BT Group plc

Okay, good afternoon everybody. Welcome to the BT Networks investor briefing. I think the last time I stood up and did an investor briefing was in 2019 when it was as technology. You've heard recently from digital, so we're sort of completing the technology unit's picture today by talking about networks. So I'm Howard Watson. I'm BT's Chief Technology Officer. And I'm joined today by many of my team who are in the room here today. And you specifically, in the agenda that you see here, are going to hear from Neil McRae, who is our chief architect and is responsible for our network strategy. You'll also hear from Greg McCall, who runs what we call service platforms. He builds and runs the technical solutions that our CFUs create into products and then sell to our customers. And then Tim Whitley will talk to us about applied research and how we're active and remain active in the research area. And then Emily Clarke, who is the CFO of Networx, will talk to you about our financial delivery and outlook. And then we'll have a Q&A. both in the room here and for those joining on WebEx. And then for those of you who are in the room, we have a treat. We're going down to the first floor to show you the Future Zone. And we're going to give you a drink as well if you'd like one. So thank you for joining us here this afternoon. What we're going to cover today, and just to summarize that all on this chart here, is we are very much on the journey that we've laid out before, which is a 2030 sort of network strategy and vision. And that's built upon the unique and unparalleled assets that we have in both fixed and mobile in BT. but also centered around how we are continuing to invest in converging those networks, creating great services through that, but also in making them simpler and therefore easier to run. What's critical for us is continuing to attract a real great diverse pool of technology talent. And we'll talk about that today and why that is important for us. And then how we use that talent to work with the business and the CFUs to create really great standout solutions that are built on those leading network capabilities, differentiate BT ahead of our competitors in the marketplace here, and contribute towards the growth agenda. We'll also talk about how we're applying research, again with that same aim, but also targeting sustainability in all of the customer outcomes that we're driving. And then also, and critically important, how we are structurally transforming our cost base to deliver sustainable long-term OPEX saving in how we run networks. So, just quickly, in terms of what networks underpins in BT, these numbers are all very familiar to you. So, 30 million consumer customers representing more than 50% of the households in the UK, supplemented by a million plus enterprise customers enabled with business services, both in the UK and across 180 countries globally through BT Global. In terms of where we are, 7.2 million plus 5G-ready customers now. That's grown 120% in the last 12 months. And in consumer, we now have well in excess of a million FTTP customers. And then back to that important research for a theme, more than 5,000 patents in our ever-growing portfolio. And then looking at that from a network point of view, so if you think about both mobile and fixed access networks, my organization builds the mobile network, both the core and the access part of that, but we also build the fixed network. We are the ISP for downstream BT. And again, real differentiated KPIs, again, compared to the other players in the UK market. So 99% overall 4G population coverage, by far the largest 4G geographic coverage, some 250,000 square miles, more than anybody else. first to get beyond the 50% mark on 5G population coverage, and the only way to set a long-term target for getting 5G to 90% geographic coverage of the UK by 2028. On the fixed side, We ensure that downstream BT can consume what open reach a building, so that today is 7.6 million premises available for fiber to the premise, coupled with the existing 29 million plus premises on Superfast. Collected together, that's delivering 28 terabits per second as a total traffic peak. of which if you look at the graph below, 25 million is driven by broadband, the rest by ethernet in the peak. And then another key important part of what networks do is we actually underpin Openreach's rollout of 25 million homes by December 2026, because through the exchange estate, networks play a critical role there, making space for Openreach to build their head ends into that infrastructure. And again, the other key thing here is just the breadth of assets that I have at my disposal now, many of which are managed and run by Openreach as the operating entity for those. But just some examples, 20,000 phone boxes. We're sort of in this, are they all going to go? Which ones are we going to keep? Which are going to be turned into defibrillators or libraries? What's critically important is they all have power. They all have some sort of backhaul, and they're all pretty good as a site for small sales. So we're going to see increasingly a use there. Similarly, the Wi-Fi hotspots that we have, 18,000, plus also 5.6 million enabled by the hubs in our customers' premises. And then in the future, a lot of work in thinking about the long-term keeper exchanges. You'll hear us talk about... We don't need 5,600 in the future, we will need 1,000, and those will be perfect as sites in which to build edge compute and other infrastructure as our industry evolves. And similarly, as FTTC reduces, then actually some quite significant street-side cabinet furniture that we're thinking about how we would reuse as well. The key thing, though, about our network, when I sort of look at it in terms of what we deliver to our key internal customers and then they deliver to end customers, really is the scale of that network and the economics that come with that scale, particularly in our fixed core, for example. But also, the reach of that network, we by far have the furthest reach for Ethernet, for example, being terminated at the exchanges that we've got across the country. And then increasingly, the one thing that really stood the test of the pandemic was the five nines availability of the core network. So our ability to keep the internet and broadband running for our customers We all saw the noise that the cable operator in the UK had during that period. Our ability to keep that running was unmatched through that COVID period. So, you know, and it's not just what we say. We're continually benchmarked, particularly in mobile, where there's a really mature benchmarking industry and continue to win the best network awards there. And that network, that credentials that we have that differentiate that network, I think is probably best embodied by how critical we are to the UK's critical national infrastructure. And you see some examples of that on this slide here. So 99.7% road coverage by mobile for the emergency services network. We underpin the technology that sits in our 6999 call centers, 39 million emergency calls handled this year, and it's continuing to grow at the moment. Met Police, 500 London sites that we provide with their wide area network, and we provide IP telephony solutions for. And then one of the things that we actually talked to the Ministry of Defence about is we're quite proud that we actually have a 100-year partnership with the Ministry of Defence. There's a wonderful picture somewhere of a horse in the First World War with a radio system on it described as the first mobile phone. Maybe a slight exaggeration, but it's a good example of how BT were in the trenches, as the post office then, helping with communications on the battlefield. And that relationship continues. And then last but by no means least, the NHS, where 110 live trusts with BT and 80 million smart messages delivered regularly through the vaccination campaign, both COVID and flu. So just moving to our network strategy, and then I'm going to hand to the team to delve a bit deeper into it. We're all very familiar with this slide, the BT strategy and our purpose and our ambition. And what you can see there bottom right is how we in networks specifically underpin that strategy. So best converged network, great world-class technologists, standout network experience. We'll work through those over the course of the next 30 to 40 minutes. But just to sort of really pick a headline for me here, and Neil will talk more about this, but really critical to what we're doing right now is how we evolve this great network we already have, which differentiates ourselves in our marketplace into a even greater, simplified, flexible platform for growth. And that's very much built on 5G and FTTP being the access technologies. So a bit of an assumption that the access bottleneck that the industry has had for some time starts to be removed. But also, we're doing more than anybody in the UK to think about how we get to those hard, Hard to reach areas either with FTTP or with 5G and looking at small cells, fixed wireless access, neutral host solutions for in-building, the shared rural network getting to 88% geo coverage by 2024. We were the only app operator in Connected Nations to add significant geographic coverage last year, and we're still building that. But also looking at satellite connectivity, we have a partnership with OneWeb for that. And then also ensuring that that network can absolutely evolve, and we're well on this journey already for robust edge computing, and we've also deployed our network cloud infrastructure. And through that, we get the key outcomes at the bottom here, you can see, which is really having a great simplified set of APIs that brings network as a service to life. Through that, really having a great programmable network and an architecture that gives customers access to that automation and programmability. And in doing that and enabling that, leveraging the data that is produced by that network, Once we've got that all in place, it enables this as the outcome, as you can see on here. So a simpler network with lower costs but with greater capability. Connectivity for everything. Remember our ambition and also talking about devices and machines, how we bring a network that is best for machines and best for devices is as critical as best for people. simple network as a service APIs, giving us a much faster time to market through significant increases in automation and through that driving the ability to really innovate in services. So that's what we'll cover during the course of today, plus more. With that, I'm going to hand to Neil McRae, who'll talk about our strongest foundations. Neil.

