UK’s DSL broadband market is growing rapidly

% DSL Household Penetrationadjusted for maturity of the respective markets

Percentage increase in DSL lines in Q2 2003

Source: Informa

Source: Informa

France Germany Italy Spain UK

15%

7%

34%

13%

29%

0%

2%

4%

6%

8%

10%

12%

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12

France Germany Italy Spain UK

UK DSL Retail Market

Q3 03

BT Retail Other SPs

Broadband Net Additions

Q3 03

DSL Cable

64%

36%

374k1,367k

48%

52%

Source: Informa – BBC, Monday 9 June 2003

“BT now has over 100 service providerssupplying broadband over phone lines and has around

half of the UK's broadband market”

UK broadband coverage is strong

Trigger levels for a further 2,300exchanges were

announcedthis week covering an additional

two million homes

UK coverage levels today comparable to France with goals set to achieve 100% coverage by 2005

0%

20%

40%

60%

80%

100%

France Germany Italy Spain UK

Today we have 1,708 active exchanges covering 80%

466 further exchanges are currently in build Another 199 should reach trigger levels by

end of March 2004 Pushing the boundary towards 85%

BT creating positives with broadband

Community wins Access to latest technology

Fast, constant, quality service

Tailored services

Market growth for local companies

Community ICT literate

Creating a broadband

society

UK Plc Wins Innovative supply & demand

growth models

EU best practice and positioning

Local stakeholders win Sustainable investment New services Increased profile for Region Partnership body for other

activity Innovation

Content and service providers win

Better business opportunities Helps smaller content providers

reach a broader customer base

BT wins Improved customer satisfaction

Demand led approach to sustainable supply current non commercial areas

Other telecom companies win Advertising helps everyone More exchanges enabled

Next phase of broadband adoption

Source: BT analysis & Forrester Research , Aug 03

Broadband DSL pricing across Europe

Average price of key broadband ISPs €/month

29.935.9

44.5 43.1

33.8

France Germany Italy Spain UK

Current broadband pricing… does not vary significantly across

Europe

suits the ‘net-savvy’, early adopters who subscribe to a 2nd phone line and dial-up access for circa £27/month

however needs to be value-for-money for all including the less netcentric and the 45% non-PCs households

Future pricing options...Either, lower the price - but current economics will not support this -

or, increase the consumer value of broadband by delivering a compelling set of value-added services around the Home of Possibilities

Creating a home eco-system…

Enabling compelling content

and applications

ContentMusic, Video, Gaming, Education, SportsBusiness Information

CommunicationsEmail, Instant Messenger, Click2Call, VoIP, Call Management, SMS

PlatformsPayment Engine, Content Distribution/Management, Rights Management, Security, Authentication, Storage, QOS

Enabling thenetworked home/office

ComputingBroadband enabled PCs

NetworkingIntelligent Hubs, WiFi, Mobile to Fixed

MonitoringAlarm Monitoring

Digital EntertainmentStreamed Music, Video, Pictures, Games Consoles

Broadband access

Complete service assurance

Technology is enabling change…

Wireless ‘No wire’ solutions emerging

capable of distributing video

Online micro-payments anddigital rights

management New payment and rights management solutions

encouraging content owners to publish more

Flexible bandwidth Technology becoming available to

flex broadband to higher bandwidths

Compression software New codecs require much less

bandwidth to distribute music/video

Connectable devices Broadband-enables home

devices are becoming ‘plug and play’

BT is leveraging this technology…

ContentUsers

Software & Media Content

Providers

DigitisationDigitisation

EncodingEncoding SecuritySecurity

Asset Management

Asset Management

DistributionDistribution

MonetisationMonetisationBusinessBusiness

CommunitieCommunitiess

EntertainmeEntertainmentnt

BT DigitalBT DigitalContent PlatformContent Platform

“As broadband penetration increases future potential will

depend on services for consumers of content, Internet, video,

gaming and other services”Yankee Group Jan 2003

…while working with partners...

