everard Ashiantha Chanmugam

Thanks, Mike, and good morning, everyone. I'll give an overview of the main financials, and Ian will then go through lines of business.

Overall, this has been a good quarter with a better revenue trend, another good quarter of cost reduction and a strong free cash flow performance. I'll start with the income statement in Slide 10. Headline revenue was down 2% in the quarter, which includes the impact of an GBP 81 million decline in transit revenue and a GBP 12 million favorable impact from FX. Our main measure, underlying revenue excluding transit, was flat. We saw a good performance from Consumer, Business and Retail, an improvement in Global Services and growth in Wholesale. The revenue trend in the business is moving in the right direction and will continue to do so in '13, '14. However, there will be a degree of quarterly volatility, and I don't expect the revenue performance to be quite as good in quarter 1, which will see a further impact from regulation. We delivered another quarter of growth in EBITDA. This was up 4%, helped by a 2% decline in our underlying cost base excluding transit. This cost reduction was despite some additional setup cost for BT Sport, which we will continue to see in the first half of '13, '14. Depreciation was down 7% largely due to more efficient delivery of our capital investment programs over the last few years. This contributed to operating profit growing 14%. Interest declined 14% due to a lower average cost of net debt. This led to profit before tax growing 21%, which drove a 22% increase in our adjusted EPS. Specific items were a net charge of GBP 58 million. This included GBP 151 million of restructuring charges, which I will say more on shortly, partly offset by specific tax credit of GBP 88 million.

Turning to free cash flow on Slide 11. Normalized free cash flow was an inflow of GBP 1.3 billion in the quarter, which was up around GBP 400 million on last year. Quarterly cash flow will tend to fluctuate, and a large part of the increase was due to a timing of working capital across the year. Our cash CapEx was also lower due to further efficiencies in our capital programs. Below normalized free cash flow, we had a GBP 79 million cash tax benefit from pension deficit payments. This brings the full year benefit to the GBP 560 million level that we'd previously indicated. We also spent GBP 202 million, purchasing 4G mobile spectrum, which Ian will talk more about shortly. After specific items of GBP 147 million, mainly relating to restructuring cost and Ofcom's determinations on historic Ethernet pricing, reported free cash flow was just over GBP 1 billion in the quarter.

Turning to the year as a whole. You may remember that this time last year, I said that quarter 4 cash flow had benefited by around GBP 40 million from the timing of CapEx payments. I also said that timing of contract-related payments in Global Services would mean that we wouldn't see the same level of working capital inflow that we saw in '11, '12. In the year, working capital and other provided the GBP 230 million drag on our cash flow, which was slightly worse than we had expected. However, this was offset by us being more efficient with our capital programs and by good growth in EBITDA. So overall, normalized free cash flow was in line with what we said and what we're doing and slightly better than our market expectations.

Turning to net debt on Slide 13. We reduced net debt by GBP 1.3 billion over the year. This reflects strong cash generation by the business and GBP 560 million of tax benefit. We've used this cash to invest in the business, buying 4G spectrum and launching a new restructuring program which incurred some cash cost in the year. We've also been able to reward our shareholders in the form of a higher dividend and a GBP 300 million share buyback. The end result is that net debt has been reduced to GBP 7.8 billion, and we will continue to reduce this in the future.

Moving on to our liquidity position on Slide 14. In the current year, we have GBP 1.5 billion of debt maturing. This is fully backed up by GBP 1.5 billion of available facilities that remain undrawn. In addition, we have cash and investments on the balance sheet of GBP 1.5 billion as well at the 31st of March, 2013. Since March, we've also raised a further GBP 400 million of cash from issuing commercial paper. While we can fund our maturing debt through our existing resources and cash generation, we will continue to look opportunistically at the debt market. We continue to target a one-notch improvement in our credit rating to BBB+ or equivalent.

Moving on to our costs on Slide 15. We've continued to make progress in reducing our cost base. In the year, we reduced our OpEx and CapEx by more than GBP 1.3 billion, contributing to a saving of GBP 4.7 billion over 4 years. In the year, lower transit revenue and associated costs accounted for around 1/5 of the annual reduction, with the remainder reflecting the good progress we've made, cutting costs across all categories. Labor costs, for example, were down 4%, reflecting better productivity and systems despite recruiting almost 1,600 engineers and in-sourcing around 4,000 roles. I'll go into more detail of our cost transformation programs and our activities across the group, but I want to talk more about the next phase of the restructuring program I mentioned last quarter.

So turning to Slide 16. As I explained last quarter, we're undertaking a group-wide restructuring program to improve the efficiency and the effectiveness of the business. We incurred GBP 204 million of specific restructuring cost in the year, of which GBP 151 million were in quarter 4 and related to the new group-wide program. We expect to incur a further circa GBP 400 million of specific restructuring cost for the program, with most of this occurring in 2013, '14. We expect the benefits of restructuring to reduce our cost base by an incremental circa GBP 200 million by the end of the program, with both OpEx and CapEx efficiencies. The benefits will increase over time, approaching the full run rate in 2014, '15. The CapEx benefit from the restructuring is one of the reasons we believe that the level of CapEx we incurred in the year will be sustainable despite the increased investment in new areas of opportunity.

I'd like you -- to give you a few examples as to how the restructuring will deliver benefits to us. By combining elements of BT Operate with BT Design to create BT Technology, Service & Operations, we've removed organizational overlaps and improved both the speed and quality of our processes in areas such as application support and maintenance, as well as in system testing. We've also streamlined the support functions, such as finance, HR and general management. In Global Services, we removed similar organizational overlaps with BT Operate in our customer support centers. We've also continued to rationalize both our overseas property portfolio and our networks. Within Openreach, we've integrated the BT Operate field force into the core business to improve both its efficiency and effectiveness.

Turning to Slide 17 and the impact of regulation on our group EBITDA. In the year, there were circa GBP 120 million negative impact from the WLR, LLU and ISDN30 charge controls. There was also a GBP 30 million negative impact following the Court of Appeals decision in July, preventing the use of ladder pricing. In '13, '14, we're expecting a number of items to impact us. Firstly, we expect another impact of around GBP 120 million relating to the WLR, LLU and ISDN30 charge controls. There will also be circa GBP 50 million to GBP 100 million negative impact from the Business Connectivity Market Review, with a further similar impact in 2014, '15. Ofcom also issued a consultation document on the Wholesale Narrowband Market Review, setting out proposals for regulating the markets for the next 3-year period. A news challenge [ph] control will start from the 1st of October 2013, which is expected to reduce our revenue from fixed call termination, with this partly offset by an increase in prices on call origination. And lastly, we expect the Fixed Access Market Review to be published in the next few months. This will cover WLR, LLU and the fiber, and we'll set out the charge controls that will come into effect in the year 2014, '15. The outlook statements cover the best estimates of the impact of regulation.

Looking at other items on Slide 18. Firstly, on the pension, we have now adopted the revised IAS 19, which impacts on pension accounting. We restated this in the middle column for reference. For the next year, the operating charge will increase by GBP 50 million to circa GBP 450 million, mainly due to the lower discount rate and higher inflation assumptions. The pension interest specific item will be around GBP 240 million. The regular BT Pension Scheme cash contributions will be circa GBP 210 million, similar to this year. And the pension deficit payment in March 2014 will be GBP 325 million, unchanged from the payment plan we announced previously. Finally, as we've told you before, working capital and other in 2013, '14 will be impacted by BT Sport due to the timing of the rights payments.

Turning to Slide 19 on EBITDA. Ian will take you through the overall outlook for the group shortly. But first, I'd like to walk you through our outlook for EBITDA over the next 3 years. Looking at '13, '14, EBITDA will be impacted by the GBP 50 million increase in the pension operating charge that I just mentioned. There will also be negative impact from regulation and from our investment in BT Sport. The upfront investment in BT Sport, which we expect to be some tens of millions in each of quarter 1 and quarter 2, will impact our EBITDA performance in half 1 versus half 2. However, we will see further benefits from our restructuring program, as well as from trading improvements and -- as well as cost transformation. This means that we expect EBITDA to be between GBP 6 billion and GBP 6.1 billion in '13, '14. In other words, we're swallowing the impact of the operating charge on the pension of GBP 50 million. In '14, '15, we will again face a headwind from regulation. However, we expect BT Sport to have a positive year-on-year impact. And combined with the benefits from restructuring, trading and cost transformation, we expect our EBITDA to grow to between GBP 6.2 billion and GBP 6.3 billion in '14, '15. We expect further growth in EBITDA in '15, '16.

Looking at our financial strategy over the next 3 years on Slide 20. You've seen this slide many times before, and it remains unchanged. We'll continue to use our cash to invest in the business, reduce net debt, support the pension fund and pay progressive dividends.

Before I hand over to Ian, it's just worth mentioning that we are looking to simplify the way we report and how we show the different lines of business. This is primarily aimed at ensuring the reporting is aligned with the regulatory accounts. Additionally, it will also more accurately reflect the commercial trading of the different lines of business. We'll give you more details when the review is complete. With that, I'll hand you over to Ian.

Ian Paul Livingston

Hi, good morning. What I want to do is, first of all, to run through briefly the lines of business. It will be much be briefer than you're used to in one of these presentations because you do have the joy of each of the lines of business head presenting in a lot more detail. I'll also talk about the pension and then go on to really talk about the market context and our strategy, take you -- and use that as an introduction to the rest of the day.

So first of all, lines of business, starting with Global Services. It was an improved performance for Global Services in the quarter. We saw a revenue decline about 3%. That's about half of the underlying rate that's has been for the first 3 quarters, so clearly an improvement. Order intake was good at GBP 2 billion. That means we've done GBP 3.9 billion in the second half of the year, which is a significant improvement on the first half. The sort of big customer wins we have, I think, reflects the diversity of what Global Services does. And you'll hear a lot more from Luis later about that. But companies such as Media Markt, big, new contract with them, now a very important global retailer; AstraZeneca; and Rolls-Royce was a very good win for us, very pleased with that; and also, a new long-term deal with Cornwall County Council. So it gives you an idea of some of the big deals we've done. Operating cost, excluding transit, down 4%. Again, that's an improvement if you look for the year as a whole. We're down about 6% in operating cost compared to about 1% last year. That sort of improvement is what we need. And I think it's a sort of cost transformation that we've been doing in some -- in the other parts of the business. So it's a good step up. Operating profit in the full year, not a big thing, but it's a milestone reached. I think far more important is that EBITDA minus CapEx was up over 50% year-on-year, so that's the improvement. And operating cash flow, what we said going into the year, we knew there will be a working capital drag. You see that in the number, positive GBP 6 million. But clearly, and that's the theme of the presentation at least we're making, the overall financial performance remains behind Global Services position as a global market leader.

On our Retail business. Retail revenue was flat. Again, that's a significant improvement. That's the best performance for 18 quarters. Consumer was flat. Business was flat, again, both with very good performances. Net operating cost, down 1%. That's not quite the reduction you're used to seeing in Retail that's been doing for 7 years, but 2 facts behind that; one is improved revenue performance. So obviously, you've got cost of sales going with that. But secondly as well, and Tony mentioned it, some of the upfront investment we're making in Sport [ph] . Broadband number is very good, 48% broadband market share, 136,000 adds in the quarter, and another record quarter for fiber, 211,000 adds in fiber; 40,000 BT TV net adds. And that means our TV adds in the quarter were more than twice Sky and Virgin combined. So even before the launch of Sports proposition, we saw good improvement there.

On Wholesale, a good quarter as well. I mean, the critical number, I think, is 2%, 2% improvement in underlying revenue excluding transit, 2% improvement in profit. That is a big improvement on where Wholesale was just sort of 18 months ago. And I think you've seen, despite a business that still remains challenged by changes in regulation, changes in technology, it is remodeling itself. And you see that in its order intake, GBP 2 billion order intake in the full year. Now it renewed its contracts with all of its major mobile operating partners. Now, of course, if you signed, for instance, a 10-year deal with O2, as we did in the quarter, you don't tend to sign that every quarter. So that's a big number, that GBP 2 billion. But it does, I think, reflect a successful new strategy. More about that later.

Openreach. Openreach, I think, had the toughest quarter, regulatory price changes taking GBP 50 million off the quarter. That's about GBP 200 million off the top and bottom line for that this year; however, growth in Ethernet and fiber; operating cost down despite recruiting more engineers -- and that's some of the efficiency programs coming through and some quarterly fluctuations; good increase in physical lines. Earlier in the year, we saw the line number is actually not increasing in the way that they had done. And the reason for that was because, actually, we had an increase in provision work stack. That's largely gone. And you see, actually, a better underlying position. So copper lines are growing for the year. Again, the death of the copper line is clearly not happening, quite the opposite. And fiber, very good use on fiber, 270,000 premises connected, over 15 million rolled out, 1.5 million in total connected. More than half of that happened in the last year in terms of the 1.5 million connected, so some really good numbers on fiber and a lot more to do.

So that's the lines of business. I said we'll go through in more depth later.

On the pension, I know a number of you are speculating about IAS 19. The GBP 4.5 billion deficit was a couple of hundred million pounds more than the previous quarter. Now this is a story of, on one hand, the lowest ever real discount rate. And that is what the accountants use for calculating IAS 19. And I've said to you before how my view of that particular accounting standard, but it's the one we've got. And it has to put in context. We've got the highest ever asset volume, GBP 41.3 billion. We've had very good returns in the year, twice the number that we had expected in the plan, 12% returns. However, that discount rate is the thing that impacts the overall net result.

Another way of looking at this, not IAS 19, and it's not the actuarial methodology, but just saying -- look at the returns that you'd aspect from the assets you hold. Those returns are published by independent actuaries as to what returns you can expect for different asset classes. If you apply then the assets we hold, you've got a surplus of GBP 1 billion. Now as you stress the trustees and the scheme, we'd use that method because it's going through a lot continuously over and above that. But that effect is the economic expectation. To put it in context and, particularly, for those of you on the buy side when you think of your own funds' returns. In order for the scheme to break even, it will require a real return of about 2%, get that, around about 2%. And that puts it in context. The government, I think, recognizes a number of the issues around the quantitative easing, what it's doing interest rates. And there's been a number of announcements to come out in both the government and the pension regulator recently, suggesting they recognize they have to look at this, I think, at a slightly more flexible way. We'll see how this turn out, but it's something, obviously, we're keeping an eye on.

So before I go on to our 3-year plan, our strategy, et cetera, just a summary. Really, just as Tony and Mike said, good progress. We're delivering what we said we would, growth in profits, growth in dividends. And we are making the investments at the same time. But a phrase I've use before and a phrase you're going to hear again, there is, of course, more to do. And we're going to talk about some of that more to do.

But before we do, it's worth looking back and saying, "Okay, what did we say 3 years ago?" And let's be clear. We didn't hit the revenue target we set out. Why didn't we hit it? The economy was worse than we thought it was. Regulation was tougher, and we didn't execute as well as we would like to have done in places. So we didn't quite get there. However, there is encouraging -- Q4 was certainly encouraging. EBITDA, we beat that number quite considerably. We said we'd grow. We grew 5%. Cash flow, if you take adjusted, take it normalized, take whichever number you want, we beat it by some considerable margin. And we said dividends will be progressive and they've averaged 11% growth over the last 3 years, which, I think, under anyone's book, is pretty progressive.

So that's what we have done. What are we aiming to do? Well, on revenue, we just kept the previous guidance, which is that this year should be better than last year in terms of trend. More importantly, in terms of EBITDA, Tony is taking you through the EBITDA walk. We're, of course, impacted by the restatement for the new IAS 19 that's come out. But fundamentally, the improvement in the business is paying for our investment. And then as you start to see some of the benefits of that coming through, you'll start to see good growth in EBITDA. Even more important, and I always felt this is the key number, which is normalized free cash flow. We said we'll hold it this year at around about GBP 2.3 billion, but you'll see significant growth in the following year of GBP 2.6 billion and growth the year after this. We believe BT, as a company, can provide long-term, sustainable cash flow growth. We've said that before. We will say it again. This is the fundamental nature of what we are doing. And to recognize that; dividend, we -- also, we increased the dividend by 14% this year. And we retain our range over next 2 years, 10% to 15% growth. At the end of that period, it will still be a very well-covered and very safe dividend. And as Mike said, we still aim for progressive dividends.

So that's about us. What about our markets? And I think one of the key factors of our markets is every one you look at, is demand. Section of calls, actually, demand is increasing. People are using more data. Whether it be smartphones, whether it be cloud computing, whether it be video-on-demand services, they're using a lot more data. And that plays to the strength of fixed networks. It's one of the reasons we're seeing an increase in fixed lines because people need fixed lines for that sort of data. And I think that's a real opportunity for us. Also, that growth is not just in the U.K. It's not just in Europe, but it's particularly strong in the fast-growing regions. And for us as an industry, the issue is actually, therefore, not volume. It's pricing. We will sell more. The question is, what the price of it will be?

And on the subject of pricing, well, this is one of these good news, bad news slides. The bad news is that U.K. -- if you're an investor, the U.K. is probably the most competitive market in the Western world. The good news is it already is. And these are Ofcom charts; these are not our charts. In fact, all the things we'll show you will be in terms of market charts are external charts. And what it shows is the U.K. is the cheapest market for land lines, for fixed-line voice calls, it's the cheapest market for broadband, and it's the cheapest market for superfast broadband, much cheaper than our big competitors. I mean, notice how much cheaper it is than the U.S., which is -- I don't think there's anything that is cheaper in the U.S. It isn't telecoms. So we're already in the position that U.K. is. And if you're going to see any sort of price convergence, that, obviously, is better for us. What is interesting, if you look at this for pay-TV, you get a very different answer. The U.K. actually is one of the most expensive markets in -- and certainly among the big Western European states. Well, at least, it was. Perhaps, it might change due to recent announcement.

And that's not just price. Also, the U.K. is in a pretty good position in terms of speed. This wasn't true 3 years ago, but the fiber rollout program has made difference. The U.K. is now -- this is a chart by Ookla, who measured these things and particularly used by the FCC, actually, in the States. The U.K. is now the second in G8 in terms of speed. And if you -- if I showed you the chart over timing, you will see that U.K. just increasing at very quick rate, really reflecting the fact we've got the fastest fiber rollout program in the world. So we hope that will carry on improving.

And also, it's not just speed. It's not just price. Also, the U.K. is a very Internet-intense country. I think a lot of that is fueled actually by the success of deregulation, success of the competition in the U.K. But the U.K. ranks very highly. Look how it does. And that's a chart by BCG. So the U.K. is in a good position in that sense, and our position not just in the U.K. but in other markets. We sit in the fixed telecoms market, challenge on price. We've got volume and demand. But convergence is happening and we think -- we will show you. We've got real opportunities in other markets that we've got a very low market share in. So on pay-TV, a little market share today, a little, as we've said earlier going at quite a pace; IT services, little market share; and mobility, we think we have real opportunities there. We'll say something about all of these.

Our strategy. How does it fit in within that market context? Well, this is the same strategy chart you saw 3 years ago, not because I can't be bothered to put up a different chart; this remains our strategy. It hasn't changed. It's the right strategy. It starts with customer service delivery. The reason why it starts with that and with process improvement is, a, of course, customers like better service. That is absolutely true. But, b, cost of failure; getting it wrong for the customer is the major driver of our cost base. And if we can remove cost of failure, then we can improve our cost base, one of the key drivers. That's why we target -- and I'll talk about it shortly, right first time, very important for us. But that leads on to cost transformation. The cost transformation that we've done frees up investment to invest in the future. And I'll talk about how we're doing on each of these things and how we are driving that better business, the better base to also investing in our future and how that future investment is going growing, and in the lines of business, we'll talk in more detail about what it means to them.

So customer service delivery. We work -- this chart on the right-hand side, as you look at it, shows right first time improvement. And we saw over until this year, very good improvements in right first time, i.e. we were taking failures out of the system, cutting our cost and doing better. We didn't do so well this year. We actually did quite well up to June. We saw improvements. And then the weather struck, and it was the worst rainfall in England, ever. It was a bit better than that in Scotland, in Northern Ireland, Wales or Western England ever. And it affects us and, I think, also affects us for too long. We need to learn some lessons about how we respond into these things across our business, not just in engineering but call centers and the like. But we will learn these lessons. And interesting, already for this month that we've just had our net first time, actually, we've pulled back more than half of the decline last year. So we are seeing improvements. But that's actually in the issue in the main U.K, our consumer and SME business. Actually, we've got some very good starts elsewhere. So in Global Services, recognized as being a market leader in terms of service, and it's improved its service and done very well. And that has been recognized with customers. It's not perfect yet. Nowhere in our business is perfect, but a good improvement. Also, it's worth calling our Plusnet. Plusnet keeps on winning awards, broadband choices, uSwitch, things like that for overall value and customer service. So we do have some really good spots in the business. But also, we're a lot better than we were a number of years ago, just not as good as we could be, not as good as we should be.

On cost transformation. Well, we've achieved GBP 4.7 billion net reduction in cost. If we weren't investing in our business in fiber, in TV, in Asia, et cetera, et cetera, that number would be bigger. But that's a conscious decision to invest in the long-term future of the business. And that improvement in our cost base absolutely gives us a better position to compete in the marketplace, whether it's Global Services, whether it's Consumer, so in those things like we did yesterday. But also, we recognize -- and Tony will take you through a separate presentation on it, the more opportunities ahead, take you through some granularity of some of the areas we see some real opportunities in.

Now looking at where this cost transformation and the investment effectively allows; where it's coming from. First area on the strategy chart is driving broadband-based customer service -- broadband-based consumer services. I think the chart is interesting on the right-hand side. We have continually grown our overall market share. Whether you include cable or don't include cable, we've seen continued strong growth. And I think that compares very favorably with a number of other European incumbents. And I think the way we've reinvented our proposition in broadband despite the very intense competition from Talk Talk and from Sky, I mean, these are big companies with big brands, and we've done pretty well in the marketplace. TV, over 800,000 customers and it is growing fast. It's doubled it's seen double-digit growth over the course of the last year. And so we're seeing good progress there. And WiFi hotspots, 5 million WiFi hotspots. We did 13.5 billion roughly, minutes, of WiFi last year. Now the last year, I was in Retail. I remember being overjoyed because we did 5 million in a week. It all seems so sweet now, 5 million to 13 billion over the course of 5 years, an immense change. And it really does highlight the increased use in data and why people like yourselves, anytime you can, look for WiFi. And -- but there's also other areas, other growth opportunities. We're in the early days of fiber broadband. We may have record quarter after record quarter in terms of growth, but we're still in early days. We're covering just over half of the U.K. We can do a lot more. And we think we can sell a lot more. And there is that relationship between TV and fiber and a number of other services. So you'll see more coming on TV to support that, and Gavin will talk a lot more about that. And also, in wireless services; it isn't just WiFi, 4G, and we'll will say something about 4G and some of the things we think it can do. It's worth also mentioning the SmartTalk. If any of you are BT customers, hopefully, most of you are BT customers, and you've got iPhone or you've got Android phone, you should really download SmartTalk. It can save you a fortune particularly when you're traveling abroad, call home and also save a fortune calling 0800 numbers, 150,000 downloads. It's got great reviews online. It's an example of how we can make our proposition just richer.

SME sector. We said we want to be the Brand for Business. The reason we said that was, a, there is no Brand for Business; there's no go-to place. But also, the chart on the right-hand side. We may have a 37% share of fixed voice and data and these different measurements that can be brought in some measurements. But we've got a good share. But we've got a very low share of voice and IT services. And we're growing that share. We're growing them in both places. Whilst we're holding our position in fixed voice, we're growing our other share. So it's been a difficult SME market. But actually, we managed to show we were stable. Last quarter we showed a good result, and I think we've seen a continued improvement in our SME customer base, opportunity really to grow in adjacent markets. We also think big opportunity with Infinity for Business. It's a product that's very suitable for businesses, provides high bandwidth, really at very good prices, allows them to do a lot. And on mobility, we'll say something about that in a second. But also, IT services had double-digit growth last quarter. We are really growing. I think it took us a while just to get the formula quite right, but I think very encouraged by performance of the last quarter.

And Global Services. We said we want to be a global leader. But on one hand, we are, so strategic thing succeeded. And that's recognized by the industry. It's recognized by the chart, I think, you've seen before, which is a Gartner chart. Gartner are, I think, the analysts that most IT directors look to and top right, at the top, BT Global Services. So you see what we've achieved. The challenge for us is not do we have the customer base, not do we have the product range, not are we growing in high-growth regions, because actually, the answer to that is all of it. It's making sure we have the financial performance and efficiency to match that position as a global leader. And that's very much the aim, and Luis will talk you through that.