Thank you, Howard. Thanks, everyone, for coming. Welcome to BT. And for those of you not been here before, this is our new HQ. It's a phenomenal building that really allows our engineers and developers to build what I like to think about as the strongest foundations. So I'm going to talk about our network. I'm going to talk about how secure it is. I'm going to talk about how it enables network as a service. I'm going to talk about the edge. And I'm going to talk about the people that make it happen. And those are the foundations for a strong network. As Howard says, we're on a path to simplicity and that's the other key foundation. Today's telco is mired with lots of legacy networks, lots of legacy platforms that over time we're moving away from to move towards a very simple, all IP enabled network, leveraging cloud technology, using the benefits of new and modern capabilities in optical and in Ethernet to bring a high bandwidth, high available and importantly secure network. So we clearly have a fantastic rollout of 5G, more than 50% across the UK. We'll continue to augment that with macro and small cells build. FTTP with the fantastic work that Openreach are doing and rolling out FTTP across the country. We're backing that up with a network that's scaled for the ultra-fast wall where, you know, 10 or 20 meg used to be the The meter, now we're in 100, 200, up to one gig and beyond. And then using that fiber network to connect our 5G cell sites together. So not only are you on 5G with the little badge in your phone, but you're getting that 5G experience. And then enabling the infrastructure for millions of customers. It's not just about some customers in one place. It's about having a national capability that enables customers wherever they are. And then leveraging new technologies. So Howard mentioned our partnership with OneWeb. That's about connecting people that are in the harder places to connect, but also about connecting devices and other perhaps lower bandwidth services where the power of satellite enables us to connect them in a way that fiber or mobile might not be able to reach. We do this through our converged IP core. This is a platform that delivers our services for fixed customers and mobile customers and actually converged customers, customers who use both our fixed network and our mobile network. And we've developed a platform called BT Network Cloud, taking the best out of the hyperscalers, taking their technology and building it into our platform to enable scale up and scale down and to enable us to get to market with products really quickly. And then all of that's underpinned with high capacity. BT has a long heritage in optical communications and leveraging the high bandwidth that optical communications brings us. But in order to achieve that simplicity, we've also got to tackle the legacy. And you'll have heard many telcos talk about this, and we're really on an aggressive path to close down some of these legacy platforms. 3G. With the advent of 4G and now 5G, we just don't need the 3G network anymore, and we're working with our customers to turn that off. alarm systems, so we have a strong heritage in the security industry where we provide connectivity to connect alarms, be it security alarms, fire alarms, many other different types of technology. Again, all copper-based, but we're moving those customers to new modern IP technologies that aren't just about the connectivity, but actually bring analytics and other capabilities as we migrate the customers to them. And then clearly, the PSTN, we're turning off the legacy telephone system. That's a huge platform. It's actually the only technology that's in every single BT exchange. We're winding that down, we're optimizing it, and we're moving customers, again, to new future communication products, both in residential and in business, that can add value to their experience and add value to their business. And then that allows us to turn off the platforms. PDHSDH, a huge technology. that takes up tons of space, uses loads of power. We're able to turn that off as we turn off all these other products and services. And X25, still used actually quite highly by the banking industry. We're working with that industry to migrate away from X25 onto modern IP services. What's the so what on that? The so what on that is we're able to turn off or close 4,500 exchanges. So if you were to build BT today, you'd build it with 1,000 exchanges, 1,000 central offices across the country. That allows a huge win on energy. It allows a huge win in our run costs. And clearly, most importantly, allows us to keep the simplicity in the network, which allows us to focus on customers. We're piloting the closure of five exchanges right now, one here in London, to understand the ramifications of that and to make sure that we take customers on that journey with us. Network Cloud, so I mentioned this earlier on. When we were looking at how we build the network of the future, one of the things we did is we went out and talked to many different organizations. We also had some learning, things like the Olympics, some of our other big customers that are running very high available technologies or capabilities or need high available network. And what we decided was that one of the great advantages of cloud technology was the ability to automate it, the ability to scale it up, and the ability to keep it running 24 by 7 so you can take one part of it down, upgrade it, and put it back into service without anybody knowing. but also allows us, most importantly, to launch new services and new capabilities very quickly that are fully automated and our customers can engage with in a digital way. It also enables network as a service, and I'll come on to that shortly. But we have this platform up and running. It's serving many of our network applications today. We're in 12 locations across the BT network, over 2,000 servers. It's all software driven. We're leveraging the latest in telemetry and API based technology and cloud native technology to enable a platform that scales as we need it. And then it also allows us to effectively run applications under our control, under the demands that we as a telco have as opposed to what the hyperscalers can offer us. And crucially, it allows us to scale up and down. So if you imagine New Year's Eve when you send that text message to all your friends at 23.39, hoping that it arrives by midnight, with today's technology, we can just scale up the SMS platforms, get all those messages out, and then scale it down. Further to that, what Network Cloud really allows us to do is create network as a service. This is where the network itself becomes an object in programming so that you can, as a customer or as a developer or as a member inside BT, You can write code to grab a piece of network, create a piece of network that could be a high-speed path from London to Glasgow. It could be an SMS service. It could be a voicemail service. But through APIs, you're able to set up a network capability, leverage it in the way that you want, and then stop using it. on-demand capability is something that's really important as the whole world moves to kind of digital on-demand experience. We can give this in real time to customers and we can do a lot of customization. You can join one piece of our network to another very simply just by thinking about it in a simple piece of code. The network as a service platform also gives us instant ability to tackle faults. So by understanding what's happening using real time telemetry, we know instantly if there's a problem in the network and the network itself can then actually understand where that problem is, use the network as a service component to create a workaround and to ensure that customers aren't affected by any problems in the network. We can then bring in telemetry and really crucially, AI and analytics so that we can understand what the network's being used for, how it's performing, and as we want to continue to be the network leader, we can reset the benchmark every day if we choose about what network leadership really means. And then we also can co-locate with the public cloud providers, bringing our network close to them, enabling us to market their services to our customers and work in partnership with the public cloud and public cloud services. That brings us to edge. And edge, probably many are thinking is, what is the edge? And I kind of like to think of it as the place where we bring customers together. We are moving, in the past, we would centralize where customers connected to. It could be in London or it could be in Manchester and Birmingham. In the future, We're bringing the service portion of the capabilities that we offer much more closer to the customer. What does that mean? First of all, it means we have lower latency. So applications are much more snappy. Secondly, it means if you're using high definition video, we can process that and use analytics on site. So we have a customer that's experimenting with 8K video today. To actually carry all that back to the cloud and process it is largely impossible. It's just too difficult to do it. So we can actually work with that customer, use BT Network Cloud on his premise to build a solution that allows him to get out of that video what he wants. In this case, it's a customer building engines, and they want to understand how all the components come together. And the power of Edge with private 5G networks really allows us to do that. also allows us to make things much more secure. We're securing one simple single platform. We can give out light terminals, thin terminals that allow customers just to run an app on the screen when actually the apps back in the central office or in our exchange, making security much easier for us to manage. As I mentioned with the example, it makes bandwidth optimization really easy. That allows us to monetize that in several ways. So building solutions is clearly one way of us engaging directly with customers, but we can partner with the public cloud companies and offer them edge compute services. We can take our edge platform to wherever we need it for the services of the future as AR and VR become more and more prevalent in industry and in entertainment. And then we can offer an end-to-end solution where we are working from a BT side with compute all the way all over the world to wherever that compute requirement is needed and offer customers a consistent and and service level aware solution for their applications and what they need to do with their own customers. And we're really well placed. We've got a hundred very high bandwidth core sites across the UK. We have a thousand tier one exchanges that are also very well connected and very connected close to customers. both from a fixed network point of view, but also from a 5G point of view. All of our interconnects to open reach on FTP and to our 5G network are in these locations. That allows us to have the best service for customers because we've got the strongest FTP footprint and the best 5G and 4G network. You can't build a network that customers trust unless you can show it's secure. And security is one of the most important fundamental features of our network. I'll start by saying we have 3,000 security experts in BT. Howard mentioned our long relationship with government in this space. That really has built a core foundation of security expertise and skills and knowledge. Not just in defending, but actually understanding how attacks work and building the future security solutions way ahead of the bad guys coming at them with us. We have a number of global security operation centers. We continuously monitor. We have a very in-depth analytics platform that was built up at BTR Astro Labs that allows us to really see what's going on in the security space and for us to react ahead of time to any security threat that comes in. We've also started to look at threat assessment. So as we work with more partners, as we bring more customers on, understanding what their threat assessment is as we work with them can allow us to stay on top of any future security issues. And then we do what a number of other organizations do. We continually war game, understanding what's out there and how it might affect us. Red teaming, we have a fantastic team that goes out there and actually tests that what we say that we can deliver, we can actually deliver, and the network is as secure as it should be. And then we balance this with a set of controls so that we are in an area where we are happy with the risks that we are taking. And that's something that we continually look at and we continually measure. And as world events change, we can adjust what those controls are. But it's a phenomenal area where more and more of our customers want to understand what our security capabilities are and not only Do we use them internally? We actually offer many of these services and solutions to our customers across the world. And protecting BT is crucial to building that trust that we talk about in our strategy that enables customers to engage with us with their business and their telecommunication requirements. And then one of the key foundations, I mentioned this at the start, talent and people. We have 7,000 engineers across networks. Every year we bring in 400 apprentices and graduates and we refresh and bring in new people, younger people with different experiences of using the network and what they can bring as we develop our network. We have over 300... researchers in BT Labs in the National Park and Tim's going to talk a bit more about them later on. But we're looking at everything that's coming down the line that can help us build an even better and more secure network. But also BT is seen as a really fantastic place to have a technology career and I'm personally proud of this. We're winning people away from organisations like Ericsson, like Google, like NTT and Cisco and bringing that fantastic skill base into BT and leveraging their knowledge and their skills to really drive our purpose, which is to connect for good. Something that many of our people here truly believe in. And then together with that, it's about teamwork and bringing people together. So we're driving an inclusive culture. We're driving a culture where people work together. Any idea that they have, they can bring their viewpoint from their experiences to the sort of network and solutions we need to build for a diverse customer base and a diverse community. We really empower strong engagement, working with our teams and challenging our teams and supporting them so that they can be the best that they can be. We invest in them with digital and cloud expertise, and I'll talk a little bit about that in a moment. We have world-class technical pathways. So when engineers are learning, they're at their most excited, and we want to feed that thirst for knowledge and skills. And we invest in training and coaching and many other programs to give our engineers the very latest and best in technical knowledge. And then our leaders. It's important, as an engineer, I always remember this. Having a leader that not only talks the talk but walks the walk really inspires our engineers. And we're doing a lot to ensure that our leaders have a technical background, a network background, and a commercial background that can drive the right engagement with the teams. Because as you know, today, it's a real challenge maintaining talent and keeping them engaged and keeping them within your organization. It's important that we attract new talent, but it's also super important that we don't lose any talent as well. And that brings me to some of the initiatives that we've got in this space. Re-engage is a program where we're reaching out to mothers that have perhaps paused their career whilst they have children and try to bring them back into BT. and to engage in technology. And that's a fantastic program that we've just kicked off. The Leader Lab, I mentioned this earlier on, we're taking our top leaders to universities and other organizations so that they can learn what's happening in technology so that they themselves understand it and they can drive that technology in their organizations. The technical fellowship, something that I'm super proud of here at BT, this is about giving our engineering community a career path about expertise. So as they develop their own expertise, we recognise it both in giving them a standing, but also actually in the and the pay and rewards that they receive. And we create a momentum for this learning and knowledge growth that allows all of our engineers to develop. And Howard and I were just on a call about that. The momentum behind that is massive. And then I talked about specific learning programs. Cloud technology is something that is prevalent everywhere right now. And actually, there's a lot more to it than most people realize. It's not just about getting an AWS certification. For sure, that's valuable. But actually, what we want are the engineers that understand how to build a cloud, not just leverage a cloud. So we created the network cloud learning platform. It's a massively technical program that allows everybody in BT, actually not just people in networks, but anyone who wants to learn the underlying technology and how it works, we've built this program for them to do that. Actually, that's been hugely important as we migrate from what we call a TDM or time division multiplexing world, the old voice world, into this all IP world. And so I just want to finish off and just reiterate some of the key points. We're building a secure, simple to operate, automatic, highly scalable network platform that's built for the ultra-fast world, 5G and FTTP. that allows our customers to engage at the edge, but also allows them to run applications in the Cloud where we can connect them. This is something that we're doing at a fundamental level, looking at every aspect of the network to see how it should be built, understanding the underlying technologies, and leveraging our great engineers to build it and put it in place. I'm going to hand over to Greg, who's going to talk about some of our customers.

