BT Capital Markets Day - Part 2 Seizing The Convergence Opportunity

BT Capital Markets Day – Part 2
Seizing the convergence opportunity

5 May 2016
Cost transformation
Tony Chanmugam – Group Finance Director
Total costs reduced by £5.6bn1 in last 7 years
£3.1bn
£4.8bn
£0.8bn2
£16.3bn £2.3bn2
Still well in excess of £1bn
gross cost saving
£11.5bn opportunities in next 2 years
2008/9 Opex Capex 2015/16 pre EE
Capex Overhead Value Analysis

Insourcing
Labour costs incl. contractors Process re-engineering
Output-based pricing
Consultancy Right First Time
Continuous Improvement
Supplier renegotiation BT-centric
1 excludes EE and £229m grant funding deferral in 2015/16
2 excludes £229m grant funding deferral in 2015/16
Q4/full year Group strategy Cost transformation Wholesale Global Business

TSO Openreach Consumer EE
2015/16 results & Outlook & EE integration & Ventures Services & Public Sector
3
Cost transformation supports investment in service
• Insourcing saves money, protects BT jobs, We have reduced labour costs despite insourcing
improves service 5,000 25,000
– nearly 15,000 jobs insourced since 2008/09 EE,
Leavers
4,500
20,000
• Improving back-office efficiency
4,000
– c.6,000 jobs created in Central Business 15,000
£m
Services unit in UK and overseas
3,500
10,000
• Investing in customer service 3,000
– >900 new UK contact centre staff, hiring 1,600

5,000
more in Consumer and EE 2,500
– c.3,000 Openreach engineers hired in last

2,000 0
2 years 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Net labour cost (LHS) Insourced jobs (RHS)

4
Well over £1bn gross cost savings over next 2 years
> £1bn gross cost savings Activity Benefit
1 Operating model including UK business changes and EE High

2 Contact centre transformation Med
3 “Compete 3” - applying best practice across Global Services

including reviewing smaller countries and global field High
Invest in
growth
4 Product / customer journeys; Ethernet end-to-end
transformation, customer churn High
opportunities
>£1bn 5 Continuous Improvement; application of forensic toolkit and

customer data analytics Med
EBITDA 6 Sales effectiveness; sales best practice and analytics, margin

optimisation Med
contribution
7 People and organisation; spans and layers Med
8 Site strategy; onshoring and offshoring High
9 IT and networks; data centre rationalisation, centralised IT and

automated code review High
Flowthrough In plan Procurement Gross cost
savings
10 Improving efficiency; pan-BT reviews of TLC, SG&A, discretionary
spend, procurement tail Med

5
Cost transformation
Shahzad Saleem – MD cost transformation
Transform, implement, improve; repeat using proven methodology
Forensic tools: Strong senior Governance & Control:
Forensic analysis
governance
• Day in the life of • Sign-off
• Overhead Value Analysis • Implementation plan
• P&L review Step change
Built into budget • Include in budget
transformation
• Spans & layers Discovery Implementation
• Value stream 1- 3 months 3-12 months • Progress report
• Erlang model, time-of- New technology & Weekly & monthly • Issue resolution
day methodologies progress tracking
• Benefit realisation
• Contract: RA, unit cost,
benchmarks, SLA/SLG • Risks and
• Sourcing: automation,
Continuous opportunities
offshoring, insourcing improvement
• Budget, forecast and
• Systems: simplification, 1- 2 years outlook tracking
automation
• Programme &
• Effectiveness: sales, Embedding culture Project Management
demand/supply review, methodology
ROI analysis Bottom up change

7
Contact centre transformation
Areas of focus What have we achieved Going forward
• >£300m of benefit delivered through: • Further opportunities >£100m

– elimination of unnecessary volumes – eliminate process failure to drive a better
customer experience with lower costs
Efficiency & – drive for first contact resolution
– better utilisation of digital and self-service options
effectiveness – shortening call duration
– standardising approach to measuring utilisation
and defining what ‘good’ looks like
• Creation of scaled sites to drive efficiency • Further cross-business unit consolidation to

