BT Innovate & Design Industry analyst roundtable

1. BT Innovate & Design Industry analyst roundtable Hosted by Clive Selley, CEO

2. Agenda • BTID: The engine room of BT • Where we are today: delivering the enablers for growth • Our transformation: getting from good to great • Our transformation: IT platforms • Our transformation: Network platforms • Research & Innovation • Q&A

3. Where BTID fits in Customers BT Group Ian Livingston CEO Tony Chanmugan CFO Alex Wilson Group HR Director BTRetail Gavin Patterson CEO BT GlobalServices Jeff Kelly CEO BT Wholesale Sally Davis CEO Openreach Steve Robertson CEO BT Operate Roel Louwhoff CEO BT Innovate & Design Clive Selley CEO/Group CIO Market facing units manage all customer interactions. BT Innovate & Design researches, innovates, designs and develops. BT Operate manages all systems and networks in life.

4. Our organisation structure ServiceDesign Units(vertical) Innovation, design and development teams (horizontal) Karl Penaluna (acting)

5. BT Innovate & Design: the engine room of BT How we work Business outcomes • Increased right first time for customers • Significantly lower operating costs • Faster speed to market • Higher volume, better quality output • Rationalised logical IT platforms • A 21C IP core network • Platform-based structure • One way of working • The BT Operating Model • Underpinned by: • Enterprise programmes • Automation • Reuse and SDKs • Process re-engineering • System/network rationalisation • CIT • Virtualisation • Measured by: • Function points

6. BT Innovate & Design: delivering the enablers for growth • Enabling the delivery of broadband based consumer services through fibre • Delivering the capability for BT to be the brand for businessin the SME market • Helping GS become a genuine global leader • Supporting BT Wholesale in becoming the Wholesaler of choice • Being the best network provider Creating a world class cost base

7. Wholesale service design underpinsWholesale success • Get things ‘Right First Time’ to be number one for customer service • Partner of choice for managed network services and IP platforms for Communications Providers globally • BTID is underpinning Wholesale’s key strategic priorities for 2010/11 and beyond • Operate in key markets with global connectivity and presence • Offer advanced software-driven platforms and services that exchange traditional and IP traffic • Delivering ‘content-rich’ broadband and ‘communications-rich’ services • Delivering sustainable, profitable future growth

8. Openreach service design underpins Openreach success • Get things ‘Right First Time’ to be number one for customer service • BTID is underpinning Openreach’s key strategic priorities for 2010/11 and beyond • Maximise our Copper networkby continuing to standardise, simplify and automate • Deliver NGA to 4 million homesby December 2010 • Reinforce core voice and broadband through differentiation • Deliver a new generationof communications servicesto our customers

9. Portfolio & service design underpinsGS success • Get things ‘Right First Time’ to be number one for customer service • BTID is enablingBTGS to become a world leader in managed networked IT services and generate cash flow by: • having a world class portfolioand customer solutionswith global reach • underpinned with least cost network • and delivering greater productivity, efficiency and cost reductions

10. Retail service design underpins Retail success • Get things ‘Right First Time’ to be number one for customer service • Standardise, simplify and automate to cut costs • BTID is underpinning Retail’s key strategic priorities for 2010/11 and beyond • Build a scale TV business exploiting BT’s broadband network • Reinforce core voice and broadband through differentiation • Build our SME IT business by enhancing our capabilities

11. Some examples of what we deliver

12. Building a scale TV & content business • BTID is supporting BT Retail in building a scale TV & content business which will exploit BT’s broadband network • Building HD capabilities in our national fibre network • Wholesale Content Connect, a nationwide CDN, will improve the cost and quality of TV and video content for all UK broadband customers (not just BT’s) • Through Project Canvas, working with broadcasters and telcos to re-define the next generation of free-to-air TV • TV & content services enable us to deepen our relationship with customers, driving retention and ARPU • Gives the customer a choice of bundled calls, broadband and TV from a single trusted supplier • How? • Why?