Wholesale. We are the wholesaler of choice for HIB [ph] . We're their largest wholesaler in Europe, strong customer base, over 1,400 CP customers. As I said earlier, the wholesale market has been changing. Probably, all of our market has had to withstand the biggest change in terms of technology, in terms of regulation, in terms of change of customer base. But it's an invested area, such as Ethernet. It's invested in capability of managed services. So you see that in the contract; and also, in mobility, supporting mobile networks as they roll out because they all look for fiber lines and for IP. And on the subject of IP, IP Exchange. Nigel will talk about that in a bit more depth later, but it's another example of where we spent money about 3 or 4 years ago. We said we can see a future opportunity. It's a GBP 100 million-plus business today, and it's growing at a very fast rate.

The final area in terms of our -- of what we do is being the best network provider. And key area of that is, of course, fiber, the fastest rollout in the world. It's been very successful, 18 months ahead of schedule in terms of delivering to 2/3 of the U.K. We should do that by spring 2014. And we think there is a possibility -- capability of getting to more than 90% of the U.K. in the next 3 to 4 years. As Liv will talk about, we are certainly not finished on speed. We think there is many new things coming on speed. But also, take-up is very encouraging. There's a chart on the right-hand side that shows the different phases. And actually, what you see is 2 things in that chart. One is how we don't seem to have reached the top of an S curve yet. We seem to be increasing a pretty linear rate in terms of take-up with different phases; but also that the new phases seem to be doing better than the previous phase as we're learning more about how we bring it together, how we market it and also how we identify the areas of good take-up. So we are encouraged. And we know, a number of years ago, this was a risky investment -- a particularly risky investment at the depth of recession. But so far, so good, and it's one of these odd investments that seems to be under-budget, ahead of time and demand we're very pleased about. So that's good.

But the other bit of network is actually about mobility and offering that. And we spent slightly over GBP 200 million on 4G spectrum. We require -- we acquired a lot of spectrum for that. We're pleased with the outcome of the auction. And we think this presents opportunities for us in consumers, for businesses and also machine to machine, as I said, combining it together with a WiFi state and a fixed mobile proposition. It is very much an inside-out network. And that makes us different from other providers. Mobile network operators, of course, are doing outside, and that's great, and that's fine. But people tend to use the device for more high-intensity downloads when they're on their pods, when they're indoors. And we think that presents a great opportunity to combine WiFi, to combine 4G and give basically, the best connected when you're sitting down, when you're in home, when you're in your business, when you're in a train station, when you're in the airport, real opportunity there. We will give some urban capacity where it's needed. But also, we think we can use it as an opportunity for areas that can't get fiber. Clive will talk about that later. We've been trialing out a little village in Suffolk just to see what they can get. And Clive will -- certainly will talk about his experiences down the pub, who are very pleased about the WiFi coverage. What that man does for our business.

The one thing I want to be really clear, just to reiterate, we are not in the business of building another macro network. That's not what we think we should do. We think there's quite a few of them already. We are in business of using our indoor capability, of our -- the connective nature, the fact we've got our own bat call, effectively coming from people's homes and offices to connect people indoors. When they're outdoors, they can roam on someone else's network. That's why we commissioned ITT to look who will be our best partner for that. So it's early days. We've got a lot of other things going on, but we're carrying that on. We're doing trials just now. And I think over time, we'll give you some more details about some of our plans on 4G.

I talked about what we were doing. The thing I haven't covered and I really haven't talked to you very much about before, although we -- it is contained in our annual report over a number of years, is how we do things. Because that's really important. And it's important for a few reasons. One it's good to do good. We believe it's important to be a constructive and positive member of the societies in which we operate. But it's also important for other reasons, important to our customers. A very large number of the big contracts actually want to know they're dealing with a sustainable, responsible partner. It's important to our Consumer customers, the small business, because they want to know they're dealing with a good and ethical company. It's also important to our people. One of the things that determines engagement, a really important thing, is actually, people want to feel they work for a company that makes a positive difference. And we think we do. And we set what we call our North Star Goals, 3 really big targets for the future. And there are things that only BT can do. And the first of this, very obviously, is we think it will change the U.K. if we can connect the U.K. with fiber. So we've got a target to -- before the end of this decade and we hope to do it well before the end of this decade, to connect more than 9 out of 10 homes and make fiber available to them. That, I think, is really important. It will allow the growth of health service, home education. It will connect people of all ages and all sort of strata in a way they've never been connected before. Only BT can do that. And perhaps, only BT is prepared to do that, to be more appropriate. Second goal is about carbon. Just now, BT roughly saves its customers as much carbon as it uses. And we do use a lot of carbon. If you think you pick up your phone and it's actually always connected to Big Data centers. But by virtualized data centers, the provision, for instance, of conferencing facilities, and Gavin will talk about our audio and video conferencing facilities, we save our customers a lot of carbon. And we've got new things that we think we can do that can save our customers even more. So our aim is not to be carbon neutral. We're sort of just about there. It's actually to be a net good. That's why we call it net good actually to save our customers 3x as much carbon as we use. And that move in carbon also has been very important for us. A, it gives something -- it's a great thing to sell to our customers. B, actually, we're saving quite a lot of money because we've cut our electricity assumption ourselves because there's 2 bits to that equation: use less carbon ourselves; and on the other side, save our customers more, good for the environment, good for our business. And the final goal again reflects the fact that only BT can do this. It's that we want to raise GBP 1 billion over the next decade using our people and our networks and our capabilities. A good example, for instance, is BT MyDonate. It's a site we set up to take donations. We do not charge the charities for doing that as opposed to some of the other companies where the charities have to pay for it. So we save the charities a lot of money. It may cost us a few million pounds here to run, but we can save charities a multiple of that. Also, our people are volunteering for telethons. I think we had 9,000 people who volunteered from recent telethons. So it's great the way that they always beam up to the BT -- to top of the BT tower and all these people answering the phones. We set up all of that. Our people volunteered to do that. Disasters Emergency Committee website, we did that as well. So around the world, our people and our networks and our capability abroad, they're raising a lot of money for good causes. And that's our aim. So what we do and how we do it are really important to the DNA of BT.

I mentioned that engagement of our people was a really important part of that. And I want to say something about our people. We recognize that BT is on transformation. It's absolutely vital that our people come together and actually increasing our power in that transformation. There's a number of things we are doing to help that. I think BT has changed a lot over the last few years. But we've relaunched -- our set of values, frankly, are a lot more relevant to our people, very simple. And they're up there at the top, customer. We've got to really focus on the customer. As a team, we actually do a lot better. Team BT has a reputation, still has some problems being a little bit siloed in places. Working together as a team really could improve that. Honesty; hopefully, you see it in our presentations because we're trying to have the same values externally and internally. We actually say -- we call it out when we haven't done very well. We try and say to you where we think we can improve. That's what we're trying to do in the business day after day after day. As I say to my team, it's their job to tell me how they can improve. It's my job to tell them how well they've done, not the other way around. And that, through our business, we have to be really clear about that. Any business that thinks it's perfect can't improve. And honesty is really important. Change is also really important. It is vital that every part of BT, every person feels that they are responsible for making things a bit better for changing the things to better and actually having pride in BT, having pride in the difference we make. And that's our set of values. And to help our people live these values but also help them to deliver the sort of company we're trying to be with a better future, there are number of things we're doing, first of all, increasing skills. We're setting up what we call the BT Academy, really taking our learnings, and we don't mind taking learnings from other places, from the professional services down to the really excellent at creating a common set of training, a common set of terminology. So actually, people understand things exactly the same way. And that will be core. So we deliver better training in leadership, in skills, in accredited learning. And also, there are people who feel that part of their promotion path is actually to be tutors and lecturers in these academies as well. But we're multi-skilling our people. Convergence means people have to be trained in more and more things. So there's a lot of work and effort go into multi-skilling and giving our people the tools to do that as well. We're investing in new jobs. We're taking people from the Armed Forces, new apprentices, in-sourcing as well. I mean, we in-sourced 4,000 jobs last year. We recruited 3,000 people. As a business, we are changing the mix of what we do, and empowering our people and making them feel that they can improve and change. I mentioned that earlier. It's really important. One of the things we run as an example of that is the My Customer Challenge Cup. About 700 teams compete from all around the world, come up with their ideas how they can save BT money, how they can improve customer service, how they can help grow the business. And it's a very effective thing. And this year's cup is in Monte Carlo. The finals was held with between 10 teams this year in Monte Carlo. And we -- every year, when we launch this, we have a short film that shows what we do to encourage people to participate. And we thought, given it features all the members of our operating committee, the best way to introduce the next action was maybe to show you this film. So, can you run the VT.

[Presentation]

Ian Paul Livingston

[indiscernible] top suggestion. It's certainly a different way of introducing the rest of the day.

And so my last slide before we do. Look, in summary, our plans are based on the assumption that there will continue to be pricing challenges, that the economic challenges particularly in Europe will continue to be there, that there isn't suddenly some massive growth. But they also recognize we've got a lot more to do in customer service, in cost transformation and also investing to support our future. We think we have real growth potential, growth in revenue, growth in profit, growth in cash flow and, of course, growth in dividends. Our strategy, to date, is delivering. It's the same strategy. And we've got a lot more to do. And there is a lot more we can deliver now. And we're in a better position to do it.

With that, I'll be delighted to take questions and answer. There will be also a chance for question and answers after each of the sessions later. So I may well -- you may well save some of the more detailed ones for the lines of business until then. But as usual, if you put up your hand, say who you are, where you're from, and the microphone will be running its way to you.

Question-and-Answer Session

Nick Lyall - UBS Investment Bank, Research Division

It is Nick Lyall from UBS. Could I ask 2 questions? First, on the pension, you mentioned potential remedies for investigations at least by government and regulator. Could you tell us what remedies you would prefer to any prominent discount rates and liabilities for the actuarial review, please, for June 14? So what your submission would be to that? Any debate? And secondly, what assumptions do you make really on BT Sports cost and revenue in the guidance, if you could tell us? You mentioned pricing as well at the end there. What do you assume in terms of the fight back from Sky in particular?

Ian Paul Livingston

On pensions, I don't know if Mike would want to add anything. But look, I think in pensions, we would say the important thing is to recognize we have a market that has been dislocated by what's happened on quantum easing. I understand the need, reason for quantum easing but I don't think that there is anyone who thinks that gilt prices today represent a reality. And it's interesting that the general pension regulator has, for instance, warned trustees against reckless prudence, which was a lovely phrase. And so our submission is there should be a recognition of the fact that gilts and bond yields aren't a sensible way, and you should look at the -- at a sensible asset mix. And that would be really important, as well as infrastructure and other things to really get the mixture. So we'll see what happens. I mean, we've -- it's a long way away, but I think there's a recognition for a number of companies, this is a number scheme that's an issue. But Mike?

Michael Rake

No, I mean, I think that's right. I think there's a total disconnect right now between interest rates and inflation in simple terms, and I think the objectives set for the fact that the pension regulator were too narrow in terms of the pension protection fund. I think the government realizes that. And hopefully, taking a broader view of this will not damage industry, which is the risk of what the current narrow interpretation has.

Ian Paul Livingston

I mean, on the Sport. It's easy to try and pin this as convenient as a nice media story as BT against Sky. As I said in the presentation, we think there's a real opportunity to widen the market. I think you can probably guess that if our price was free today, the chance of us having a further price cut would be limited. And we think there's a lot of people who want Sport, who want more choice today. And I'd ask Gavin to say what's out [ph] there in a second. But that they can do a lot more -- that we can -- that -- because penetration in U.K. is just over half of households who have pay-TV, I think less than half of them actually take sport. And that is low by a number of international standards. So we think there's a real opportunity to provide sport and other entertainment to people who don't want to spend GBP 70 a month, are now spending GBP 70 a month, and we think there's an opportunity. So around the broadband and critical to our business plan is saying it's not about stand-alone TV channel, it's about totality of a communication proposition. Gavin, do you want to?

Gavin E. Patterson

The only thing I'd add, Nick, was -- to answer your question on retaliation from Sky. I'm sure they will have a go back. They're bound to. We respect that. But this is a battle that's on many, many fronts, it's not just about TV, it's not just about sport. We think we've got a very strong proposition and fiber. I'm sure you'd have noticed that in the week we launched the latest hub that brought new innovation there with a dual band, improved wireless connectivity in the home, and you will see us doing interesting things in 4G as well. So I think the battle is on many fronts. I think the net-net is we feel we're well positioned to really compete.

Unknown Analyst

It's Andy [ph] Redburn Partners. I just had a question on restructuring charges. You're talking about GBP 400 million, the bulk of which will be taken to the -- for the upcoming financial year. Is that a cumulative restructuring cost over the 3-year period, or can we expect the similar GBP 300 million, GBP 400 million ongoing every year for the next 3 years?

Ian Paul Livingston

Tony, you want to?

Anthony Everard Ashiantha Chanmugam

Yes. The GBP 400 million is just for mainly '13, '14. You get benefits, GBP 200 million a year. We have no further plans for any further restructuring in terms of where our guidance is at the moment.

Ian Paul Livingston

Do you want to pass it along the row?

Stephen Paul Malcolm - Arete Research Services LLP

Steve Malcolm from Arete. A couple; one on regulation. Just looking at your waterfall chart, Tony, you're assuming a similar impact through '14, '15. Do we assume that you're sort of continue -- expect continuing 3% or 4% decline in copper prices? Or just give us some color on what your expectations are for the cost of copper view within the guidance that you've given would be very helpful. And secondly, just on the announcement yesterday, obviously, there's no wholesale deals there. Was there ever any intention to do wholesale work? For instance, is Sky simply asking for too much money? Might that change in the future? Can you just give us a little color on how you came to this decision and how we might think about it going forward?

Ian Paul Livingston

I'll get Tony to talk about regulation in a second. First of all, on the wholesale deal, we've gone -- we've been very open to the concept of wholesale, and I think Sky have had more a, shall we say, a philosophical issue with the concept of wholesale. We've, of course, been a wholesaler for a long time, and we have no problem with it. And I think as I said to you when people have asked, there's a number of different scenarios we run. I think I've got to say with Virgin, I think they have far less than philosophical problem at all. I think it may just be about pricing, discussions continue. We'll have to see where they go. It may well be with various other players who want to consider buying our service wholesale that they have to see the quality of it because I think they don't realize just how strong it is going to be. I think they got an idea of it yesterday, but perhaps really have to launch it. But as I say, we have scenarios that have no wholesale. We also have scenarios that have wholesale. We know what it's worth and what the price is, and we have no philosophical problem about wholesaling. On regulation, Tony, you want to?

Anthony Everard Ashiantha Chanmugam

I think we've made our estimates associated with what we think is going to happen over this -- the next 2 years. We've given our guidance in line with that. I think that's all I can say.

Ian Paul Livingston

And do you want to pass it there, and then we'll go if you can -- then go down there.

Stuart Gordon - Berenberg, Research Division

Stuart Gordon from Berenberg. I was just wondering whether you could provide some color on churn within the broadband base, both in terms of directional, perhaps roundabout where you are just now. And is the goal to get down to sort of the Sky levels of low teens and in terms of churn as one of the levers that you're looking to use?

Ian Paul Livingston

I'll ask Gavin to say something, but direction, I think in general terms, we tend to think the best that we do is actually give net adds numbers because churn is one of those things where people have different definitions; when someone moves, how does one choses, is that churn or not. And I think you may find if you look in depth at different companies, you would find a certain lack of comparability in the churn numbers. So the thing that shouldn't be an argument -- how many customers you added, and that's the one we tend to go for. I mean, in terms of directionally, in terms of how people who have got triple play and who use things like WiFi, Gavin do you want to?

Gavin E. Patterson

Yes. I mean, it won't come as any surprise to you the more they use the products, the lower the churn. And to give you some examples, Infinity churn is several points lower than copper churn, and even looking at cohorts that we've acquired at the same time. So that's how we track it so that we recognize that Infinity is a much younger product. It's the same with WiFi. Customers who use our WiFi outside of the home have several points lower churn than those that don't. So it's about, I think, driving penetration, and driving usage of our products and ensuring people get a better value as good a value as possible from that.

Guy R. Peddy - Macquarie Research

It's Guy Peddy from Macquarie. Just 2 very quick questions. Firstly on the 2013, '14, '15 free cash flow uplift you're targeting, is it safe to say that -- obviously, there's the EBITDA driver of that, that you are looking at. Is the other part of working capital wind up BT Sport's that's going to be a drag next year that is the driver -- a more positive driver the following year? And secondly, if we look across what's happened in some of the European markets, when there's been this competition on TV and broadband, certain operators have gone from more aggressive bundling of mobile, i.e. more of a consumer, for example, to voice, et cetera, mobile products rather than just essentially a WiFi product. Do you feel that as a competitive response that what you might do is actually engage some of your competitors to go more aggressive in mobile? And then how would you actually compete with that if mainstream mobile became a central part to broadband bundles?

Ian Paul Livingston

Well, the mainstream mobile companies have been trying now for quite some time with not a stunning degree of success. Vodafone withdrew from the market to try to sell broadband. O2 have just sold a base and -- which is a shame because they were good contributor to market share adds. And so it's not been an outstanding success as I have said. There are packages of -- if you put things together. And certainly, Spain is a good example. But what they did in Spain; my understanding is EUR 220 or something off the price of the package. That made it more attractive, but they could have taken off anything. The Spanish numbers, as you see, up in the chart, and Spain is an expensive market. So I think U.K. is already in a good place. We think there's opportunities with mobile, fixed mobile convergence and things such as SmartTalk. We think there's real opportunities in some of these areas. But I think it's unproven that it's a must-have package in the same way that we think TV, broadband, calls lines tend to go together. But we have that opportunity probably in a way that no one else does actually because Sky, and now Talk Talk dissipated in the auctions. They might team up with somebody, no question about that, and see what happens. But so we'll keep an eye in the market. We will launch our converged offerings, as I said, over time. But I think that probably TV is the main area. In terms of '14, '15. I mean, I'll ask Tony if he wants to add anything. But I would say, you shouldn't think of it as a bounce back in working capital. We won't have the same drag in '14, '15 that we have in '13, '14 because we have to pay upfront for a big chunk of the sport. That's -- and we did mention before that the cash flow impact to sport, we talked, is more in '13, '14 than they -- than '14, '15. But Tony?

Anthony Everard Ashiantha Chanmugam

We've got a GBP 300 million uplift in our cash position. We've said our EBITDA will go up circa GBP 200 million or so. You've got movements in terms of cash that will help in relation to tax and interest payments combined, combined because of the way our debt's profiling and in fact the way we're reducing our debt, and there will be some impact in relation to sport that Ian talked about, but primarily driven by EBITDA growth.

Ian Paul Livingston

Okay, if we can go along -- if you can pass it along and then also give it to someone over there.

John Karidis - Oriel Securities Ltd., Research Division

It's John Karidis from Oriel. Firstly, what would be your counterarguments to Talk Talk's charge that maybe BT is engaged in margin squeeze? And more generally, do you worry that in fiber, you're maybe being too successful to quickly and therefore, Ofcom might be attempted to look closer at the price you charge for wholesale access to fiber?

Ian Paul Livingston

Well, I think our simple answers to margin squeeze is, no, we're not. Yes, it's a bit disappointing, sad, actually in some ways the company that set up supposedly on the back of their low priced broadband is now trying to go to Ofcom to get other people to raise their prices because we know the wholesale price of our fiber offering compares, and you guys are analysts, compares very favorably to the rest of Europe. We know it's a double-digit year return. We know that Talk Talk et al. have been rather hesitant -- no, actually wrong word, have not put any of their own money into it because they obviously don't like the fact they can't make a very quick buck in it. So no, we don't think it's much of a margins squeeze. Are we being too successful? That's a charge we'll have to cope with. And I think Ofcom continue to recognize that there's other alternatives. They've been pretty clear up until now on this issue. And if we had cost-orientated obligations, in our view, the price would go up in terms of the wholesale price. I think Ofcom and the government are pretty delighted with the progress in fiber. And the rest of Europe actually is now looking at it and saying, "The U.K. model looks a better model," and that's why that EU came out with some proposals that very much resembled the whole U.K. model. Mike, anything?

Michael Rake

No, I mean, I -- that's it.

Andrew Lee - Goldman Sachs Group Inc., Research Division

It's Andrew Lee from Goldman. Just a couple of questions on TV and mobile. I wonder if you could talk us through how you're going to judge the success of your TV strategy announced yesterday. And secondly, there seems to be a nuance there. It's trying to drive demand for fiber across the broader marketplace. I wonder if you could talk about how you think that could play out. And then in mobile, just following on from previous questions, you say convergence is happening. I just wondered if you could give your thoughts on the corporate benefits to BT. Do you think this will entail over time building a scaled mobile business? And just within that, I know you said you didn't want to build a new network, but do you think in that instance, it will be better to own a network than to just be an NBNA [ph] ?

Ian Paul Livingston

I think on the second one, we -- having brought the spectrum, we've got options about what we do. We said we didn't we want to build another network but we certainly think we can provide huge capacity indoors. So that's what we'll do and exactly the way we'll drive, and which customer segment and the propositions, I think we'll wait and see. The way we'll judge our TV strategy; very simply: are we growing the top and bottom line in our consumer business? That's what success looks like. Next here, and then we can go down there.

Carl Murdock-Smith - JPMorgan Cazenove Limited, Research Division

Carl Murdock-Smith from JPMorgan Cazenove. Yesterday, you made some headline price cuts for new customers on your low-end copper and Infinity broadband packs. I was just wondering at the moment, what percentage of customers currently take those bottom impacts, and also, what's the actual price cuts, in your opinion, once promotional activity and special offers are taken into account as well? And then secondly, just on the GBP 400 million of specific items, I was wondering if you could provide just a bit more color on the kind of buckets of spend within that.

Ian Paul Livingston

I'll ask Tony to talk about the specifics, and I think we should be a current voter [ph] . All our offers are special. This is just another one. And I think, Gavin, do you want to talk about the outstanding value we offer?

Gavin E. Patterson

Indeed. I mean, I'm reluctant to give you the specific mix. I will say in both cases, both in copper and fiber because we relaunched the whole of the copper portfolio in February with a totally unlimited service, the majority point of sale are taking the higher tier.

Ian Paul Livingston

Tony?

Anthony Everard Ashiantha Chanmugam

Yes. Probably 3 key components: people costs, property costs and network costs. And the people costs should be taking the context of we'll talk more about it in the cost transformation. We're making our process more efficient. We're freeing people up. As we free people up, we try and reutilize them with our in-sourcing. When we can't utilize them with the in-sourcing, we give them options in terms of how they may want to leave the business.

Carl Murdock-Smith - JPMorgan Cazenove Limited, Research Division

Just following up on the -- on Gavin's point. So just in terms of the headline price cut yesterday after the special offers -- all of your offers are special, what do you think the underlying prices cut is because obviously the headline looked really well...

Ian Paul Livingston

I think to be clear, we have different offers already there and sometimes we go between a number of months free, sometimes we go for a discount. And so I think it's an eye-catching offer, but I think you should probably shouldn't exaggerate the change it represents from some our existing offers.

Unknown Executive

I think that's a very good way [indiscernible]

Ian Paul Livingston

I think it's clear and straightforward. If we can go down here, and then we'll -- and also give it up there. So do these 2, and then up here.

James Ratzer - New Street Research LLP

It's James Ratzer from New Street Research. Two questions please. First one was just with regard to your future cost transformation. Interested to understand how the mix of that is changing towards -- is it changing more towards Global Services than we've seen in the past? Is the bulk of the cost reduction still in the kind of business x Global Services? And second question, I was wondering if I could push you a bit more on your thoughts on the Fixed Access Review that is coming up and having seen some of the slides coming late, you talked about the EUR 8 to EUR 10 recommendation from the European Union on copper pricing? Is that aligned with your kind of thinking and what you're planning for? And you mentioned fiber being as part of this review. I mean, are you expecting any change to the way fiber is currently regulated as part of this charge control '14 to '17?