UK site strategy – >2,000 people moving between sites or business create scaled sites for both contact centre and
units back office activity
• Coordinated group approach to moving work • Commitment to answer 90% of Consumer and
Right-shoring – customer-facing back to the UK 100% of EE calls within the UK
– back office to new Indian shared service centre

8
Compete – applying best practice toolkit to Global Services
What we have achieved Further opportunities of £300m
Delivered c.£340m1 in 2015/16 • Renegotiation of leased line pricing and improved in-life
management
• Rationalised circuit inventory, ceased • Data centre footprint review and consolidation
unused circuits and optimised network • Review of product cost base to maximise margins
structure • Leverage investments in major systems
UK EUROPE AMERICAS AMEA

• Supplier rationalisation and identified 1. TLR/TLC
third-party spend/services that can be
2. Access & CPE programmes
insourced
3. Sales effectiveness
• Utilisation of shared services in low cost 4. Global customer service transformation
economies and reduced subcontractor 5. Third party
spend
6. Revenue and cost assurance
1 Annual run-rate compared with cost before programme

9
Cost transformation
Rikkya Okker – Cost transformation director
Continued efficiency and quality improvement from IT insourcing
Insourcing framework Insourcing across India & Malaysia
• Established our own IT development centres in Number of BT employees in IT
1,400
India and Malaysia
• Structured approach: 1,200
– business-facing and strategic work located in UK
with our own people 1,000
– strategic work offshore using our own people 800

– legacy and transactional work offshore with third
parties 600
– replacement ratio of 1.4 – 1.6 subcontractors to 400

every BT person
200
– annualised savings year-to-date of £15m
• Further opportunities of £9m to go for 0
2011 2012 2013 2014 2015 2016
– opportunity to insource another 700+ roles
India Malaysia

11
We delivered >£50m IT efficiencies this year; £50m more to go after
Centralised IT More to go after…
• Continued insourcing in low-cost locations
1
Lines of GS BTB C EE W OR Grp
business • EE integration
Technology
2 Service and IT • Improve productivity using automated code
Operations review (adopted from other industries)
• Simplify IT estate, rationalise number of
1 Now only have directly customer-facing IT teams applications
2
All internal IT centralised, with centralised security • Advanced automation of test and support
wrap and improved support levels at lower cost functions
• Quality improvement and reduced cost
of failure

12
EE integration
Tony Chanmugam – Group Finance Director
EE synergies and integration costs - update
Feb 2015 Latest view
Revenue synergies NPV c.£1.6bn NPV c.£1.6bn
Cost synergies ‘Year 4’ – c.£360m c.£400m
Integration costs c.£600m c.£550m

14
We’ll achieve £1.6bn of total revenue synergies
Consumer
BT / EE BT / EE
• Using owner economics to mobile broadband
UK homes
cross-sell mobile to BT
customers Both mobile and broadband 3m
Mobile but not broadband 6m

• More broadband and TV to EE
customers Broadband but not mobile 4m
Neither mobile or broadband 14m

• Leveraging BT’s content
using EE 27m
Postpaid only. BT/EE estimates

15
We will achieve £1.6bn of total revenue synergies
Business Significant cross-sell opportunity for mobile and fixed
Opportunity to increase overlap in customer base
• Cross-sell to existing customer
bases EE only
100%
• Increased market coverage

from larger sales force BT & EE
% of customers
• EE shops to sell wider BT 50%
product range
BT only
0%
SME Corp Major & PS
Material spend with… BT Only BT & EE EE Only

16
Range of operational cost synergies
Area Expected cost synergy in 2019/20
Network High
IT High
Support functions High
B2B Medium
B2C Medium
Customer service Medium
Property Medium
Supply chain & logistics Low
Synergy key – Annualised cost savings in 2019/20: Low <£20m, medium £20-£50m, high >£50m

17
Range of operational cost synergies
Area Expected cost synergy in 2019/20
Network High
IT High
Support functions High
B2B Medium
B2C Medium
Customer service Medium
Property Medium
Supply chain & logistics Low
Synergy key – Annualised cost savings in 2019/20: Low <£20m, medium £20-£50m, high >£50m