Thank you, Neil. And good afternoon, everyone. It's lovely to see you all. My name is Greg McCall, and I run Service Platforms here in BT. And I have to say, whenever I describe my job, I always talk about it as I have the best job in the UK. I'm delivering products and services to our customers in more than 50% of households across the UK. And we also deliver those same products and services to enterprises across the globe. I work with some of the best brains in Britain to deliver these services, and I feel really, really proud of that. And who couldn't be excited about doing that? So I'm going to start by talking about standout customer experiences. I think our customers are at the center of everything we do, and I'll try and bring to life some of those experiences that we deliver. So I'm going to start off by talking about what we've framed the new network leadership. And I think the new network leadership is all about customer-centric solutions where we deliver both capacity and coverage wherever our customers need it. We'll enable this through a digital API layer that will give our customers the freedom and flexibility to tailor their networks as their business needs change. Imagine being in a business where you can do that at a click of a button rather than have to phone a call center. And we honestly believe that the power of our 5G network and our FDTP network, coupled with the converged core that Neil mentioned, puts us in a really, really strong position to give our customers that flexibility to help them to simplify their businesses. And as they do that, not only will they simplify their operations for them, but we can simplify our operations as well. So that is what we are calling the new network leadership. I think it's well scripted and well documented that we've had network leadership as defined currently for many years. And this is something that we are super, super proud of. It's been externally benchmarked and we continue to lead the way. We are certainly not complacent and we'll continue to work at that to ensure that we deliver that exceptional service both in fixed and in mobile. We have brilliant assets. We have 12% more spectrum than both Vodafone and 3. We have 24% more spectrum than O2. But it's not just about the quantity of the spectrum, it's the kind of spectrum that we've got as well. We've really got a spectrum in the sweet spot, which is at the 26 and 1800 megahertz band. The reason why this is a sweet spot, because it's great for coverage and capacity. The fantastic thing about the spectrum as well is as technology has moved on, the spectrum is supported by 4x4 MIMO, and many of the new devices today support that technology, which will improve both uplink and downlink services to our customers. So I think we'll show you some of the uplink kind of solutions that are super important later. But before we get onto that, I think it's probably worth us just mentioning the fantastic work that we've done on our fixed network as well. We've had a relentless focus on ensuring that customers are at the center of everything we do here in networks. And as we've built out our fixed network, we are leveraging the great work that Openreach have done in rolling out fiber. We've coupled that with our core. And I think it's really important to remember that when people think about their broadband service, they think about what the line is coming into the house, what their Wi-Fi is, but they forget that the reason why they have connectivity is to go and do the great things on the internet. whether that is surfing websites or doing Teams calls or making voice calls. And we have the best fixed call network in the UK. And that is where we differentiate against our competitors. We also work very, very closely with content providers who use our network to distribute their content and caching providers to ensure that we can optimize that experience so that every customer gets a brilliant experience at any time of the day that they're trying to use our service. So I think over time, the network has become more and more of a utility, especially as more apps and services get delivered that require connectivity. I think we also saw during COVID, many of our behaviors changed. We were all sat at home rather than rooms like this. And every one of you would be dialing into this call rather than listening to a single person. And I think it's really, really important to recognize that we believe that those changes that were introduced during COVID are here to stay. What that's done is it's really changed our traffic profile where we see a lot more capacity being used in our network during the day, than historically where most of it was used later at night and during peak hours. The great thing here at BT is we've always dimensioned our network for the peak hour. We wanted to make sure that our customers got a great experience at any time of the day they wanted to use our service. And because we dimensioned our network for the peak hour, it meant as that extra capacity shifted to early in the day, we didn't have to invest in extra capacity because our network was ready to take it. In mobile, we've also seen the shift. And what we've seen is people's habits have shifted to late in the day. But the great thing there is we started to roll out our 5G network three and a bit years ago. And we've got really, really good traction rolling out that network. And therefore, that network with the 3.5 gigahertz spectrum has really enabled us to support that extra capacity late in the day. I think most of us, when we think about our connectivity, certainly my kids and my wife, they don't talk about broadband, they talk about Wi-Fi, and we think Wi-Fi is a really important ingredient in our new network leadership. We've done a great job of digitising the country and building great connectivity into the home, you know, up to one gigabit per second speeds, and we deliver that to, let's say, the front door of the home. I think our job with Wi-Fi is to ensure that it doesn't matter where in your home you are, you will continue to get that great speed in any room. And we believe that Wi-Fi, as it evolves, will deliver similar type experiences because we've all heard about those ultra-low latency services that 5G private networks will deliver. And we are pushing the new Wi-Fi to deliver similar services. And I think that's going to be super important. as our customers start using different use cases. So I think virtual reality is something we've all dabbled with. I was on the West Coast a couple of weeks ago, and seeing some companies, what they're developing there is just tremendous. With one other university, they've already started to do remote learning through virtual reality. And they gave an example where if you're a biology student, rather than having to cut open a rat, which I wasn't a massive fan on, I have to be honest. We did this through virtual reality and it was pretty awesome. And they believe that the marks that the students are getting now, having done one semester through virtual reality, has gone up two points. So a real, real opportunity to bring that to life through the networks that we deliver. I think cloud gaming is another one, and what we call enhanced video conferencing. We all spend endless hours every day on video conferences, and I think we probably all berate the fact that we have back-to-back conferences most days. But spare a thought, because I spare a thought to all of you because I do it, but spare a thought to those poor networks, they have to deal with all that extra traffic. And as video conferencing gets further enhanced, what we'll see is photorealistic avatars being used, giving that 3D experience where the camera will follow your eyes rather than when you look aside, people see the side of your face. It's going to be absolutely so much better for all of us that spend time on that, but just bear in mind that the networks have to be able to cope with that extra traffic and those extra experiences, and that's what we're building. We'll also see a huge growth in the number of devices, applications, sensors connecting to our network and we need to make sure that we continue to build that as well. We also believe that Wi-Fi, as it evolves, will be an extension of the private network for those less critical applications that require connectivity and high bandwidth. So as we extend our network platform, we see lots of things evolving. And we'll start with small cells. I think we're going to see a huge growth in the number of small cells in our network, both within building and outdoor. And we need to ensure that as we deliver this, we embrace neutral host solutions, but equally use the assets that Howard spoke about earlier to deliver that connectivity wherever our customers need it. Smart cities coupled with smart transport networks is another really important area of growth, and it's great to see the standards being ratified now, and we're doing a number of trials to think about how we can bring that to life, connecting sensors, managing traffic, and ensuring that that is a great experience. Private networks, especially for applications where autonomy and autonomous robots have to work within those factories to optimize the efficiency of a factory. Delivering a 5.9 service, we believe we can deliver and we've already started to deliver through our private networks. And we've also seen in some of the ports, so the Belfast Harbour, we've done a number of things. We've also, hopefully you've seen, we've just signed the Port of Tyne deal as well. And we are moving away from delivering bits and bytes in our network to delivering containers in a port. That's how important what we are doing is. And then finally, I think if you think about broadcast networks, and we have a great set of credentials in BT of delivering broadcasts, so more than 90% of linear TV goes over one of our networks and is dealt with by our teams. But as we think about broadcasts becoming more IP-based, we are well-placed to be able to deal with that as well. And just to give you a couple of stats, the DTT multiplexes, so that linear network, that covers 98.5% of households. So we all think TV is everywhere, doesn't quite get there. Digital radio, we all have those moments, we're driving through our cars and you get those dead spots. Digital radio covers 97.3%. If you combine all of the four mobile networks in the UK, you get to about 99% population coverage. And if you look at BT's network, where we're delivering fixed network connectivity at 10 megabits per second, we are at 99.6%. So we are very, very well placed as broadcast moves to IP to be able to deliver those services as well. So I think from our side, 5G, it's really, really important that it's not only about the technology, but it's also the enabler for digitization for all industries, and that we also can drive real growth through 5G as well. And I think the good news is the standards worked with industry right from the beginning to ensure that we can meet the kind of use cases that a digital industrialization needs. So, I think there's loads of exciting things that are happening already in 5G, and what we are seeing is, for example, rail and road planning is made a lot better and a lot simpler through 5G services. Warehouse space optimization, I know it sounds really, really boring, but if you've got a warehouse like Amazon Prime that's shipping stuff every single day, every second of every day, making sure that we can optimize that space through a 5G private network. And then, you know, little things that were probably very, very close to us and we all worried about two and a half years ago. If you think about the NHS hospitals and ensuring that if you did get sick, there was a bed available for you. Optimising that bed utilisation in hospitals is what we've been working with the NHS on as well. So I think there's loads of things around this that we'll continue to deliver, and we've got to bring to life that real reliability, ultra-low latency, the responsiveness of our network, and ensuring that we can deliver that in a flexible way to meet the needs of our customers. So as I said earlier, I think the real story here is really around growth, and we see our networks being the fuel of driving that growth within BT. So this slide really depicts what we're moving from and moving to. So we see ourselves moving away from standalone private networks to a hybrid macro network that utilizes both private networks and our hybrid macro network. We also believe we move away from connectivity to the platform plus type service that Neil mentioned earlier. From a standalone set of network components to end-to-end solutions that meet our customers' needs. and moving from bespoke commercial models to ensuring that we deliver as-is service models so we can all benefit of driving that productivity, not only within our industry, but into our customers as well. So I think that hopefully brings to life why I believe I have the best job in the UK. I'm super excited about technology and the brilliant things that our fantastic engineers will deliver. And I think there's... a great opportunity for us to continue to see this evolve over the coming months and years. And I think we will definitely be underpinning those standard customer solutions and using our leading network credentials to do that. So with that, I'm going to hand over to Tim.