Ian Paul Livingston

No, we're not expecting a change. Look, I think it will be pretty dumb of us to tell you what we had in mind about the potential outcome for next set of use. I think what is quite clear is the U.K. is low by European standards, and I think some other place in Europe are saying, "Well, actually, we should start looking at inflation, and price is going up." But I won't talk about what's incorporated in our plans and continuously that [ph] we've got. But we'll be arguing very strongly, I think, to reflect the fact that particularly given more difficult weather conditions and things like that as to why price -- why there's actually a need to recognize that in inflation. In terms of cost transformation, we said for -- on quite regular basis that some parts of our business were, shall we say, more evolved in terms of cost transformation. We've been at it for longer. I think in this particular restructuring, probably 2 years who will have the biggest change are going to be in TSO, which Clive Selley will talk about. We brought together our old operations divisions with BT Innovate & Design, and we think that would present some real opportunities. And in the networks, the back office not -- it's actually not just about people, it's about network and simplifying it. But also, we've also said that Global Services need to have the cost base consistent with the global leader. So you'll see that. So I think that will be the 2 areas. But as the heads of all the individual business units will tell you, they don't feel that their cost transformation program is finished yet. That, I can absolutely assure you of, but Tony?

Anthony Everard Ashiantha Chanmugam

The cost will be cut in all areas of the business.

Ian Paul Livingston

As you can see, he's not a method actor.

Maurice Patrick - Barclays Capital, Research Division

It's Maurice Patrick from Barclays. My question relates to the longer-term penetration of fiber. You showed a slide showing the facing of fiber uptake through different phases, where you're sort of ending up, how quickly and the rate at which your competitors or potential customers of the -- in the wholesale base will be forced to push it as well. So your thoughts on that, please?

Ian Paul Livingston

I think one of the things affecting the overall take-up rate, and I'll ask Liv if she wants to add to that, as she will be how enthusiastically deciding [ph] to push fiber. BT Retail's done well in fiber. But why? Because actually, we've advertised it very heavily. We created a brand name. We put real weight and focus behind it. Some of the others haven't, although they're selling a lot more. The smaller players have actually done that, and they're very pleased with it. So I think that will impact it. We are pleased with what we've seen to date. We don't know when [indiscernible] will happen. But we feel a lot more confident that we will hit the 20% that we set out for the first 5 years, yes, and Liv, I think, is going to talk a little bit about some illustrations around that. But it's still too early to call other than to say so far so good. But Liv?

Olivia Garfield

The one extra stuff [ph] I mentioned is then a while back, it was 90% of unit to retail. If you look at the most recent times, it's 75%. So we are seeing the external customers begin to take more and more fiber as the course has evolved.

Paul Sidney - Crédit Suisse AG, Research Division

It's Paul Sidney, Crédit Suisse. And just a couple of questions, please. Looking long term, assuming your line loss slows, would BT view that as more of an opportunity to put prices up or to push on the eventual goal of getting a line growth? And secondly, just a quick one, is there any data you can give us on the revenue per line uplift when a customer moves from copper to fiber now that you've, obviously, you got a lot of traction in the fiber products?

Ian Paul Livingston

There is a good uplift as they move both in what they take. I won't give you exact figures because, obviously at the moment, it may be a bit sensitive. But there's a very good uplift because they actually tend to trade up. They do -- they also take more services. And as Gavin said, they churn less. So all of these are good things, and it's -- the very simple reason that retail push fiber is actually they make money from it. It's really -- it's not -- I appreciate it's complex for some other companies but it's pretty straightforward for us. We sell more because we make money doing it, so that's why we're doing that. In terms of price changes for lines, I mean, the U.K. for lines and calls, a very good place overall. We -- what we will do is continue to offer a really good value. I think in particular also try and put more and more services within overall bundle. So for instance, we mentioned SmartTalk before. I think calls to mobile, as mobile termination rates are coming down, I think that presents a real opportunity to put more in. So it's actually you can increase the value but also -- to the customer but also increase the value to you. And I think that's the loss [ph] direction we're trying to push in. So we can take, I think, 2 more questions, one down here and one over there. I'm sorry on the other ones. We will have lots of Q&A opportunity as we go through. So one down here and one over there.

Giasone Salati - Espirito Santo Investment Bank, Research Division

It's Giasone Salati from Espirito Santo. I'm your new analyst, so you'll be patient if I step the wrong way. Have you discussed your price position announced yesterday with the Premier League? And do you think they will be pleased seeing the Premium product given away for free? Secondly, looking on the price comparison directly with Sky, because BT broadband tends to be more expensive, the triple packages don't end up to -- don't end up being GBP 10, GBP 12 more cheaper on BT. So it would be quite easy for Sky to give a free broadband if you want and retaliate back, just upping the content price by GBP 2 or GBP 3. And lastly, in terms of...

Ian Paul Livingston

I think probably we could do 2, I think. And then we'll have to go, and you get a chance later. Look, clearly, you've been reading the Sky press release, it just took a little longer to get out than I expected. And the -- actually we're giving sport back to the fans. I think the governing bodies would be delighted at that. At FAPL, well there, the rugby clubs have been really, really supportive of it. What's also not to like in giving it behind -- this is going to be -- this is not -- this is free for customers. It's not low quality. It's very, very, very high quality. And so I think that's great. Sky have been trying -- Sky have been mailing people with free 12 months, free broadband for quite a while and upping your pay-TV price. That's been their model, so I'm not quite sure the sort of what's new. But Gavin, do you want to add anything here, want to add?

Gavin E. Patterson

No. I mean, you put it quite concisely. I mean, it's whatever way you look at it, we're very confident that you're going to get better value from the propositions we offer. I think it's important to note yes, we have triple-play offers, and we think those will provide a considerable saving of several hundred pounds per year against Sky. But our strategy isn't just about trying to convert people to triple play now. It recognizes that many customers are committed to Sky TV. And so we've created a proposition that allows them to keep their Sky TV and save money by getting BT Sport for free. All we're asking for them to do is to switch their broadband. And in that situation, there's no doubt about it, they will save money. They even save money on the Sky chart that they've been circulating, so it's very helpful in that respect.

Ian Paul Livingston

I think we make it clear on the issue. And then, the last one, and then we will break. And you'll have a chance later.

Lawrence J. Sugarman - Liberum Capital Limited, Research Division

Lawrence Sugarman from Liberum Capital. You've given guidance on CapEx for the next couple of years. And obviously, CapEx came in below expectations on the efficiency levels. I think in previous results, discussions, you've given confidence about the longer-term outlook. I know there were some of your guidance was actually set out for 3 years. Could you perhaps give a little bit more color in terms of how things could look directionally at least beyond the 2015 on CapEx?

Ian Paul Livingston

Well, I think, the big change in CapEx is not about volume of what we're doing. Actually, we're doing more than ever, it's just we're doing it better. We expect to continue -- that trend to continue to do more, invest more in our business, but just do it better. As you look in the long term, I think one of the big changes may be is as we finish the fiber rollout program, that certainly takes a cost away from us. So as we stand at the moment, we don't see anything that would cause our overall capital expenditure to go up. I would think it would tend to go another direction. But Tony?

Anthony Everard Ashiantha Chanmugam

Nothing to add.

Ian Paul Livingston

Yes, so that's it. And so thank you, and thank you all. We've got -- want to return about quarter to 11. We have a rip-roaring program then, hear again from Tony. Lot of chance for Q&As. All the sessions, I think, have some very interesting things in it. So if you can come back promptly,, that will be tremendous, and thank you for listening and thank you for your time.

[Break]

[Break]

Anthony Everard Ashiantha Chanmugam

Welcome back. Liv has asked me to make certain that you are aware and you have a look at our vehicles outside the building. These vehicles represent great strides that we've made in relation to cost transformation and how we reduced the cost base of our vehicles. And if you want to ask the details from her, she's available and ready to answer any questions.

So cost transformation. It's been a major, major foundation for what we have done over the course of the last 4 years. We've focused on the cost base to give us the oxygen to be able to allow us to improve customer service and invest in the future of the business. And on the space of that last 4 years, we have taken out GBP 4.7 billion of costs. That's effectively 25% of our cost base, and we've done that by starting off by taking out, and you probably know the story, a lot of low-hanging fruits. You didn't need to be a rocket scientist to understand when you've got a single overseas supplier charging 3 lines of business, different rates for the same service coming out the same location. You don't need to be a rocket scientist to speak to [ph] that. But what we have done is we've evolved to take -- do things in a much more forensic fashion across BT, looking at processes and process reengineering. And we're just starting on that journey now, and we have plenty more opportunities to continue on that.

Why do I feel that? Well, if you have a look at our cost base, GBP 14.9 billion capital cost and current costs, effectively 1/3 of that is labor and labor-related costs. And I know our processes are disjointed. I know we've got opportunities to reengineer, and I know it's across all the lines of business, differing levels but across all the lines of business. You don't look at your cost of sales and what we pay overseas license operators -- on license operators for network-type charges. I know that our services aren't in the best way -- managed in the best way possible. We have got opportunities, opportunities in terms of procurement, opportunities in terms of reengineering our networks, but it is, and there are, opportunities. But I could work down the cost base area by area, and you'll see and I'll give specific examples of what we have available to us, but the key is the journey hasn't stopped. The key is there are plenty more opportunities for us to do this in a forensic fashion over the course of the next 3 years.

More substantiation for that. 2008, '09, we did some benchmarking with Mercer, and we were viewed as fourth quartile. We've worked well across the cost transformation journey, and in '10 and '11, when the exercise was done, we were in the second quartile. We've taken further costs out, but based on my assessment, for us to get into the top of the first quartile are [ph] to look at opportunities that we've got in each area, so for example, it might be viewed as we have best practice in customer care and sales but we are well on our way in terms of our marketing cost, our network operations. To get to best practice, to get to quartile 1, there's probably -- in each area, there's another GBP 1 billion. But, and this the but, even in areas where we are viewed as green, sales and customer care, I know that there are plenty of opportunities because being champions and #1 in our sector or #2 in our sector in the top quartile is not the great benchmark because the industry is not efficient in some of these areas. We have opportunity, real opportunity in those areas. And so I believe that in the course of the next few years, we can get to best practice industry-wide, and there is plenty of opportunities.

So let me go through some of those opportunities. What I'm trying to do is have a consistency. We've got 6 key areas, and if you look at the right-hand side, it gives you the scale of our opportunity over the course of '12, '13 what we've just done; '13, '14 coming up; '14, '15 coming up. I'm not going to go through each area separately, but I'm going to talk to you generically and then give you an example. So process reengineering is about understanding, and you look from an end-to-end perspective, understanding the process from start to finish, understanding the volume metrics that drive the activities within that process, taking out the cost of failure, improving the quality of what's offered, which will improve the customer experience.

Now I've talked about over the last year what we did in broadband T2R, basically the broadband repair process across the business. I don't intend to go through that again, but the savings are, roughly speaking, about 30% of the cost base, virtually all delivered now, and we'll continue to do so.

But in terms of new opportunities, if I look at Global Services and T2R on this, basically the repair process within Global Services, there are plenty of opportunities. Why do I say that? Well, if I look at where you do -- we do that work, we do some of that work, we give some of that work to third parties. We shouldn't give that work to third parties. It's part and parcel of the key IPR of this business. We will do that work, and we will do it cheaper, and we will do it more efficiently.

If I then look at, say, where we got the work located within our service centers, it is in a fragmented fashion without critical mass, and we can rationalize that, and we can put the centers into where you have got critical mass. Having centers with 20, 30 people in it makes no sense at all. If you look at the way the full [ph] reports come in and the way that products are designed, it's not designed in a standardized fashion. You've got a lot of bespoke work, and bespoke means -- it doesn't mean bad from a customer perspective because that's why we are in the top right-hand corner as far as Gartner is concerned, but what it does mean is that we're providing services in an inefficient and an ineffective fashion. So the services won't necessarily be better, but they will be more efficient because we do what we do well. If we do all of those things, I think we can get, roughly speaking, another 30% of the cost base for starters, for starters, and there will be opportunities moving forward from that.

Second area. If I look at the organizational structure. Now Ian talked about what's happening in relation to the dissolvement of BT Operate. To give you some idea of the scale, BT Operate was GBP 1.6 billion in costs, just over, had circa 16,000 people, 3/4 of which were BT staff, direct and indirect, 4,000, 1/4 third-party staff. Now the way that, that organization has been dissolved and reengineered to be merged into the customer-facing lines of business such as Wholesale and Global Services and Openreach, engineering workforce and Openreach, customer services within Global Services and in Wholesale, and then reengineered within the Operate division, has been engineered into BTID to create TSO, which Ian talked about earlier, what that meant is you take out the overlaps, you improve the process within the business and you take out the duplicate functions that you have and the management structure supporting that business. You'll see the savings that we've indicated there is GBP 100 million or so plus, simply in relation to the Operate design merger. There are further savings in relation to the other areas I talked about.

We have a number of initiatives that run through the group, initiatives that may affect all the lines of business or initiatives that may affect a group activity. I've talked about what we've done in terms of travel and subsistence whereby we took out, roughly speaking, 10% of the cost base -- just over 10%, to get down to just north of GBP 100 million. We did that last year. But we still have opportunities. We sell services as part of our Conferencing division that we don't use as effectively as we should do. So for example, the heaviest train line usage in the U.K. we have is Newcastle to London. We don't have conferencing facilities in Newcastle, shame on us, because we should do. We can do that. We can reduce the cost of what's incurred. We can do things more. We can do things much better by in terms of how we buy our services, where we use train line a lot, so long and the short of it all is, on TNS, without simply doing an cross-the-board cut, we can take out another 10% of our cost this financial year. And 10% is significant. It's GBP 10 million or so. And I'm happy to sort of feed back to you on progress on some of these areas in my presentations quarter by quarter.

If I look at supply chain activities, the supply chain that we've got is reasonable, but it's not best practice. We've not invested in the right way in terms of systems, so what it means is we've got inefficient processes in there. If we do the right thing here, I think we can get 20% savings, 20% savings by taking out the failure, by consolidating things like by buffer stock, by reusing stock. Better systems will get us better output. I'm very confident about that. Each line of business has savings and plans associated with that. This is just an example from Openreach, and then we'll talk through in more detail on fault reduction. But I'll just pick up maybe 1 or 2 of the other areas.

In fleet, by retuning the engines of our vehicle fleet, we think we can -- using new techniques, we think we can save 10% on fuel usage. And by the way, we'll also reduce our CO2 emissions by 20%. This will save us GBP 4 million, and we'll do that very, very quickly. If I look at what we're doing in terms of network planning, we have circa 700 people doing network planning. By looking again at how we do the processes, by changing the way that the shifts work, instead of having 3- and 4-day shifts, moving to 5-day shifts, we think we'll take over 20% of the people will be saved. And we'll then re-utilize those people to do work that's being done elsewhere outside BT, not all but most certainly some of them. So it's a real opportunity to improve the processes and then reuse the people and save money by reusing them as well.

In terms of our procurement, if I look historically what we've done, we've done pretty well. But as each year progresses, new contracts come into play, and we'll manage the strategic suppliers in that same fashion. So opportunities will come in as contracts expire, but, and this is a but, there are a number of things that we don't do sufficiently as we should do. We spend about GBP 700 million a year with 10,000 plus tail suppliers. These are small suppliers with relatively small sums of money. We can consolidate that more effectively. We can rationalize what we can do, and we can get better savings from that, as well as taking out items of unnecessary spend, real opportunities.

Ian talked about in-sourcing. And in the course of this year, we've in-sourced 4,000 jobs in the company. And the principles underneath in-sourcing are very straightforward. In the first instance, we think we can do those services better. In the second instance, we think we can save money by doing those services and producing a better product as a result of that. And thirdly, we're re-utilizing labor that's been freed up from our process activities. It makes sense to do so.

Some examples. So we created new call centers in Sandwell, South Town site [ph] , Accrington and Belfast, by taking work away from third-party suppliers, bringing them back -- bringing those jobs in that instance back into the U.K., making efficiency savings, maybe the blend of costs might have moved up, but the efficiencies meant, we've been able to make a net saving overall and the customer experience is better.

In terms of facilities management, we brought back in 1,500 people into the company, and we've brought that back in by acquiring Monterey, which was our service provider. We're going to take double-digit savings out of that contract, and we've already started to do so. We're also paying the lower paid staff, instead of paying the minimum wage, we're paying them living wage. So effectively what that means is better quality service, staff being paid the right sum of money for the jobs that they're doing, and we're saving money. It makes sense.

The key point though is, on all of this, we've taken out GBP 4.7 billion over 4 years. Hopefully, by giving you a feel for what's available out there, you'll get a feel for we can do some more of this. There are plenty more opportunities, and I genuinely believe if we discharge our actions well, we can make further savings of materiality.

Thanks very much. I'm going to ask Clive Selley now to join us. After Clive's finished, both of us will take questions. Clive?

Clive Selley

Good morning, everybody. My name is Clyde Selley. I'm the Chief Executive of BT Technology Service & Operations. That's the new division of BT that's been created by bringing together BT Innovate & Design and BT Operate.

In this section of the business update, what I'd like to do is summarize for you what it is that this TSO division does within BT, talk about achievements that the 2 divisions individually contributed over the past 4 years and then talk about what the challenge areas, the big objectives are for us against our key priorities of customer service delivery, cost transformation and investing for the future.

So if I start then by just describing who we are, what we do and where we are, all right. So TSO created 1st of January this year, the mandate is as follows: to architect, design, build and run the networks, the core networks of BT here in the U.K. and across the world; to design, develop, deliver, run the IT platforms of the company, again, across all of the lines of business of BT. And we're also accountable for all of the technical elements of the major managed service contract delivery as well.

So where are we and how many of us? We're very collocated in a number of large, global development centers. A number of those are in the U.K., but we have new centers, relatively new centers, in both India and Malaysia that are now growing fast. So in those particular locations, Bangalore and Kuala Lumpur, we are rapidly attracting high-caliber local talent and very pleased with the result. Actually, we're displacing third-party resource in a ratio of about 2:1 consistently now in those centers. We have global operations centers on 4 continents where, of course, what we're doing is managing the networks to underpin global service delivery, again, for every one of the market-facing units. And our research headquarters here in the U.K. at Adastral Park, where we carry out the core of our research function, we have a very large, extensive IPR catalog, and increasingly, our research model is a collaborative one. So doing ever more research with industry partners, the likes of Ciena, the likes of Intel, but there are many others, and also with leading technical universities. So we work collaboratively with MIT in the U.S., with Tsinghua in China, with Cambridge University here in the U.K.

So quick summary then of progress over the last 4 years, again, by our 3 big priority areas. On customer service, a number of achievements, but very key for me is this business of enabling customer self-service as the volume of transactions into this company grows. And we do this in 2 ways: firstly, by a very large-scale industrial business-to-business gateways where we trade with business customers and the CP community and also through customer segment-specific portals, so for consumer, for SMEs, for wholesale customers, et cetera. And just to give you a feel, those business-to-business gateways, or the biggest of them in Openreach, are now transacting about 6 million transactions every day, every day. And then at the other end of the spectrum in the consumer business, about 30% now of sales orders are placed online through bt.com.

If I move to cost transformation, the 2 divisions, BT Operate, BT Innovate & Design together, have delivered in excess of GBP 1 billion of cash saving over the period. And that's been achieved through process reengineering, through large-scale network rationalization, which, to date, has very much been focused on rationalizing the global network estates. And through these techniques, we are very pleased to have reduced our energy consumption for 4 years, 4 years year-on-year. And I do believe no other European telco has done that, and we have plans to keep that trajectory maintained going forward.

Investing in the future, a lot of work over this period on fiber broadband, the different orientations of fiber broadband, similarly on Ethernet. We have engineered the U.K. broadband network with the right quality of service mechanisms to support multicasting of linear TV channels. So we're ready in the network to support the big TV propositions that Gavin has spoken to the world about yesterday. And we've also increasingly been working with Global Services and Wholesale to engineer vertical solutions. So solutions that are more specific to the pharmaceuticals industry, the banking industry, the supply chain industry to make our proposition richer and beyond the level of just telco connectivity.

So I want to take a look forward now. What does this next period present to us in terms of opportunity and challenge? Let's start with customer service. In the core network platforms that support the core products, be it telephony, be it broadband, be it private circuits, over the period of 4 years, we have consistently reduced network fault rates, which of course, leads to service upset for customers and cost for our business. And we've done the same, if you like, in reverse with systems reliability, moving the reliability of our IT systems up inch by inch to get a better and more consistent service out to customers. The plan simply is to do more of that, to keep the trajectories moving. So in the network space, very specific projects around improving the power state that underpin our network, improving our spares arrangements so that when we get outages, we just fix them quicker, working with the network vendors to fix very specific faults in vendor equipment that lead to outages and a similar story on systems reliability where the engineering now is focused on how when you get an individual component failure, do you keep the stack operating for customers? And of course, that's ever more important because of our 24/7 trading through gateways and through portals.

Our fiber broadband products have been very well received by customers, and the technology roadmap continues to support ever better fiber-based broadband customer propositions. You will know that on FTTC, we've worked very collaboratively across the industry to get the U.K. band plan changed, and that led to the doubling of speeds on our fiber platform. We've now at production trial status on vectoring. So that next evolutionary step on fiber-to-the-cabinet is well advanced, and that promises to take headline speeds above the 100 meg level and we are right at the heart of industry-wide collaboration, collaborating on standardization and the preparation of vendor kit to support further evolutions in the fiber-to-the-cabinet space or fiber to the DP space in the case of the G.fast protocol. So there is a whole load of evolutionary steps in the fiber world driven by technology evolution that will raise the level of service to our customers in that field.

Let me move now to cost transformation and some of the opportunities and the challenges in that area. So with rapid growth of fiber broadband and also a real change in the way customers are driving traffic, the inexorable rise of video, what we see in the network and what we project forward for our network is a very significant rise in total traffic across the core, so rising to 5.1 terabits, we predict, over a 5-year period. So this presents a great challenge to us because it's about technologically and commercially, how do you meet that demand and yet not increase the cost base in the network. And our approach to that is fundamentally twofold. One is to engineer the architecture of our broadband network. So we're going to simplify it, particularly in the Market 3 area, and also to introduce new technologies that simply deliver lower unit cost of incremental bandwidth.

And just to point out a few of the techniques, we're introducing as what is known as the multiservice edge. This is about bringing the broadband network edge much closer to customers. So at about 1,000 nodes rather than the 20 nodes that we have today in our network. This reduces cost. It also improves service reliability because it spreads the load over more nodes. So there are fewer significant scale outages. We're also very advanced in the delivery of next-generation transmission systems. There's a technology called dense wavelength division multiplexing. We just deployed and commissioned the first swathe of these new systems. And they deliver 100-megabit services through the core of our network. And to contextualize that, that's replacing systems that deliver 10 megs. So it's Moore's Law, and in this case, it's a x10 capability.

We're also refreshing our IP core routers and also investing heavily in content caching because one of the ways that you deal with massively increasing amounts of video traffic is to cache it in your network close to customers so that video traffic is not moving across the entire the core network for every instance of a customer ask. We're also removing, because we're rearchitecting in our core sites, the electronics in the broadband network. So it's a combination of techniques, a technology refresh leveraging Moore's Law and some very fundamental re-architecting that will not enable us to move the cost of bandwidth provision down in line with this very rapid increase in demand. And it's that, that's crucial to underpinning our promises around unlimited broadband for our U.K. customers.

All right. This is another huge cost transformation opportunity for us. I think we have a decent track record over the last 3 years with respect to the global network. We had 3 big packet networks, 2 of them as a consequence of acquisition, so the Internet network, the Radianz network, and then our core global IP network. Over the period, and this all completes this year, we will have moved from 3 networks to 1 as we migrate customers to our target MPLS network and concentrate our global investment on that 1 core global network.

And now we're moving to what I think is an even bigger opportunity, which is the opportunity to rationalize network estate in the U.K. And let me just illustrate what we're doing here. A couple of techniques. One is to shrink older networks as customers choose our new products that are resident typically on our new networks. So we're rightsizing the older networks. Example here, PDH transmission. It's actually the biggest network. If you count the numbers of electronics boxes, PDH network, 400,000 network elements in the U.K. We're going to close 25% of those network elements in this financial year, takes out maintenance cost, takes out a lot of energy consumption.

Similar opportunities on the PSTN. We're going to rightsize it, take out on some of the trunks, remove some of the remote concentrators. So it's a shrink-to-fit demand on those old networks. And then a bunch of networks, we think, we will just close. The U.K. ATM network will close in the next 18 months. And as our consequence of withdrawing old broadband products, IPstream and Datastream, we will shut down hundreds and hundreds of old star broadband Maxis [ph] across the network. The very important work here to simplify our network estate, just massively reduce the amount of electronics we have to own, operate and spend energy on and investing in that new technology to ensure that, that which underpins Ethernet, that which underpins new broadband, particularly fiber broadband, gives us the cost points that we need to meet demand growth.