18
EE integration
Howard Watson – CEO, Technology Service & Operations
Network and IT synergies – c.£200m in 2019/20
Achieve synergies and simplify our technology landscape
Consolidate
Migrate to strategic IT stacks, a single network and leverage our quad-play capabilities early
technology
Purchasing
Create an integrated supplier landscape across datacentres, networks, applications, test and support activities
efficiency
People Continue to invest in our people and insource to create an optimum mix of deep technical knowledge and
investment innovative thinking
Focused Maintain focus on extending 4G coverage, remain the UK’s best-quality mobile network, and roll out
delivery Emergency Services Network (ESN)

20
Integration will improve agility through consolidation
13 consumer and business IT stacks 7 IT stacks
Simplify IT stacks
Single interconnected virtual
2 core networks
core network
2 IP Multimedia System core networks

Single IMS
(IMS)
Rationalise core networks 2 Enhanced Packet Core networks (EPC) Single EPC
5 EE datacentres Fully integrated into BT
Reduce supply 2 x corporate WAN/LAN Single WAN/LAN

chain systems
5 supply chain systems 2 supply chain systems

21
EE integration
Andy Wells – Cost transformation director
Customer service synergies – c.£40m in 2019/20
Insourcing Insource customer service to BT/EE centres from third parties. Customer-facing UK, back office overseas
Utilisation Aim for consistent top quartile performance for time not spent on customer calls
Improve one-contact resolution, reducing the number of transfers and repeat calls, through cross-sharing BT’s
Effectiveness
fixed and EE’s mobile expertise
Productivity Reduce call handling and wrap times without negatively impacting effectiveness
Management
Ensure contact centre management and support structures standardised and centralised across the group
& support

23
Property synergies – c.£25m in 2019/20
Office
consolidation
Consolidate office locations, utilising spare capacity in BT/EE existing office estate
Insourcing Insource facilities management and security to BT Facilities Services
Purchasing Save capital and maintenance costs through combined procurement efficiency
efficiency

24
Technology, Service & Operations
Howard Watson - CEO
Delivering the number one network and stand-out services
TSO To use the power of communications to make a better world
Growth – to deliver sustainable profitable revenue growth

• Number one network, providing
seamless connectivity Broaden and deepen our customer relationships
• Products and services designed for

Deliver great Invest for Transform
great customer experience customer experience growth our costs
• Best converged services Differentiated

Best network Fully converged
Market Focus on
multinational
content, services leadership in all
in the UK service provider companies
and applications UK segments globally
• Continued cost transformation

Best place to work

26
Who we are
Business Wholesale
Global
and Public Consumer EE and Openreach
In 37 countries around the world Services
Sector Ventures
Technology, Service and Operations (TSO) Mobile technology

c.13,000 people
Group functions
c.250,000 years of skills and experience
Over 210 graduates and 360 apprentices
£470m invested in R&D in 2015/16
4,700 patents and applications Research partnerships and global scouting

Global Development Centres

27
Customers want seamless connectivity
Convergence requires an end-to-end approach to building and managing networks
Core network peak-time traffic
Copper cable
Internet Fibre cable 25,000
Other CP’s
20,000
15,000
BT exchange FTTC
Gbps
CP handover point
PCP 10,000
Mobile access
5,000
Fixed access:
Broadband, superfast, ultrafast
0
2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e

28
So we’re bringing ultrafast speeds to the UK
Using cutting-edge technology that’s quick and cost effective to deploy
• Driving global standards on G.fast: the core of our ultrafast strategy
• Leading suppliers and industry: they’re responding at pace
• New technologies boost UK superfast broadband coverage
• TSO is supporting Openreach’s journey towards FTTP

Dedicated G.fast lab

29
…even when you’re on the move
Using the UK’s biggest and fastest mobile network
• UK’s first 4G network and fastest 4G rollout

4G coverage in
• Seamless voice September 2017
– wi-fi (VoWiFi) and 4G calling (VoLTE)
• Extending coverage
– landmass, road, rail – completing network refresh
– 4G, 4G Pro, 500 new sites, 800MHz Average 4G tariff download speed by city
25
• Demonstrable network quality 20 All

15 EE
– ESN contract; most demanding users in the UK
Mbps
– EE fastest browsing, download, highest voice 10 O2
success rate 5 Vodafone
– Ofcom ‘Smartphone Cities’ report 0 Three