13. Consumer TV propositions • BTID is supporting BT Retail in building a scale TV & content business which will exploit BT’s broadband network • Launched Sky Sports 1 and 2 on Vision in timefor Premiership Football season • Canvas • Horizontal market proposition – new model for IPTV • Linear TV • Making use of fibre investments to deliver improved content to customers • Gaming – Onlive • Using broadband infrastructure and cloud capabilities to enter £2bn market • Achieved already... • More to come...

14. Transformation: Getting from good to great

15. Our transformation journey Continuous improvement Increase standardisation Gain control Past Present Future • Formation of BT Innovate & Design and BT Operate • Strategic decision to converge networks and IT • Control development and support costs • Increase levels of standardisation, automation and reuse to drive consistent customer experience • Invest in future platforms • Global springboard for innovation • Global development and operations centres based on standard global platforms, automation and self service

16. Our transformation journey: people • Right skills • Up-skill programmes toconvert from legacy skills • Right people • Vendor management • Outsourcing whereappropriate • Focus on core work • Right places • Consolidating from 240 to 20-30 global servicecentres • Creation of 5development centres 45,000 27% over 2 years 40,000 35,000 30,000 25,000 Total labour resource UK sub-con 20,000 Agency 15,000 Off-shore sub-con Direct 10,000 5,000 0 2007/08 2008/09 2009/10 16

17. Our transformation journey: process Innovate and decide Design and develop Deploy In-life management Strict demand management All BT’s products, services and contracts Plan, build and deliver customer orders Agile process, software reuse Error free deployment Driving improvement through measures Viable business case Cost/quality/ speed On-time/cost/ quality/ scope at launch ‘Right First Time’/ Reliability

18. Our transformation journey: IT platforms Past Present Future • 24 standard global platforms • 8 strategic vendor partnerships • Produced 30% more software for the same cost • Launched over 500 reusable modules (SDK) • Fewer platforms using standard software modules • Continued YoY efficiency improvements • Automated, lean processes to reduce failure • Thousands of systems • Hundreds of vendors • Few measures • Complex models Continual improvement of our systems estate

19. Our transformation journey: networks Past Present Future • Delivered and exploited the core IP/MPLS UK network • Ethernet - biggest UK footprint • High-speed broadband roll-out • Lower cost global access • Single global IP/MPLS network • Closing down legacy networks • Super-fast fibre broadband to 2/3 of the UK population • Content distribution network to support media • Multiple, disparate networks in UK and across the globe • Up to 8Mbps broadband • High-cost access solutions Continual improvement of our global networks

20. Transformation: IT platforms

21. Platform approach: becoming a platform-based company is central to BT’s strategy Transformation of IT systems • Delivery hubs for each LOB manage 90-day releases to the business • Efficiency is managed by quantity and quality of output • The metric is £ per function point and bug per function point • Efficiency has been achieved by reuse

22. Case study: Reuse and 70:20:10 The issue • Existing marketing, billing and order journeys meant BT found it difficult to offer “bundled” propositions to its customers. The solution: • Maximise the reuse of existing functionality • Enable the consumer channel to choose from a pre-defined set of building blocks (services, discounts, contracts, equipment, “bolt-ons”) which enables them to price for specific bundles The benefit to BT Retail: • Agility in the market - Consumer now on an equivalent footing with major competitors in the consumer services space • Greater retention capabilities for existing customers (one contract for all services means customers are less likely to leave) • Converged order journey’s and communications with the customer about their multi-service order • Single line on the bill is easier for customer to understand What does this mean for BTID? • Frees up resource to focus on “new” work and building new capabilities • Reduced cost of portfolio management (as Retail stick together pre-defined building blocks in different combinations). • New services will slot easily into bundles framework (already provedwith Fibre).