Marketing Service

Products

...and through multiple channels

BT Highstreet Partnering with the premiere high street specialist

retailers

BT Direct - multi-channel direct retail Selling BT and third party products

and services

Specialising in catalogue, kiosk and on-line channels

Customers want… Communications

BT Communicator A new service developed in partnership

with Yahoo! that will manage all home communications from the PC

v0.1 live incorporating Instant Messenger, Video Chat

v1.0 April launch incorporating VoIP, Click2Call, Call Management, SMS, Central Personal Address Book

BT Videotelephony Major trials underway to extend

BT’s video telephony

Strong videocam promotions in place for Xmas

Four-way video chat capability, telephone transfer to TV video calling, QOS guarantee and mobile integration all under development

BT Broadband Traveller A combination outdoor / indoor WiFi

access offering which uses BT’s innovative Openzone access solution with BT’s Home Networking hub

Customers want… Entertainment (gaming)

Broadband is revolutionising gaming, enabling console gamers to play opponents anywhere in the world in real time

In game speech Down load new games and updates Discussion forums

BT has partnered with ‘XBox Live’ and Playstation Network Gaming

Router enables sharing of the broadband connection between PC and console - simultaneous surfing and gaming

Broadband element is £99 for combined router/modem with £29.99 rental and £30 cash back (till end March ‘04)

Customers want… Entertainment (music)

BT - Philips - House of Frazer Launch of a major digital music bundle

of home networking and the Philips Streamium HiFi powered by BT Broadband

BT Digital Media Player Stream music from

broadband enabled PC to any room in the house

Winner Best of Innovations award at the Consumer Electronics Show in Las Vegas

BT Yahoo! Launchcast Radio Learns what you like and plays

you the music you like to listen to

Customers want… Education

The BT Learning Centre A unique online learning service using

the best educational content suppliers and making available in one place - Channel 4, Granada Learning, Research Machines

Includes age specific interactive learning activities, revision tools and research from nursery to adult, covering the UK national curriculum

Successful marketing through UK schools Over 3500 schools are actively promoting BTLC through their schools

Includes age specific interactive learning activities, revision tools and research from nursery to adult, covering the UK national curriculum

Customers want… Information and Choice

BT Broadband Landing Page An exemplar site for Broadband content

Partnership model which:

highlights the best of broadband content

stimulates third-party broadband sales

In excess of 3.4m hits in October reviewing over 110 partner sites: Microsoft MSN 8, Yahoo Plus, BBC, MasterCard, Channel4, Real One, Lastminute,

Fox Kids, Sky, Blockbuster, FT.com, Virgin

Customers want… Personalisation

BT Yahoo! - partnering the leading portal supplier

The best of two powerful brands

A service that focuses on what each company does best

A highly integrated customer experience

Great value for money - a cheaper offering than buying access and Yahoo! Plus independently

A highly personalised experience Up to 10 members of the family can easily choose their favourite

content to appear on their homepage

Customisable browser toolbar allows each individual to customise their browser to best suit their needs

Customers want… Security

BT’s 24 hour Home Monitoring and Reporting System

Wire free, self-install internet based monitoring and alerts via text message, e-mail and phone

BT NetBackup Automated PC backup, two

service levels, simple monthly pricing

BT NetProtect Anti-Virus, intrusion

software,constantly updated

Future broadband market challenges?

Value for money Current tariffs do not reflect each customer’s

true cost of supply and therefore the entry price is kept artificially high

Broadcast content The economics of broadcasted content over

broadband is substantially worst than analogue, digital terrestrial and digital satellite distribution

Higher speeds Broadband offers a 512kb fixed bandwidth

and therefore is not capable of delivering good quality video content

Future broadband solutions?

Tiered pricing Establish a tiered ‘pay-as-you-use’ pricing

model which fairly charges each customer for the bandwidth used (Telenor model)

Flexible bandwidth Flex upwards the bandwidth to the home

for the period of time that high bandwidth content is being delivered

Complement broadcast Enhance existing broadcasted channels

with interactive and personalised content integrated in to existing programming

Broadband at the Heart of the Home

BT has the vision, the resource and the commitment to revolutionise the home through broadband

BT leads the market in taking broadband

beyond just access

The Home of Possibilities is at the heart of BT’s future

New developments in technology are beginning to sign-post the extent of this opportunity

The next three years will see the opportunity become a reality