Overall Cardiff Edinburgh Liverpool London
Source: Ofcom

30
Supported by the UK’s best core network
Fast, secure ‘motorways’: tomorrow’s services over a common IP infrastructure
An upgraded core with increased capacity to cope with future

demands:
• 10G upgraded to 40G+ with future ‘terabit’ capability
• 10x the capacity at less than a fifth of the cost of 21CN
• No future ‘capacity crunch’: 3Tbps world speed record
• Resilience and flexibility: ‘Multi-service edge’ at 800 sites
• Significant cost reduction of 60% per Mb
Managing network traffic intelligently gives our customers the

best possible experience

31
Milestones to all-IP
Network 10Tbps core
3Tbps slicing
fibre record 5G Radio Access
Network rollout
All-IP
Continuing IP voice for
superfast consumers
investment
2010 2015 2020 2025
Secure quantum 4G Pro

Begin scale
comms trial rollout 5G pilot IoT at mass Most of UK
of ultrafast market scale covered by 5G
and ultrafast
Emerging
G.fast trials converged
Single IP core ultrafast and 5G
services
Core network
refreshed

32
Best converged services over the best network
Combining the power of fixed and mobile networks
Digital customer
TV Future voice 5G
experience

33
Digital
TV
Future
TV 5G customer
voice
experience
Industry-leading technology underpinning exciting customer experiences

BT TV and BT Sport developments Changing the way we operate Even more exciting things to come
• Agile IT delivery
• End-to-end monitoring to
improve customer experience:
High Dynamic Range
First UK Ultra HD channel BT Sport Connected – TV apps
and UHD STB Red Button
– social media
– operational monitoring
Enhanced audio
Wi-fi enabled STBs
• System and network with modular storage
instrumentation
BT Sport Digital App Lower-cost, entry-level
with enhanced player ‘Zapper’ STB
for UEFA Champions • Capacity management
League
Integrated STB and device capabilities

34
Digital
Future Voice
Future
TV 5G customer
voice
experience
Towards a converged IP-based multimedia telephony network

The compelling case for all-IP It makes sense
Voice as a service over broadband will provide: • Fewer engineer interventions with the cabinet, reducing
• Integration with mobile services for consumer and costs and faults
business customers
• HD voice • PSTN equipment can’t be maintained indefinitely as costs
rise – it’s time for a new generation of technology
• Monitoring features
• Nuisance call blocking • We’re comfortable sustaining PSTN out to 2025 but the
• New generation of IP phones future is IP
It’s already happening:

• Contact centre services delivered over IP
• >350k IP lines already in use by UK businesses – a growing trend
IP contact centre services • We’re starting to trial IP voice with residential customers – scale trial in 2017

35
Digital
5G
Future
TV 5G customer
voice
experience
Using our expertise to lead the next generation of mobile
• A step change in performance building on 4G EE network

and our fixed ultrafast ambition
• BT/EE labs are working on our vision of 5G; bringing
together 4G, 4G Pro, fixed, wi-fi in a system providing:
– ultra high speed and capacity
– ultra reliable connectivity
– ubiquitous coverage, enabling IoT
– low latency
– massive numbers of connections
– low energy usage
• Collaborating to develop a robust 5G ecosystem of
partners

36
Digital
Digital customer experience

Future
TV 5G customer
voice
experience
Using our technology to transform the way we deliver service

Digitisation: the bedrock of stand-out services A consistent digital experience
Cloud Wholesale
- the future of big business customer portal
Simple systems Network programmability
Software defined
Wi-fi calling
and virtualisation
– easier to call and text
capabilities for Cloud

37
Delivering the number one network and stand-out services
TSO To use the power of communications to make a better world
Growth – to deliver sustainable profitable revenue growth

• Number one network, providing
seamless connectivity Broaden and deepen our customer relationships
• Products and services designed for

Deliver great Invest for Transform
great customer experience customer experience growth our costs
• Best converged services Differentiated

Best network Fully converged
Market Focus on
multinational
content, services leadership in all
in the UK service provider companies
and applications UK segments globally
• Continued cost transformation

