Next Generation Consumer

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Next Generation Consumer

• from connectivity to services

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Ian Livingston

• CEO BT Retail

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Cautionary Statement

• Forward-looking statements caution advised
• Certain statements in this presentation are
  forward-looking and are made in reliance on the
  safe harbour provisions of the US Private
  Securities Litigation Reform Act of 1995. These
  statements include, without limitation, those
  concerning expectations regarding cost
  transformation and efficiencies delivery of new
  products and services and anticipated revenues
  from new services.
• Although BT believes that the expectations
  reflected in these forward-looking statements are
  reasonable, it can give no assurance that these
  expectations will prove to have been correct.
  Because these statements involve risks and
  uncertainties, actual results may differ
  materially from those expressed or implied by
  these forward-looking statements.
• Factors that could cause differences between
  actual results and those implied by the forward
  looking statements include, but are not limited
  to material adverse changes in economic
  conditions in the markets served by BT future
  regulatory actions and conditions in BTs
  operating areas, including competition from
  others selection by BT and its lines of business
  of the appropriate trading and marketing models
  for its products and services delivery of BTs
  21st Century Network technological innovations,
  including the cost of developing new products,
  networks and solutions and the need to increase
  expenditures for improving the quality of
  service prolonged adverse weather conditions
  resulting in a material increase in overtime,
  staff or other costs developments in the
  convergence of technologies and the anticipated
  benefits and advantages of new technologies,
  products and services, including broadband and
  other new wave initiatives, not being realised.
  BT undertakes no obligation to update any
  forward-looking statements whether as a result of
  new information, future events or otherwise.

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What you say
Profitability under pressure
Prices coming down
LLU intensifies fight for Broadband
New entrants will take market share
The future is VoIP
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Next Generation Consumer

• A range of innovative communication services
• Compete in adjacent and new markets
• Focus on enhancing margins
• Sustained cost transformation
• Built on strong current performance
• Deliver value to customers and shareholders

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Todays Agenda

• Background
• Access In and Out of Home
• Value Adding Services
• Communications
• Entertainment
• Life Management
• IT Support
• From Households to Individuals
• Cost Transformation
• Summary

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Background
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BT Retail - 40 of BT Group revenue
Group Revenue - H1 2005/06
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A return to profit growth
BT Retail
In the future

• Improve ARPU
• Improve Gross Margin
• Deliver cost efficiency of 400-500m over three
  years
• Continue to invest in Next Generation Services

• Profit growth for first time in six quarters

EBITDA growth

10
5
0
-5
-10
-15
-20
-25
Q1
Q2
Q3
Q4
Q1
Q2
2004/5
2005/6

• Forecast to deliver full year profit growth

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Defending traditional, growing new wave
BT Retail
Growth in revenue market share - Calls and Lines
Over 1bn New Wave Revenue per annum
Source Ofcom
m
1200
1100
1000
1.0
900
800
Change marketshare
0
700
600
500
-1.0
400
300
200
-2.0
100
Q4 2004
Q1 2005
Q2 2005
Q2 2004
Q3 2004
0
Q1 03/04
Q2 03/04
Q3 03/04
Q4 03/04
Q1 04/05
Q2 04/05
Q3 04/05
Q4 04/05
Q1 05/06
Q2 05/06
Moving Annual Total
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Consumer business has turned around

• Consumer 5bn revenue
• 14m Calls and Lines (active) customers
• Market leader in broadband
• 200m customer contacts a year
• Improving gross margin and lower SG A
• Household ARPU stabilising at 253pa
• 65 of revenue contracted

EBITDA growth
20
10

0
10
20
Q1
Q2
Q3
Q4
Q1
Q2
2004
2005
Moving Annual Total Consumer Business Unit
12
Providing value to customers
Cost of a 20 minute off-peak National Call
150
BT has saved UK consumers 1.1bn since 1995
129p
120
90
pence
60
34p
30
5.5p
0
2000
1995
2005
13
Lowest voice prices in the G7 countries
Annual telephone bill for an average residential
customer
550
450
350
250
150
UK
Germany
USA
Italy
France
Canada
Japan
Data Source Teligen T-Basket, August 2005.
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Customers trust BT
Customers are positive about BT
Customers trust BT to deliver communications
services
Trust
Helpful
Straightforward
Care about needs
50
40
30
20
10
0
60
strongly agree(Base BT customers)
Source Millward Brown
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Move from connectivity to services

• Regulated
• Telco-specific
• 24m households
• In home
• Standard service to all
• Product push
• Mass market