Okay. And then, of course, there's investing for the future. Broadband, fiber broadband, right at the heart of that, working very closely with Openreach colleagues, as I said earlier, on the G.fast standard. But there's a lot more to this than just the next evolution of that particular standard. Picture of a pub here. This is the Plough Inn. It's in Sutton. It's in Suffolk. And the landlord serves a very fine pint of Adnams. But he also makes it very attractive to customers by offering them free WiFi, and that WiFi is served by BT over an LTE backhaul to the BT network. So we're looking at niche applications for the use of LTE both in the access and in the backhaul. We're looking at pair bonding. We're looking at signal regeneration techniques. And we have to do this as we move to addressing how we deliver superfast broadband speeds to rural communities.

TV, another big area of focus for us in TSO, a lot of preparation work going into the network. So right now, we have the ability to multicast thousands of endpoints in the network, 150 megs worth of content. So in linear channels. All of that is being upgraded right now. It will complete this summer. And then we'll have a 500 meg capability. And this is all in support of channel growth that we may wish to leverage for our consumer proposition. Also done a lot of work and continue to do a lot of work on engineering for great quality of service such that the picture quality for customers is spot on. So we are using application retransmission techniques to ensure that where we drop packets, and IP network always drop packets, then we retransmit and we guarantee that great picture quality to customers.

And you will note, please, also that all that we're doing in TV is essentially multiplatform. So we will deliver service, the kinds of services that Gavin is talking about later over the YouView platform, over the Vision 2.0 platform to customers via the Sky satellite platform and also to a range of digital platforms. So Microsoft platforms, iOS platforms, Android platforms, either through streaming or through the download of an app.

And then finally, IP Exchange, I'm really proud of this product because 4 years ago, this was a bright idea from the labs and it was a proof of concept. And what is it, well, it's just an exchange on one level, but it really does leverage the fact that we're in a period of big transition between IP worlds and TDM worlds. And operators have the issue of converting traffic between the 2 types. And in the IP world, there are a very large number of associated protocols and protocol variance. There is an opportunity for players to offer exchange capabilities, the ability to translate from one standard to another standard.

Now that lab trial is now GBP 100 million product. We've deployed network in support of these product across the U.K. On the back of great success in the U.K., we built nodes in Asia, Singapore, nodes in the U.S. starting with Miami. We're looking at the case for a Middle East node right now. Revenues growing fast, and we have early mover advantage. And we're going to maintain that through footprint development, as I've just outlined, but also through feature development.

And I'll just give you one example of that, HD Voice transcoding. So in this world, there are handsets that support a variety of HD Voice standards. But they don't all support the same HD Voice standard. So we're going to deliver a capability that's network embedded to translate between different HD Voice standards, and that's a value-added service that IPX customers will enjoy.

And finally, we are the home of the research unit of BT based at Adastral Park but operating around the world. And of course, as a consequence of a long heritage in research, we have a very significant stock of IPR. We have about 4,500 patents. Our core purpose is to generate IPR to downstream into products and process improvements in BT. But we also sell some of this IPR or we license some of these IPR. You won't be surprised to learn that the core of what we do is focused on network and the exploitation of network to the benefit of customers. But we're also researching actively in the areas that we believe will underpin growth propositions. So increasingly, we're generating IPR in the world of TV and video. We also have some interesting IPR now in the world of security. And for us in BT, when we're out with major enterprise customers, the CIOs are very, very interested in how do they protect their IT estate, their customer data. And we have IPR in that field that is being built into new propositions in the security arena.

So to summarize then. TSO is the technology division, essentially of BT. Because we now look end to end, we're across the life cycle, from architecture through design, through build, through run, we see more end to end than we did at separate divisions. And through that, we will deliver more service improvement for our customers. We continue to target our cost base. We seek very significant opportunity to do that. And I hope I've given you some idea of some of the areas. We'll do it through process reengineering. We'll do it through aggressively reducing the cost of incremental bandwidth in our networks, and we'll do it through rationalizing what is a very large and diverse network estate. And of course, whether it be TV or fiber or IPX, we are very focused on underpinning significant growth opportunities for BT with the right technology oomph. As ever, and as Ian likes to remind us, there is more to do. Thank you very much.

Ian Paul Livingston

Thanks, Clive. We've got now 15, 20 minutes for questions. So are there any questions?

James Britton - Nomura Securities Co. Ltd., Research Division

James Britton from Nomura. Two questions, please. Tony, you talked about a potential 30% further reduction on costs. I just wanted to understand how it reconciles with the GBP 200 million that you're going to achieve over the next 2 years. And then, Clive, I just wondered what your perspective was on the EC's guidelines to help reduce cost of provision across European markets. And do you think this is in any way relevant to the U.K.? And does it improve the business case for fiber-to-the-home on a 5-year or medium-term view?

Anthony Everard Ashiantha Chanmugam

Okay. On the cost, what I said was that we've achieved GBP 4.7 billion, 25% historically. We need to do another GBP 1 billion, in my view, to get to top quartile in each of the elements of the sector. I think there are further savings above that because the sector is not the most efficient sector in the market. Effectively, there's opportunities in areas like customer service and sales. So all I'm saying is there are plenty of opportunities moving forward. I'm trying to give you benchmarks in terms of individual areas.

Clive Selley

Let's talk to the fiber-to-the-home thing. I think our position on this is fairly straightforward. If rule sets a change by the EU that encourages us to look at evolutions in our fiber deployment at a different pace, then we'll respond to those, if there's an economic incentive to do so. What I see technologically, though, is there's huge opportunity out there and massive industry and vendor action to provide us with a roadmap that gives very significantly increasing speeds without yet moving to fiber-to-the-premise in a big way. Our response on fiber-to-the-premise, of course, is fiber-to-the-premise on demand. So we have moved the dial on that one very significant -- I'll ask Liv to offer...

Olivia Garfield

No, no. Good answer. I guess the only 2 things to add to that is fiber-on-demand does go live across the entire estate, as Clive, said during the course of next 12 months. So that gives you FTTP by choice. So if any of you want to take FTTP, that's new news. If you look at other European operators, they're looking at similar things to try and understand could they replicate some of those new product innovations. And I think when you look at what Clive is bringing out in terms of future fiber technologies, it's around G.fast at almost a voice [ph] they need to put fiber-to-the-premises straight into every single home because what you have is a combination of new technology that brings you mega speeds straight to homes that need it when the mixed economy of other homes may be happier in FTTC. So I think the world is continuing to evolve. You've got to look at the EC recommendations on current pricing, and then Clive has shown you the future world, 5 to 7 to 8 years down the line in the technology term but we've got to be careful not to merge the 2.

Stephen Paul Malcolm - Evolution Securities Limited, Research Division

Steve Malcolm again. A quick question on vectoring. Just sort of interested in your thoughts on vectoring developing, I guess we've seen DT getting approval for it Germany, and how you probably think the implications of deploying vectoring off from bundlers would be interesting to know. And secondly, just coming to that benchmark, I think we'd all agree that the European telco sector is not a great benchmark on pretty much anything given their recent operation and share price performance. What other benchmarks are you looking at going forward? And is there a danger that you could cut costs too far in some areas, like looking at the present situation we've seen across Europe with some companies?

Anthony Everard Ashiantha Chanmugam

So vectoring is arriving. So we're at production trials. We're proving out production equipment. Vectoring is one of those evolutions that will now happen. On bundlers and what that means for unbundlers, you say a little bit more about?

Olivia Garfield

Catherine [ph] , do you want to comment? So yes, we think the German decision is an interesting decision. It's something that I guess -- I'm sure Ofcom will be looking at. They'll be taking that and factoring that in. Our understanding is in Ofcom's latest consultation, which comes at the end of May, they might give some statements regarding their sense around vectoring and [indiscernible] going forward. So we'll be awaiting that with interest. And obviously, we stick close to all of the fiber rollout globally to try and make sure that we're learning and sharing ideas. We'll continue to do that with players like DT. So I think it's of interest. I think it's no more, no less of an interest.

Anthony Everard Ashiantha Chanmugam

Stephen, in relation to your cost question, the first piece is, yes, there is a danger. There's a real danger. But, and this is the but, when we look at cost, we don't start with cost. We start with what do we need to do to improve the service, to improve the efficiency of the business. If you start with that premise and you then look at taking out the cost of failure, which is what Ian referred to, then you're focusing on customer service improvements and reducing the cost base accordingly. Second point to your question is really in relation to other benchmarks. I mean, if I look to the retail sector, for example, and looked at customer service in the retail sector, we are a number of points away from that. There are just so many opportunities than we see collectively as a management team within our business simply by, for example, comparing the performance of our call centers between the different lines of business. There's major, major opportunities. We have things like -- even in our most efficient business, we have shrinkage in one of the call centers -- several of the call centers of over 40 points. And we know that there are things that we can do there. So it's not the lack of -- it's not the opportunity problem. That's an issue for us. It's the ability to discharge.

Mandeep Singh

It's Mandeep Singh, Redburn Partners. Just back to the cost point. I mean, you've taken out GBP 4.7 billion over the last few years. You talked about GBP 1 billion to get to benchmark versus the telecom sector and then perhaps going beyond that. Is it fair to say that over the next few years, the opportunities to reduce cost is a fraction of what you achieved in the last few years? And just give us some sort of order of magnitude.

Anthony Everard Ashiantha Chanmugam

What I'm going to say is that when I gave you those numbers, that's assuming everyone stands still. Now as you made it clear, the market moves on, people get more efficient. So there's going to be a factor on top to reflect that. In terms of further opportunities, and you have quantification, what I'd say here is that you've got to understand, there's a number of different dynamics. So if you're looking for simply modeling GBP 4.7 billion, again for the next 4 years, life's not that simple because we're in a situation now where our revenue position is materially better, the cost of sales element of that will be different. But what I would say is in terms of underlying efficiency, we've got a material, material opportunity. And the opportunity in relation to the efficiency component is no smaller than it was. It's going to be a little bit more difficult -- not a little bit more, much more difficult to get to because we've taken out the low-hanging fruit. But the opportunity is material. Wilton?

Wilton Fry - BofA Merrill Lynch, Research Division

It's Wilton Fry from Merrill Lynch. It's a question for Clive. I just wonder if you could give us an update on the white spaces project and whether you're working with Microsoft consortium, and obviously, that will be something you could use in the plow perhaps.

Clive Selley

You're talking about TV white spaces?

Wilton Fry - BofA Merrill Lynch, Research Division

Yes.

Clive Selley

Okay. So we trialed TV white spaces, particularly interested in a couple of applications. One is in as a rural broadband Intel [ph] technology but also looking at its potential in economic [ph] machine-to-machine application. So it could have been on the list, had I put it on the list, for the areas of research. That is something that we were actively working on. The fact that we now have LTE spectrum does alter the way we look at it because we have an alternative wireless mechanism now through license spectrum.

Wilton Fry - BofA Merrill Lynch, Research Division

Are you sure they're not complementary in that you can use the 2.6 gigahertz in short-term businesses and low-frequency TV for rural...

Clive Selley

Yes, they absolutely can be complementary. But in some of the other application areas that we had in mind, we think LTE will be the most appropriate fit. It is an active area of research. We run trials, and field titles, not lab trials. So it's still very firmly on the agenda. Simon, yes?

Simon Weeden - Citigroup Inc, Research Division

It's Simon Weeden from Citigroup. Just on -- you touched on PSTN in the context of asset retirement and simplifying and cost reductions. I wondered if DT has, not in Germany but in Eastern Europe, has just retired its first PSTN exchanges, converting customers to essentially all IP. Can you just give us some context about where that sits in your plans in terms of time frames, what you might be able to save as a result of that over the long term?

Clive Selley

Yes, okay. So I think there's a few things to say on PSTN. One is it is actually a super mature, super reliable way of offering telephony service. And over the years, we have become a lot more efficient at running it. So a priority for us is to take costs out. I talked about shrinking the network. There's also process work to do to learn how to operate it more cost effectively. We are underpinning its future as it becomes an ever smaller network through to 2020. And we are actively looking at the alternatives for its successor. So actively looking at the different technological solutions to delivering cost effectively and with a great service. Voice is IP based, actively doing that.

Simon Weeden - Citigroup Inc, Research Division

[indiscernible]

Clive Selley

No, it doesn't mean that. It means that we are being sensibly conservative about making sure that if there were to be any of it around in that time frame, it is fully supported by the relevant vendors.

David-A Wright - Deutsche Bank AG, Research Division

It's David Wright from Deutsche Bank. A couple of questions, please. First of all, can you talk a bit about Fonspot WiFi? And obviously, you've got the whole Fon agreement, which gives you 5 million or so, I think hotspots it is. How are you seeing usage across that particular part of the network developing? And how do you see that evolving in terms of the proposition to the customer? That's question one. And then the second one is just on cost of content. Obviously, you settled the production of BT Sports, et cetera. Does that scale up quite easy now? If you bought more content, is there very little incremental cost now that you've got everything in place or over the next couple of quarters [indiscernible] ?

Anthony Everard Ashiantha Chanmugam

Let's talk about WiFi. So WiFi used by our customers is rising and rising rapidly. It's rising not only in the context of its use in the home but the number of customers who are BT customers who then use our WiFi via hotspots around the country is increasing. And as I think Gavin pointed out earlier, where we get active use of our WiFi service, particularly by people outside of their home, we get much stronger retention. And I think there's a correlation with them taking more of our product. So we see WiFi as being very important to the bundle of services that we offer, and it will influence then how we use LTE as well because in a sense, we're already offering a mobility capability, and we need to figure in the detail how the 2 will complement each other to build for a better mobility offering for customers in each segment. Gavin, do you want...

Gavin E. Patterson

I think that's pretty comprehensive. And WiFi is critical to our proposition. We don't break out the in-home versus out-of-home, but I can assure you they're both growing rapidly. So it's up about 300% year-on-year in quarter 4, 3x is probably better, not quite 300%. And I see that continuing to grow. So we've just launched 802.11 x, which will do [ph] automatic authentication. So instead of authenticating every time you find a hotspot, if you go at once, it will just pick up a hotspot when you're out and about. That will drive usage and significantly. We're very confident in that. We've seen that in the early stages.

You'll continue to see us innovating on the Home Hub. I've got a little demo to show you later, of the latest Home Hub we launched this week, which is the world's first, and there's more to come on that later in the year. So WiFi is fundamental to our proposition. We've always taken a leading role, and we've got the best WiFi network in the U.K., both in our own state and then also partnering with major corporates as well, major retailers.

Clive Selley

I mean, we -- there is another context of WiFi as well, where our customers use One Voice anywhere or SmartTalk outside of the U.K. over whoever's WiFi and use those voice applications supplied by BT, but over a third-party WiFi. And that's a very value-rich proposition.

Ian Paul Livingston

Would you want to start there?

Anthony Everard Ashiantha Chanmugam

Yes, in terms of the content, we've spent, roughly speaking, about GBP 1 billion over the -- and that's why our budget's has gone in there. Are we going to spend in some more? Potentially. Are we going to spend another GBP 1 billion? No. Is the number held within our forecast, our guidance? Absolutely.

Gavin E. Patterson

Yes, and I think your question also asks, does it scale from here? Yes, it does what you heard from Clive is the network is built to carry it and with growth factored in as well. And in terms of the studio, hopefully, you'll get a chance to look around at some point when we've finished building it. We took some people round the first stage of it yesterday. You'll see it it's a phenomenal studio space that gives us huge flexibility for program-making 24/7 for the 3 channels that we'll be offering. But we could expand it more if we wanted to.

David-A Wright - Deutsche Bank AG, Research Division

So just to be clear, I think you've given 2016 guidance broadly within this presentation. If we're not going to add another GBP 1 billion of content, then you're implicitly not going to increase your bidding for Premiership rights in 2015?

Clive Selley

I'm talking about our guidance up to '14, '15. Because effectively what we've done is we've given guidance on a 3-year timeframe. We're into year 2 of that, within that window.

Ian Paul Livingston

One last question? At the back?

James Ratzer - New Street Research LLP

Yes, it's James Ratzer from New Street. I hope I can slip in 2 quick questions. First one, I just wanted to understand how to think about the impact of inflation on your cost base. I mean GBP 1 billion out of your total is kind of 6% or 7% of the cost, which, over 2 years of current inflation run rate, it almost swallowed that up. So I just want to understand how you see inflation impacting your cost base. And then the second question was just looking holistically at your base. I mean, you got 15% you said in CapEx. You've given guidance for that to be stable, another 35% in POLOs and cost of sales, which I thought is a hard to reduce without directly impacting sales, which leaves really personnel as the bulk. I mean, is it fair to think that cost reductions in the main over time still have to come from reducing headcount?

Clive Selley

Okay. In relation to the second part of your question, for example, if you look at POLOs and cost of sales, if you look at how your network is configured and if you look at how that network is utilized, you can reconfigure your network simply in terms of putting in new nodes, taking out level of long lines you've got, renegotiating supply arrangements, you can make material inroads into your cost base in the area. I've no hesitation, no doubt associated with that. In relation to question on inflation, when we've talked about cost savings, historically, I've ignored the fact that there was inflation in there. So I've said I'll take out GBP 4.7 billion. We've swallowed the impact of inflation. We will swallow the impact of inflation going forward as well. And when we talk about cost savings in GBP 1 billion, the GBP 1 billion is in relation to where it is now. If inflation comes along, we'll swallow that as in terms of further efficiencies.

Okay, thanks very much. If I can now hand over to Gavin Patterson, the star of this show.

Gavin E. Patterson

Thank you. Right, good morning. So for the next 30 or 40 minutes, we're going to look at BT Retail. In terms of what we're going to cover, and I think most of the line of business presentations will follow this sort of pattern, a quick reminder who we are and what we do. We'll look back over the last 4 years and give you some sight of the progress we've made. And then we'll look at the 3 elements of the group strategy through our retail lens, so customer service, cost transformation and then investing for the future. Just to set the scene on what BT Retail is, for those of you who haven't come across it before, 4 business units: BT Consumer, BT Business, BT Enterprises and BT Ireland. The revenues are split roughly 50-50, B2B, B2C, and I will spend most of my time talking about B2C, but it's a very interesting B2B business in here as well. Profits split roughly the same way as well. In terms of our market position, we're about 40% share of calls and lines in the consumer base, about 37%, it can be high depending on who you look at. Roughly, that size in the business market. 31% share of the broadband market, including cable. Significant customer base of over 11 million, 6.7 broadband million customers, about 0.8 million TV customers. Our greatest assets in many ways is the brand. It's a very strong and trusted brand across the U.K. and around the world and that was enhanced further with our sponsorship of the Olympics last year. So over the last 4 years, the picture is an improving one on both the trend on revenues, where the decline in our revenues has reduced year-on-year, and as you heard earlier in Q4, we were flat year-on-year. But the EBITDA story is one of consistent growth over that period as well, and that fundamentally is being driven by cost transformation. So what you've been used to seeing from us is consistent quarter-on-quarter reduction in our net operating costs and we've been using that to drive profitability. In addition to that, the underlying customer metrics are improving. And to give you a taste of that, in terms of our line loss, the rates of line loss in both the Consumer business and B2B has reduced by over 40% over that period. That said, we're still losing customers. And so there's a real opportunity still to go for. ARPU in the consumer market, up 27%. We've added 2 million broadband customers. Our customer base is up 40% in broadband. Over 1.3 million of those in our fiber. That's growing rapidly. The TV base has roughly doubled in that size. So you get a sense that while cost transformation has been very important to us, the underlying customer metrics, which will drive revenue growth, have been moving in the right direction, which is why we've got to a point where we've been flattened in quarter 4. From a strategy perspective, we followed the same strategy across that period. And as I will tell you in a minute, this is the strategy we'll continue to follow in the years ahead. It's based on customer service, getting to #1 for customer service, being known for that across the industry, investing in our people, making sure our cost base is right by removing failure out of the system by simplifying and standardizing our business model. And then using that to create a platform to grow and focusing on 2 areas in particular, reducing those customer losses, particularly through bundling, investing in broadband and fiber and WiFi being examples of that, and also growing into new markets. There are a number of adjacent markets that are great growth opportunities for us, mobility and IT services being 2 that Ian talked to earlier. Conferencing is a unit that sits within enterprises that's got great growth opportunities, and particularly, in Latin America and Asia-Pacific and of course, TV.

Right, customer service. Progress, but could do better, I think, is the summary here. If you look at the underlying metrics, be it in consumer or business over this period, be it Net Promoter Score, so the likelihood to recommend, be it one-contact resolution, how many calls it takes or how many interactions it takes to address a customer's query or fault or complaints, all 3 of those metrics have improved. However, we recognize we are not yet #1 in the category and that's really where our ambitions lie. So we've got more to go for here. You'll see us continuing to invest going forward. We work on a concept around how easy it is to do business with us. We recognize that, that is one of the key things our customers are looking for. Indeed, it's just probably the customer service metric that correlates best with revenue growth over the long-term. So a lot of our investments are focused on that and we measure that with every single interaction across our customer service. So the sort of things we're investing in now include things like in the IVR, voice recognition, recognizing that customers hate IVRs and so the less time you spend in it, the better. And that's got a significant improvements on Net Easy when we've done that. Looking at early life, how can we simplify the early life journey, reduce the number of times that people have to call us through that. Diagnostics. Building diagnostic capabilities right into the premise, be that the home or the business. Obviously, with the customer's permission. That allows us to more accurately assess the root of a fault and so we're able to resolve it faster with fewer interactions. They're all examples of that.

And then in the business space, we're halfway through putting through a completely new customer management system, which will allow us to more efficiently serve our customers, but also be able to serve them in the 360-degree basis. And there are great efficiencies and effectiveness benefits coming through on the back of that. And cost transformation is inextricably linked to customer service for us. As Tony made the point in the Q&A, our cost transformation program, which in retail has been going on for 7 years, so there's -- it gives you an indication of how far you can actually go with it, but it is inextricably linked with service. So it's about removing failure out of our processes, failure out of our customer service journeys and to try and make things simpler for our customers. So in terms of some of the color that we've been -- in terms of the programs we've been working on, agent.com is a very good example of this. This is a new front end to our CRM in the consumer base that takes out a lot of the complexity for the agent. It's built on the same infrastructure as bt.com, and so it gives us great economies of scale. That's what we're doing at the moment. The engineering visits are down 60%. Tony used that in his presentation, so I won't dwell on that. Automation is a significant trend for us. So we have an opportunity to increase the amount of automation that we've got in the sales units, in particular. There's opportunities in debt, made great progress on debt management, but we know we can push that further in terms of debt and aged debt going forward. And then as I mentioned earlier, systems, particularly in the business space, are a significant investment, but with a great payoff at the other end of it and we'll see both cost and customer service improve on the back of that. Okay, I'm now going to go into the business units in more details starting with consumer and really try to focus on the growth opportunities that each of them afford us. So to set the scene in the consumer market position, I think you all know, very strong position in calls and lines, a strong and growing position in broadband, great opportunity to grow in TV, very competitive marketplace, significant number of players across the U.K. Demand for speed is increasing, so over this period, we're talking about the average speed according to Ofcom has gone up threefold and if anything, we see that accelerating at the moment. Market is increasingly about Triple Play. So Triple Play has gone up 60% over this period. And as we talked earlier in the TSO presentation, while the state of growth, particularly WiFi, is exponential at the moment, and that really affords great opportunities for us in smartphones and tablets, in particular. In terms of how we've been doing in the consumer market, as you heard Ian talk about earlier, we're flat year-on-year in Q4, which is the best performance in 5 years, a real step-up there. And that is something we intend to continue moving forward. Our strategy is fundamentally built around driving fiber. So if we see fiber as a fantastic enabler for our business, not just for the broadband services that hang off it, but increasingly as we move into TV. It allows us to open up fiber, I think, to a whole new group of the marketplace. It's also about investing in differentiation on those core products and services around broadband. So for example, this is Hub 4, which we launched on Tuesday. This is dual band WiFi and what that means is you get less interference in the home, you get better coverage in the home. It's a world first. Hand-delete, it will go through most letterboxes, like that. So saving on delivery charges at the same time. And so that's just an example of how we've continued to innovate on the base business. BT Cloud, which we launched a couple of weeks ago, is another example, which allows you to access your content anywhere from any device, be that things like photos or files. It's a free service that's part of our core proposition. So it's about innovation and keeping that product fresh and right ahead of the pack. And it's also about using Plusnet. So we've got 2 brands that we operate. Obviously, the BT brand is our primary brand, but we also offer Plusnet, which wins awards, mostly awards on customer service. It's focused on price and quality, but also puts a lot of reliance on self service, in particular, and that continues to do extremely well. And this combination of the 2 brands, BT on one hand Plusnet, really, competing at the value end of things allows us to really cover the market and fight on many fronts. The goal, our ambition in the consumer market, and I think this was made really clear this morning, it is to grow both the revenues and the profits consistently over the medium term. And that's why we've been investing in things like fiber and TV. But if I start looking on -- looking at the core business and how that's been performing, the underlying performance has been improving. But as I said, we're still losing lines, but the rate of my line loss has reduced significantly. In terms of how we reduced that over time, bundling has been very important to us. So at the start of the period that we're looking at, we didn't have the opportunity to bundle. We've got the regulatory freedom at the beginning of this period and now it is, by far, the most common form of package that customers take when they buy new services from us. So 80% of our broadband base take a bundle now from us.

