BT strategy statement

BT Group PLC
8 April 2002


April 8, 2002




                     VERWAAYEN SETS OUT NEW STRATEGY FOR BT

   BT to focus on delivering value for customers, shareholders and employees


Ben Verwaayen, BT's chief executive officer, today set out BT Group's new
three-year strategy.

BT intends to be the best provider of communications services and solutions
for everybody in the UK, for corporate customers in Europe and with global reach
through partnerships.

The strategic plan, which confirms BT as a single integrated telecommunications
company, has seven main priorities:

  • A relentless focus on customer satisfaction
  • Financial discipline - profitable organic revenue growth, control of costs
    and cash
  • Broadband at the heart of BT, with a new "Direct" product to come from BT
    Retail which will allow customers "no frills" direct broadband access to the
    internet

  • BT Ignite to concentrate on providing solutions and other value-added
    services to multi-site corporate customers with European operations

  • The placing of all UK networks under unified management

  • Brand extension into areas adjacent to BT's existing business where its
    brand has proven relevance, e.g. communications solutions and mobility for
    business customers.
  • Motivated BT people

Ben Verwaayen said: "We are an integrated telecommunications company but with
separate operating lines of business. There will be no IPOs, no burying our
heads in internal re-structuring.

"We will achieve profitable growth by striking the right balance between growth
and managing our finances with great discipline. We will neither grow for
growth's sake, nor cut costs as an end in itself. We will continue to manage our
debt down, we will stay within our existing capital expenditure envelope. And we
will return to the dividend list.

"We are going to act as one company focused on our customers. If we can get our
customer satisfaction right, introduce new and innovative services, manage our
costs and cash effectively, and unite our people, we can deliver real value to
our shareholders."

Customer satisfaction

Customer satisfaction is the cornerstone of the new strategy and BT aims to be
the most customer focused and efficient communications company in the markets in
which it operates. There will be a radical programme for improvement across all
parts of the company, making it easier to contact BT and talk to advisors.

BT will also create multi-functional contact centres, and set up new processes
for its wholesale customers. BT's target is to reduce customer dissatisfaction
by 25 per cent a year.

BT will continue to become a more "e-Centric" company to improve its processes
and services whilst constraining costs. It is working to make it as easy to
interact with it on-line as it is currently on the telephone or face to face. BT
will continue to develop bt.com as a service channel.

Financial discipline

There will be a focus on achieving world-class operating costs, and resulting
systematic improvements in operating cash flow and profit levels. BT believes
that implementing its new strategy will result in an attractive new financial
model for the company based on a balance between organic revenue growth and cash
generation.

The key financial targets for the business are:

  • 6 to 8 per cent profitable organic compound annual growth rate (CAGR)
  • EBITDA margin of 28 - 30 per cent
  • Interest costs falling substantially
  • Positive free cash flow in 2002/03

  • Earnings per share growth at least 25 per cent CAGR to 2004/05

Key financial targets (continued):



  • £1bn - £1.5bn annual free cash flow in 2004/05
  • Confirmation of return to the dividend list this year
  • Capital expenditure to be held below £3bn
  • BT Retail revenue of 3 per cent CAGR to be driven by new products to 
    2004/05
  • BT Wholesale external revenue 5 - 7 per cent CAGR to 2004/05
  • BT Ignite revenue 15 per cent CAGR to 2004/05 in continuing businesses
  • BTopenworld revenue growth of 35 per cent CAGR to 2004/05
  • A relentless focus to drive down costs with Sales, General &
    Administration (SG&A) savings of £175m in BT Retail in 2002/03
  • BT Wholesale cash savings of £200m in 2002/03
  • BT Ignite loss-making businesses to achieve EBITDA break-even by March
    2003, and the ex-Concert business to achieve EBITDA break-even by December
    2003
  • BT says debt can be driven to below £10bn



Broadband

Broadband will be at the heart of BT. To help achieve its intent of 5 million UK
connections by 2006, BT Retail will shortly announce the launch of a "direct"
access-only broadband product which will connect customers directly with the
Internet without first going through an ISP.