23. Platform Maturity - definition V 2 23

24. What we are delivering today Improved customer experience • Focus on RFT in retail has reduced failure by c.60%over 2 years Cost reduction • £700m reduction in cost base over the past 2 years Out put • 37 % improvement in development unit cost over 2 years • 31% reduction in cost per test point over 2 years • 28% increase in software volumes in the past year Quality • IT incidents reduced by 33% • Network incidents reduced by 23% • Average weighted outage impact reduced by 67% • Order lead times reduced by as much as 50%

25. The future - becoming a world class business • Platforms productivity currency: £/Function Point • Acknowledgement that we have improved but have some way to go • Our enhanced efficiency and platform maturity completion plans will take us to: • peer average within a year • first quartile within two years • further opportunities (2 years and over)driving to end-statewill take us beyondthe first quartile 2 year target 10/11 target Source: Gartner benchmarking Q3 09/10, GP 10/11 target adjusted for 09/10 organisation

26. Benchmarking BT’s billing capability 2008/09 (from report) Latest view BT BT Oliver Wyman Report 2011/12 (forecast) 2010/11 (forecast) Dev. Cost 27% Dev. Cost 18% Revenue Billed through platform 4.5% Revenue Billed through platform 6% BT BT

27. Case study:Reducing call volumes through bill redesign Completed and implemented Q3 FY09/10 4 week rolling average: call volume fell from 77.5k to 44.5k over seven months

28. Case study: Contracts SDK - driving standardisation in BTGS Contracts SDK enables improve-ments across the contract lifecycle Current state New Business We are investing £20m to uplift our core platforms to best practice and to drive standardisation. 70:20:10 We are leveraging this investment on over 50 of our largest accounts We are taking advantage of standardisation globally A movement to standard tooling will reduce our cost to serve existing customers Significant reduction in the cost to implement our core systems estate for large & complex deals This is real! We have delivered eight releases of functionality since November-09 • Reduce the cost variance on new bids • Provide solutions to provide managed network services Transitioning Customers • Implementation of tooling and processes to ensure customer take-on is successful Transforming Customers • Implementation of a dramatically improved Account Startup Process • Configure – don’t build solutions onto our standard solutions stack Customer Operations • Improvements in contract and commercial inventory and data • Lower cost operations environment achieved through automation and standardisation

29. Case study: supporting deliveryof the KCOM contract • In June 2009 KCOM Group PLC (KCOM.L) announced it had signed a strategic agreement with BT Group. The contract is valued at £960 million over ten years • What will it provide? • It will provide an extension of the KCOM network reach through access to BT's national network and outsourcing the management of its network assets to BT‘s Wholesale division • A full range of 20C data and voice products are being transformed into 21C futures products and services • What BTID is delivering for the contract • reducing the ongoing fixed costs and capital expenditure associated with the management of KCOM’s network infrastructure • retaining KCOM’s existing fibre access network, coupled with access to BT's network scale and service capability • Phased and controlled outsource of the management of KCOM's UK network operations to BT over the next few years • management, maintenance and enhancement of network operations • network management and vendor management on KCOM's behalf “This agreement is an important step in the transformation of the KCOM Group.” Bill Halbert, Deputy Executive Chairman Allowing KCOM to focus on meeting the needs of its customers

30. Enough opportunity headroom for a world-class cost base: Earlier requirements alignment to identify reuse Reuse and SDKs Automation: build and test System rationalisation Pan-BT single instances Oracle migration and uptake Continuous Integration Testing Platform maturity – where next?

31. Transformation: Network platforms George Nazi, president 21CN, global networks and computing infrastructure

32. Let’s talk about: • Our networks transformation • Extending our global reach • DHL – global contract example • Faster speeds and greater access for the UK – our next generation access and super -fast broadband programme • Fibre voice access

33. Our networks transformation Past Present Future • Delivered and exploited the core IP/MPLS UK network • Ethernet - biggest UK footprint • High-speed broadband roll-out • Lower cost global access • Single global IP/MPLS network • Closing down legacy networks • Super-fast fibre broadband to 2/3 of the UK population • Content distribution network to support media • Multiple, disparate networks in UK and across the globe • Up to 8Mbps broadband • High-cost access solutions Continual improvement of our global networks

34. Extending our global reach • Global demand for managed network services and unified communications • Asia Pacific – important for us, important for our customers • Network partnering - extending BT’s global reach through selective partnering: • creating revenue opportunities throughnew geographic markets - helping usto deliver US and Asia-Pacific network solutions in particular • minimising cost of market entrythrough network-to-network interconnections (NNIs)