Thank you, Greg. And good afternoon, ladies and gentlemen. I'd love to have a chance to talk to you a little bit about BTQ's research. Howard started the presentation by noting that BT believes in applied research, but he used a funny phrase, research active. What we mean by that is something quite specific. It means we participate in that world of global research. We publish in peer reviewed academic journals. We collaborate, we invent, and then we protect those inventions through the patent process globally. In fact, if you were to look up the stats, each year we'll file something like 100 inventions from our labs. That will rank us typically third, fourth, or fifth in that sort of ballpark of all UK businesses across all sectors filing patents with the European Patent Office. And if you were to inquire at the Patent Office about some of the things we invent in, and in particular in the area of AI, obviously a very important technology segment right now, you'd find that of all UK businesses, BT holds more patents in AI than any British institution, public or private. So it's something we take seriously. But it's very much a team game. It's very much a collaborative process. And the hub of that collaboration is the lab I lead, which is out in Suffolk at Adastral Park. It's where we'll work with leading universities around the globe and here in the UK. It's where we'll work with businesses, large and small, startup businesses, mid-tier, and some of the biggest and best businesses on the planet. We work in contribution to global standards. Neil touched on our efforts in global standards earlier. And we'll partner with these academics and businesses to deliver world firsts. But the most important part of this collaboration machine is with customers. The park has evolved into a tech cluster. Over 150 other businesses are now clustered with us on the park. A thousand non-BT people. And each year, at least prior to COVID, we would convene somewhere between 50,000 and 60,000 non-BT visitors to the park. Essentially, customers looking for technology-borne solutions to their business problems or their business opportunities, or companies with a bright idea who think that that technology could help somebody deliver something amazing. The site has specialist facilities, which we share. 5G test beds, in fact, a 5G test bed across the whole site. Quantum communications test beds. We have, in fact, those of you who are here in Wombram will, following this session, have the opportunity to visit our future zone. We have a much larger facility at Adastral Park, an innovation showcase, which is often the place where we will convene with those customers to talk about their businesses and how we can solve them. So the model you should have in your mind, and in fact, several of the topics that Greg and Neil have touched upon, such as health, such as digital connected industries, those are facilities we have at the labs where we'll convene with customers essentially to curate solutions. Now, I would love to take you through the full detail of our research program. I can summarize it by saying that there's three things we aim to deliver. The first is essentially to make sure we can always claim with authenticity that we have the best network. The second is about applying that technology across the breadth of what BT does today to do it better, driving better sustainable solutions, taking out inefficiencies, reducing cost, improving everything we do. And the third is about growth. Now, I can't give you the full breadth of the program, but I'll give you a few examples here. So under that best network piece, In the nearer term, what we're doing right now is applying some of those AI algorithms, some of that AI expertise to the business of how we plan our radio spectrum. Greg talked about the great spectrum holdings we have. Spectrum, of course, is the fuel of a mobile network. But how you use it also impacts the performance you can get out of that network. So that's one thing we're delivering today. Longer term, we're also thinking about another technology Greg touched on, which is MIMO. And we obsess about something called the bits per second per hertz per megawatt, which is essentially how much capacity can you get out of the fuel of a mobile network. And we're working with academic partners and those test facilities at the labs to look at something called ultra MIMO, really asking fundamental questions around how much information can you convey through this radio spectrum. We're also looking at new types of optical fiber. In university land, there is a technology called hollow core optical fiber. It's a completely new form of optical fiber. We're the first telco in the world to put that technology through its paces in the telecoms context. And we're even thinking about future ways of detecting radio waves. If you can believe it, all optical antennas is one of the things that if you were to come out to Suffolk, I could show you in our labs. So always ensuring that we can combine the best of science, the best of knowledge, to make sure we have the best network, short, medium, and long terms. Very important part of what we do. Neil touched on security as a fundamental element of our infrastructure. And one of the things we're looking at there is applying quantum physics to securing what I always think of as the very bedrock of our digital world, the optical fiber layer that underpins both fixed and mobile. There's a technology called quantum key distribution, which we've been researching for some time. And some of you may have noticed a few weeks ago, we launched the world's first commercial QKD secured metro network here in London. So we're now experimenting and working with customers to understand how that technology can deliver value to their businesses by guaranteeing the security of that fabric. Of course, further up the stack, security is important as well. So cyber security, cyber defense is a thing we take very seriously. Neil touched on the visual analytics capability that we have in BT that comes out of our research labs. Some of you may have seen the work the products launched out of our global division under the banner of the Eagle Eye proposition. That is a sort of best-of-breed integration of brilliant products we find from our partners around the world. But also within that portfolio is some differentiation from algorithms coming out of that expert pool that I have at our labs at Adastral Park. I've touched on AI a few times. AI is clearly one of the key critical technologies of the moment. And of course, being a capability, you can apply it to lots of things. It's almost everything you can think of in BT's broad set of operations we are applying AI to. Just to illustrate that for you for a moment, our complete Wi-Fi proposition, that Wi-Fi that Greg talked about delivering market leading capability and coverage across a home has algorithms that comes out of my labs, essentially making sure you are getting the coverage that you demand and should be receiving. Something completely different, but just as important, applying it to field optimization. Across the BT family, we have many field operations. Many men and women who essentially are trying to do the right thing at the right time, with the right skills, the right tools, at the right place. So that's a massive optimization problem. It's an optimization problem. You can throw maths at it, so we do. AI is the technique that we power our field operations with, delivering benefit to customers in many, many ways. And the final one I'll touch on is really, I mean, Greg again pointed to this with some of his telepresence presentations. examples, but we're looking in the labs at future of immersive communications and immersive entertainment. One of the technologies we're looking at is something called volumetric video. So this is, if you can imagine it, full 360 real-time high-quality capture of content, be that people or action or whatever, and then relaying that to playing out to customers. That could either be for consuming brilliant new content, imagine it as an immersive and engaging way to engage with BT Sport content, or it can be about access to remote expertise or communication. A brilliant example that we've been looking at recently is virtual dance classes. We've been working with a nationally renowned dance company and educating an exciting classroom full of primary school children. Of course, in doing that, we've got a number of goals. We're trying to understand what this technology can mean in terms of its delivery to customers in the real world. But we're also looking at the technical details of how you architect a network to deliver that sort of capability. From capture to encoding, where does that encoding take place? Where does the processing take place? Is it right at the edge? Is it right at the core? So what we're doing is using these experiential experiments to understand how in the future we can ensure we deliver the best network to deliver these amazing new experiences. As my colleagues know, I could go on, but I won't. So with that, I will hand to Emily. Thank you very much.

