BT Retail SME Broadband Strategy Briefing

1. BT RetailSME Broadband Strategy Briefing 29 April, 2004

2. Pierre DanonCEO,BT Retail

3. Agenda • Insight into the SME broadband revolution • Highlight the BT Retail Business Broadband success • The opportunity to further transform SME businesses with broadband access and applications • Announce and demonstrate the next steps • Question & Answer session

4. Certain statements in this presentation are forward-looking and are made in reliance on the safe harbour provisions of the US Private Securities Litigation Reform Act of 1995. These statements include, without limitation, those concerning: broadband growth and access in the UK, demand for broadband applications; and revenue growth and greater profitability in broadband. Although BT believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause differences between actual results and those implied by the forward-looking statements include, but are not limited to: material adverse changes in economic conditions in the markets served by BT and its lines of business; future regulatory actions and conditions in BT’s operating areas, including competition from others in the UK and other international communications markets; selection by BT and its lines of business of the appropriate trading and marketing models for its products and services; fluctuations in foreign currency exchange rates and interest rates; technological innovations, including the cost of developing new products and the need to increase expenditures for improving the quality of service; prolonged adverse weather conditions resulting in a material increase in overtime, staff or other costs; developments in the convergence of technologies; the anticipated benefits and advantages of new technologies, products and services, including broadband and other new wave initiatives, not being realised; the timing of entry and profitability of BT and its lines of business in certain communication markets; significant changes in market shares for BT and its principal products and services; to the extent that BT chooses to sell assets or minority interests in its subsidiaries, prevailing market levels for such sales; and general financial market conditions affecting BT’s performance. BT undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

5. Creating the online economy…the value ofbroadband Employee productivity growth Enabling remote working and enhanced communication services ie video conferencing and increased speed of file transfers Faster access to customers and suppliers Link directly with customers and suppliers for fast ordering and supply management Lowers the cost of doing business Enables new solutions to help drive operational efficiencies and control costs New opportunities now easily accessible Offers access to new applications and services not traditionally available to small businesses Creating new ways to do business Realise the potential of a quality website to market and sell products and services

6. The UK broadbandrevolution • 85%of UK SMEs are in a broadband enabled area heading towards 100% by end 2005 (source: BT Wholesale) • 32% of UK SMEs using the internet in broadband enabled areas have DSL connections • Growth in UK at a rate of 3,500 new connections each week • Increasing number of SMEs buying online applications • Market for small business hosted applications expected to treble by 2008/09 to c £1bn* • UK has moved up from third to second place in worldwide survey of e-readiness* *Economist Intelligence Unit - 2004 e-readiness rankings *BT Analysis 2003, MARS & Co, Continental, Oftel, Edengene, BT Analysis

7. Driving towards broadband profitability • Driving Netcentricity • Business online orders increased from 7% to 21%(Mar ‘03 to Mar ‘04) • Business online help usage increased from 29% to 56%(Mar ’03 to Mar ‘04) • Driving Customer Satisfaction • Very satisfied increased from 45% to 51% • Dissatisfaction reduced from 17% to 7% • (Apr ’03 to Mar ’04) • Driving Efficiency • >50% reduction in helpdesk costs per user • >17% reduction in network costs(Apr ’03 to Mar ’04) • Driving the market • BT has >50% share of the UK SME DSL market connections • >250k BT business DSL connections, 1.2m business people using BT Driving ARPU • ARPU growth through marketing ICT solutionsto broadband connected customers Trajectory to business broadband profitability in 2005 Narrowband is already profitable

8. But we know there is anappetitefor more than access • 48%of our access customers buy applications from BT • 100% growth in broadband applications in 2003/04

9. So what are the small and medium business needs? Simple Simple and complete solution‘The hardest part is sorting through the chaff and trying to find exactly what you’re looking for.’GFK Feb 2003 Channels Channels that suit their specific needs‘Flexibility and Choice’BT Research March 2004 Single Point of Contact Single supplier for telecommunications,IT requirements and supportBT Research March 2004 Local Local support and purchasing points‘Local presence generally welcomed’ DBBT March 2004 Value for money Pay for what they get, direct business benefits ‘Businesses are seeking to use ICT shrewdly to unlock business value’ DTI 2003 Relevant Addressing specific needs ‘Most entrepreneurs find themselves spending more time managing the business they have than generating new business’Microsoft bCentral 2003 Time Saving Giving them time to focus on core competenciesBT Research March 2004

10. But there are barriers…. Capital investment ‘Cost of acquisition is seen as an overwhelming barrier to ICT investment’ DTI 2003 Fear of complexity ‘The most complex things can be no problem if the supplier does their job in the right way’ DBBT March 2004 Lack of understanding ‘Smaller businesses more than any need someone to help them exploit technology but no one is set up to do it’ DTI 2003 Lack of technical resource ‘Only half of smaller businesses (1-50 employees) have an IT department or team’ Computer Weekly Oct 2003