35. Case study: DHL – a global contract example • Five-year contract to consolidate DHL’s communicationsfrom multiple service providers to BT • Managed services solution in 15 countries, over 1,000sites across Asia Pacific • BTID has begun the migration of existing voice, data, optimisation and security services to MPLS

36. ‘The mixed economy’- progress Super-fast broadband (Fibre) Early summer 1.5m homes and businesses passed Fast broadband (ADSL2+) Ethernet By London2012 10m homes and businesses passed 820 nodes deployed across the UK Spring 2011 180 new nodes deployed Late summer 2.5m homes and businesses passed July 2010 2010 2011 2012 2015 End of 2010 4m homes and businesses passed Spring 2011 20m homes and businesses passed (75% of UK) (312 more exchanges) 55% of UK homes and businesses passed (815 exchanges) End of 2015 two-thirds of homes and businesses passed ADSL broadband available to 99% of UK NOTE: Dates are indicative and subject to change

37. Super-fast fibre access network • Install c.30,000 cabinets • Lay over 50,000km of fibre • Train & up-skill c.4,000 people • Enable over 1,000 exchange areas “ I used to spend a lot of time just drumming my fingers. With FTTC, the queue of files just evaporates. I reckon I’m releasing 20 per cent more time every day for productive work.Sam Mably, Bluequest Media Marketing & Design Agency, London 1.5m premises passed by early summer 2010 4m premises passed by endof 2010 10m premises passed by2012 2/3 of UK premises passed by 2015 BTID has delivered 20 major system releases in last year BTID is providing Openreach’s control network to over 340 exchange sites BTID is developing the systems & processes for the launch of FTTP BTID is helping to develop TV, Content and future Voice services

38. How do we compare in the provision of super- fast fibre access? • Asia has the highest penetration • NTT currently has 13.8m customers: 31% penetration • KT currently has almost 7.2m customers: 42% penetration (this uses new data which lists ‘up to 50Mbps’ and up to ‘100Mbps’ products, however FTTB customers on an ‘up to 50Mbps’ historically may only have got around 20mbps) • US penetration rates are growing • AT&T currently has 2.6m customers: just over 10% penetration • Verizon currently has 3.8m FiOS internet customers: almost 24% penetration • European deployments appear to be following the Asia/US trend • NB some players do not publish coverage or take-up data for NGA, e.g. DT Households in Operator Network Footprint (M) (Millions) 60 40 20 0 Penetration of Households in NGA Target Footprint 30% 20% 10% 0% Penetration of Households in NGA Current Deployment Footprint 30% 20% KPN 10% 0% NTT AT&T Verizon FT/Orange KT Belgacom Swisscom Penetration Rate over Time NTT AT&T 30% Verizon FT/Orange KT Belgacom Penetration within Deployed Footprint 20% Swisscom  KPN 10% Approx’ take-up rate trend  0% 0 5 10 15 20 25 30 35 40 Number of Quarters of Deployment to Date

39. Fibre Voice Access is unique to Openreach and will support voice service delivery in a fibre world It builds on common SIP (Session Initiation Protocol) and IMS models Optical Network Termination units supplied by Openreach will include Analogue Telephony Adapters. The Analogue Telephony Adapters may be controlled and accessed by Communication Providers (CPs) Integrated to CP’s call servers via industry standard protocols basedon SIP Will permit voice service and feature innovation on the part of the Communication Providers Case study: Fibre voice access (FVA) FVA on the premises

40. Case study: Ethernet Today 840 live Ethernet nodes • 90% of businesses are already within 5km of one • of our Ethernet nodes today • Additional 180 Ethernet nodes to be deployed by • Spring 2011 • Openreach has a range of Ethernet access • products to control costs and increase • efficiency: Ethernet Access Direct (EAD), Aggregation, • Optical Spectrum, Access/Optical Spectrum, • Extended Accessand Ethernet backhaul products • Backbone Connect Limited (BCL) is a young • aggressive entrant to the Ethernet market. David • McLeod, director of marketing, BCL said: • “We are confident that EAD will help us secure more • business . We expect to grow our clients by 20% • as a direct result of EAD” BTID is rebuilding Ethernet delivery across its strategic systems BTID has created an industry engagement programme for Ethernet BTID is building a centre of excellence for Ethernet BTID is using a ‘model office’ approach for Ethernet