BT Retail will also continue to expand its brand into other new areas such as
communications services for small and medium-sized businesses and wider
corporate communication technology solutions including mobile services.
BTopenworld is to continue to offer the full-service product for consumers and
SMEs whilst also increasing its focus on value-added services.

A greater focus for BT Ignite

BT Ignite is already streamlining its activities to focus on multi-site
corporate customers with European operations. It is driving all current loss
making businesses to reach EBITDA break even by March 2003, and the ex-Concert
business to EBITDA break even by December 2003. It is exploiting its best in
class Frame / ATM / IP network, enabling it to build on its strength in
providing managed services, whilst also building on its highly successful UK
Solutions business.

The integration of the Concert business will give access to a greater customer
base, enabling further cost reductions and revenue uplift.

BT Ignite will make no further investment in SME and Consumer businesses outside
the UK. Such businesses will be closed if not profitable and consolidation
opportunities will be sought in the longer term.

All networks under unified management

BT will act as an integrated telecommunications company and to that end will
place responsibility for management of its business and services where it is
most logical. An example of this approach will see all UK networks managed
centrally by BT Wholesale.

In addition, during the plan period BT will migrate existing services to the
newest platforms to reduce costs and investments, while maintaining its service
capability. BT will limit investment in legacy voice and data platforms,
maximising its return on capital employed. This will allow BT Wholesale to focus
both on its internal customers and its growing number of external customers. BT
Wholesale will aim to become the supplier of choice for value added services,
network management and outsourcing.

Brand extension

BT is committing to an increased level of organic revenue growth through
movement into adjacent markets, including the extension of its ICT solutions
business into outsourcing, mobility, customer contact centres, and IP network
integration.

BT will not move back into mobile infrastructure, but intends to provide a wider
range of wireless and mobile services such as integrated fixed/mobile services
and wireless LANs for business customers.

BT will use DSL to enhance the communications experience to the PC through
video and multi-media. Over time, BT will expand this to other devices, linking
PC, telephone, sound systems and TV, adding interactivity to TV and the
entertainment experience.

Motivated BT people

BT will encourage a strong performance orientation amongst its people. It
will grow the skills base of all in BT to meet new or growing requirements,
especially in areas such as solutions, broadband and applications. BT will
encourage diversity and develop its culture, all aimed at creating a customer
focused business.

Verwaayen said: "BT was the first major telco to redress its balance sheet and
re-structure itself for the new dynamics of the market. And BT will be the first
to return to the fundamentals of good business practice. By focusing on
delighting our customers, achieving good growth from sensible investments, and
by setting our objectives to stretching but achievable aims, BT can return to
its rightful position as the benchmark of the industry."

                          ----------------------------



Forward Looking Statements - Caution

Certain statements in this press release 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 relate to analyses and other information
which are based on forecasts of future results and estimates of amounts not yet
determinable. These statements include, without limitation, those concerning: BT
customer targets; reductions in costs, and prices for customers; increasing
access to broadband; improvements in network performance and service quality;
partnerships with service providers; expectations regarding broadband growth in
the UK; the promotion of broadband by third-party service providers; revenues
and EBITDA targets and growth.

Although BT Group believes that the expectations reflected in these
forward-looking statement 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 Group and its lines
of business; future regulatory actions and conditions in BT Group's operating
areas, including competition from others in communications markets; general
financial market conditions; technological innovations, including the cost of
developing new products and improving the quality of service; developments in
the convergence of technologies; the anticipated benefits and advantages of new
technologies, products and services not being realised; the timing of entry and
profitability of BT and its lines of business in certain communications markets;
factors not wholly within BT Group's control which may affect its ability to
implement its cost reduction programme, improve quality, and work successfully
with other service providers to promote broadband.







Inquiries about this news release should be made to the BT Group Newsroom on its
   24-hour number: 020 7356 5369. From outside the UK dial + 44 20 7356 5369.




 A full version of the slide presentation of today's strategy announcement will
             be available from 10:30am BST (GMT+1) at our web site:

                        http://www.btplc.com/mediacentre


  There will be a live web cast of both the presentation and the question and
             answer session starting at 10:30am BST (GMT+1) from :

                      http://www.groupbt.com/presentation




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