It's also about creating a more predictable revenue stream. So increasingly, customers have chosen to take unlimited packages from us. Things like Anytime, which has been our unlimited GO package, extremely competitively priced in the market. We've recently added Anytime Plus which gives you 50% off fixed to mobile calls, which has strengthened that package even further. For us, that gives us predicable revenue stream and we find that customers use our network more when they're not counting the minutes. And so I think that's going to be good for customers as well. And then finally, I think Ian stole my line on this one. SmartTalk launched a couple of months ago. 150,000 customers downloaded it. It's an application that sits on Android phones or Apple phones that allows you to get access to your call package for free. So if you're on Anytime calls, that means when you're out and about in a WiFi hotspot, if you use SmartTalk, you will get free calls, simple as that. What's interesting about it as well is that also it seems to stimulate usage in the home for the fixed line. So what we've seen is that customers use their fixed line more when they've downloaded SmartTalk. It seems to create more of a network effect.

Looking at the core broadband business, as I said, we've added 2 million customers over this period. It's been about investing in that core products. I've talked about BT Cloud and the Home Hub. The unlimited service that we've reached recently launched on copper in February is doing very well for us. It addressed one of the weaknesses we had in our portfolio versus Sky and Talk Talk. And now, we have a totally unlimited proposition in the copper market, and that's doing very well. Addressed one of the reasons why customers churn.

Wireless is very important. Over 5 million WiFi hotspots now. Minutes, as I said, traveled in Q4 and 4G, as we talked earlier in the presentation, in Ian's presentation, affords us a great opportunity to strengthen that proposition even further with an inside out proposition on 4G. Plusnet, as I said, extremely successful at driving price, at competing at the low end of the business, wins a lot of awards on service as well. So I think you've got a sense from this. It's about being competitive on your core business in order to ensure it grows over the long-term.

Moving onto fiber. Fiber has been a great success for us, but we still think we're right at the beginning of the potential of fiber to BT Retail. We created our own sub-brand, BT Infinity. That has allowed us, I think, to really steal a march on the market. We've strongly advertised it, we've created the segment. The product itself, we've innovated on. We've doubled the speed in the last year. It delivers 8x the average that you get on a copper network. And most importantly, it delivers that consistently by time of day. So if you look at the latest Ofcom research released in March, it demonstrates that 90% of our customers get 90% of their speed regardless of the time of day. And if you contrast that with cable, only 35% of their customers get their headline speed in the busiest part of the day. So it's about consistency of delivery, not just simply the headline speed itself. It's competitively priced. It's an easy upgrade path for our customers. And for us, as I think we talked about earlier, lower churn, higher ARPUs, better customer satisfaction and an enabler for a whole slew of other services, particularly TV. Which moves me nicely onto our TV business. So the most important thing I want to really establish on TV is we're not trying to build stand-alone TV business in itself. We've gone into the TV business because it allows us to sell fiber and opens up the market to fiber to a whole new group of customers who, frankly, want to buy their services from one supplier and will only look at you if you've got a great triple play proposition and TV's very important to it. So that's the way we look at this business. We've been investing over the last 12 months, and I think we've got a very compelling proposition now that covers all the basis that we need. Fundamental to it is YouView. YouView is the platform that's supported by all the major broadcasters in the U.K. It's Britain's free TV platform. We've added to it. What's key to it, I think, is that it's got an EPG that operates both forward and back. And when you go back to the EPG, you can go right into the on-demand content. And that is a killer proposition for customers and you can see it coming through in the customer satisfaction data. You can see it coming through in the awards that YouView is winning. It's won 5 awards since it's been launched. We've added popular channels. So we've added them to our Vision 2 service, the existing service for customers over the last quarter. You'll see us adding them to YouView over this quarter. So it's broadcast channels. They're all familiar to you. Comedy Central, MTV, Discovery, Nat Geo, those type of channels; there are 22 of them. We're scaling the network to take more. Many of them available in HD. We've got an exceptional VoD catalog, very strong on first movies, kids, music, in particular, box series, with over 5,000 hours of on-demand content to supplement the players that the PSPs offer. And of course, sport. And I'll talk more about sport in a second. Who are we aiming for? There are two discrete groups of customers we're focused on. Freeview upgraders, this is -- there are 12 million homes in the U.K. that don't take pay-TV at the moment. Interestingly, pay-TV is underdeveloped in the U.K. compared with many other markets, particularly the U.S. It's only half the market -- half the customers in the U.K. take pay-TV. That's considerably less than in the U.S. And what YouView does, I think, is it allows a very simple upgrade path from Freeview for those customers, who want a little bit more TV but don't, perhaps, want to be spending a lot on it. Then the second group we're interested in is the basic pay-TV customers. There are about 6 million of these. They're taking basic TV services from Virgin or Sky, typically GBP 20 to GBP 25 a month and we offer a very good value way for customers to get much of that content for a fraction of the price. So our pricing starts at about GBP 7.

Which takes me onto sports, which might have noticed we launched yesterday. Just to remind you of why we've launched a sports channel or a suite of sports channels. Sports is the single most important area of content to customers in terms of must-have content here in the U.K. And you can see that from the chart on the left-hand side there. So having a strong proposition in sports is one of the factors that really influences what supplier a customer chooses for that triple play service or indeed, a combination of dual play.

In terms of what we've done, we've created a service, I think, from right, that cover a number of sports. Obviously, it's very strong in football with 38 Premier League games, 18 of those are first picks. So that sometimes get lost in the way people look at these. First picks mean that you get the first game, you get to choose the first game in any one weekend. This is the first time there have been any first picks that -- or first time anybody in the market has got first picks apart from Sky. So there have been other players who try to make a TV business work in sports, but none of them have had first picks, and we're the first time -- we're the first company to have got those. We've supplemented that with FA Cup, Europa Cup, the best -- the Premier Leagues from France, Germany, Italy, Brazil, the U.S. and Australia, if you're particularly interested in that. We've got exclusive coverage of the Premiership Rugby, the Aviva Premiership Rugby in England, 69 games. So that will only be on BT Sport. We've got a similar package in France. And obviously, a number of English players play over that. We've added tennis to this. So we've got coverage of the world's tennis associations, women's league. We've got women's sport. We've added UFC. I know one or two of you in the audience are UFC fans. And we've also added and announced yesterday MotoGP. It's a motorcycle racing, which will be exclusive to the channel. So the takeaway from that is this is a high-quality set of rights and we're going to be putting the right programming to really bring it to life. And we've invested in talent. We've invested in people who've done this before to build and run the channel. So we haven't relied on our existing telco experts to do that, you'll be pleased to hear. But we've also invested in talent to present the shows themselves and really develop the programming. And so Jake and Claire are going to be 2 of the key people on the channel, but also Lawrence Dallaglio and a suite of other experts and pundits, both current and retired professionals. So our ambition is to make this a really high quality product that stands up very well in comparison with Sky Sports. But we want to make it different. We want to make it more inclusive, we want to make it more interactive and we want to make it more fun. One of the things that really came through, I think, in the Olympics is people want to watch sport in a different way. They don't want it to be quite as clinical, shall I say. They want something that's a little bit more entertaining, doesn't always take itself so seriously, something that's much more interactive and that's what we're trying to build with the channel.

How do you get it and what's the pricing? I think you probably got this from yesterday but I'll rephrase it anyway. It's free. So it's free to anybody who takes a BT Broadband service, regardless of the TV platform. So if you're a BT Broadband customer, today you will be able to get it for free. If you want to watch it on our platform, either of the 2 platforms we offer at the moment, you'll be able to get it for free. If you want to watch it on Sky, you'll be able to get it on Sky for free. So it'll be in the EPG. You'll just be able to scroll down to it and be able to watch it for free. You'll have to contact us so we can provision it, and we'll use that as an opportunity to try to switch you back to BT. But you don't -- not necessarily, but you will actually be able to watch it for free on Sky as well, and that's really important. In terms of what we'll be offering, there'll be 3 channels: BT Sport 1, BT Sport 2 and ESPN. ESPN will carry a lot of the American sports, which have a strong following over here. It's also worth noting that if you don't want to take a BT Broadband service, you will also be able to get access to it. It'll cost GBP 12 on SD and GBP 15 on HD if you want to watch on Sky that way.

How do we make money out of it? Which is always the question when you give something away for free. This tries to summarize that. So if you're not a BT Broadband customer or if you're not a BT customer at the moment, this allows us to establish a new billing relationship with you because we will be doing the retailing over the satellite platform and that is the start of the conversation that allows us to win back the line, the calls, the broadband, ultimately generating new revenue. If you're an existing BT customer, but don't take broadband from us, obviously, we'll use this an opportunity to sell you broadband, probably fiber, ideally. It allows us to grow ARPU, reduce churn, more revenue. And for existing BT Broadband customers, obviously, it reduces churn, if you're an existing fiber customer. If you're not a fiber customer, we'll try and sell you fiber. You get the picture. The net-net of this is we will judge the success of this launch based on it's -- on the results in terms of its ability to grow top line and bottom line for the Consumer business over the medium term.

It's also worth mentioning pubs and clubs, one or two of you picked this up, I saw your notes overnight. We -- the pubs and clubs market is a very interesting one. It's -- obviously, now pubs have been declining. The price of sports, watching sports in pubs is, we think, partially contributed to that because it is very, very high. We've launched a package that will be significantly cheaper for publicans on a like-for-like basis, 80% cheaper. And a number you picked that up So that's, I think, a way of further monetizing the investment. Okay, that's consumer. I'm going to now to talk about BT Business and to start, we frame the market itself. Similar sort of pattern to consumer. Very strong on the fixed voice and data side of things but with great opportunity to grow in mobile and IT services. The markets themselves are very fragmented but I think the most important thing for me is that the conversation that you have with a buyer in these markets is such that they want to have a conversation across all 3 of these different segments. So it's a great cross-selling opportunity for us. Our goal here, again to be market leader for service. More to do in that area. Defend that core customer base and then grow into IT services and mobility. And the importance on the services side of things is we're not really interested in just reselling hardware. Our focus primarily is to sell services on the back of our network, and that is the area we're particularly interested in growing.

A quick reprise on what's been happening on the core business. Similar to our pattern to consumer in many ways. Line losses have been reducing. This is the, I would say, the part of BT's market which is probably the most sensitive to the economy, particularly employment. So we've been holding share even though our market -- our line loss has been reduced. The market has been reducing as well. We've done -- and we've also been able to retain the number of minutes per line per day on each -- with each customer. So we've been holding our position reasonably strong. Key to that has been bundling, investing in broadband and leveraging the fiber investment, in particular. Looking at the IT services opportunity, the performance in IT services has been a wee bit mixed over this period. So we've tended to go up one year, down the next, but in the last 12 months, it's been really solid. And we've got 10% increase in revenues year-on-year and with a good trajectory going forward. Just to give you some sense of the components of -- and the units that operate in the IT services market for us, there are probably 2 groups, in particular. BT Engaged IT, focuses on HP and Microsoft specializations. Cisco, the Cisco specialization is handled through BT iNet. BT Business Direct is a volume way of distributing, particularly hardware, and some services to the smaller end of the market. Those 3 units sit within BT Business. Then, within enterprises, there are 2 vertically-oriented IT services businesses. So Expedite provides point-of-sale solutions for retailers. We aim to sell networks on the back of that, and BT Tikit. Tikit is a business we bought a couple of months ago. It provides software solutions for professional services firms, particularly lawyers and accountants. And again, the goal for us there is to sell networks and cloud-based services on the back of that software-based sell [ph] . Making a number of investments and developing our capabilities in this area over the last 12 months, particularly investing in cloud-based capabilities, both in terms of Infrastructure-as-a-Service, but also engineering capability in order to maintain the services going forward. And they are offering huge growth opportunities in a very encouraging pipeline for us looking ahead.

And mobility is the other growth area for us. We think we're well placed to take advantage of mobility. We've got a decent mobility business already, one that's growing with over 250,000 customers in it. What we find is our brand plays well in the mobile space. Customers expect us to have a mobile offering. And indeed, when they buy from us, they tend to buy all their products from us. As you can see, 85% of our mobile customers take fixed line services from us at the same time. We are investing a lot in R&D in this area and developing new products and services that take advantage of fixed-to-mobile convergence. So I'm not going to tell you much about that today. You've seen a little bit of the commentary from Ian in terms of where we see the potential here and where we see the technology moving in this space. But what you'll see over the next 12 months is it's moving to this area increasingly because it's a great place where technology is moving in our favor, regulation is moving in our favor and customers want to buy these types of services from us. So more color in future presentations but expect us to make moves in this area. Then, before I wrap up, I want to spend a little bit of time on conferencing and -- I'm sorry, on BT Enterprises and BT Ireland. Enterprises, to start with, this is the division within retail where we house the more entrepreneurially-oriented businesses, the ones that really focus on a particular market or particular vertical and really leverage the wider BT by giving a little bit more specific focus around a particular service. Many of them, you'll be familiar with, I think. They're a mixture of businesses that what we describe as heritage businesses. Payphones might be an example of that. But there are also some great growth businesses in here like WiFi, BT Fleet is worth a mention. This is a nice gift from Tony. BT Fleet is the fastest-growing parts of the BT Group, isn't it Tony? It's growing 30% year-on-year. It services our own fleet, but it also services the fleet from many customers, many other customers, such as the AA, Thames Water and Lancashire, County Council is the deal we've just done. So it's a really interesting business and one with good growth potential, we think, leveraging capability that we're developing for ourselves but being able to share that with customers as well. Conferencing is probably the most interesting, however, because it's half the revenues and is the most dynamic business in the Enterprises unit and worth spending a little bit of time on.

It's over $300 million of revenues. It supplies conferencing services, audio, web and video to customers, not just in the U.K. but around the world. It's actually headquartered in Boston. I think the most interesting thing looking forward we've got here is that the market itself has been changing rapidly. There's been a lot of price pressure, a lot of commoditization in the conferencing market. Our approach, however, is to develop a way of differentiating ourselves through quality, as well as being competitive on price. And we've signed a long-term partnership with Dolby, and you're going to have a chance to experience this outside over lunch in one of the demos. What this does is it gives a much better quality experience, sound quality experience for the conference call, but it also gives you an ability to improve the spatial positioning of people within the call itself. Or to put it another way, you get more of a sense of who in the room is speaking and that you can remove the background noise that goes on in a conference call, so the crying babies, the barking dogs, the sounds of the trains can all be removed from the call itself. So I really encourage you to try it in the phone booth that are out there in the auditorium, out -- sorry, in the reception area. And if you like it, get your CIO to buy it. It launches this summer, but we've got a lot of interest already from particularly the major multinationals who see this as a fantastic way of adding real value or making that conference call far more effective.

And then Ireland is the final unit within retail. BT Ireland is one management team operating in 2 different markets in 2 different business situations. In the North, it's a mini BT we operate every single part of the value chain. In the South, in the Republic of Ireland, we're focused as the challenger to Aircom, the incumbent. We're focused on governments, wholesale, major corporates. The business has done pretty well over the last few years. I mean, the Ireland economy, in particular in the Republic, has been very poor, and yet we've been consistently growing top and bottom line. The 3 driving factors, I think, in Northern Ireland, we were pioneering on fiber. So we've got 90% coverage of fiber in Northern Ireland. And now over 50% of the retail customer base are on fiber. So we're getting really interesting learnings of how fiber will develop as a proposition going forward. Then we're winning a lot of major network, IT services deals and fewer network deals and a couple of these are examples here. In the Northern Ireland, we've got NI Direct, so we provide a contract for all their IT services. In the South, we're Sky's partner, as they are competing against Cable and Aircom in the Republic of Ireland. So we have to -- we're not arguing all the time, let me put it that way. So the net-net is this is a business that's growing both top and bottom line and we see great prospects for it going forward.

So, in summary, our strategy has worked very well for us over the last 4 years and we'll continue to focus on it going forward. You'll see us putting more emphasis on revenue-led profit growth rather than simply cost transformation. But I'll underscore the point that Tony made; there are still cost efficiencies to come out of the Retail business going forward, we believe. Customer service has improved but, frankly, we've stalled in the last 12 months and we need to step up if we're really going to deliver on our goal of being #1 number in this category, and you'll see us invest to do that. Fiber is fundamental to our growth plans in all the units, particularly in consumer. TV is a way of selling more fiber for us. It's a way of opening up a marketplace, and you'll see us invest with that in mind, not just on the basic TV services, but you've seen with sport, we're prepared to take big bets to achieve that. But hopefully, you've also concluded from this morning, consumer isn't just the one unit that's going to growing to grow in retail. There are growth opportunities across the board, across mobility, across IT services and also, in enterprises with the likes of conferencing. So thank you very much and we're open for questions.

Guy R. Peddy - Macquarie Research

Gavin, it's Guy Peddy again from Macquarie. It had to be me asking the first question. Just a quick one. One thing I'm just slightly trying to understand is you highlighted 18 million non-sports watching TV customers that you're targeting, but you're targeting them with the sports products, so how do you reconcile those 2? Secondly, and this all comes down to the same area, do you risk using -- losing YouView being overconsumed by the BT Sports push and people forget about YouView as a product because of the fact that you are now going helpful [ph] to run sports and how do you manage that? And thirdly, small work can be cheaply. Well, 25% of your consumer revenue is still voice. Do you think that, that will be where some of your competitors, as you focus their response to your discount in broadband?

Gavin E. Patterson

Well, I'll try and answer all of those, if I can remember them. So on voice, voice is very much part of the bundle. I think, what you -- hopefully, you've seen today is we intend to continue to innovate to make voice, not just good value for money, but actually, we're bringing new functionality to it. So we talked about SmartTalk earlier. In Clive's presentation, we talked about HD voice and you'll see us begin to bring other innovation into voice services. So I think we don't want to commoditize voice. We believe there's a future in voice. It's clearly moving increasingly to an application rather than simply minutes on a network. So ensuring that the functionality reflect that is very important. In terms of YouView being swamped by BT Sport, no, I don't think it will. I mean, we're very confident in YouView. I mean, the early customer satisfaction data on it is really, really, really strong. We've got a clear roadmap going forward in it and how to develop it, ensure that the functionality remains competitive. We want to ensure that the non-sports content on the platform is strong. So we will continue to make sure we enable that. Of course, YouView is an open platform so the bigger it gets, the more other players will come on to the network and want to retail on it themselves. And I think that adds to its attractiveness. So sports, I think will help. I think it will give you a push, but YouView is strong enough in its own right. And then the availability of sport and who we're targeting and what the opportunity is, I mean, the way we look at it is this. There is, I think, 5 million people watching sports in the U.K. We think that's about half the opportunity. There are another 5 million people who want to watch premium sport, but feel squeezed by the prices that exist at the moment. I mean, it's very expensive to get sports. You have to go through basic to get that, so you're well into GBP 50, GBP 60 a month. And that's very, very expensive to people. So I think it will prove to be another reason why YouView is attractive and BT YouView, in particular, is attractive to customers, because they've been squeezed out of the market and they want to watch more sports that they can't afford on other platforms.

Clive Selley

I think I'd just, on that point, to add to that, it tends to be football has had a real focus and there's a lot of sports customers who may not be -- football may not be their key sport. So the fact -- rugby, I don't think, has had the same treatment in terms of really making it the hero. And we think for English rugby and the way it's approaching communities, there's a huge opportunity there. Women sports, I don't know how that's featured. MotoGP hasn't had -- so a number of sports. And I've been amazed by the number of UFC fans that have listened to me, recently delighted. There's a number of these, so I think this also gives real opportunity. And Olympics showed actually how many sports fans there really could be. And I think we just -- we're -- so there's a lot of opportunity there. Might as well pass it along the row.

Nick Lyall - UBS Investment Bank, Research Division

Nick Lyall from UBS. Can I ask on the latest prices, how's it going? How is it being received?

Anthony Everard Ashiantha Chanmugam

Sorry, I...

Nick Lyall - UBS Investment Bank, Research Division

On the latest, sorry, price rises? How's that being received by consumers, and is there a point at which you think people are starting to [indiscernible] in terms of prices rising too high by the U.K. operators? And then just secondly, on -- when do you think you're going to get the boxes sorted out between the 2 box options between YouView and Vision? When can we see just one unified box instead?

Anthony Everard Ashiantha Chanmugam

On pricing, look, I think the key to us being able to increase price is about increasing value and it's about adding services so that customers get more for their money. So looking at any one part of the business is saying, "Here, you're going to get 5%, 10% price rise through on it," I think is, forget that, that's not going to happen. Customers are too savvy for that. There's plenty of opportunity for them to really use, particularly the Internet, to be able to compare different providers in the market. So our focus is trying to ensure that wherever we have to take a price increase, that we're offering more to the customer as part of that rise. And when we increase the price of our voice services in January, part of that was increasing the functionality through the providing SmartTalk as an application at the same time. So I mean, that's the sort of example I think we're going to focus on moving forward. There isn't great room for pricing, though. I think it really has to be valued, value-driven. On the boxes, look, by July 1 YouView box will have a fully integrated EPG with both linear and nonlinear content, pay and non-pay content, so it will be completely compatible. It will be our focus going forwards. We've

got to make sure our existing customer base have got the existing Vision boxes have the same sort of functionality. We don't leave them behind, but we've taken the decision to invest in YouView. And the roadmap for YouView going forward is very strong. So that is a question of getting Sky support from it too on YouView, and that's still part of our negotiation.

Clive Selley

Might as well just pass it along the room and go up.

Unknown Analyst

On this issue, please, Gavin, I mean, given what you said about the YouView box, given the problems you have selling Sky Sports 1 and 2 over YouView when it's able to have linear TV and given that you also can retail over the Sky satellite network, why is it that you need to be able, yourselves,

to retail Sky 1 -- Sky Sports 1 and Sky Sports 2? And then secondly...

Ian Paul Livingston

I think we, given so many questions, we'll just take the one question. [indiscernible] , apologies, you shouldn't [ph] have done that.

Unknown Analyst

I just want some financials on ticket, that's all.

Gavin E. Patterson

Okay. In terms of offering customers Sky Sports 1 and 2, look, it's -- I don't think it's the critical part of our strategy. Our strategy is about fiber fundamentally, and we recognize that there are a group of customers that want to buy the services from one provider. So we've got to have a strong TV offer on one hand. At the same time, we recognize that there are a group of customers who are very committed to Sky TV. So in the proposition with BT Sport, we've made it available. On the Sky platform, we've given it a very competitive price point, I think you'll agree. And we backed that up with very strong dual-play propositions that allow them to access sport on the satellite platform but keep their network with the us, and that's fundamental to the strategy. I would like to be able to retail Sky Sports 1 and 2 on YouView.

Unknown Analyst

And 3 and 4.

Gavin E. Patterson

And 3 and 4. But we'll start 1 and 2. We feel we're being discriminated against because Sky have that agreement in place with Virgin and with Talk Talk. I don't understand why they don't want to have that agreement with us on YouView.

Ian Paul Livingston

I think it was a public company. Those actions are there. It was ticket you said. Yes, as a public Company, we [ph] paid some tens of millions of pounds for it.

Maurice Patrick - Barclays Capital, Research Division

Yes, it's Maurice of Barclays again. Just wondering your thoughts in terms of the extent to which sports will dominate the advertising and marketing over the next 6 to 12 months and therefore, your thoughts in terms of how it links into your desire to Wholesale to others.