41. Innovation Mike Galvin, MD research, 21CE and technology strategy

42. Open innovation Aim is to exploit innovation globally for the benefit of customers and shareholders Revenue Customer experience Cost reduction Innovate within each stage and through the entire value chain Invent Architect Operate Productise Channels Customers Validate & Implement People& Organisation Customers Universities Partners & Startups Government Using innovation to gain advantage

43. Technology innovation supports our future Benefitting our business Protecting our future Commercial advantage • Continuing strong record of patented invention e.g. • techniques to deploy fibre at low cost and at scale • Portfolio of 6,400+ patents • New opportunities e.g. • technology for BT’s Wi-Fi products and services • network optimisation technology that improves bid win prospects • 80% of research directly supports our customer-facing businesses • 20% of research underpins future strategic options forBT Group • Measurement: • contribution to revenue generation, cost reduction and customer experience • delivery to time • patents filed • external awards Using innovation to gain advantage

44. We contribute to BT’s current portfolio • BT Vision • Perceptual quality analysis (PQoS) tools • Perceptual QoS monitoring techniques for Vision, Canvas and beyond • Personalised content recommendation trial with 100,000 customers - increases ARPU Cloud • Delivered four prototypes: • Cloud brokering • Bursting • ISV on-boarding • Cloud billing

45. Case study: Blown Fibre • Our work in this area has been key to making the business case for super-fast broadband viable • Move from two-man to single-man installation means almost 50%reduction in installation costs • Up to 1km of fibre cable can beinstalled in one operation • Overhead blown fibre deployment avoids new trenching where underground duct is not available, significantly reducing cost and inconvenience • Licensed to seven companies Two-man compressor (left) and single-man compressor (right) Using innovation to gain advantage

46. Case study: BT NetDesign • Automated design tool for complex design problems • Optimised solutions typically deliver 10-20% CAPEX reduction • evaluating one solution manually took one month, evaluating several thousand with the tool to find the optimum solution took three-four hours • Providing automated in-venue high level design for the 2012 Olympics venues • Two patents filed and covered by a number of trade secrets Using innovation to gain advantage

47. Case study: BT WAN Optimisation Service • BT WAN service is part of the GS Applications Assured Infrastructure portfolio • Reduces cost of providing/upgrading leased network links in territories where BT does not own a network by reducing the effective bandwidth of network traffic • Improves bandwidth utilisation by 30-60% and application performance by x2-x50 • Includes a customer experience model to analyse the degreeof benefit (cost reduction and improved customer experience) that could be realised in each case • Launched in Global Services in early 2009, new revenue pipeline now in excess of many tens of £m Using innovation to gain advantage

48. Our research is recognised by the industry British Technology Excellence – R&D Achievement of the Year: Winner Autonomic Fault Prediction and Resolution Global Telecoms Business Awards 2009 Global Telecoms Business Awards 2010 IT Service Innovation award: WAN Optimisation Service with Riverbed Business Migration Innovation award: Optimising & Accelerating Product & System Migration with Ontology systems Local Optical Service Innovation Primary voice service for Ebbsfleet FTTP (BT and 2Wire) Local optical network Fibre to the cabinet: Openreach and Huawei Managed services Legacy network transformation: BT Global Services and Alcatel-Lucent Billing services innovationRevenue assurance project (BT and cVidya) New media innovationShape-shifting media (BT and Real Time content) Business Excellence Award for Innovation 2010 Optimising & accelerating product and system migration with ontology system Best Innovation for Telecommunications I-Plate The IET Innovation Awards 2009

49. Final thoughts Clive Selley

50. BT Innovate & Design: the engine room of BT What we deliver: How we deliver: The BT Operating Model Agile development Reuse Continuous integration testing Platform strategy Platform maturity Systems reliability SDK Network strategy Single global IP/MPLS network Close down legacy Super-fast to 2/3 of the UK Right people, right skills, right locations • Improving productivity • 37% improvement indevelopment unit cost • Improving quality • 86% reduction in outage hours • Reducing cost • 21% (£700m) cost reductionover 2 years Improving delivery of our future