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    • VoIP Industry Analyst Briefing March 11, 2004 Jeff Richardson Ian Morfett John Blake David Axam Brian Levy Nicola Rossi
    • Caution
      • 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: the impact of VoIP for BT including cost reduction and revenue opportunities; VoIP revenue streams at wholesale and retail level; benefits of the 21st Century Network (21CN) including BT’s ability to deliver improved efficiency and transform costs; 21CN project target opex savings; and wholesale broadband growth.
      • 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.
      • [8 March 2004]
    • Welcome Jeff Richardson Director Corporate Strategy Nicola Rossi Head of Analyst Relations
    • Agenda
      • Welcome Jeff Richardson Director Corporate Strategy Nicola Rossi Head of Analyst Relations
      • Wholesale and regulatory implications Ian Morfett Managing Director Strategy & Business Development
      • Consumer VoIP David Axam General Manager Access Portfolio
      • Hosted IP Telephony is a reality John Blake The ‘abbey’ case study Head of Voice Over IP
      • Break
      • VoIP - Technology or Service? Brian Levy Group Technology Officer, Service & Solutions
    • Wholesale and regulatory implications Ian Morfett Managing Director Strategy & Business Development
    • VoIP means different things to different people VoIP is becoming a more easy to use/understand offering ? !
    • Just another application in the IP world… Channel , Brand, Customer Applications Broadband Services Application Platform QoS Services (session, application) Broadband Access Broadband Connectivity service provider channel advantage Internet Gaming VoD/IPTV Messaging Voice Video Chat P2P Media Downloads eCommerce Retail value bundles Network Based Value }
    • BT sees VoIP applications as critical to delivering upon our consumer vision Vision Connecting your World. Completely Mission Role of VoIP Make every experience simple and complete An integral element of a complete portfolio which provides the customer with a simple range of choices to fully connect their world
    • Opportunities
      • Cost impact
        • IP will effect incumbent operators’ network costs
        • Simpler network structure and improved utilisation
        • Requires upfront CAPEX
      • Revenue opportunities & impact
        • Size of opportunity and degree of impact varies based on:
            • End user needs/requirements vs existing offerings
            • Market dynamics (regulatory/commercial)
            • SPs’ strategic reason (i.e. ad ditional rev, reduce churn rate, differentiation)
      VoIP has clearly lowered the barriers to entry in terms of cost and edge deployment Migration from switched to packets will impact operators both in terms of cost and revenue
    • Cost impact
      • IP does offer multiple service capabilities
      • Enable more efficient service configuration and delivery
      • Reduces the number of parallel networks
      • Reduce equipment maintenance overheads
        • By moving away from the ‘stove-pipe’ model
        • Maintenance costs of legacy could increase over time
      • Reduce the cost and time to develop value-added extensions to the stand-alone voice services
      • But migration timeline has to be managed
      Migration to IP will simplify the network structure and improve utilisation Moving from spaghetti to lasagne
    • Cost impact - BT’s approach moving forward Customer experience Speed to market Cost reduction Portfolio Services PSTN Transformation Trial Service Management Applied Technology Centre Trial Service Creation Service Creation Framework Trial Converged Platform Converged Network Trial Transmission & Access DSL/SDSL Fibre
    • Revenue opportunities exist for BT at the retail and wholesale level
      • The revenue streams associated to VoIP are:
        • Application, equipment & software, access & connectivity
          • Majority linked to medium and large corporates
          • Largely linked to migration of legacy VPNs & PBXs
      • Intermediary revenues fall into ‘sell to’ and ‘sell through’ opportunity:
        • Sizing at a very early stage but is generally 10%-20% of the retail market figure
        • Additional opportunities exist in helping sevice providers with their VoIP aspiration and…
        • Also offering capabilities such as PSTN conversion and clearing house
      VoIP revenues in the consumers space are limited in competitive markets such as the UK
    • Comparison of current offerings Consumer SME Corporate PC2PC Net2Phone IP VPN IPPBX SKYPE Communicator Vonage BB Voice IP Centrex 0.0 0.5 1.0 Comparative PSTN Experience Quality of Service Low High High PSTN
    • The market and business models are still maturing
      • A range of technical & regulatory issues
      • BT Wholesale is in discussion with a number of SPs to help support their VoIP aspirations
      • BT Wholesale is the technology partner for BT Retail
      • BT Wholesale is evaluating interoperability offerings between differing technologies, networks and protocols
    • Regulators have so far been observing the VoIP space but…
      • Regulators do not consider the current consumer internet offerings to be a PSTN substitute
      • Regulation is therefore light
        • FCC classified (FWD) VoIP service as an information service
      • Emergency access 999 and 112 services is a key concern
      • Concerns around interconnect, numbering, number portability in the future
      • There are currently no moves to make ADSL available without PSTN subscription in the UK
      Ofcom is consulting industry & consumer groups
    • Regulation is light on the ‘best efforts’ VoIP offerings
      • Best efforts – Consumer internet telephony
        • Pricing is by commercial choice
        • Limited ability to provide end-to-end quality
        • Lightly regulated
        • Emergency access is a key concern
      • Managed offerings - VoIP as a replacement for traditional PSTN
        • Existing regulation applies (pricing, emergency access, etc)
        • A key issue that arises is that of DC line power feeding
      But when it becomes a technology replacement for PSTN it would be treated as PATS
    • Summary
      • Voice is becoming an application
      • VoIP has lowered the barriers to entry
      • Different dynamics in UK market
      • Cost saving from migration to IP is not as clear cut for an incumbent
      • Revenue opportunities are mainly in the business segment
      • The BT Wholesale role would be to support the SPs in their VoIP aspirations
      • The market is still developing
      • Regulators are monitoring the evolution of commercial VoIP offerings
      BT is already a significant VoIP player and is watching market developments closely
    • What does VoIP mean for our customers? David Axam General Manager Access Portfolio John Blake Head of Voice Over IP
    • BT’s VoIP leadership Hosted IPT - MMVoiP/VoIP Port Broadband Voice Communicator We have already established a leadership position in hosted VoIP
    • We are in a world of converging services Retail Strategy To leverage VoIP technology to enhance other services and to make VoIP an integral part of a converged portfolio Communicator Broadband Voice Project Bluephone Home Hub
    • BT’s Broadband Voice is as easy to use as a PSTN phone
    • BT’s Broadband Voice is as easy to use as a PSTN phone
    • Broadband Voice
      • So in summary why was BT first with Broadband Voice ?