Gavin E. Patterson

I mean, clearly, there's going to be a lot of money spent on advertising. We're making sure this is going to have sufficient awareness, so customers can see what a great deal this is. And I would be very surprised if Sky didn't try and combat that by increasing their advertising spend, and they are big spenders already -- as you know, they spend 4x as much as we do. So I think it will dominate, but the point I was trying to make earlier is I think we have competitive propositions across a number of fronts. So fiber, I think we've got a very strong proposition. WiFi we've got a very strong proposition. Our core copper products, the new Hub, there are a number of areas we can fight it. And I think if we try and make it all about sports, I think we're going to miss out on great opportunities elsewhere.

Clive Selley

Take one from there and take 2 from there, and then we better wrap up.

Andrew Lee - Goldman Sachs Group Inc., Research Division

It's Andrew from Goldman Sachs. Just a question on the pricing run rate, how crystal is a supportive, stable or growing pricing environment to your -- in broadband and fiber, show great [ph] targets?

Gavin E. Patterson

Look, we don't rely on getting more than inflation as price rises every year. The real opportunity for us is to grow volume. And I think, hopefully, you've seen today that there are big markets adjacent to our core business we can grow into. So we want to get a bigger share of the wallet, be it in the home or the business, from our customers. And I think the product roadmap we've got across the board really allows us to do that. So the more volume we can drive, the more sustainable that revenue is over the long term, the more dependent on pricing to get that; it's a short term. It tends to evaporate away relatively quickly as, frankly, you get a onetime hit from it.

Andrew Lee - Goldman Sachs Group Inc., Research Division

[indiscernible]

Ian Paul Livingston

Look, no, it's not inflation there. We -- some price are going up, some going down. But what is happening with the customers is they're up -- is also upgrading, and that's really important. And as broadband becomes core to people's lives more and more, they upgrade. So they get a lot more value for the money but they pay -- but their ARPU may go up and that's the story.

We should go there and then to...

Stuart Gordon - Berenberg, Research Division

Stuart Gordon from Berenberg. First of all, I might say that it was good that Ian joined in the stage, given the fact that Ian mentioned the Australian football and the women's football but not the Scottish Premier League but...

Ian Paul Livingston

Believe me, I'll be receiving that later as well.

Stuart Gordon - Berenberg, Research Division

In terms of the content spend from here, I mean you get things like the Champions League likely to come up by the end of the year. Is there anything that you think is a must-have? Is that something that you just think we should really go for that, because -- I mean, it's the crown jewel of European football. You're clearly banking a lot on the football content, as well as all the other content. But is there anything that really is a must-have that you would spend more than perhaps we're sitting here, thinking just that.

Gavin E. Patterson

Look, we're not going to give you our content strategy on a plate, to be perfectly honest. We're very happy with the rights we've got. We know we can put together a fantastic suite of channels, and I think you got a sense it's not just about Premier League football. There's a whole suite of sports that we've got. But we will look at opportunities when they come up. And if they can create value for us, if they can open up new groups of customers, maybe we'll be interested. But it's -- I don't sit there and think there's something in the market we must have at any costs. It's -- it has to be value for us.

Unknown Analyst

Can you give us a sense of what you think your broadband market share is in cable there [ph] at the moment? And a quick follow-up on content, where are you in the Heineken Cup rights of English clubs? Has there, in any sense, a resolution on that?

Gavin E. Patterson

What's our share, I'm just looking. Do you know that off the top of the head, Gel?

Nigel Stagg

No.

Gavin E. Patterson

Yes. I might -- can I come back to you? I don't know it off the top of my head. We look across the market as a whole. In terms of the Heineken Cup rights, look, as you know, we have the exclusive use -- we signed an exclusive deal with England so that any competition that the English clubs take part of in Europe, we have the rights to show that. The Heineken Cup has one more season to run. We'll see how it gets resolved in the next 12 months. But we're very sure of our position. We have a relationship with the premiership. Rugby is very strong, and so there's not any real news to share with you, Stephen.

Ian Paul Livingston

Yes. I mean, just from the cable area side, we -- a lot of things -- of course, there are also LLU areas that tend to [indiscernible] some market share that will be -- is quite a bit lower so there's certainly more opportunity in these areas.

Gavin E. Patterson

I think we better end there -- you got a quick -- one last thing to show you between now and lunch, obviously, we've broken a new ad in the last 24 hours. Hope you've had a chance to see it. But if you haven't, you're going to now. Don't run it, because rather than me introduce it, I'm going to be delighted to introduce hopefully, Jake Humphrey, who's going to front our Premier League coverage, to come in and talk about why he's so involved.

Jake Humphrey

[indiscernible], Gavin. Thank you very much. Yes, you're going to see some bad acting from me in just a couple of moments. Nice to see you all this afternoon. And by the way, congratulations, because this morning, after the big launch yesterday, I was sitting on the sofa bleary eyed, cuddling my 7-year old daughter and there you appear on BBC breakfast looking 21 years old. [indiscernible] Obviously, you've been told an awful lot about why BT decided to do this and what their plans are for the channel and the way this is going to support their business. But I thought I would just share with you a couple of my thoughts really about why I decided to get involved in the channel. And last year, I had a fantastic year. I was the BBC's lead reporter at the European football championships. I covered their entire Formula One season. I was one of the hosts of the Olympic games as well. And it was only really a few days before the Olympic games started that we had a really serious conversation about me leaving the BBC to join BT. And you know, it was a huge year to be a BBC sport presenter. So it was always going to be something of a leap of faith to walk away and join BT as they get into something which I haven't covered before, which was going to be live sport in the new sports channels. So you can imagine my 68-year-old dad who spent an entire life working as a charity worker in Norfolk, when I said I'm leaving the BBC to have to join BT to cover their football. Yes, and his jaw dropped. And I think yesterday, a lot of other people's jaws dropped because this is so exciting. This is so new, and it's so big. And the reason why I decided to get involved, I said to BT, "Look, I'm going to do this, absolutely, but it needs to be done properly. It has to be a long-term plan. It has to be credible. And most of all, it has to be big. This has to really make an impact." And I think the big things, which you know about, the 38 Premier League games, the big story there is the 18 first-pick matches. We're the first people ever to have this apart from Sky. But then it's only one of the things that have been bolted onto that as well. One thing that's thoroughly impressed me about BT is that every single step along the way of this new sport venture, they've made the right decision. So where do we have the studio? Who are the first people to got to the Olympic Park and to be involved in making program? They're Investing in that as well. It's really exciting times. I'm delighted to be involved, and I think that now I'm going to hand over to the bad acting. Just close your eyes, when I'm involved and enjoy Gareth Bale and all the other big stars that we signed up. And I think if anything sells this new channel, it's the [indiscernible] because it's the biggest names in the game. And it's warm and it's inclusive and it's fun. And that's the biggest thing about this channel. We're going to be -- all people to tune in and think, "Am I watching the BBC? Am I watching BT Sport here?" I want it to be a really warm, friendly and inclusive place, and we'll do that. But we'll also make sure that we are the people at the cutting edge. I think the -- the comeback from one of our rivals yesterday, was it we're using sport as a gimmick to sell other products. Well, actually, if they really think about it, what they'll realize is this, sports on television and the other product, which is broadband, are exactly the same thing. Now the 2 have completely aligned. The future of broadcasting in this country is going to be using the networks and the systems of BT from the 5 million WiFi spots, to their incredible Infinity broadband. That's the future, and here is the future of BT Sports. I'll let you have a look.

[Presentation]

Ian Paul Livingston

Thank you very much. Right. It's lunchtime now. So we've got 45 minutes to lunch. I would really encourage you to try one of the demos, all of them if you can, that are out there in the lunch area and even go out and have a look at Liv's van if you get a chance as well. 45 minutes, back here at half past 1.

[Break]

Nigel Stagg

Good afternoon, ladies and gentlemen. I know how much you've been looking forward to this slot. And I must say when Gavin wheeled on Jake here earlier on, I was a bit concerned about the early impact of this presentation. So I must say I am relieved and delighted to be joined by Clare Balding, who's going to be talking about Openreach later on.

Ladies and gentlemen, my name is Nigel Stagg. I run BT Wholesale. Today, I want to talk to you about the business, give you a little bit more color that you've had for recent times on the Wholesale business. I want to just remind you how we fit into the group and into our industry, talk through our strategic priorities and give you some sense of where we're trying to take the business into the future.

So let me start with sort of a top-level characterization of the business, some of which you already know. Last year, the Wholesale business reported revenues of GBP 3.6 billion. About 11% of that revenue is actually transit revenue. We have around about 2,200 employees directly engaged in the Wholesale business, and you'll see from the chart here that the ratio of SG&A expense to revenue is pretty tight, about 3%. That's what you'd expect from a Wholesale business. But that ratio under-calls the level of labor cost that's embedded in our cost of sales lines because many of these people in our teams are involved in customer service delivery and, particularly, contract delivery. Last year, we reported EBITDA of just under GBP 1.2 billion.

Now together with Openreach, the BT Retail Ireland and some parts of Global Services, we form the small W wholesaling capability of BT Group. And we happen to be the biggest in Europe, as Ian indicated earlier on. Now the fundamental distinction between Openreach and BT Wholesale is this. In Great Britain, BT Wholesale's role is to provide managed or end-to-end solutions for service providers and carriers. Openreach, by way of contrast, have a very full portfolio of access and backhaul products. We buy access and backhaul products from Openreach on regulated terms, but we integrate them with our own network platforms and capability to provide end-to-end or managed solutions for our customers.

Now I want to give you a little bit more color about that by explaining our business model. So just take to the left-hand side of the value chain to start off. As I said, a significant proportion of Wholesale's operating costs are driven by product input cost from Openreach, other parts of the company and third parties. Now the key thing is, as we move across the value chain, is to understand how our capacity to create incremental value from downstream from Openreach works. It has its origin in 3 fundamental areas.

The first is the competitiveness and footprint of our core platforms. I mean, this is true of our copper broadband platforms, where we have significant coverage domestically as you know. This is the case with our IP voice platforms, which have massive capacity to scale. It's certainly the case with our Ethernet footprint, which now, in the -- in Great Britain, has 1,100 nodes set to grow further and quicker and so on. And this is critical because our proximity to our customers' customers is materially influential on the input costs that we can achieve from the likes of Openreach. Shorter tails combined with our key assets mean overall more competitive propositions.

Secondly, we have deep domain expertise in BT Wholesale and across the group in the areas in which we've traditionally competed but increasingly also in the areas in which we're diversifying or investing for further growth. And I'll give you some more color on that later on. But the fact that our scale enables us to aggregate volume, to keep our unit costs competitive actually is the key defining competitive advantage of BT's Wholesale business today.

Last year, alone, we installed more than 2,000 mobile Ethernet circuits. That's a factor of 4, 5x on those competition. We handled well over 7 billion IPX minutes. We provided 7,000 Ethernet circuits and so on and so on and so on. So when customers really need to deliver -- a supplier that delivers scale, we can do that like no one else in the U.K. Our customer proposition is broken down into 2 fundamental parts. The first is a managed service business. This could include full network and IT Outsourcing but also can include customer service management field-based services and so forth. And it's true to say that, traditionally, it's been our larger clients who consumed this service from us. But it's increasingly relevant to our smaller customers in the channel, who are themselves making, buy-or-build decisions about their futures.

The second key aspect of the proposition set is our standard port range, Ethernet, broadband and so forth, where we are very accomplished. In fact, the managed service revenues in the business are about 1/3 of our total revenues in the year that just finished, which is up from a quarter a year earlier.

I just want to explain our customer segmentation because, at the highest level, we run our business through 4 main customer segments. Broadly speaking, our post-transit revenues have their origins of about 40% of our revenue from the mobile sector, just under 40% from the fixed operator segment, about 5% from our media and broadcast business and about roughly just 1/5 of our revenues from the indirect channel. Now clearly, the needs of each of these segments and, therefore, our propositions, are completely different.

In the mobile sector, for example, we provide a very significant proportion of their total backhaul requirements, getting mobile traffic back from the radio stations to the core network and so forth and now we're central to many of the investment plans of the mobile operators to upgrade their networks to support the features and capacity that 4G requires.

In the fixed network operator segment, our clients range from Talk Talk, who obviously have their own strategic networking assets but continue to buy from us to complete their off-net footprint. To the likes of K-Com, who, as many of you will know, have elected to completely outsource their network and their future roadmap to BT Wholesale. We actually have a very long-established media and broadcast business within BT Wholesale, too, which, amongst other things, manages all of the U.K.'s free-view programming but also serves broadcasters and significant media companies around the world with high-quality broadcast capacity both by fiber and satellite.

Now this fourth segment, the indirect channel, is quite a diverse group of clients. Overall, we have about 1,400 customers as Ian indicated. The vast majority of these customers, by number, are obviously in the indirect channel. These range from ISPs to value-added resellers to other resellers, for example. We have seen very strong growth in the indirect channel despite it being extraordinarily competitive environment. Our market shares are growing very quickly, and our revenue growth is at 10-or-so percent year-over-year in that space. We have more work to do in terms of channel support and in terms, particularly, of customer service improvement to continue to grow market share that's rich with opportunity for us.

Now turning to our general environment, I've used the term market environment but it's slightly broader than that. I mean, we have a challenged [indiscernible] . And I think the key factors that represent a gravitational pull on the business and have done for some while are well understood. Clearly, the fact that many of our biggest B2C customers traditionally continue to roll out their own unbundled networks and elect to source services from Openreach rather than BT Wholesale produces a significant compression of margin that we need to contend with. I think the -- it's so much so that even last year, we lost about 160,000 broadband circuits to that context. Similarly, the purchase of one of our very biggest customers by another one of our very biggest customers, with the expressed intent of moving their network away from ours, will also produce more challenge into the future environment. Although I have to say the early signs are there's still plenty of scope for us to continue to work together in a meaningful and scaled way.

What may not be quite as evident to you, though, is as we reposition ourselves to give customers the benefit of IP technologies, the margin mix will shift within the business. That's something that we need to factor in to our future plans and are already experiencing, which is why cost transformation is such a critical part of the overall mix strategically going forward.

And I just want to talk about our strategic framework. I think the strategy is very simple and very clear. It's a strategy which we've been executing on for about 18 months. In fact, it's good execution against this strategy that has produced underlying growth in Q4 for the first time in a very long time. And my objective is to maintain our status as the wholesaler of choice, simple as that. And we have a very strong traditional TDM portfolio, which we are progressively repositioning to support IP and give our customers the full benefit of IP going forward, whether that's in voice, data or multimedia.

Secondly, we are stepping up the emphasis we place strategically on the resale of our capability through the channel but also increasingly to support our bigger customers who, particularly in the mobile sector, want to diversify into more fixed services.

Thirdly, we aim to continue to grow our managed service business as a proportion of our total revenues and on absolute terms, and we want to help our customers take out CapEx intensity and complexity from their businesses using our know-how and strategic assets.

Our growth plans are underpinned by very robust end-to-end cost transformation strategy. I'll give you more color on this later on. But it is critical to help us cope both with unit cost movement as we metamorphosize the business and don't fall into the same trap that many operators have in their transition from TDM margins to IP but increasingly also to create oxygen for further investment and capability to propel us for to increase our growth chances.

Critically, motivated both by service quality and efficiency, we have to drive massive improvement in our customer service delivery. There are aspects of our service delivery today, which I would describe as outstanding. They are outstandingly good. But frankly, particularly at the low end of the business, the volume end of the business, we have much work to do to really impress our customers. And I want to talk a little bit about our performance over the recent past. I mean, certainly, over the last 6 quarters or so, I think it's evident that the financial performance of the business is starting to respond to the application of the strategic framework that I talked to you about.

Despite the optics also of the longer-run, historic trends in the business, it is not true to conclude that Wholesale have been passive in contending with a very challenging set of market dynamics. We have continued to invest in some of our longer-term projects: MIAS [ph] , IPX, managed services and so forth. And in their own right, these things have driven massive growth, just being masked by the context. However, I do think that the focus of the management team is now bringing to the execution of this broader agenda of structured, end-to-end cost savings, the relentless pursuit of unit cost reduction, of innovation and of winning more business is starting to make a difference to our overall performance. And I just want to give you 1 or 2 proof points about that.

This chart shows the rolling 12 months' order intake in BT Wholesale over the last couple of years. And as Ian indicated, we've had a fairly solid order intake profile over the last 12 months or so. Before we get too romantic about this, which is a tendency of mine, I need to remind you clearly that this is an amalgam of contract resigns. It includes long-term contracts, as well as a lot of sort of day-to-day block and tackling. The critical thing to understand is it does not revolve purely around 1 or 2 big managed services deals. There are a lot, about 5,000 in fact, smaller deals that we have closed during the course of the year to produce this effect.

Now we are making improvements in the book-to-bill cycle within the business but the intrinsics of it do not naturally

[Audio Gap]

correlate to the outlook for next year. However, 2 million -- 2 billion [ph] I indicated earlier that we've had mixed success in really achieving our goal leadership in terms of customer service. Our customers want simple, consistent, reliable service.

Now our strategy to support our products is to invest more in self-service capability and to integrate our operating systems into those of our customers, whether that be at the network operations level or simply in terms of order and fault management processes and billing. We're making solid progress with that, and we will continue to push that forward because it's essential to liberate some of the unit cost gains that we aspire to.

In the more complex area of the portfolio, we're investing in process reengineering, as Tony indicated, and we're also making sure that our customers have deeper, integrated access to our systems. When you look around the place there's still, despite all of the improvements in efficiency and so forth that we've made over the last few years, end to end across the group, the costs that we generate by handling a wholesale-driven demand are still very, very significant. The people intensity plus direct failure, the consequential failure, they are all very significant and have the incapacity to contribute significantly to the ongoing outlook of the business. And the improvements that we have contributed from a service perspective. And indeed, last year, we reduced the direct wholesale SG&A by about 17% year-over-year. There's more scope to do. But given the scale of the SG&A building the Wholesale as a business unit, we can't solve the margin challenges of our business prospectively, unless we manage this end to end. I think Clive gave some excellent examples earlier on, as did Tony, about the areas in which we're collaborating across the internal value chain and externally to see that systematically, our quality goes up and our unit costs come down. This is the thing that's fundamentally driven the improvement in the grading of performance of the Wholesale business over the last couple of years.

And lastly, I want to talk about growth. This isn't an exhaustive list of areas in which we are diversifying or creating more -- intending to create more momentum. Clive talked about IPX service. I don't want to go through completely again, but there are a couple of things I wanted to draw out. We have several hundred customers across the planet already signed up to IPX, including tier-1 carriers. This is going to be a very material growth opportunity for us in the future. And it's true to say, as Clive indicated, that we have a secret sauce here that will enable us to differentiate, win share, create further growth. So it is a critical area going forward.

But I want to just concentrate on 2 or 3 other areas to give some more color about the scale of the opportunity that surrounds us in the wholesale layer. The first is hosted communications. So we will be launching a portfolio of hosted communication services in the summer. For the last couple of years, we've had a kind of half pregnant capability. This is fundamentally enabled by our own intellectual property and assets. We will start with SIP Trunking. We will move onto IP Centrex, hosted contact center, inbound services and so forth, targeting mainly the channel but also increasingly the mobile and fixed operators who want to diversify. This is a big market but very fragmented, and we intend to position ourselves to be #1.

I also want to talk to you about Ethernet. Ethernet, as Liv will indicate in her presentation -- sorry, Clare will indicate in her presentation, is growing domestically. Year-over-year, we increase our share with the Ethernet market and BT Wholesale very substantially. Our overall growth is significant, and we intend to continue with our trajectory. We are rolling out more POPs [ph] to make us more competitive. We are adding different pricing mechanisms. We're getting cheaper through a variety of different access technologies. We're in a good position with this, and we intend to drive this further for more share.

The other example I want to give is mobile. Over the next couple of years, the mobile operators are going to go through an intense period of investment clearly to support their operating of their own networks to support 4G. We are busy 4G-enabling our own networks to making sure that the mobile operators have a roadmap to help them in terms of future capacity to handle data growth, have a range of offload technologies available to them through us, including small cells and so forth. And I am comfortable with the position that we exit the year in terms of our ongoing relationship with all of the mobile operators. So there isn't a shortage of opportunity around us. This is about execution, and we're starting to earn our spurs in terms of executional credentials.

Let me just try and summarize for you what I've been trying to convey. So the first thing to say is

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It is, and

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will remain a challenging environment. There's no question about that. The regulatory outlook are -- the consolidation of the industry the [indiscernible] . We have much work to do on service to impress our customers in its own right but also as a way of unlocking a lot of the downstream cost-saving potential that exists end to end across the organization. And we are surrounded by growth opportunities, many of which we are taking advantage of today. Overall, the market conditions aren't going to ease up but then, again, nor are we. Thank you.

Clare Balding

[indiscernible] Gavin [indiscernible] . Nigel has resource to good British humor. I have no need -- for those of you that went through the course of lunch to see the vans, you know that I am the true glamor part of this business. So I appreciate that you went outside. For the uninitiated, it is too late. They've had to go back and do the [indiscernible] this afternoon, so the moment is gone. But I'm sure if you discuss it with anybody who went, they'll tell you it was the highlight of their week and certainly, potentially the highlight of their working career today.

So these are the messages that I'm going to cover off, and we'll just get straight into it, and I will pick up the vans again during the course of the presentation. So 2 things to bring up when you're thinking about Openreach. There's 2 assets that I think we have. We have this fantastic asset, which is the network. It started as a copper network. Since then, we've invested heavily in the Ethernet network. We've got the best U.K. Ethernet network, and we're proud of that as my previous friend said earlier.

We've also got our amazing fiber network, and it couldn't be part of the presentation today without talking a little bit about that later. But actually, that's not the main asset that we have. Potentially, the main asset that we have is our people. And the reason for that is the reason we're so good at running our fiber is because we have these fantastic engineers who's loyally been with us for years, who's got amazing skills around our network. And that's how we can roll out so much quicker than other comparable countries and other comparable telcos like ourselves is the asset that is in our people and then the experiences they bring.

Now in terms of the progress over the last 4 years, the 3 things, I think, that are of note I guess from this slide, I'm sure you'll find more than 3. I'll just call attention to it. One is the pink, I guess, if you look at the top, you'll see the Ethernet is almost like by itself gone from 10% to 17% of our total revenue over the course of the last couple of years. That's I guess one thing to note.

If you go down here, you'll see progressive EBITDA growth. Obviously, I've put on the slide how the world might have been if the world of regulation had not been there and that's the kind of like little dotted boxes over the top. But it is there. It's accepted. We have to make sure that the announced changes are still to come. We need to fall in line with those and make sure that we drive efficiencies to deliver against that. That's fine and understood, and we have plans to do that.

And then if you go and look at the top, you'll see CapEx. So you almost can see that during the course of the period over the last few years, we've been investing heavily in fiber at the same time as making sure that our CapEx massively more efficient than the other areas to be able to deliver flat CapEx line at the same time of adding in between GBP 300 million to GBP 400 million were spent on fiber.

If you also look back over the last 4 years, I guess fiber is one of the biggest things that we've done, certainly our biggest achievement in the last few years. And you'll see in the last 2, it's accelerated dramatically. So Liv's part [ph] as you can see here, 10 million homes in the last 2 years. If you look at our most recent results for this quarter, it's still, on average, 120,000 homes per week. That wouldn't be true every single week. For example, one of those weeks, we did 400,000 homes. So it's not a straight thing that happens every single week. We have some weeks when we have one of those fantastic moments, either a spine goes in or lots of [indiscernible] get agreed with lots of local authorities or [indiscernible] , maybe there's no parachute of any sort or any type on the particular rollout. And you just end up with great weeks. There'll be other weeks when it's not like that. So please, don't ever view it as being a linear -- you can, yes, expect it to be the same every quarter. We're very confident that this time next year would've done our 2/3 rollout. That'll be 19 million homes past. We're very confident will all the deals we have signed thus far on Build [ph] U.K. that the right resource in place. We've got our people ready and running to go. We've recruited new people, as Ian mentioned earlier, to make sure that we've got that resource ready. So we remain extremely confident on everything we signed so far. But it will end up where the profile changes a little bit, as we head into more complex areas to reach in terms of how many homes per quarter or per week.