Good afternoon. My name is Emily Clark. I'm the CFO for the for the networks organization. I am relatively new in role. But in the few months I have been in networks, I feel as if I've landed in a place that is systemically important to BT and also systemically important to the UK and beyond. And I hope you're getting a sense of why I feel like that from what you've heard so far. So I wanted to talk a little bit about networks within the context of BT more generally, then talk a little bit about our performance, and then round off on transformation. I mean, you've heard that the infrastructure that we build and maintain and the solutions that we are creating, they end up in all of BT's products and services. we account for around about 8% of BT operating cost, and just over 20% of the 4.8 billion of group capital expenditure. In terms of our performance, in FY22 our total costs were slightly up, and that reflected that our more efficient operating costs were outweighed by increased investments. So I'll go through both of those. Operating costs were down in FY22, and that reflected a pattern, if you like, whereby our transformation impacts outweigh our OPEX headwinds. So, in fact, OPEX was slightly up because of volume growth, because of capacity upgrades, but we were able to offset that with lower labour cost and in fact lower energy costs from reduced consumption, and also through smart hedging and contracting, which gave us some price upsides. If you look at the pie chart, you can see that labour and energy costs account for quite a significant chunk of our OPEX. Now let's do the shared costs with three through our NBNL partnership, which gives us significant operational synergies. We also see OPEX where our vendors provide us with support and maintenance, and we carefully source that. And then there are the annual license fees for Spectrum, which are there as Ofcom fees. Our capex was up by 6% in FY22, and that was because of investments we made to maintain our position as the number one network, as well as some strategic programs, so delivering on our high-risk vendor swap obligations, our 5G rollout, which we are doing in parallel, and the support that we provide to Openreach to enable FDTP deployment. And you can see from the pie chart that the vast majority of our capex is capacity and network, which, as I said, is targeted towards our network leadership and covers our 5G and FTTP upgrades, as well as, as Neil mentioned, the converged IP core and network cloud. So the next slide shows our OPEX dynamics over our planning horizon. And OPEX over this period is driven by the run and maintenance for our networks and the run costs associated with legacy closures. Now we do expect headwinds in energy in particular and in FY23 in particular, but they ease as we reduce our consumption over the period and as the price pressures ease. And there are also some inflationary headwinds linked to our annual license fees, which are index linked. But we do also expect savings from automation, from strategic sourcing, and from closing platforms to create a simpler network. I'll share more on our transformation ambition in a moment. But overall, I think you can see that our savings are expected to outweigh our OPEX headwinds over the period. Now, as I said, we're investing significantly to ensure that we maintain the best network and provide unrivaled customer experience. But at the same time, our customers are demanding more, and you can see that in the traffic growth chart, which shows our peaks driven last year by Amazon Prime streaming Premier League matches. Despite this, we have a relentless focus on efficiency so that we are delivering our investment with lower and lower unit cost. And the bar chart at the bottom shows the unit cost of deploying a megabit per second of incremental capacity into our core network. And you can see very material reductions from 2010 onwards. The scale is important. Although it looks like the majority is done historically, between 21 and 26, we expect a further reduction of a third, despite the increase in traffic, as you can see on the top chart. Now we've achieved a lot through our investments already, but it is a multi-year program and we have some key milestones ahead of us. So in particular, the launch of 5G standalone, the completion of the FTTP rollout, legacy closure, and further out the 5G differentiated services that Greg described. So we do expect our capex to be similar over the next few years, but with scope for reductions towards the back end of the decade as we complete the swap and refresh program and our planned FTTP rollout. So turning to transformation in networks, we have a number of continuing programs and some new programs, and we broadly categorize into energy, third parties, and operational efficiencies. We expect to deliver over 350 million of gross savings over our planning period, whereby gross, I mean that a proportion of those savings is reinvested in technology or in new roles within BT. You've heard already about our move towards more strategic architecture and our focus on closing legacy networks. And these are really the key drivers of our cost transformation program. We're mindful of balancing absolute cost reductions with unitary economics. We might, for example, install a high capacity fiber link to a mobile site, which is more expensive, but it gives us better pounds per gigabit, better unitary economics. We've also taken the opportunity from our swap program to do that efficiently. So to swap and refresh at the same time, go to a site once. Now, in terms of energy, the impact of world events on energy markets has definitely affected us, as it has many other operators in the telco sector. We use hedging in order to protect us from price fluctuations, and we have a BT-wide program to help ensure that we reduce our consumption over time, and our technology upgrade helps with that because more modern and efficient networks use less energy. For third parties, we are always looking at opportunities to insource from third parties, from subcontractors, and by doing so, avoid the supplier margin and strengthen our internal capability. But where we continue to contract with third parties, then we negotiate using BT Source, our procurement organization, to make sure that we get value for money. For labour, we use benchmarking to ensure that our organisational design is optimised. Neil talked about his hiring apprentices and graduates, and they create the pipeline which will replace the higher earning roles over time and help us reduce labour costs. And then many of our planning activities are manual, so we're automating those in order to speed them up, make them more accurate, reduce manual intervention, and that also supports operational efficiencies. We have a really strong track record of delivering on our efficiency and transformation objectives through simplification, through automation, through network optimization. So we're very confident that we will continue to make a strong contribution to group on that front going forward. Thank you very much, and back to you, Harrod.

And thank you, Emily. So if I was to just quickly summarize what we've talked about this afternoon, you heard myself and Neil talk about the differentiation we get through our unparalleled fixed and mobile networks that we have here in the UK. You've heard how we'll continue to invest in that best network, but actually taking it to a position of fully converged and much simpler going forward. We do that by continuing to attract industry leading and diverse pool of technology talent, You heard from Greg about how we'll then use that talent on top of that network to build great new products and services for our customers. Tim talked about how we are active in research and use that to target sustainability in particular in those outcomes for customers. And then we've just heard from Emily about our plans to structurally transform our core space. So with that, that's the formal piece of the presentation over. We're now going to go to Q&A. So just some ground rules for Q&A, first of all. I'll attempt to work left to right. If you can wait for the microphone to arrive, announce yourselves. I'm going to take, I don't know, half a dozen questions from in the room, and then I'll take a few from the WebEx. So first of all, in the corner over there.

Thanks very much. Nick Delfast from Redburn. Just a quick one on the exchanges, which has obviously been rumbling for a while. What's the likely pace of decline from, I guess it was 5.6 thousand down to 1,000, if you give us an idea of how that's going to go? And then the second question was on Massive MIMO and how well it works. Could you tell us a little bit more about how successful it is at propagating further and what kind of challenges you've had in installing it? Thanks.

Okay, I'm gonna cover exchanges, and then I'll ask Tim, possibly Greg, to talk about Massive MIMO, but we'll come to that. So from an exchange point of view, I mean, clearly the rate, I mean, there's a number of pieces of transformation we need to complete in order to empty those exchanges. And a large one of those is, and the chart that Neil showed captured most of it, but the largest one is the PSTN switch off and migrating to digital voice. We are working towards the December 2025 target for that. You will have heard recently we've had to pause in consumer, in migrations to digital voice, and we're looking at how we can restart that quite quickly once we've got the right battery backup solutions in place such that a digital voice network is, you know, is as good in storms as an exchange-powered voice network. we'll then see, you know, other parts of the network such as copper broadband starting to diminish over time. So, you know, we won't see significant large numbers of exchanges being completely freed up before the end of the decade. We have actually selected around 100 that we think are some of the prime buildings, i.e. they're the ones that the property team are saying to me, please get out of these first, please get out of these. And we do intend to get out of that 100 between now and the end of the decade. And then I think you'll see then, so between 2030 and 2035-36, the bulk of that change. And, you know, I mean, we have a vast variety of exchanges from, you know, enormous buildings that you'll see here in London down to really tiny little huts in many respects. So that's that point. You look like you're about to ask me a follow-up on that.

You've got a lease that runs out in 2030, 2031. So you're going to have to extend that.