• Liberalised
• Entrants from other markets
• 60m individuals in 24m households
• In home / out of home
• Differentiated by service
• Customer pull
• Targeted to individual

committed to but not limited by access
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Making life simpler and better for customers
We want to be known for
What we will do
Broadband in and out of home
Helping our customers thrive in a changing world
Integrated communications behind VoIP
What we do
Value added services
Provide simple to use, converged services that
help people communicate, be entertained and
manage their lives in and out of the home
Customer not product focused
Radical approach to cost transformation
How we measure success
Create a retailing culture
ARPU, Active Customers, Attachment Rates,
Advocacy, PROFITABILITY
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Access In Out of Home
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Committed to competitive broadband access
Price Promise
National
WiFi
Converged with other services
No increase for 3 years
Up to 8Mb in the home starting in Spring
2006 (and more to come)
on standard prices subject to regulatory
requirements and tax changes
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benefits the customer
Direct Distribution Channel
Retention
Low Cost Service
Upsell New Services
Margin Opportunities
and BT
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Extending out of home WiFi coverage

• BT Openzone first to market, launched August 2002
  
• Biggest footprint in the UK with approx 8,000
  hotspots
• Over 30,000 hotspots globally
• Wireless Cities - Westminster, Cardiff, Glasgow
• 431 growth in minutes year on year

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Driving WiFi usage
Extending opportunities to work
Extending opportunitiesto play
Extending opportunitiesto talk withBT
Communicator
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Gavin Patterson

• Group MD Consumer

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CommunicateTalkSeeShareMessage
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Not forgetting traditional voice

• 2.2m sign-ups and growing
• Customer need - the menace of unwanted calls

Driving BT Privacy
Enhancing Friends Family

• Automatic discount to most called numbers
• Customer satisfaction and cost saving

Tackling Mobile Costs

• 25 discount on calls to mobiles

• Text to and from fixed lines / mobiles
• Text to speech conversion
• Inclusive text bundles

Launching BT Text
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BTs VOIP offer is strong today
Broadband Talk

• Make and receive calls over the internet using a
  conventional phone

• Key Features
• Second line into home
• 2 for evening / weekend calls
• Free with BT Broadband Options 3 and 4
• 7 for anytime calls
• Service available for non-BT Broadband customers

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BTs VOIP offer is strong today
BT Communicator

• PC based internet telephony

Free calls at Christmas to 30 international
destinations

• Price Comparison
• PC to PC calls free, anywhere
• Currently less than half the price of Skype on
  international routes
• Cheaper than Skype
• Calls to 4 main mobile companies
• Calls to 0845 / 0870
• Calls to landlines - evenings and weekends

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BT is committed to giving our customers great
value for money
Cost of 10min evening call to UK landline
Cost of 5min evening call to Vodafone mobile
83p
14p
40p
5.5p
Skype
BT
Skype
BT

To launch Feb 1st

• Cheaper than Skype on 50 main international
  routes
• 1.25p per minute for 25 main international routes

Local / National, Before Jan 06
Before Jan 06
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Next generation voice services
Personalised, network services in real time
Richer communication

• A new standard in voice and video
• IM, email, SMS
• High definition sound

• Directory, e-wallet
• Intelligent presence
• Converged voicemail

Devices
High bandwidth in and out of the home

• Work on any device anywhere
• Bundled with services

• WiFi technology beats 3G
• Voice and entertainment

...a richer and tailored experience in and out of
the home
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A clear pipeline of market leading service
launches
Q1 06/07 High Definition Sound
Q3 06/07 Integrated Communications Service
Q4 05/06 Single Voice Service

• Single secure identity
• One number for life
• Network-based synchronised address book
• Intelligent presence
• Choose how to be contacted
• Access through any device, anywhere
• Converged voicemail

• Merge BT Communicator and BT Talk
• Single sign-in
• Personal Number
• No need to be a BT customer
• E-wallet
• Basic video

Underpinned by aggressive pricing and bundling
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Devices enhance the experience
Subscription and pre-pay options
Mobile experiencein home as standard
See your loved ones be closer to them
Broadband value and services out of home
WiFi Phones Autumn 06
New DECT Phones Ongoing
Video Phones Spring 2006
Near 50 share of existing in-home telephony
device market
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Mobility is key - BT Fusion only the start

• The proposition will continue to strengthen
• V3 Razr in January
• Bigger minute bundles in Q4
• Broadband and Fusion bundle
• Broadband range of WiFi phones
• Samsung, LG, Motorola and Nokia
• Available from Summer 06/07
• New range of mobile services