The other thing to bring up is the fact that we've got more experience, so yes, we've got more experience with running out fiber. We've also got more experience to working with our various customers around how they sell the product. We've done a better job with the local authorities of co-selling in places. We've done a much better job of kind of working out again with our communications providers, which are the types of customers that truly want fiber. It's a premium product. But remember, it's aimed at the 20% of the population is our current case. And it's making sure that we go to those areas. And as such, you'll see that we've doubled the speed of profile in terms of reaching penetration in the last couple of cohorts, which is fantastic.

In terms of market trends, that's the context against to which the future clearly is driven and the 3 trends that I think have come, I guess, evolved over the course of a period of time that are pleasing towards us

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and we need to maximize

[Audio Gap]

the opportunities that come from those.

The first is that people want data. They're almost indifferent as to whether it's by device or at home to use it. And we believe we make it as easy as possible to any one or the communications provider, whether it's an MNO or whether it's Sky, Talk Talk retail, to be able to access back onto our network as easy as possible to be able to keep providing that data at a good price point with as much coverage as possible. And that's one trend that is clearly here today.

Another trend is around the fact that we see the world of mobile as mainly complementary and not substitutional. I can recall the last one of these events that we did 3 years ago, and it was one of the big discussions of the day, looking at okay, with 3G coming, with 4G down the line after that, will fiber be there in time to make sure that it has changed the market a little bit in terms of what people think it could be? And I think we're seeing that anything that happens on mobile is absolutely complementary not substitutional.

And the third trend that we've seen from the course of the last while is due to the fact that data is popular, due to the fact that we almost see broadband now as a utility. And if that's the case, we absolutely need a fixed line and the, I guess, renaissance to the fixed line is probably the biggest joy to me of doing my job and that's something that we can continue to see as being something as a trend looking forward. We believe that the top [ph] growth have a got chance of staying positive in the short term certainly when we look at the trends that continue to come that way.

Regulation. So you've asked a couple of questions about this earlier. And this, I guess, would be kind of like the overview of my sense. And I think it would be -- if you -- all we can take is the latest information that we have from the EC. That's what we need to take. We can look at that. We can expect to analyze against where we're taking our plans, where others in similar circumstances to ourselves have taken their plans in euro [ph] . And what it highlights is that we're not just in the bottom half of the current recommendation of EUR 8 to EUR 10. We're in the bottom, bottom, bottom part of that. So EUR 8.28 is the price of LLU today, if you use the current exchange rate, which is not just within the EUR 8 to EUR 10. I mean, if you look at some of the factors over the last couple of years that weren't included in the last charge control, for example, whether it's changed significantly in terms of weather [ph] trends. If you look at the fact that broadband is used on certainly more lines that it was in the last time Ofcom analyzed the data for the broadband surcharge. Because people need different types of line characteristics to use broadband than they do on fixed voice. But the number of things like that, that, we believe, will be strong arguments as to why the LLU price has some opportunity for increase as much as I know there is perception that there's also opportunity for continued pressure on pricing. So I think we believe we're right that they kind of like low end. And it's a discussion now as to what we want to do on service as an industry is to have that -- the next round of that charge control is played out.

In terms of fiber, we're also have been able to manage [ph] . We've priced the takeup. So we're uberproud of our fiber network. We're really proud of it. We've got customers that like it. We're most part proud of the fact that 1.5 million customers are loving it. That's a bit of a proud of, not the fact that we happen to have some very nice new tables in the ground. That's kind of pleasant, but then it doesn't really -- it doesn't feed anything for us. So I think that's the key thing. We'll continue to price for [ph] is the takeup. We think that we've very good value already. I think if you compare to anybody else in Europe, that is evident. And I think that will be reflected in the next round of the charge control being reviewed. It's the fact that we are only part the way through our rollout. The fact that we still have a significant chunk to go, are still going to be reflected in the risk profile that is analyzed in that charge control.

Customer service, at the end of the day, that's what we are. We're a customer service organization, and we've had a bit of a mixed year, I guess, in terms of last year. We have some fantastic highs. Our best-ever service in Openreach is in Q1 last year. Unfortunately, we then followed that up with some trickier lows, it's fair to say. And what this kind of brings to life, just in simple terms, is the business is changed in terms of the amount of engineering activities that we do. Every single week is dramatically different. You can see it's a GBP 0.45 increase between 2009 and 2010 where we are today. And that's because of fiber partly. So everything you've got, you have an entirely new product set. It's also due to the fact you have the fixed line renaissance. It's also due to increased faults [ph] . So the combination of those 3 is driving up the requirement for us in terms of engineering visits.

If you look at the amount of days until we provide an appointment, which is the key metric as I guess you would speak to any of my external customers it's how many days for new customers to get a line? And today it's 7.2 if you wanted today's stats. And It's been well under the 13 days, which is the regulated agreement for the -- since early February. And at the same time, we did have a tricky patch last year when it was above and you can see that on the chart. So I think it's -- we had a bad moment, fully recovered, been good for the last while. And I'll talk to you in a second about looking forward.

In terms of faults fixed in SLA, that's our purest measure to share how we're doing. Again, you can see that steep drop last year when we just weren't getting fixed in our faults. At the same time, you'll see that we're in a couple of percent now of being back to our historic averages, which is a pretty good performance based on the past, but also a lot of things have changed in the industry during that period of time. As I said, the fault volumes increased. We've also got a broadband surcharge, and there are many more MDS [ph] customers. They come with a much tighter 24-hour quicker fix in WLR and nonetheless, we're within touching distance of historic averages when, in all honesty, the world was a little bit of a different place if you were [indiscernible].

In terms of looking forward from customer service perspective, providing really good standards of level of service is where we are now,

[Audio Gap]

it's absolutely where we'll continue to be.

[Audio Gap]

But then there's the opportunity to monetize true premium service, and that's what you will see us do later in the year. Service those customers [indiscernible] whether it's a -- almost one of those, "I'm a celebrity. Get me out of here," moment where you say, "I've got a fault. I didn't buy the right caliber [ph] . But now, I need help." That kind of sense of fix time. Whatever is it in that kind of discussion points, there are a number of products we're in discussion with the industry about. We will be launching premium services during the course of this year, and we think that they will have some niche takeup, particularly, in the business market but, potentially, also with some of the new consumer propositions. They might be attractive as well for some of the consumer communications provider.

[indiscernible] Mason [ph] , Tony gave us as almost like a coaching on stage earlier. I don't think anyone's in any doubt. But this is the lifeblood of part of our success in the last couple of years. It's absolutely got to be in the lifeblood of any future success we're going to have as an organization. And I've listed out a number of things here. And I'm going try to bring to life just kind of 5 of the ones that I think of most interest. And I'm not going to talk vans, but I'm going talk everything else that is [indiscernible].

So one of them is clearly around making sure that we have the most, I guess, enabling tools possible for our engineers so they can get realtime access. They can also be able to work in a much more nimble fashion. We can monitor their movements much closer, because we'll be able to then reschedule them onto jobs. And that's hopefully some of the things that you saw from the tools demo upstairs. And some of the really clever stuff that we've been able to create in the tools space, using things like Big Data, is to be able to almost predict to the engineer in what could be a 500-meter long piece of cable to within 25 meters accuracy, where we believe the fault to be. So rather than spending the entire day trying to track and locate across 500 meters. You'll get something that is going to be 90-ish, 92% accurate to within 25 meters. So you trust it. You start there. It's like a treasure map. You start there. You have to dig a bit to the left or a bit to the right. But the reality is you've been given a starting point that is factual, that is insightful. That's the kind of things that we'll see on the smartphones that are in trial now. That's kind of like a new world for us to be able to keep the [ph] data that previously you could have found but wouldn't have worked in the same extent, suddenly pulled together in that one sense. That's one example of how we're going to be able to save cost going forward.

Another one is the T&Cs for the 2,000 new engineers and there's a number of changes that are introduced to those T&Cs. But one that I think is quite insightful is that the 60 minutes at the start of the day when the engineer travels for the first job, that's on the engineer's time. That's no longer on the company time. That clearly gains us up to 60 minutes every single day for 2,000 people. That's an example of how things are changing as we begin to introduce new engineers in the new terms. That is a massive opportunity for us to make sure that we do our -- I guess, our longest [indiscernible] job at the start of the day, giving us a transformation from then on, we're dealing with reduced travel time, bringing the engineer back to their local home, much better for them to end near [indiscernible] at the end of the day as well.

If we look short term out, Tony stole my [indiscernible] efficiency one earlier in terms of the 10% average [indiscernible]. So I'll talk about systems optimization. We're upgrading 60 systems in the next year. Those 60 systems, all of which will yield cost-saving benefits for us. Some of it's around allocation. Some of it's around scheduling. Some of it's around making sure that we reduce the missed appointments element, which comes [indiscernible] and customer upsets. There's many advantages to any of those savings. And if you think about it, when you've got well over 20,000 people out and about every single day, any individual efficiency that shaves minutes off travel time or minutes off waiting can be a significant cost saving.

In the medium term, and I think looking at exchange-based workers is going to be quite exciting one for us. In the world of self-install fiber, which is coming this year, that's an opportunity, that is how do you manage or how do you bundle up self-install jobs which are cabinet work and be able to locate them in maybe a slightly different manner as you would if it was an in-home install. One of the things we'll look out there is the terms in the roles of the exchange-based workers and how we get the exchange-based workers to be able to do cab work as well as exchanges, again, reducing travel time and helping us to be more cost efficient. So there's no lack of desire, there's no lack of ambition, and there's certainly some good ideas as well.

Fiber. So in terms of fiber feature, self-install fiber is one of the biggest pieces for the year. It's in scale trial this summer with a number of the big cities. It will then -- depending on that, it will go live hopefully sometime in the autumn, depending on the learnings that we take our from that scale trial. And so I guess, watch this space, we'll share more with you I guess during the course of the year. The rest of the fiber journey is around increasing coverage, and it's around increasing speeds. We remain massively excited about what we have work in the labs now. As Clive mentioned earlier, there's opportunities. It's going to come down to choice. At the moment, as this still stands, if you have fiber to the cabinet speed to a median of 60, you're already loving the product. To some extent, you'll probably unlikely to pay fiber on demand tomorrow unless you are

[Audio Gap]

small business or you're literally a speed monkey that really has some fantastic upload of photos or graphs [ph] [indiscernible] when we need more. It's ready, it's deployable, it's ready to go, and it becomes choice of the individual device.

In terms of, I guess, how far, how quick then over 90% in the next 3 to 4 years. The reason for that is, is it kind of depends on the contract that we're signing. so we're in the process of 121 of the BDK [ph] bids. There were 20 still to bid for. It depends on their time windows, their locations, exactly whether they'd like to prioritize kind of factored in to what the profile looks like, which is why the 3 to 4 year is it kind of follows those [ph] .

So this is the questions I normally get asked. So as always, we try to get a slide to answer this. So if you walk us through kind of what the math, where does the math take us in 3 to 4 years? And what you'll see is it can take us from GBP 100 million a year to GBP 150 million of GEA revenue today. True to the numbers you're seeing here, GBP 350 million to GBP 450 million.

In terms of CapEx, right now, we're spending GBP 300 million to GBP 400 million each year. It will drop to a few tens of millions. There will always be some ongoing CapEx like there is in copper. There's going to be some ongoing spend with fiber, partly as continued investments in the technology and partly because some cabs will end up where we get to levels where we decide to put another cab in the local area or we put new line cabs [ph] in. Things like that mean constant investments. And this obviously is predicated -- all of the fiber scenarios are predicated on the right environment. So it does predicate itself that there is a right regulatory environment, because if we're going to continue to doing less attractive areas, I guess, post the [indiscernible] have completed in this time next year. So it's important those terms do remain relevant for us to continue that deployment.

And it's not just fiber. So another question we normally answer are just fiber in the world of Openreach. But it's not just fiber. Actually, Ethernet is as exciting, if not more exciting, half the time. So I think getting a sense of how we come on that journey and where we're going next is a big thing for us in the team. And also I think it'll be [indiscernible] not to mention TV. TV for both the Talk Talk, Sky and retail is right at the heart of the proposition. That gives us opportunities. It gives opportunities from a network perspective as to whether it's premium product, as to whether it's the premium network of fiber or as to whether it's in-home opportunities where they need TV-qualified engineers. All of those are revenue opportunities for us to work with our communications providers with. And of course, as the mobile players that Nigel talked about, that's a big revenue stream for myself and for Nigel. And making sure that we've got the right network infrastructure to then to be able to offload any traffic they so desire at the right location is another fantastic opportunity. So by this, you should imagine a pole or a cabinet where we've added a bit of infrastructure potentially on to the pole or the cabinet that we have now to be able to easily enable MNO offload, and that's something that will be attractive to them to move network traffic off theirs, straight onto backhaul provided by ourselves.

The key messages.

We've got a track record of consistent EBITDA delivery, and that certainly remains the plan. It's in spite of regulatory constraints, and clearly, we'll have to keep making sure that we work closely with Ofcom [indiscernible] and what we believe are the fair points regarding pricing going forward. There will be continued efficiency drive, firstly because we've got a whole chunk of unregulated products that we need to make sure that we're [indiscernible] . We've also got predetermined price cuts that are coming the next couple of years. We need to make sure that we're still making good margins after those -- having swallowed those price cuts. And to get ourselves ready for the future, we like to get ourselves ready so we've got the opportunities to invest. And to do that, we clearly have to make sure we've freed up the cash to be able to provide those investments. The fixed line renaissance continues. Certainly, it's driven by broadband. So whilst broadband continues and whilst population growth continues in the U.K., another driver of broadband, another driver of the fixed line renaissance, that's all positive as we transfer [ph] ourselves. And fiber, on track to budget and confident that we can do over 90% in the next 3 to 4 years.

[Audio Gap]

Myself, Clare and Nigel are now ready for questions.

Ian Paul Livingston

We've got, I think, we've got time for 10 minutes of questions. [indiscernible] get earlier. [indiscernible] section again. So we start at the back there so it can't be missed and if you can bring the other one because you all have moved around.

Unknown Analyst

[indiscernible] Crédit Suisse. Just wondering -- just one quick question. How can you be able to reach, going forward reincentivize the likes of Sky and Talks Talk, who are start reselling their products, more aggressively, the fiber products. Could you introduce sort of discounts, certain volumes, for example? Just wondering how you think about the next few years and how you can incentivize them.

Clare Balding

So there are scale discounts in place now. And certainly, 2 of the big 3 CPs have signed up for those discounts so I think it depends on what they want to spend their cash at the time. So I completely agree that you would expect to get a scale discount if you're going to be a scale player, and that's how it's setup now. Doors remain open to continue to discuss those things, but I think it's already a really good value product already. So the main strategic intent is to price it good value on the basis that it's [indiscernible] .

Unknown Analyst

[indiscernible].

Clare Balding

So, I mean, the 2 big things that was always being said that people wanted, we've delivered, one of which was self-install that delivered this year, that was always named as being the thing that the [indiscernible] needed to launch fiber at scale. That goes live this year. And the second thing was volume discounts to scale, again, have been live for the last year.

Ian Paul Livingston

You can [indiscernible] and pass it along the row and go...

Nick Lyall - UBS Investment Bank, Research Division

Nick Lyall from UBS. Can I ask just on the volume numbers? You talked about fixed line renaissance. Just how does that affect your thinking as you go into WLR [ph] review in terms of increased volumes and the potential for just lower [indiscernible] prices?

Clare Balding

So, clearly, a bit of factor that will be played into it, right? There's also a whole heap of factor the other way. So I think what we'll probably find fitting into it is there will be a bit more volume in terms of copper net adds than perhaps you would have seen a couple of years ago. And also there will be a chunk more costs that weren't picked up in the last rounds related to repair volumes, related to weather conditions, climate for the future, related to the fact that broadband surcharge was typically ignored in the last charge control. So I think there are more negatives that I don't believe were factored in last time than there are positives that weren't factored last time.

Nick Lyall - UBS Investment Bank, Research Division

Sorry, that was more or less my question. But I just wanted to clarify what the -- what are the extra costs? What is the broadband surcharge? And will the pension be reopened as an issue to be factored into your costs as well?

Clare Balding

So in favors, I know who would answer that one.

Ian Paul Livingston

On pensions, we'll continue to make the point, and we think it came to the wrong answer last time. But it's going to be one of the many points we'll be making over the asset value and I think the point Liv made about EU prices in some of the guidance. So we think it's a very different environment from the last time we had this review. And...

Nick Lyall - UBS Investment Bank, Research Division

So what's the broadband surcharge?

Clare Balding

The broadband surcharge. So when you analyze how somebody uses their line, previous times, it was a fixed voice. So when Ofcom were looking at previous data, they were looking just on the basis of what does the customer complain about, when does a fault get raised and it wouldn't have the broadband elements factored in. In order to use broadband over your line, clearly, it's got to be more stable. It's got to make sure that a slight bit of crackle that you might be fine with for a phone call will immediately interrupt your broadband service. You will not be

[Audio Gap]

So there is an increased element of faulting as a result of the broadband surcharge.

Nick Lyall - UBS Investment Bank, Research Division

And if I could just ask one follow-up. Tony mentioned that there will be a change in reporting regarding regulated and nonregulated. Is that going to affect Openreach? What's the thinking behind that?

Ian Paul Livingston

Well, it will -- talked to that -- it will -- probably, these effects would be actually in wholesale. And, really, what we're trying to do is just it doesn't affect what is done in each of the parts of the business. It's really reflecting, I think, far more aligning it more with the regulatory accounts, the way it's looked at just in terms of the allocation between certain things. And also, frankly, the fact which defined the business in other words taking out internal trades [ph] and things like that. So it's -- I think the biggest differential would probably be to Nigel's part of the business, and then there will be some small other changes around the place.

Unknown Analyst

Two questions, please. First one just for wholesale. You had a very strong fourth quarter in terms of revenue. Just want to make sure how much of that was focusing on one-off contract booking. Or is that now a new sustainable return to growth for the top line?

Unknown Executive

I think it's partially seasonal. Q4 is typically all influenced by one-off revenues, and there were some one-off events associated with contract signings that occurred in Q4 as well. So it's not all underlying performance. But the underlying performance over the previous quarters indicate consistency in terms of the trend.

Unknown Analyst

Can you quantify how much was the contract signed?

Unknown Executive

No. No, sorry.

Unknown Analyst

And then second question just on your regulatory vision. I suppose you seem to put quite a bit of faith in the European model that needed growth [ph] [indiscernible]. We've had some kind of vocal opposition to that from [indiscernible] . I mean, Ofcom, historically, has looked to the regulation on the return on capital point of view. I mean, are you suggesting that, that approach Ofcom has had historically could be abandoned?

Clare Balding

No, no. I think what I'm saying is that all in our race have been given quarterly guidance. They must occur [ph] to the utmost respect to whatever comes out of the EU. So for many measures on our wholesale pricing for fiber, we think that we're good value. So whether you want to take the new EC recommendations, we think we're good value. If you want to take cost orientation, we're good value. If you want to -- on a number of different ways, we think that our fiber pricing is fair.

Ian Paul Livingston

I know the measure converge in Europe. That's got to be, in relative terms, good news for us. That was the point. I think we -- and [indiscernible] recommendations actually adopted many principles from Ofcom. So I think Ofcom were, in many ways, very pleased with a lot of [indiscernible] had to see because that wasn't where they started. But they -- and the reason it did is it recognized actually the U.K. fiber model has been really successful, simple as that. We can do behind 2, then we'll go to Steve -- if you can get to Steve after 2 there.

Unknown Analyst

[indiscernible] just one question. You talked about small cell deployments in the presentations today. How much of that is going to be LTE embedded in the next variant of Home Hub? And how much will be sort of to PICO cells strapped to telegraphic poles?

Clare Balding

[indiscernible]. So we couldn't give you predictions of that level, kind of right in your quantification. Constant conversations with customers, with Nigel discussing his, with -- I was looking at. So all options, it all depends on demand.

Simon Weeden - Citigroup Inc, Research Division

Simon Weeden from Citi. So you're giving away GBP 1 billion worth of content, not straight away, I accept. But I think the plan is you get more broadband customers and you get more TV customers. And a lot of that could happen between now and mid-August, which gives you that 3 months to get more connected. So the question is, how do you do it? And do you have the capacity -- should we expect a bit of a slowdown in coverage expansion whilst you the more results to connections -- to what extent is Openreach involved in switching on the set-top boxes and getting engineers -- engineer-installed EV boxes going?

Clare Balding

So as you all know, I spent no money on content. I'm broke after GBP 2.5 billion on the fiber. So we are involved. So Gavin has awarded 2 contracts to ourselves and to one other in terms of the in-home work for TV connections. And in terms of getting ourselves ready, we've got forecasts from all of our customers, and all customers now forecast 3 months out for all of their products. And we've taken those forecasts from the various CDs [ph] and factored that in with gears and resource to manage, everyone's current predictions. Now we've had moments in the past when somebody is selling us something totally different to the marketplace and change that to a tune of 45% in a single one-off [ph] , that I'm not geared for [ph] , right? But on everything I've currently given prediction, I'm very confident that we have the engineers lined up and ready to deliver. So I don't anticipate it being a slowdown or an impasse [indiscernible] .

Ian Paul Livingston

And can you give Steve his...

Unknown Analyst

Yes. Just another question on the fiber demand from your competitors and also their customers. I mean, either your competitors aren't pushing it or the customers aren't demanding it, but the takeup of fiber outside of BT has been pretty slow. So what changes that status quo and drives the demand for fiber outside of your base? Is it self-install? Is it the TV acceleration from your competitors like Talk Talk over the next year? And what's the timing of that acceleration in demand? Basically, what's supporting your view that you put in, in one of the slides that you have, what was it, 4 million to 5 million fiber Openreach users in 3 to 4 years?

Clare Balding

That -- so the view of the 4 million to 5 million Openreach users is based on a 20% takeup model. It's that all it assumes. So it's no different to anything we've ever discussed before. That's what we perceive will be the kind of takeup, so we've assumed that. And I can't comment on -- I couldn't comment on Gavin's plans. I can't comment on [indiscernible] plans. That's for them. Anything that they've shared with me remains trusted to [indiscernible] rather than anything else. You need to talk to them. I do believe, if you look internationally, the self-install has helped in some markets and [indiscernible] live in 1 or 2, but it has helped in the market it's been in. And IPTV definitely helped in the market it's in. So they look internationally to be trends, but we'll have to wait and see what everyone starts doing in the U.K.

Ian Paul Livingston

And the other thing is, we've got 1.5 million customers today. We added 0.5 million in the last 6 months. And if we're adding 0.5 million in the last 6 months and we're expanding the base, as [indiscernible] do the math, you don't actually need to see increase in the pace of that takeup in order to get that 3 or 4 years of 0.5 million, 0.5 years added to 1.5 million.

Unknown Analyst

I mean, is that 20,000 new customers from outside retail quarter 1, 59,000 customers outside retail quarter 4 traveling [ph] ?

Clare Balding

Yes.

Ian Paul Livingston

Yes. And I think the thing that will cause them to do so is customers are demanding it. You can see the numbers. But that will be their call. Steve [ph] ?

Unknown Analyst

I was going to sort of make that point and sort of come back to original assumptions on fiber because you talked about the S curve earlier and clearly volumes are rising, 270,000 this quarter. I mean, the original 20% assumption on a sort of any sort of S curve, does that not look a little bit conservative in 3 or 4 years' time? And you've got unit cost down, which you mentioned as well, you've taken your CapEx from 2.6 to 2.4. I mean can you give us a sense how the original sort of multiyear payback you talked about double digits where you think you are today and whether you think 20% doesn't look a little bit conservative on a ramp in volumes, which we are seeing there?

Ian Paul Livingston

It's going well, would be what we'd say. The case, as you said, was early double-digit years. We targeted cost reductions. We're achieving that, and the take-up seems to be being done. But we don't know where the S, the top of that S curve is. It may be that it's a long way off. If it is, as I said, do the math, and actually 20% looks conservative. It could be. We may find in some of the earlier things, that when you reach a certain percentage, it doesn't grow anymore. At the moment, do I feel a lot more comfortable about achieving the 20% than I did? Yes. Clearly on, particularly, on some of the areas where speed has been low, it's very attractive. But at the present moment, it looks an achievable assumption. When we first started out, there was lots of people telling us it was completely unachievable. We don't particularly want to go from unachievable to achievable in one shot. We just don't know where the top of that S is. At the moment, it looks pretty reasonable, but that's all...

Unknown Analyst

It looks double-digit rate of return.

