1. BT Transformation Working with the CWU

2. Defend Traditional Calls decline - 5 main factors Dial IP - Market declines, driven by Broadband Price - Market trend and timing of price cuts on BT Together Options 2 & 3 Calls to mobile - Market now in decline, greater price awareness? Voice market*- 2-3% decline continues Market share*- Consumer, down 1.5% Business, down 0.3% * BT estimates based on latest Ofcom data : Local, national, international and non-geographic voice minutes

3. FY 03/04 - Turnover transformation + 30% - 5% * New wave Traditional Total Revenue £bn New wave : BT Retail and Wholesale new wave plus C&SI and Solutions revenue * excluding the the impact of the mobile termination rate reduction Maintained year on year New Wave now represents 18% of Group Turnover

4. ….all these changes pose challenges for us all Customer needs are changing…. Solutions not just single products Broadband not just narrowband Multiple devices not just standard telephones Multi-media not just voice Mobile not just fixed Store and forward not just real time As an individual not just as family member 24/7 expectations and an excellent customer experience

5. A Real Need to Focus on Customers Different “Customer” segments: eg, Consumers, SME - large corporations, Wholesale Customers who trust us will stay with us and they will spend more money with us.  Customers who are unhappy will leave BT and go to the competition.  Any failure on our part to deliver the promises will give our competitors an opportunity to build on their current success.  Every 1% revenue loss in our traditional business means we need to make cost savings or generate additional revenue growth of £100 million to maintain our profitability. Greater need for change, speed, responsiveness

6. Defend traditional –Improved service –Aggressive & creative marketing –Price innovation –Reduce costs / improve margin Grow New Wave –Broadband –Mobility –ICT –Global Solutions S trategy is starting to work …. Century 21st Transformation Network partnership with our customers Long term Delivering Shareholder Value

7. Key deliverables Build on network centric ICT capability Create convergent MOBILITY solutions Deliver on BROADBAND Defend TRADITIONAL business rigorously Drive for COST LEADERSHIP Build 21CN as a foundation platform Motivate our PEOPLE and live the values

8. Sounds straightforward, but all aspects of our business are undergoing fundamental change... The demand for traditional services is in long-term and accelerating decline Demand for broadband is moving beyond the early adopters into the mass market, and we have broadband dial-tone on the way The ICT market is being transformed in BT, but enormous growth focus is required, and margins in this market are naturally lower The mobile and fixed markets are converging The regulatory background has never been tougher

9. 1. In relation to the interests of citizen-consumers, what are the key attributes of a well-functioning telecoms market ? 2. Where can effective and sustainable competition be achieved in the UK telecoms market ? 3. Is there scope for a significant reduction in regulation, or is the market power of incumbents too entrenched ? 4. How can Ofcom incentivise efficient and timely investment in next generation networks ? 5. At varying times since 1984, the case has been made for structural or operational separation of BT, or the delivery of full functional equivalence. Are these still relevant questions ? Ofcom’s five fundamental questions

10. BT of the Future Market leading customer satisfaction levels increasing market share and reducing costs Cost leadership driving strong growth in revenue and profits Broadband driving a revolution in our, and our customers, lives and businesses A world leader in the fast expanding market of IP enabling companies across the globe Our dynamic traditional business merged into an IP world Network and systems that are a global benchmark for flexibility and efficiency A challenging, vibrant and rewarding place to work