Best place to work

38
Openreach
Clive Selley - CEO
Better, broader, faster
Better Broader Faster

service coverage speeds
Go beyond Government’s
Deliver step change in 95% superfast coverage Extend ultrafast with mix
customer experience target of G.fast and FTTP

40
Openreach underpins Britain’s digital leadership
• Commitment to serving >560 CPs on Openreach serves c.26m customers through CPs
equal access terms Consumer / Residential Business & Corporate Infrastructure
21m 5m Fibre
New sites
end business Data
customers connections centres
• Competitive market delivering value

and choice to UK consumers and
businesses
• Digital champion - aligned with OPENREACH

>560 Communications Providers with access to 30m end customers
Government agenda for Digital
Britain Access products, e.g. LLU, WLR, Fibre, ISDN Ethernet and backhaul products

41
Openreach at a glance
• Huge engineering operation Openreach FY 2015/16
31,500
£5.1bn 25m Employees
• UK fibre platform growing fast Revenue Fibre prems passed 28,000
Front-line field & desk roles
5.9m 290,000
£2.7bn Fibre broadband
end customers
Engineer jobs
per week
• Serving customers nationwide EBITDA
↑342%
Since 12/13
c.4m Poles
£12.3bn 200,000
Mean capital Active Ethernet c.101k Cabinets
employed circuits
(FY 2014/15) c.5.5k Exchanges
↑38%
Since 12/13

42
Stable revenue and EBITDA, despite regulation
Stable Openreach revenue Consistent EBITDA, despite regulatory price pressure
EBITDA (£m)
5,200 Regulatory pricing impact (cumulative £m)
5,000
575
575 560 444
4,800 263
575 561
4,600
£m 5,100 £m
4,400
5,115
5,115 5,100
2,601 2,600 2,664
4,200
4,000
3,800
2012/13 Regulation Trading 2015/16 2013/14 2014/15 2015/16
Volume growth and cost transformation have offset the impact of regulation

43
Fibre broadband is the focus of our continued investment
Gross capex increase as fibre investment continues Fibre is our primary growth engine
Fibre build and maintenance
Fibre Ethernet
Proactive - new sites, transform, safety and spine 677 861
900
Reactive - customer-driven volume 1,540

30%
1,461 264% -26%
£m £m
1,161 1,176 186 0
12/13 Regulation Trading 15/16 12/13 Regulation Trading 15/16
LLU WLR
£m 1,173 1,203 2,379
-9% 12% -8%
-11% 1,915
£m £m
2012/13 Regulation Trading 2015/16

2012/13 2013/14 2014/15 2015/16 12/13 Regulation Trading 15/16

44
Our plan will help manage the regulatory challenge
Regulatory impacts Business Digital Universal Service
Wholesale Local
Connectivity Communications Commitment
Access Review
• 2015/16 c.£130m Market Review Review (USC)
• 2016/17e c.£250m • 2016/17 charge • Important to • We are seeking: • We stand ready
control £175m - maintain fair bet to deliver
– regulatory
£200m impact principle voluntarily;
certainty
Our plan will help offset these on Openreach subject to
headwinds – clarity appropriate
• Duct & Pole
• Dark Fibre to be – fairness technology and
Access
introduced in – process commercial
• Stimulate demand October 2017 solutions, rather
– pricing
than by an
• Improve products – maps industry USO
• Transform costs

45
Customer demand driving growth opportunities across the business
• Growth in broadband
Consumer • Continued migration from copper to superfast Openreach fibre broadband network:
• Improved mix as superfast migrates to ultrafast 40% increase in data usage year on year
500
450
400
• Continued Ethernet volume growth expected 350
Business • Improved service will help increase market share
300
• Business FTTP for SMEs
250
200
150
100
• New home build continues Winter
2012
Spring
2013
Summer
2013
Autumn
2013
Winter
2013
Spring
2014
Summer
2014
Autumn
2014
Winter
2014
Spring
2015
Summer
2015
Autumn
2015
Winter
2015
Infrastructure • Strong growth in data centres expected 100 equals the traffic levels for Dec 2012
• Backhaul to small cells expected

46
Our strategy
Better Broader Faster

service coverage speeds
Investment
Openreach gross capex1 to increase again in 2016/17