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Be EntertainedWatchListen/MusicGameBrowseCrea
te/Share
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Next Generation TV launches in Autumn 06
Multi-channel TV and Personal Video Recorder

• Instant Entertainment on demand
• Catch-up TV
• Movies
• TV archives
• Music

• Communication Services via digital multi-channel
  TV
• Video telephony
• Voice over IP
• Instant messaging

• Interactive services
• Viewer Participation
• Shopping
• Online Games
• Community Services
• Education

• Flexible payment options
• No mandatory
• subscriptions
• Pay-per-view options
• Broadcast pay channels
• via Conditional Access

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We have announced our first content partners
with many more to come
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Strong relationships in gaming

• Driving Broadband with Microsoft Xbox

Wifi-enabling Nintendo
Working with Sony

• BT Broadband bundled in Xbox 360 from January
• Joint marketing activity

• Free on-line gaming
• In home / Out of home
• Extending WiFi hotspots

• Improving the online gaming experience
• Joint marketing activity

providing margin and retention opportunities
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Customising music to your taste
Driving Broadband with iTunes Partnership
Enhancing music in 2006
Personalised radio with Launchcast Plus

• Launch music download service
• Launch pod-casting service

Digital Music Awards

• December launch High quality music video streaming

providing margin and retention opportunities
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Manage LifeProtectMonitorControlStore
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Customers trust us for protection and security
My Valuables
Me and My Family
My PC andDevices
providing margin and retention opportunities
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Tackling what matters to customers

• We have tackled
• Privacy
• BT Privacy
• Email AddressGuard
• Anti-spam pop-up blockers
• Family internet use
• Personal ID
• Anti-Phishing 1st in UK
• Anti-Spyware

Me and My Family

• We will launch in Q4
• BT Identity Protection
• DIY service, advice and guidance, bundled with
  Broadband
• Personalised help and support, subscription
  service

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Stronger protection for devices

• We already protect
• Against viruses
• In emails
• On your PC (anti-virus and firewall)
• We will launch in Q4
• BT Protect
• One stop shop for protection
• Upgraded security pack
• Anti-virus and firewall from single source
• A simpler experience
• Auto install
• Dashboard
• Auto updates

My PC andDevices
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Protecting and sharing precious assets

• We already protect
• Digital assets
• Unlimited online photo storage
• Homes via BT Redcare
• Cars via BT Trackit
• We are launching in Q4
• BT Digital Vault
• All digital content and details
• Automatically backed up
• We are developing
• BT Digital Vault Plus
• Access from anywhere
• Ability to share
• In home and remote monitoring
• Device / utility monitoring

My Valuables
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Support drives margin, retention and cost
reduction

• Advice on all home networking issues
• Business IT Support manager - 3k sales a week
• Subscription service, expand in Q4

Premium IT help desk

• Reach into the customers home and solve issues
• Software upgrades and device support
• Reduce cost to serve

Hubs will include remote diagnostics
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24m households, 60m individuals
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From 24m households to 60m individuals

• Data gives us insight
• Into communities
• Most connected customers - 8 of base talk to
  40 regularly
• Key influencers of churn and ARPU
• And location
• Best movers data in the country

• Market to individuals
• Single view of customer
• product ownership and usage
• demographics
• payment and debt
• customer experience
• Updated in Real Time
• Unique identifier in all channels

• Retention and share of wallet
• Specific proposition development
• Customer experience

• Maximise ARPU
• Reduce Cost To Serve
• Increase Effectiveness

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Segmentation demonstrates opportunity and needs
Annual Communications and Entertainment Spend
Total 500 BT 250
Total 1200 BT 240
Connected to loved ones Nervous of technology
Need hand holding Loyal
Intensive communicators Independent lives High
service expectations Value over price
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Ian Livingston

• CEO BT Retail

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Cost Transformation
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Cost Transformation
BT Retail goal - 400-500m over three years
Good for customers, good for cost

Get the experience right first time

• 30 - 40 call volume reduction

Eradicating unnecessary contact

• 5m plus e-billers
• 3m plus paperless

Growing on-line sales and service
Shift from billing to payment

• 70 auto payment

and much more
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Summary
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Consumer revenues move from traditional calls
and access to new services
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BT- beyond the quad play
Broadband
Voice
WiFi
TV
Mobile
but it is about making customers lives simpler
and better
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Next Generation Consumer
Strong performance today
Simpler and better life
Innovation and financial discipline
Value for customers and shareholders
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Next Generation Consumer

• Thank you