We have an option. Well, we're still looking at options there. We have a buyback or release option with Telerail in 2031. And both options are available to us then. And then on the massive MIMO, Neil, do you want to talk about massive MIMO first? I meant Tim, yes. Looking at you and saying, yes.

So yeah, and I'll maybe come to Greg in a sec. So I mean, massive MIMO, it's a technology we're sort of still evolving, right? So in the labs, you're getting very, very good performance. So if we put this stuff through its pace in the labs, 20 bits per second per hertz would be the sort of figure you can get in the labs. Normal sort of pre-MIMO sort of technology is a couple of bits per second per hertz, so a very material uptick. Theoretically, we should be able to do even better than that. Operationally, I think what we're finding is it very much depends upon the particular deployment because not all capacity, not all geographic coverage is equal. And therefore, we're in the process of sort of, I guess, tuning the capability to demand. So, you know, it's a technology that's delivering, but I think we're learning as we deploy this technology exactly where it can deliver most benefits. I mean, Greg, you've got the operational side in whether you want to add stuff to that.

I think that's spot on, Tim. And I think you also asked a question about how easy it is to deploy as well. And I think it's probably fair to say in the UK deploying any radios is really odd compared to other countries around the globe. But I think, you know, there's two really important things. One is the size of the antenna and the weight of the antenna. So we're doing a lot to ensure that that reduces. And we've seen a reduction in both of those since we started deploying massive MAMO, which is helping.

Okay, next, Carl. Next question.

Thank you. Carl Murdoch-Smith from Barenburg. Two questions, please. First one, Howard, you talked about network resilience quite a lot. Obviously, this week, we'll get the results of the CWU strike ballot. and so you could be losing quite a lot of labour, at least for temporary periods. Can you talk a bit about contingency planning and the potential operational impact on the network if roughly 45,000 people down tools? And then secondly, on research and development, you talk about it being applied research. Last year, looking in the annual report, you spent £604 million. on R&D. That's down from 720 the year before, but so it's a significant decline. Can you talk about the future trajectory of your R&D budget?

Thank you. Again, I might ask Tim to cover that part of that second one, but to the first one, I mean, the first thing, let me say, is we are disappointed that the CWU are currently balloting their members for potential industrial action. We think that, you know, in the between 3% and 8% increase that we did with the flat rate, £1,500, averaging about 4%. Similarly, to our manager population, we averaged an increase of about 4%. We think that that's quite a good, well benchmarked across what other people are doing in our industry and others. Now, but to get to the heart of your question, I mean, the first thing I would say is, unlike a production line, networks will run without manual intervention. And in many cases, networks can run for quite a long time without significant manual intervention. Now, what we have been doing, however, in our preparedness for potential industrial action, is looking at how we would prioritize work. So, you know, most of the intervention that we make into the network is to add in capacity. We do tend to quite, we tend to spread that out throughout the year. You know, it's not, I mean, we did this at the start. We learned a lot in the pandemic because, you know, we've got Andy here who runs the network operations center and the teams who work 24 hours a day. When we moved them to work from home, we had to prioritise work. And we did that by reducing some of the out-of-hours capacity uplift work. And then we then successfully managed to catch up again on that. So, you know, we have that robust plan in place. And we're hoping that we will not have prolonged strike action because we think we've put a good deal on the table. And the second point, I mean, the R&D number, and remember we always talk about R&D, of which a relatively small part is the pure research part. In terms of that transition, I mean, in essence, You know, there has been some shift, and we talk about that amount in terms of, you know, what sort of qualifies as R&D that gets converted directly into products, and therefore it actually is part of what attracts some tax benefits in our corporation tax. We do see that as continuing to increase. If I look at my budget for development, if I look at Harmeen's budget in digital for development, and if I look at the appetite across the CFUs, There is, you know, as we do the digital transformation in BT, there is, I don't see that continuing to decline, certainly not in the short term. Let's come, here we go, yeah. Or whatever the mic gets to first.

Thank you very much. It's Adam Fox-Romley from HSBC. The first question I had was on over-the-top players. There's been quite a lot of chat around at the moment about getting companies like Netflix and Amazon Prime to contribute to some of your network costs, and I was wondering if we could take the opportunity to just try and find out a little bit about the real costs you incur, specifically kind of related to the peering debate, which is what it seems to be about. I'd love to get a bit of context there. And then secondly, we've also heard recently that Sky is thinking about or has the ability now to offer a puck to kind of maybe potentially move away from satellite at some point. You were talking about DTT earlier in the presentation. So I'd just be interested to know, kind of as the network sits today, as the network evolves over the course of the coming years, how you would be able to cope, would your network cope with a kind of complete transition to IPTV?

Okay, so those two questions are quite related. I mean, you're right, if we look out at the potential growth in usage of the network, and Emily showed some charts of what we've seen historically, we do see, I think we do see the next era of growth, of significant growth, likely to be driven by potential broadcast TV moving onto the network. And The key question is ensuring that we have techniques for managing that efficiently. And one of those, and again, this is one we've been doing quite a lot of research on, is how do we take what would normally be a unicast IP stream, and particularly for a piece of live television, because obviously you can't cache that, for a piece of live television, how would we convert that into multicast? And in doing that, that would significantly lower the burden on the core network. And so therefore, we're confident that through techniques like that, we can you know, consume ultimately a shift from, let's say, digital terrestrial TV into all IP-based TV. And it's something we're putting a lot of thinking into how we would do that. And also, you know, how we would potentially monetize that. You know, I think that the... There's probably something like a cost of half a billion for broadcast TV distribution per annum at the moment in the UK, if you think of both terrestrial and satellite. You know, what we've got to work through is as that traffic comes onto our network, how does that fund some of it? That it doesn't all suddenly become a saving because clearly we've got investment to make for that. So we're also thinking through that. That does bring us to the point you made about the OTT operators and I guess the net neutrality debate. You know, we welcome the fact that Ofcom are consulting on this. We do think there are parts of that that will need to evolve over time, particularly some of the new 5G services become commonplace and net neutrality rules and network slicing, things like that will need to change to help accommodate that. The key for us though actually is we do think there's a lot of mileage still in how you schedule activity on the network efficiently. And in fact, Neil here led with this in the pandemic when we convinced Call of Duty and Fortnite not to co-launch their products at 7 p.m. every evening at the same time and to help by spreading that across the day. And that was successful in doing that. So through scheduling of non real-time traffic, through driving the adoption of multicast, we think there's quite a lot of mileage there. And then also, as Emily showed in a chart, actually, the cost of adding bandwidth is continuing to come down. And we mentioned that over the next two years, we see that dropping by a third of a third. We are probably, you know, that won't carry on down to zero, of course, though. So it is something we spend a lot of time working through. Thank you.

Hello, thank you. This is C from Citigroup. I just have a question on Open RAN. And if you can talk about your views on Open RAN, the pros and cons on it. I think one of your competitors has a quite clear roadmap on adopting Open RAN in the UK. And I wonder whether you also thinking about potentially introduce Open RAN into your network. Thank you.

I'm going to ask Neil to cover this. Let me just make an opening point on it. What's the most important factor in networks, if I could summarize them in two ways, is giving great, reliable experiences to customers, first and foremost, and being really capital efficient in what we deploy in the infrastructure. We are putting those ahead of needing to be first with Open RAN. In terms of the dynamics in our macro network and the amount of swap we're doing there, that's why we've been on record saying Open RAN in the macro network is probably towards the end of the decade. That may have been interpreted that we're a little bit of laggards in Open RAN. Actually, there are some great things that we see in it, which I'm going to ask Neil to speak to now. Neil.

Yeah, I mean, I think first of all, we joined the O-RAN Alliance, I mean, a long time ago, I think 2017 or 16. So and we open technologies and open standards, something we truly believe in, and we've published hundreds of them in the lifetime of BT. I think it's quite difficult when you're midway in a technology cycle to kind of stop and change direction, especially when the proof points of what you might change to are very uncertain. However, we have been doing a massive amount of work in BT Labs on using Open RAN for private networks and using Open RAN for network optimisation, so we have a pilot running in Hull right now where we're using the RIC, the RAN Intelligent Controller, to optimise the network and we feel that that's one of the strongest parts that Open RAN can play. So, I mean, we've got hundreds of people working on Open RAN and testing it and contributing to the standard as a whole. But from a network leadership point of view, we're only going to deploy it when we know it's 100% as effective, if not more effective, than what's available today. And that's something that we don't apologize for, frankly. We're only going to deploy it when it shows benefits. From a cost point of view, we're very dubious about whether it's going to bring a cost advantage. Because if you take one of these open RAN boxes and open it up, you see all the same components that you that you get from a nokia or from an ericsson or from a samsung so the underlying componentry is the same and we mentioned massive mime earlier on that requires acceleration so the notion that open run can be only software I think is proving to be more difficult than we would all like it to be. But we continue to use it. We have a program called Ultra MIMO where we're trying to use Open RAN to take that to the next level of MIMO and the network as a kind of a longer term research project. So, you know, it's a fantastic technology that's got a huge amount of opportunity in it. And we're working as aggressively as any other operator on trying to see the benefits of it.