1 Before any impact of grant funding

47
Better service – improving but much more to do
Progress in 2015/16
Consumer & Residential Business & Corporate Infrastructure
  
MSLs met or exceeded Increase YoY in new weekly Reduction in overdue new site
60/60 in last 2 years 16% Ethernet orders completed 96% orders
Working with industry for a better service plan and commitments
1 2 3 4
Deliver on-time Right First Time Own it Smarter working
• Halve missed appointments • Multi-skilled engineers able • Dedicated case management • Improving network health
• Complete half of remaining missed to fix-wider range of issues team to own and resolve to reduce fault rate
Consumer problem cases
appointments within 24 hours • Reduce delays caused by
street works and wayleaves
• Ethernet deliveries up 20% YoY • Achieve 80% target on • Individual owner accountable • Smarter engineering and
• Achieve 46 working day target for deliveries by contracted date for delivery of each complex innovative techniques to
Business circuit deploy network
Ethernet delivery

48
Broader coverage – going beyond Government’s
95% target
Go beyond 95% >95%
• Extend coverage with ‘gain-share’ dividend from BDUK

• Tackle ‘not-spots’ and infill in existing footprint area
More competition
• Provide better access to Openreach’s ducts and poles
10m
Ready to deliver 10Mbps USC
USC
• Developing and testing technology and commercial options for
voluntary delivery of universal broadband

49
Faster speeds - ambition for 12m ultrafast by 2020
For consumers For businesses
• Ambition for >11m • Ambition for up to
homes passed by 1m to have ultrafast
2020 through mix of available by 2020
G.fast and FTTP including Business
FTTP in high streets G.fast
and business parks
FTTP
G.fast
12m ultrafast ambition FTTP
• Commitment for 10m premises passed with G.fast by 2020
• Ambition for up to 2m FTTP by 2020
– in new build homes, rural areas, apartment blocks and
where it makes economic sense

50
Cost transformation – improving our efficiency
• Our transformation activity is pivotal to delivering our customer experience improvement plan
Near-term Medium-term
• Uplift network health

Network health
• Improved network records • Pre-build network • Single order GEA
Skilling & • Co-location • Integrated customer info dashboard • Continuous Improvement

capability • Cross-skilling • Mobile Apps for field engineers
Efficiency & • Streamlined process • Customer self-service portal • Renegotiate contracts

scalability • Proactive repair • Right skills, right place, right time • Network planning process optimisation

51
Our targets to deliver better service, broader coverage, faster speeds
Key
Keymessages
messages Key metrics Targets
• Fibre and Ethernet demand drives growth • Reduce network faults YoY
• Deliver on time
Service • Halve missed appointments in
• Growing investment in Openreach
2016/17
• Better service – deliver step change in
customer experience
Fibre • 95% coverage and beyond
• Broader coverage – go beyond Government’s • Extend with ‘gain-share’
coverage
95% target
• Faster speeds – more ultrafast with
G.fast and FTTP • Ambition for 12m ultrafast
Superfast to by 2020
• Supportive regulatory outcome needed so that ultrafast • Includes up to 1m ultrafast for
Openreach can keep Digital Britain ahead SMEs

52
Wholesale & Ventures
Gerry McQuade - CEO
Opportunities from strong portfolio of converged propositions
Trusted partner
Large, diverse and loyal customer base
we can sell to
Cost transformation Category growth potential

Strong track record – we can do more Opportunities for growth in many parts
of our business
Strong capability set

Broad and unique portfolio, with great
potential for combined / converged
propositions

54
We serve fixed and mobile CPs, plus a wide range of UK businesses
We serve: Revenue and EBITDA split1
• UK communications providers c.£2.2bn revenue c.£0.8bn EBITDA
– c.1,200 fixed communication providers
– c.30 mobile communication providers (MVNOs)
• Media companies and broadcasters,

in the UK and worldwide
– c.200 organisations Wholesale Ventures
• Over 3,000 other vertical business markets c.3,600 employees2

– legal firms, vehicle fleet owners, etc. BTB
Wholesale
• All UK citizens where employees
Group came from
– 999, Directories, Payphones
EE
We create economies of scale for BT 1 Estimate for new organisational structure