11. Duncan IngramManaging Director for BT Openworld,BT Retail

12. Our vision for smaller business Broadband access Make it easier to buy Support and services Resellers andIP Helpdesks Telco’s / ISP’s Make it easierto install and use Retail distributors Applications vendors Office connectivity Value added services Make it easier to maintain

13. A seamless on-line experience Product / Service Offerings BT will provide a single point for all customer needs….. Support and Services “I now have a single website for all my needs….” Office Connectivity Value Added Services Broadband Access Support services Office connectivity Customer experience Value added services Netcentricity Customer satisfaction Simple and complete user experience Access 69% of BT Business customers will value a single online sourceof applications and further see BT as a natural supplier

14. plus… We have already started to address the needs… Stage 2 - Applications and Software Connected& Trading • Connected& Secure • - Security Pack • Datasure • - Trader Pack • Shop builder • On-line Payments • Contact Central on Demand • - Business Admin Pack Support and services Support Stage 1 - Access, Adviceand Support Office Connectivity Office connectivity Connected & Professional BTBroadbandOffice Internet Business Pack Valued added services BT Business Broadband Broadband access www.btbroadbandoffice.com

15. Great progress in But we also have a greater ambition… Simple andcomplete solutions • Single supplier • Value for money • Time-saving • Relevant propositions • Local support • Access • Product and applications • Support and service • Office connectivity

16. Driving towards our vision Stage 3 - Single supplier, local support, value for money, relevance, time saving propositions • Connected& Complete • - Hosted Exchange • Subscription Office • Business Admin Pack • Internet Security Pack Stage 2 - Applications and Software Connected& Trading • Connected& Secure • - Security Pack • Datasure • - Contact Central on Demand • Trader Pack • - Promoter Pack • - Trader Pack • Shop builder • On-line Payments • Contact Central on Demand • - Business Admin Pack Support and services Support Stage 1 - Access, Adviceand Support Office Connectivity Office connectivity Connected & Professional BTBroadbandOffice Internet Business Pack Valued added services BT Business Broadband Broadband access www.btbroadbandoffice.com

17. An innovative first for small business Hosted ExchangeAll the benefits of Microsoft Exchange Server 2003 including personalised email, calendar, contacts and folders Available from your PC or via your mobile. A managed service Subscription Office Microsoft Office Small Business Edition inc. Microsoft Word, Excel, PowerPoint, Publisher and Business Contact Manager Upgrades to latest releasesEasy monthly payment terms Additional licenses as required BroadbandProducts & Services Access SupportSecurity Web Hosting Sales & Support Local partnerships One point of contact, One bill Announcement 1 ‘BT Connected and Complete’ featuring Microsoft technology, roll-out from June

18. And how we willdeliver • Localsales partnerships • National network of sales and service partners • Demandgeneration by BT, Microsoft and partners • Scotlandroll-out in partnership with Capito • Nationalroll-out in September 2004 • 20local sales and service partnerships by national roll-out

19. What will the impact be? Higher ARPU Customer Satisfaction Improvements Increased Customer Loyalty Greater Profitability Revenue Growth

20. Craig RowlandManaging Director, Business,BT Retail

21. So what are we creating • An ecosystem for small and medium businesses • Based on a holistic approach • Working collaborativelywith world class partners • Providing marketing experience and investment to drive forward “a paradigm shift in the UK smaller business market place’’ Announcement 2Joint marketing programmes between BT and key strategic partners totalling over £17m

22. And how will we energise National National advertising National channel reach CreateAwareness + Stimulate Demand Regional Local Regional broadband partnerships CW2000, ActNow,2004 National eCommerce Awards Local sales and support partners Local business community

23. Mobility • Applications • Mobile connected devices • Access • Advanced Capabilities • VoIP Solutions • Server Solutions • SDSL specific applications Stage 4 - Fully integrated solutions Next steps in our strategy Stage 3 - Simple and complete • Connected& Complete • - Hosted Exchange • Subscription Office • Business Admin Pack • Internet Security Pack Stage 2 - Applications and Software Stage 1 - Access, Advice and Support

24. Stimulate market Transform small and medium business efficiency through broadband Our ambitions are clear Creating a substantialbroadband business Drive EBIT Continue the trajectory to profitability Drive ARPU Drive significant servicesand applications revenue Lead the sector Maintain market share of >50%

25. Announcement 1:‘BT Connected and Complete’ featuring Microsoft technology, roll-out from June Announcement 2:Joint marketing programmes between BT and key strategic partners totalling over £17m Q & AThe time to act is now…