Thanks. I mean, it's all about timing. It's a critical point there. So I'm going to take one more in the room and then I'm going to go to online and then we'll come back to the room. So people online, if you want to raise the hands on the WebEx feature, then we'll take those. But first of all, here.

Hi, Ben Rickett from New Street Research. Firstly, a quick follow up. I was just wondering your current thinking on the timeline for when you expect linear TV to switch off. And then the second question about your current thinking on the sort of technology mix within rural areas. how far you expect fibre penetration to go in the UK, and then for the remaining premises, the extent to which they would be covered by satellite or fixed wireless access. That would be great. Thank you.

Okay, so on linear TV switch-off, as I said, we're in active discussions right now with the main broadcasters I don't think in terms of actual switch off, we will see that this decade. I think it will be early, maybe just inside or just beyond the end or start of the next decade. But as I say, it's important that we start planning for that, because I do think it will clearly inevitably happen. And Greg talked about it. If we come to the rural question, So clearly through Openreach we're building the 25 million homes by December 2026. We're also actively talking to the government about their outside in gigabit investment and how we can potentially look at using some of that to extend beyond the commercial build into some of the type three areas. I do think though ultimately there will be inevitably and whether it's 0.5 to 1% of the UK, so, you know, one and a half to, you know, that sort of percentage will, at least in the short term, be uneconomic to reach by an FTTP solution. And so for that reason, we are looking at numerous solutions. I mean, the OneWeb example is where you could potentially use satellite to get into a neighborhood. and then use a smart wireless solution to distribute within that neighborhood as a solution. Fixed wireless access. Again, there may be communities where you can get sufficient bandwidth in to put a tower up and then use fixed wireless access to get to those communities. So we're very engaged. We work. In research on opportunities here, we work closely with DCMS. Our goal, ultimately, is to remove that sort of geographic... you know, not spot challenge that all telcos have, because we want to give everybody the opportunity to experience ultra fast. I do think it will always be a combination of maybe a bit of satellite, maybe some smart wireless distribution. We are also looking at high altitude platforms And some of our colleagues in other operators, Deutsche and Orange, for example, have been doing quite a bit of breakthrough work on that, but it requires hydrogen engines to become economic and the ability to fly an aircraft around for seven days without having to land it. So that might sound a bit futuristic, but actually, you know, in the timeframe towards the back end of the decade, we're keeping a good eye on that one as well. Okay, so no questions on Webex at the moment. We'll carry on in the room. One at the front here.

Thank you very much. It's David Wright from Bank of America. You actually just touched on it, and I think it might have been, Greg, your presentation where you talked about the loading of the networks. And it was always pricing of data and capacity on the networks has always been very interesting to me because these are hugely inefficient to have two spikes in the network usage morning and evening and having to build to the peak you probably got a third of the day where the return on capital profile is pretty terrible, right? So the question is, how can you get more, how can you smooth that capacity? I think COVID might've done you a favor because it brought people working from home, of course, but how can you smooth that more? You know, whether it's using the bandwidth to move data from the OTT guys into cash, whatever it is, How can you be better at that? And could we even see different pricing models start to evolve that incentivizes use off net? I mean, it's standard for the electricity networks, right?

Well, and I mean, for us networks guys, you hit a bit of a raw nerve there. I remember when he, you know, when he used to have off-peak for the telephone, 6pm onwards, but, so the opposite in that respect. But, so let me have a go and then I'll ask Neil to comment on it as well. I mean, first of all, it's great to be a converged operator for this because actually having a single core behind mobile and fixed where you actually have peaks at different times. And actually, you know, if you were, I mean, there is a significant less cost in adding a megabit per second of capacity into a fixed, into the core that we use for fixed than historically has been in place in mobile. Now, a mobile piece will always be slightly expensive because you've got to track where you are and offload you from one tower to another. But we think that the economics of capacity mobile is converging now more towards what we've enjoyed more recently in the fixed network. So that will help us in driving down the overall cost of incremental capacity. You know, we continue to do some great work on caching. So, you know, we've been using Quilt, which is a form of OpenCache, working with content partners there, which means we get a bit of a share in the revenue as well. So that helps to fund that. We're actually quite a large amount. I mean, if we took caching away, the 28 terabits per second that we currently have now would be much higher. So that is quite effective today. The challenge is the fact that we, in the households up and down the country, we want to use this the most between 6.30 p.m., 7.00 p.m., and 9.00 p.m. And actually, again, if we can work on the non-real-time content during that period, again, we think there is opportunities for smoothing that out. So I think there is lots of techniques ahead of us there. But we have to face into the fact it will continue to increase, ultimately, that usage in peak period, and that will drive the investment. The other thing I'm trying really hard to do is to reduce the energy consumption when we're not in a peak period. We've done lots on mobile on that. We're looking at what we can do on fixed. I mean, Neil, anything to add?

We're starting to see that. One of the changes we've observed through COVID is... Actually, the content guys realize that it's not just about kind of chucking it on the network and hoping. They actually want to ensure that when they put their program, if you're Disney and you're launching Mandalorian Season 4, you want that to be a phenomenal experience. And Disney is actually one of our... partners with Quilt where they pay us to deliver that traffic. We also see it from the gaming companies where as they do a big launch they have a whole lot of noise around it. They want that experience to be good and what we are trying to do and work with them and build is not just dump it on us, but work with us. We'll give you a service where we give you some guarantee about how well we can deliver it by working with them and collaborating with them to deliver it in the best way. And we're also working with the big console guys, Microsoft, Sony, so that we can actually, as they've got a big title coming out, we can pre-populate it. So it's literally press a button, and you can play your game. So we've done that with Apple on iOS downloads. Back in iOS 6, iPhone 4, the biggest event would be when Apple put out a new iOS launch. Now, we never hear about that. So lots of technology going on there. Again, with the multicast stuff that Howard talked about, I think we are going to start to see that traffic pattern change over time. But clearly, if Scotland are playing England at Wembley and Scotland are 3-1 up, It's clearly going to be a big event that everybody's watching because it doesn't happen that often. But live traffic is where we're going to have our biggest challenges, and certainly sports is one of them.

Wouldn't plan your network for that. The other thing I was just going to add was it feels like this is a feeding ground in all the right ways for ESG. Obviously, you've got the energy consumption and the improvements that are taking place there with the technology. And I guess within the labs, all the things that you're doing are ultimate. We can present those as... massively positive drivers of society and the digitalization of society. Could you talk a little bit about maybe the two to three things that you think I don't know, shout loudest from an ESG perspective, if maybe?

Yeah, I mean, that's a great question. And for us, it really is, it has to come down to energy consumption. You know, we consume 2.5 terawatt hours of electricity. That's 1%, just slightly higher than 1% of the entire UK electricity that's generated. We're at 200 gigawatt hours of oil and gas. You saw in the presentation there that when we switch the legacy off, that will remove 550 gigawatt hours. So that's a really big chunk. Just some other additional statistics. An FTTC line today, so 76 megabits or 70 megabits per second broadband, typically uses 2.4 watts per customer. FTTP? 0.3. So that migration from COPPA for FTTC to FTTP, actually just to throw another one in, I think DOCSIS is five, by the way. So five, two and a half point three, just to have that in your head. So we see that, you know, and again, so across the decade, as we migrate ever more customers from the FTTC platform to the FTTP platform, we see great improvements there. We are, as is our track record, a great believer in buying only from renewable sources, either directly, so with PPAs, we were... We were one of the early investors in onshore wind through Falago rig. We are continuing to increase our PPA portfolio. We actually signed a couple of deals last week. We're not ready to talk about them yet. So that direct investment into renewables is important for us and then ensuring that we're paying the regos for the certificates beyond that. And then the other area, and you'll have heard Clive Selley talk about this, I think we have the second largest fleet of vehicles in the UK. They're in that sort of mid-sized van range, which hasn't been the first for innovation in all electric, but it's coming now. So we're working really closely there as to how we can, Openreach are working closely with, you know, car manufacturers as to how we can convert the whole of the open reach fleet to electric vehicles during the course of this decade. And, you know, I've got 1500 vehicles in my organization, we're doing exactly the same thing. So really important for us. And actually, given where we've got on the simplification opportunities, lots of opportunities to talk about that in the future.

a lot of area where we can help our customers be more secure in the digital world where we're building that. I think that's a massively untapped area for us as well.

Yeah, and David, I think it's also about driving a sustainability mindset into our engineering community as well. You know, so Howard's mentioned about engineering, you know, turning stuff off when we're not using it, sorry, energy. But equally, think about the packages, how we sunset products and how we, you know, get back those products and ensure that we do something with them. So changing that mindset, I think, is the third area that's really important.

OK, any other questions? Chris at the front here.

Chris Lewis, Lewis Insight, and the great telco debate. Thank you very much for the update. The question which keeps occurring to me, and you all keep including this comment about customers and the feedback, how does that customer feedback come to you given the lines of business organizations and the way they do it? So what are they demanding of you? How are you seeing this customer feedback? And then perhaps more importantly, given the relative role of connectivity in the future, How are you going to get feedback through your partners who may well be delivering the services to the customers ultimately in the future?