2 Employees as at 01/04/16. Direct labour only

55
Introducing Ventures: its portfolio and rationale
• Rationale for new organisation Our Ventures portfolio
– broader Ventures portfolio with greater management • 999 call handling
visibility
– revenue and cost synergies across Ventures and with • Directory enquiries and operator assistance
Wholesale. Example:
• Street and managed payphones
+ + + • Fleet management & maintenance

Fleet Supply chain Machine to Mobile analytics
solutions machine • Fire and security alarm services
= ‘Integrated Field Force’ proposition • Managed IT solutions for law firms
• Competitive advantage • Manufacture of cabling

– BT brand
– well-established customer base • Supply chain solutions
– large sunk investments
• Machine-to-machine solutions
– rich capability set
– technology and scale • Aggregated mobile analytics

56
We’re in a strong position to provide innovative, converged services
What we believe A market-leading position to build on
• We can grow by improving our customers’ In wholesale fixed networks
experience, by reducing our costs and by “BT Wholesale continues to lead the local market
developing innovative solutions as a provider of wholesale connectivity, communications,
and media services”1
• Our unique assets mean we’re well placed to In wholesale mobile networks
“The largest provider to MVNOs”2
create new value and differentiation
In our Ventures
• Convergence is our customers’ key challenge
#1 #1
#2 #1
#1 #1
1 Current Analysis, October 2015 2 Competition and Markets Authority, June 2015

57
We’re focused on improving customer experience
Strategy – easy to do business with The majority of our customers1 are highly satisfied
90 85% average customer satisfaction score
• Predictable delivery 85
– proactive order and repair management
– much faster completion times 80
– service innovation
75
• Skilled, helpful support % 70

– skilled people, tailored experience
– great tools and processes 65
– one-contact resolution
60
• Digital by default 55
– web portals
– automated interfaces 50
2012/13 2013/14 2014/15 2015/16
1 BT Wholesale customers

58
We’ll extend our strong track record on cost transformation
• Strong track record over last 3 years1
– SG&A 39%
– Third-party spend 58%
– Network unit costs 61%
In progress Short-term Medium-term

• Closing legacy network platforms • Continuing network access and IT • Investment in multiservice access
(20C data and broadband network) infrastructure rationalisation capability, to transform access
economics
• Rationalising 21C network • Increased take-up of automated
infrastructure ordering interfaces and self-service • Realise shared and scale economies
from the transition to cloud / hosted
• Rationalising access network usage • Further service centre restructuring
• Replace fixed network backup /
• Renegotiating supplier contracts • Realising organisational efficiencies
monitoring circuits with cheaper
• Planning for organisational efficiencies • Cross-portfolio product cost synergies mobile alternatives
1 Former BT Wholesale
• Continued third-party insourcing

59
We’re continuing to invest in our product portfolio
• Ethernet & MEAS Strategic investments have paid off in the past
– expanded network coverage Ethernet Hosted comms
– faster delivery Working system size Seats
50 100
– additional network access options
40 80
• Hosted Communications 30 60
k k
– broader portfolio 20 40
10 20
– new channel partnerships
0 0
– convergence 2013/14 2014/15 2015/16 2013/14 2014/15 2015/16
• Mobile portfolio
SMS M2M / Internet of Things
– EE Connect
2,500 Messages 2,500 SIMs
SIMs
– mobile data analytics
2,000 2,000
• Ventures 1,500 1,500
m m
– Payphones rationalisation & monetisation 1,000 1,000
– Fleet expansion 500 500

0 0
– next-generation IP software (Tikit) 2013/14 2014/15 2015/16 2013/14 2014/15 2015/16

60
We’ll support BT’s top line by meeting customer demand
• The market is adopting IP-based and converged Market growth in Hosted VoIP (users)
services. We will meet that need 2.5
• Our customers want mobile for their portfolios 2.0
1.5
• The ‘Internet of Things’ enables differentiation
in our proposition set £m
1.0
• Our Ventures create a platform for growth

0.5
• Improvements to our operating model and

0
customer experience will help secure our base Dec-12 Dec-13 Dec-14 Dec-15
Source: Cavell Group, February 2016. Users = licensed users in UK