Ian Paul Livingston

That's still the plan. That's absolutely still the plan. But it's a degree of confidence. I'm feeling that there's less downside to it. It's certainly stronger now than it was, that's what I'd say.

Okay. We've run out of time. Thank you, two. Now the next stage and, in fact, the last presentation apart from the conclusion, Luis Alvarez, Global Services. Luis? Thank you.

Luis Alvarez

Thank you, Ian. Well, my name is Luis Alvarez, and I run the BT Global Services, and I think that I better do this well because over the break you told me that I have no career as an actor. So -- which by the way, it says Bobby [ph] Barcelona. I'm a Real Madrid fan, just in case there is any doubt about that.

So well I would like to share with you a little bit about Global Services and the things that we've have been doing in the last years, but probably importantly, what we do for our customers and the challenges and opportunities that we have. If I look to what we have been doing in the last year, probably the best summary would be that we have been working in terms of consolidating what we have coming from acquisitions, coming from large contracts. And in fact, what we have delivered is a leadership position in the market. So we have a better business than we had 4 years ago. However, we have not delivered yet the financial performance that we can. And I think that Ian mentioned that before, and you all know that is one of the biggest opportunities that we have. In this sense, I have been able to keep acquiring good customers around the globe. We have acquired a solid customer base. We have been improving the way we manage our contracts. Just for you to know, around 30% of our revenue is coming from the top 20 contracts. So if you see the numbers around a total revenue, it remains an opportunity to make higher, the share of wallets in those -- in the rest of the customers. We have enhanced our portfolio, so we have better products in the market that are well recognized by our customers and by the analysts. And something that is also quite important for us, the expansion in high-growth regions has provided us a much better landscape in infrastructure to prepare for growth. And we are doing that, both supporting our global customers who are expanding those regions, as well as working with them near emerging multinationals that are coming from that. Even in the U.K., we do have still a good opportunity to increase our market share in many of the products and services we have. And the beauty of this is that the work we have been doing has got not only the recognition by our customers by giving us more business but also by many of the analysts of the industry. I think that you have here a couple of examples. You can read their reports from Ovum also. But I think the most interesting for us is the achievement of this leading position is helping us to open new conversations with customers. And as you can see, even having double-digit market share on the large deals in the 3 main regions that are affected by ISG, that was the former TPI. Though that is providing us also the opportunity to grow because it's quite still a fragmented market.

And interestingly, well, we have more to do. Why? Because it's quite obvious. I think that when -- if you have seen the numbers, we have been able to secure a good strong order of intake in the second half of the year, around GBP 4 billion. And considering the tough economical conditions, considering the pressure on government budgets, what is happening in European countries, also in the financial services sector, and probably many of you recognize that in your companies, where there is half the number of seats in trading rooms that are now compared to 5 years ago. But interestingly in that market, we have been able to keep winning. It's true that the deals in the market are shorter, are a little bit smaller because they are more diverse. So they split, for example, the pure IT or the software development from the telecommunications or the network IT services. But it's also true that it's given us a good landscape to continue to grow our business in that area. The second thing is quite obvious that these economical conditions, especially as I said, the pressure on Europe in the financial services sector has made us -- have pressure on the revenues. But it's also translated in pressures on the margins, right? And the way to balance the pressure on the margins is clearly to accelerate our cost transformation. And in '11, '12, we have done 1% of cost transformation, this year though, we have closed -- we have been in the range of 6% [ph] and we should continue to doing that in accelerated way, as you have heard from most of us today.

The third thing that is quite important is in order to do that, we need to continue to have the programs that we have to improve our cost base, keeping -- continue to winning the market in order to continue to deliver EBITDA. Having been able to have an EBITDA minus CapEx of GBP 100 million, well, clearly is much better. But when you have also the view of the cash flow. Wwell, to be honest and I was discussing this morning with my team to be running a business of GBP 7 billion that generates GBP 6 million of free cash flow is just an opportunity to grow, right? And clearly, we better do it.

I think that for us as a team, this is somehow -- what we are planning is to respond to the market by seizing the opportunities that we have, managing the margins and ensuring that we have our cost base much better managed in order to deliver the better return and the cash flow that we kind of issued [ph] .

Interestingly, some of you asked, well, could you give us a view also of how do you see the market, right? And we see basically 2 main trends. One is what is in the agenda of the CIOs and CEOs that are our customers, which is mainly about flexibility, being able to manage the challenges they see in their customers, and also balance the new investments in new regions. I was discussing with the CIO of Nestlé, who is now opening a new manufacturing center in Rio. That is one of the examples of people managing to enter into new markets and balancing that and connecting that to the rest of the globe.

The other area where it's clear that the technology is in our favor is that most of the companies continue to need to connect and to have global networks. They need to open the collaboration. They need also to ensure that they manage the rate of information they have on their hands in a much better way, the whole Big Data, and they want to have flexible cost. They have what we call the cloud services and we will want to talk about that a little bit later.

And finally, no doubt that the whole security and risk management is very high on the agenda of our customers. So I would say that the overall, this is quite a fragmented market. It's the demand that is growing. And what we do has become strategic in the agenda of our customers rather than just operational on a day-to-day basis.

So what is the response, the answer of the industry, in general, to this model? Well, I think that the model of the industry is saying, well, there has to be a very strong, resilient, sufficient network that is able to provide that connectivity to offices, to manufacturing centers, to research centers across the globe in a seamless way. And this network could be either built, so we'll have the S curve lead as we are going in the U.K., or it could be done by partnership, when you interconnect with people. So you own and run the big highway across the globe, but then the last mile, there's more roads, is in partnership with local suppliers and players in the market who has a consumer market in that business, in that consumer business, in that market and then they can really manage that in a much better way.

And then, you have, around the network, a number of services in order to allow your customers to concentrate and to focus more on their cost basis [ph] . So you would say, well, if everybody is able to do this, why do your customers buy from you? Well, I think that talking into our customers, we have identified 4 major areas why they buy from us. The first one is because, not only we have global assets and people, but also we have what we call 'glo-cal' presence. So we do have people in Brazil attending our global customers and our Brazilian customers in Italy, of course, in the U.K. or in Singapore. And we are able to leverage the knowledge and the capabilities by having service centers around the globe and by having also the ability to interconnect and to move the people to support our customers on a global basis.

The second key differentiator is that our expertise, our relationship with our customers is based on understanding how they use the technology for their industries. So if we work with a bank, we understand which kind of banking they do. If it is wholesale, if it is purely retail. If we work with an oil and gas company, we understand if they are now in the downstream or if they are in upstream and what are the different requirement they need. And we do the same thing all across a number of industries, where we have clearly different in the market from our competitors.

The third one, although it's a technology business and with the infrastructures absolutely critical, the skills and the knowledge of our teams is essential to continue to provide our services to our customers. We have around 4,000 professionals across the globe working with our customers in order to make it happen.

And finally, one of our differentiators is the economy of scale that we generate by the strength we have in the U.K. so that we can leverage that to provide services across the globe. A couple of examples, what we have been doing in health

our work we have been doing in financial services as I referred earlier. So this is the way we differentiate and why our customers buy from us. The interesting thing is that you can talk about the individual components of our services to our customers around the portfolio we have. So the core of what we do for our customers is just the traditional data networks, so we connect customers. So we make sure that it appears that everybody who is working around the new car in Fiat, when they developed that Fiat 180, they appear to be in the same room. And they appear to be in the same room being in Brazil, in Poland, in Turin or in Asia-Pac. And at the end of the day, it's bringing to reality what Thomas Friedman called The World Is Flat, which I'm sure you have read. And is making sure that customers like Fiat and we first worked with them, they had 80 different suppliers around the world, and now we work with them to have one unique network. We have been working here in the U.K. on N3, creating a network of 51,000 connections, providing to the network of hospital and practitioners the ability to access to all the spine systems and information. Also, we have been able to build things like the branch network of Nationwide, 700 locations here in the U.K. and examples like global networks, as the one we have announced with Rolls-Royce that has, I think it's around now, 160 locations, worldwide. This is the data network. So what is happening on the networks today? Well, they are the base so that you are on top of this incremental services. The most basic one is the traditional voice. So we call people, now this is becoming more into IP, and more into our collaboration. So we have announced the agreement with the Manchester City Council to move them from the traditional voice into IP. We have been working with Philips around the globe. We have like 150 telepresence, high-definition video sites in the globe, where we provide the services. Or we have been doing things like, with Tommy Hilfiger, creating what they call the virtual dressing room. So they have 5 different rooms around the globe, connected in high definition, and they share the tools and they can -- they can try the textiles in the different places, so they work together and they shorten the cycle of new developments. A second thing that is on top of the network is related to the capability of compute. Being able to provide computing capability, computing power to people in a way that they can use, not only the network, but also the traditional data centers. Clarins is a good example. I'm sure some of you are customers of them, as I am. Where do -- we provide not only the network, but also the IT services so, they can really focus on having much better cosmetic products every single day. Another good example of using cloud services is Shanker, the logistics company. We provide for them 60,000 emails, email on the exchange platform so that they can rely on us to provide that service for their own use. The third thing that we have on the network has to do with how our customers are able to serve better their own customers. And I'm sure the traditional, this was called a contact center environment, where people call on the phone, and someone was answering to that. This has clearly evolved, and now what we have announced this year was the ability to provide to one single agent the capability to understand the messages that are coming from an email, the calls that, that person is receiving, but also the new social media like Facebook or Twitter feeders. And this is allowing to have a unique new relationship with customers. We have done that on the cloud, so that the customers pay-per-use, rather than having to make a significant investment. And we have signed deals with Emirates, where we have a contact center here in Manchester and another one in Abu Dhabi. We have been doing things for DWP, which is the largest contact center with 30,000 seats or with Tesco, which is the most recent one, which is 1,800 cloud agents that are using these services. The fourth thing which is absolutely critical these days is around security. And while I was, this year in Davos, and it was in almost all the conversations, cyber security, cyber-attacks, you have seen what has happened. Quite recently, I think it was 3 or 4 weeks ago, the Twitter account of Associated Press, someone did a beautiful fishing, they took the account and published that 2 bombs in the White House, Obama injured, right? And I do recommend you look in the Internet and see the drop of the Stock Exchange in New York. This can happen. We've been with a number of companies that are really, really under threat. And what we had experienced in London 2012, there were more than 200 million malicious attempts to connect to the website during the Olympics period. And if you don't have the tools and you don't know that this is happening, well, you better act quickly. In Turkey, now it's mandatory to have once a year an intrusion test as part of the banking regulation. We have been working with the Ministry of Defense in the U.K. and of course we're having the first one to get the IL3 certification. So many of our customers say, well, you know what, I not only want that you are able to provide me the individual products, but most of them, they do buy from us a combination of them. In reality, they want that we manage the services for them. To different levels, but we have customers like Novartis. Novartis has been traditionally a customer of us. We have been working with them and this year, we signed an extension of the contract because they have acquired Alcon and they say, well, help us to do the integration of this very quickly so that we can really create and provide more services faster to the market. Or we have just announced here in the U.K. Cornwall, which is a 10-year engagement where there is a large and complex contract that we are going to be able to provide services to the citizens. And this is exactly the kind of things we are building, and we are building these for a number of segments of customers: Corporate customers like the ones we have mentioned, like Unilever; public sector companies, both in the U.K. and globally, we won NATO, we've won the European Union, and interestingly, we support also, we work together, as Nigel said, with some companies in the telecom sector. But as you can see, an perhaps the most important thing in this slide, is a well-balanced structure of customers, which gives us a lot of confidence in our ability to make much better profits over time and to be able to provide more services. The second thing is that with these customers, we work around industry expertise. So we are creating a specific assets that are making us unique in the market. So what we have been doing on health, 900,000 people connecting every single day to use the services, or in the financial services industry and the information industry, I'm sure you are all users of BT [indiscernible] , more than 15,000 connections around the globe, where you have information, transactions and the access to do different stock exchanges, different bits of information. This week we have announced that we have been incorporated BOVESPA to that cloud for financial services. And the third thing, on the way we provide those services is on a geographical basis. As I said at the beginning, we are glo-cal, and we are glo-cal because we are extremely strong in the U.K. Well, we have challenges, because the traditional calls and lines business that was on the traditional voice is moving more into a digital environment, onto the IP, so we need to tackle that and to manage that. But are the same time, we do have opportunities to make the U.K. a market where we can really start seeing some improvements. We do have that in Europe, a very strong presence in some countries. We are struggling clearly in Spain and Italy, with some of the issues that we see, because there is less money available to invest in the kind of services we provide. At the same time, most of these companies are investing abroad, so we are benefiting that in countries like Brazil or Columbia or China. And also, of course, in the U.S. where we do have, still, an opportunity to continue to grow, basically working with companies that are multinational, based in the U.S. that are able to provide services around. Interestingly, with this, to some extent, we are just linking into the strategy, strategies that, for us is absolutely top priority to improve the services we provide. Why? Because happy customers buy more, right? Absolutely, no doubt. And in our industry, it is absolutely essential -- it doesn't work that you have a 98% of availability, right? You need to work with our -- all your customers to define extremely well the service levels and agreements and the level of service they need. You also need to ensure that you keep doing the cost transformation. And at the end of the day, that we'll keep investing around the areas that today are the reasons why our customers buy for us, and this should then -- should support us to deliver the financial performance that today we are not delivering yet, as much as we would like. So if we look to customer service, we are making service a differentiator in the market. We are not yet there. We have made some improvement but there is a huge opportunity by making more and more investments and working together -- with better tools across the piece, and you have heard that. We also have a very strong plan in terms of cost transformation. I think that I -- we have mentioned several times today, our ability to consolidate some of the networks that we have, and this is providing our customers a better service, and at the same time a lower cost base for us. When you open a new node in Vietnam, you reduce your cost base to have long lines there, and then you can provide the services there. You are going to gauge the demand. And for example, when our customers, they want operate in Colombia, rather than buying 2 or 3 lines here or there, we aggregate the 700 lines we have there, and we are able to get better prices for them. And we need to continue to do that in order to improve our cost base. All the improvement in processes, where no doubt, that the lead to cash that Tony mentioned before, we are reducing 30%, the cycle time. And as you know well, shorter cycle time means that you are going to get the billing sooner, but also means that your cost base is smaller and at the same time, your customers are going to be happier. And the way we are managing contracts, we share services, that is providing us, again, new synergies. So I think that there is a huge cost to information brewing in order to leverage the potential that we have. But this is also the investment part where, we see opportunities in the market. Opportunities that are related, as I said, with high-growth market, where we really believe that both our global customers and the regional customers like HTC or Zuellig Pharma are, becoming the new multinationals. We have signed this year a contract with Nutresa from Columbia, that is one of the largest food companies now in Latin America. It's also clearly an area for an opportunity, our industry expertise. And I mentioned before how, I mentioned financial services. But what we have been doing on logistics environment by creating BT3, working together with TNT or the life and science clouds that we are building, are 2 big opportunities that could give us again, a differentiator in the market. We keep doing that with our professional services people. We plan to move from around 2.5 products per customer to 5 [ph] products per customer, and that is going to increase the share of worth, as I said at the beginning. And finally, no doubt, that continue to benefit from the economy of the scale that we have in some of the U.K. operations and services, things that we learn here, that we can translate to other places. So for example, we have a proposition in the U.K. that is called Line in the High Street [ph] . Now, we have just signed with [indiscernible] , a project in China to implement 100 of shops using the same kind of concept of retail in a box, that is going to provide this service to those customers. So I think this is overall, a glance of where we are in Global Services, and what we are doing in order to grab the opportunity of the market. I think that as a summary, why we think -- why we are planning to be successful? Well, we have, becoming a better business. We are building a better business, based in 3 basic things. First, by getting better and closer to our customers, understanding better what they do and building on that leadership that is recognized by the industry and using the existing capabilities on the -- on our customers, and to sell them more. And that is clearly the increase in the share of wallet. We also have a big opportunity to make sure that we understand where they are investing, and we benefit from those investments they are doing, and we also provide them services so that they can concentrate on their core business. The second key element of why we are making this a successful story is, I think that there is something in the industry that is absolutely critical. It's not only understanding your revenue and not only understanding your bottom line, looking to your cost base. I think how you make your margins is critical. And the way we have learned to manage our context in the last years is, I think a unique tool to make this happen. We need to do a lot more, right? We are not best-in-class, and we need to be. There is clear, now, an opportunity of managing better the relationship of our customers, the way we deliver service, how we have still a lot of cost of failure that is damaging our P&L. But we do think that we will have a big opportunity on that, and we keep linking that to the improvement on the network infrastructure, as well as our ability to work better with our suppliers and enter, and we'll use -- some examples before. And the final one is speeding up the cost transformation, the way we operate, the way we organize, simplifying our back office ventures, simplifying our end-to-end model, removing bureaucracy that we have been creating in some of them [ph] and making sure that at the end of the day, we are able to deliver a better service for our customer. And this is the reason why we think that we are planning to match the leadership that we have, as recognized the play in the market, with a financial performance that we can deliver. And so, if I use something that a sport expression that I learned just today from my son, who is now studying here in London, it is just all of about pulling our socks up. Thank you.

Anthony Everard Ashiantha Chanmugam

Thanks, Luis. We've got 10 minutes for questions, so...

Maurice Patrick - Barclays Capital, Research Division

Maurice from Barclays. So a question around CapEx. Inside GS and the extent to which, how much of it discretionary, success-based, how much you have to spend just on maintenance? And then the split, perhaps, around network and IT and to -- how much you spend on CapEx?

Luis Alvarez

I think that the overall CapEx is probably about 50% on customer CapEx and 50% on the rest. However, you -- it's difficult to make that equation because clearly, we benefit also from a number of investments that around -- in which we share across the group, right? so I think that, that is a rough idea of the investment.

Anthony Everard Ashiantha Chanmugam

Can I just add to that, because I don't think there's a hard and fast dividing line. The reason I say that is, if you look at CP, if you look at network, where does it split? Sometimes you need to have CP to make maximum [indiscernible] network and vice versa also, what do you buy, what do you lease? I think you really ought to be fixated with the GS cash flow and not the component parts of it. Over here.

John Karidis - Oriel Securities Ltd., Research Division

John from Oriel. It's very difficult to benchmark BT Global Services. What is a reasonable free cash flow number, given your GBP 7 billion revenue line?

Luis Alvarez

Well, I guess I think that -- you can also respond to that one, but I think that you are right, that is difficult to have a clear [ph] benchmark in the industry, because we have a diversity of services and so, but I don't know, Tony, if you want...

Anthony Everard Ashiantha Chanmugam

Yes, there's a lot of speculation. This benchmark, they to talk about 8%, 9%, 10%, 11%, 12%. But BT's -- we're on a journey, and what we know is right, right now, 0 is not the right answer 200's not the right answer, and so we won't give any targets, but what we do know is that we're well short of where the benchmark is, and we've got in the course of the next couple of years, plenty of opportunity to increase the number.

John Karidis - Oriel Securities Ltd., Research Division

So I just think, that's a free cash flow percentage, you call to that earning [ph] ?

Anthony Everard Ashiantha Chanmugam

Yes.

Carl Murdock-Smith - JP Morgan Chase & Co, Research Division

Carl Murdock-Smith from JPMorgan Cazenove. Just in terms of either cash flow or margin, just in terms of the revenue split that you've given by region, I'll be interested in terms of your profitability split, obviously given the fact that you do benefit in the U.K. from the other lines of the business. So any color you could give on that?

Anthony Everard Ashiantha Chanmugam

Carl, you've asked that question to me a number of times before in a number of different ways. So let me be blunt...

Carl Murdock-Smith - JPMorgan Cazenove Limited, Research Division

I'll keep on trying until I get an answer.

Anthony Everard Ashiantha Chanmugam

No, we won't give that detail.

Luis Alvarez

Even the revenue profile by region in the kind of business we run is not like when you have individual operations in countries that are running only with customers in countries doing business. Because in reality, some of our countries are global, and you provide the services across the globe, and it's more about where you generate the billings. So it's is very difficult to have like, a split, pure split on the geographical basis, also.

Unknown Analyst

Can I ask, David Miney [ph] from [indiscernible]. Can I ask 2 questions, one on cloud and one on verticals. On the cloud services side, you gave us some great examples of spaced, tactical buying of cloud services by different customers. But I wonder if you could tell us, what's been the impact across your major customer base? As a whole, how many of your top 100, your top 200 customers are looking at buying cloud services within the managed service contracts that they have with you now. What are they spending, and how is that affecting the equation in terms of your outlook on the revenues from those managed service contracts? And then on the vertical side again, some nice examples of some of the new vertical solutions you have and I think you mentioned trace in the retail and other examples in logistics, and so on. Overall, though, looking at your anchor vertical sector, so financial services in particular, obviously has been a little focus on that. Do you think that's changed -- I mean fundamentally, is that going to change what are the key verticals for you? Is financial services going to come back to be sort of pillar sector it was for you, or will --

Ian Paul Livingston

I think we should call a halt to this question now.

Luis Alvarez

I think that in terms of cloud services, it's quite obvious that at first, as you have seen, there are a number of cloud services or services that I provide -- that are provided from the network. If you talk now about voice services provided by the network, there is an increased demand of that. We have me like 140,000 ports providing services to customers, and we do have conversations on large contracts. So I think that there is a trend of using more the network as the support of the voice. When you look to contact centers, well, no doubt that most of the customers, where we are planning to open a new market, or even when they want to have the flexibility, they prefer the model of the cloud and the example I used with Tesco is a good one, we have signed a contract with HTC to provide this service across 60 countries, which is another good example of that. And the cloud use in terms of BT Cloud Compute, I think that it is still in the industry a little bit, I would say a blur, right, because for example, customers that say, I have my private cloud. Well, we have private clouds for a good number of customers. We have Mape [ph] in Italy, that is another one that we have signed. Well, yes, we do have the hosting capabilities. We have the network. We have the security. Well, is that a cloud? It's a private cloud, because to some extent they use that around the globe. What we are building for BAT, for British American Tobacco, is also a cloud, a private cloud. But the use is -- the extensive usage of cloud services on the computer right now is just still for testing purposes and so on. And when you look to the verticals, in fact, it is one of the first applications of having cloud services. The BT variance is the best cloud for financial services. We have just connected a number of new exchanges, ISX. We have the Swiss Stock Exchange also connected there. So we keep connecting people around the globe to the cloud. And in terms of the opportunities and new areas, well, it's clear that the pharma industry, as I mentioned before, as [indiscernible] who has announced I think, yesterday or the day before, they have an application called [indiscernible] , that is now in our cloud, that is being used by scientists to shorten the drug cycle. Why? Because they have the information faster in a place that they can share it, right? Just as an example, right, Atheris also has put Ails [ph] , which is another application in the same pharma cloud for as an example.

Anthony Everard Ashiantha Chanmugam

Any more questions? Okay. Thank you very much. I think Ian would like to close up. A few words?

Ian Paul Livingston

Thank you, and a few thank yous. First of all, thank you to all of you. Thank you for staying through the marathon. We're trying to do this only every 3 years. So it's 2 hours a year. We intentionally tried to take you through to understand better each part of our business. And now, actually, before I close off, I, so actually also add a few more thank you. I just want to thank the IR team. I think they've done a great job, the slides are clear, hopefully comprehensible [indiscernible] . Thank you to them, and thank you to all the presenters. Just to finish up, as I've said, we try to take you through each individual parts of the business and understand they each have an opportunity. They each have challenges, but they're each following the same strategy, which is actually starting at the customer service, lead the cost transformation and have real opportunities for growth. And it's these investments we're making today and that we can make today that provides them those opportunities. And they are right across our business. Once upon a time there was a discussion about an engine of growth within BT. There are a number of engines of growth, and each of the businesses have their own engines within it. Hopefully, you see, it's the same strategy. We're not about to change it. It's about execution. It remains about execution, and that is what we intend to do. We have delivered up to now, but we've got a lot more to do. And you wouldn't expect me not to have this as a concluding slide. I think I had it in most quarters, and that's the truth of it. Mike started off talking about the better business with a better future. That's the strategy, progress made, but a lot more to do, that's where we're in.

Thank you again for all of your time. We have, as you leave, a goodie bag. It has a number of things, some of them not unrelated to BT Sport. And -- but includes also, a nuisance phone, which blocks nuisance calls. The IR team have ordered 5. But thank you very much, for all your time. Thank you for all questions, or almost all your questions, and have a really excellent weekend. Thanks very much.

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