I think, I mean, great question. And I think that... You know, a networks organization can only be truly successful if it has a really strong commercial mindset. And by that, I mean, it's really taking on board what we're hearing from our customers. Also, it's understanding what our competitors are doing and using that to drive the strategy within the company. So I spend, as do the rest of the team, you know, significant amount of time with large enterprise customers. You know, I know the CIO of DWP, HMRC, we share. Actually, because we're a large sort of UK employer, we have a lot of infrastructure, you know, buildings in the UK. You know, we have a lot of call centers. We actually share quite a lot in terms of the infrastructure in the UK and how we work together on that. And of course, that then feeds into, or indirectly, what they're buying from enterprise and global. So I've got DEFRA tomorrow, for example, we're hosting, Tim and I are up at National Park. So we do get quite a lot of direct feedback there. Philip put in a great rule when he joined, which is if you look at the complaints coming into the CEO, each of his team is going to take at least one a week and ring that customer and then sort it out. And that means not only sort it out for that customer, but prevent it happening again, which is a great way of dealing with consumer customers. Interestingly, my inbox has dried up because we get fewer and fewer complaints these days, which is a great outcome there. And I think as you say, Chris, as we shift connectivity into sort of the connectivity plus area, then that does bring the partners in. Now, again, I think, you know, we've... With all of the hyperscalers or some of the large content companies, we have those great relationships now. I mentioned Neil's relationships with them that we developed during COVID with the games companies. We have a great relationship with Facebook and looking at how customers use our network in that respect. They're quite keen to come and tell us how our network performs compared to others in the UK and more globally. We're not short of feedback in that respect. And then the final point I'd make is the tooling in terms of being able to observe what's happening in the network and being able to imply from that how customers are experiencing the network has got ever more sophisticated over the recent years. So we are much more now customer-driven in terms of activity that we take in both the mobile and the fixed network. by looking at, are there any blockages? Do we see any slowdown happening for that cohort of customers? And that's changed how we add capacity into networks over the last few years.

Hi, it's Amelia Dongzhu from Morgan Stanley. I just was wondering if you could talk a bit more on sustainability and the circularity of your network. You talked briefly about the sunset of your products, maybe that was from a consumer perspective, but when you're decommissioning parts of your network, what do you intend to do with those parts afterwards and what's the plan for the waste? Then also when you're rolling out new networks, is any of that repurposed? Is any of it refurbished? Just how you're managing it from a sustainability perspective. Thanks.

Yeah, and I'll talk a bit about that, and Greg, maybe you can pick up some as well. So that circular view, critically important. And it's partly through doing ever more there that was actually underpinned, as you know, bringing forward net neutrality for us across BT and the timelines for that. But specifically on the networks, And this is a change. I would say historically, if you walk into a BT Exchange building, and a statistic for you that I might not want to share, but I'm going to now, you walk into an Exchange building, look at electronic, look at equipment inside an Exchange, approaching half of it is powered down. Because we took the immediate sort of ESG benefit and the energy saving, What we've now got to do is make sure that we responsibly remove all of that infrastructure. Now, there's a lot of value in doing that, as there is value in the copper infrastructure in the ground as well. So there's an opportunity and a challenge here. So the opportunity is to find ways with partners to remove... some of that infrastructure, recycle it to the maximum amount possible, and then be really careful about how we dispose of some of the electronics and some of the rare metals in some of the electronics. So we are well aware of that. We've got some great partners. In fact, if you've got a minute afterwards, talk to Andy Skinley, who's at the back here, because he's leading on that for us in how we empty exchanges. I think we have, what is it, 200 million tons of copper? I've got the right number. 200 tons of copper. 200,000 tons. Get the zeros in the right place. 200,000 tons of copper. Remember the 200. But how we convert that from a copper cable into, again, in a responsible way into copper and then recycle that and monetize that, again, is high on our agenda. So it's something that we have a team very much focused on and continuing to work on. Any final questions? Anything on WebEx? We've got one at the front here.

Hello, Rupert Wood from Analysis Mason. I just wondered whether you could say something a little bit more about what the energy headwinds, energy cost headwinds might be. You've said quite a lot about the savings that might be made by removing legacy equipment. Is it just the rising cost of energy or are there other areas that...

sort of drive that up as well as the... to counteract some of these savings you're... I'll ask Emily to talk, to give a little bit more insight into some of the numbers in a second. I mean, clearly... energy has become front of mind over the last nine to 12 months, really. We were in a really good position with hedging in FY22. And actually, as you saw earlier, our energy cost overall reduced FY21 to FY22, partly driven by reducing overall demand, so overall gigawatt hours by 2%. And we're accelerating that trend now. But just a bit more on the numbers would be helpful there, Emily, I think.

I mean, the main headwind relating to energy is in FY23. I mean, the main instrument, I suppose, we have to protect us from that is hedging. And in this current year, we're about 84% hedged, which includes the energy purchasing through NBNL. The average cost to us within our sort of hedge portfolio has gone up 80%. Next year, we're hedged about 50%. But we have, as Howard mentioned, long-term power purchase agreements. They accounted for around about 17% of our purchasing last year, and we're increasing that over time. So that's a really good way in which we can help hedge and protect ourselves from the energy situation.

I guess I was thinking more in terms of longer term, in terms of what might actually... You talk about decommissioning legacy networks, and these would save potentially 30% of your energy consumption. But I was thinking things like how might small cell densification, for example, actually affect that? How might massive MIMO affect that? How might edge affect that? Are these actually...

sort of drivers in the other direction rather than... I mean, yes, they are drivers in the other direction, but they are not to the scale of what we're going to switch off through the legacy removal. So, you know, we are very confident that that two and a half terawatt hours that I mentioned earlier is going to significantly reduce over the next, certainly over the next five years, as we get to complete legacy switch off at the end of that period as well. And we are really challenging the supply chain. I mean, the fact that Tim mentioned, you know, bits per hertz per megawatt, you know, that's the real challenge into the supply chain now. It's not, you know, it's not just good enough to give us better spectral efficiency. It has to be also, that efficiency measure has to include energy consumption. And we think, you know, there's opportunities there. In fact, we've just sponsored a piece of research And this is, again, why it's important, we think, to still do applied research. Actually, how many photons do you actually need to run a core network in the UK. Because at the moment, there are a lot of photons going down a piece of fibre that aren't necessarily needed. I mean, Tim, just an interesting statistic on that would be helpful.

Well, I mean, if you actually do take it back to the fundamental level, then you can convince yourself you can run core networks the size of ours for not much energy at all. So the work we've been doing there with Bristol University, they're making They're currently sort of, I mean, they're one of the best universities in the UK in terms of communications research, and they're explicitly focusing on low energy communications. So, because I think this is just going to be, for all sorts of reasons, for all the reasons you know, This is going to be an enduring topic, isn't it? So clearly, one of the things that we're building into our longer term research is just asking those fundamental questions, whether it's in transmission, which is the example Howard's talking about, or indeed whether it's in switching and routing. You know, we're working with Bristol, we're also working with Cambridge University in their materials lab, essentially querying, you know, what does the world of materials tell us about the ability to effectively not just convey information, but also make routing and switching decisions. So I think this is going to be a topic that certainly we're going to be pushing hard as part of my research programme for the foreseeable future, really.

That's kind of more for the future, but we look constantly at things like the optical transceivers in our network. So today we use a lot of 100 gig. Actually now we're going to start moving to 200 gig because the price of a 200 gig optic with energy is much less than two 100 gig optics. And same for 400 gig. And actually our platform, our partner, Nokia, they're the first to really release a scalable 800 gig platform. And by moving to those platforms quickly, we can save a huge amount of energy and increase the quality of service for customers and reduce the overall total cost of bandwidth. So this is something that We're absolutely actively looking at every single device that we add. How do we control it to power it up, to power it down? We're excited about Open RAN in the controller because we think that could give us a way of powering down devices. And then in the cloud native network, Again, like the hyperscalers, we can turn servers off. We can wind them right down and then only turn them up when we need to. And that's another part of the simplicity of what we're building to allow us to do that. If you've got lots of different devices, it's impossible to do that. If you've got all compute and it's the same architecture, really straightforward to power it down.

Thank you, Neil. I think just a final comment from me, because a lot of the discussion that we've had over the last half an hour has been about how do we make ourselves and the network more efficient? And the great thing about that is actually we spend a lot of time focusing on that because what is great is we're operating in a climate where there is massive demand for the product that we produce. And I think that is a great thing for our industry. And so we'll keep thinking about how we continue to deliver that great product in ever more efficient ways. And thank you for the questions. We're now hopefully going to encourage you to stay with us for a little bit longer, come down to the first floor, have a look at our customer experience center, and in particular at the future zone that we've got there. So that closes the formal piece for people online. And in the room, we'll now work out how we get down to the first floor. But thank you very much.