61
Opportunities from strong portfolio of converged propositions
Key
Keymessages
messages Key metrics 3-year ambitions
• Customer relationships are strong

– trusted partner Ethernet • Grow base by 50%
– offering value
• Cost transformation
– continuing previous themes • Increase proportion of MVNO
– new operating model, new opportunities 4G brands on 4G from <5% to ≥ 80%
• Focused investment has delivered

– new ways to differentiate
– unique assets to support convergence • ≥ 95% on-time delivery for all
Service products

62
Q&A

BT Capital Markets Day - Part 2 Seizing The Convergence Opportunity

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BT Capital Markets Day - Part 2 Seizing The Convergence Opportunity

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BT Capital Markets Day – Part 2

Seizing the convergence opportunity

2008/9 Opex Capex 2015/16 pre EE

Capex Overhead Value Analysis

Q4/full year Group strategy Cost transformation Wholesale Global Business

– >900 new UK contact centre staff, hiring 1,600

– c.3,000 Openreach engineers hired in last

Net labour cost (LHS) Insourced jobs (RHS)

Q4/full year Group strategy Cost transformation Wholesale Global Business

1 Operating model including UK business changes and EE High

3 “Compete 3” - applying best practice across Global Services

>£1bn 5 Continuous Improvement; application of forensic toolkit and

EBITDA 6 Sales effectiveness; sales best practice and analytics, margin

9 IT and networks; data centre rationalisation, centralised IT and

Q4/full year Group strategy Cost transformation Wholesale Global Business

Q4/full year Group strategy Cost transformation Wholesale Global Business

• >£300m of benefit delivered through: • Further opportunities >£100m

• Creation of scaled sites to drive efficiency • Further cross-business unit consolidation to

Q4/full year Group strategy Cost transformation Wholesale Global Business

structure • Leverage investments in major systems

UK EUROPE AMERICAS AMEA

Q4/full year Group strategy Cost transformation Wholesale Global Business

– strategic work offshore using our own people 800

– replacement ratio of 1.4 – 1.6 subcontractors to 400

Q4/full year Group strategy Cost transformation Wholesale Global Business

Q4/full year Group strategy Cost transformation Wholesale Global Business

Feb 2015 Latest view

Revenue synergies NPV c.£1.6bn NPV c.£1.6bn

Cost synergies ‘Year 4’ – c.£360m c.£400m

Integration costs c.£600m c.£550m

Q4/full year Group strategy Cost transformation Wholesale Global Business

Mobile but not broadband 6m

Neither mobile or broadband 14m

Q4/full year Group strategy Cost transformation Wholesale Global Business

• Increased market coverage

Material spend with… BT Only BT & EE EE Only

Q4/full year Group strategy Cost transformation Wholesale Global Business

Q4/full year Group strategy Cost transformation Wholesale Global Business

Q4/full year Group strategy Cost transformation Wholesale Global Business

Q4/full year Group strategy Cost transformation Wholesale Global Business

2 IP Multimedia System core networks

5 EE datacentres Fully integrated into BT

Reduce supply 2 x corporate WAN/LAN Single WAN/LAN

Q4/full year Group strategy Cost transformation Wholesale Global Business

Q4/full year Group strategy Cost transformation Wholesale Global Business

Insourcing Insource facilities management and security to BT Facilities Services

Q4/full year Group strategy Cost transformation Wholesale Global Business

Growth – to deliver sustainable profitable revenue growth

• Products and services designed for

• Best converged services Differentiated

• Continued cost transformation

Q4/full year Group strategy Cost transformation Wholesale Global Business

Technology, Service and Operations (TSO) Mobile technology

c.250,000 years of skills and experience

Over 210 graduates and 360 apprentices

£470m invested in R&D in 2015/16

4,700 patents and applications Research partnerships and global scouting

Q4/full year Group strategy Cost transformation Wholesale Global Business

Q4/full year Group strategy Cost transformation Wholesale Global Business

• Driving global standards on G.fast: the core of our ultrafast strategy

• Leading suppliers and industry: they’re responding at pace

• New technologies boost UK superfast broadband coverage

• TSO is supporting Openreach’s journey towards FTTP