        • Adds immediate value to Broadband
        • Because BT is a technology leader
        • Acted to meet competition from cable
        • Complementary to BT Together
        • Provides a launch pad for Communicator, the Bluephone project and Home Hubs
        • Gain real customer feedback on issues such as voice quality
      A tactical early move in a developing consumer market
    • BT Communicator… the complete communication package
      • A new service developed in partnership with Yahoo! that will manage all home communications from the PC and incorporating:
        • Instant Messenger
        • Video Chat
        • VoIP
        • Click2Call
        • Internet Call Waiting
        • SMS
        • Personal Address Book
        • Calendar
        • Directory enquiries
        • Voicemail
    • Feature rich…not hype BT Communicator (phase 1) with Yahoo! Messenger MSN, AOL etc Skype etc Talk Talk, OneTel etc Simple Instant Messaging Enhanced Instant Messaging Full Communications Experience Voice BT Together Voice Breakout Incoming Calls Call Waiting Caller ID VoiceMail Directory Enquiries Integrated PAB Calendar Email 2WaySMS 1:1 Video Chat IM Text Chat Voice Chat Email 2WaySMS 1:1 Video Chat IM Text Chat Voice Chat IM Text Chat Voice Chat Voice Chat Fully integrated with
    • VoIP will facilitate a paradigm shift where content can be enriched with conversation Separate Voice and Data Content Enriched Comms Data Information Sharing eg web pages, on-line photos Data conversations eg chat, email Voice Conversation Telephone Home or Office PC
    • Hosted IP Telephony is a reality John Blake Head of Voice Over IP
    • Agenda
      • BT Hosted IP Telephony
        • BT VoIP Port
        • BT Multimedia VoIP
        • Additional services
      • Abbey case study
      • Service performance monitoring
      • Futures
      BT is delivering hosted VoIP now
    • BT Hosted IP Telephony - an overview MPLS VPN ATM WAN BT hosted apps Featurenet PSTN Customer LAN TDM PBX Enterprise IP PBX Centrex IP telephony MM VoIP VoIP Port VoIP Port CPE LAN Hosted VoIP PoP VoIP VoIP hosted apps VoIP Call Servers PSTN Call Server Other networks
    • Customer strategy evolution or revolution? VoIP Port MM VoIP IP-enablement There is a clear value chain which BT is in a strong position to exploit IP Infrastructure PBX Convergence IP Telephony Multimedia IP Apps Amount of convergence completed Benefits
    • What is Multimedia VoIP?
      • The world’s first Hosted IP Telephony Service
      • IP to the desktop on a single network infrastructure
      • Centrally – hosted managed platform - CCMs - future proofed
      • Centralised C7 PSTN access
      • Potential for phased migration from TDM
      • Potential for multimedia applications - video, IPCC, call recording, XML services
      • Fully-managed with 24/7 service support - IPMC
      • A Cisco - Powered Network (CPN) product
      • Currently available in the UK. Rolling out to selected European countries in 2004
      The world leader in hosted IP
    • VoIP Port
      • Hosted PBX convergence
      • Delivers PBX convergence using customer’s existing PBX over a QoS enabled WAN
      • Provides access to the PSTN at competitive PSTN rates
      • Zero-cost for on-net calls between customer’s sites
      • Supports an integrated dial plan (SLC - Extn)
      • Seamless integration between TDM PBXs, Cisco AVVID, TDM voice VPNs
      • Supports DPNSS interworking e.g call transfer/ring again etc
      • Optional Featurenet interworking – to enable migration
      • Provides the ‘glue’ between old and new
      A flexible infrastructure that gives good value for money
    • XML applications
      • XML IP phone applications to enhance user productivity
      • Enabling ease of use and applications
      • Services include:
        • business news, e.g. FT, BBC News
        • corporate directories, business cards
        • electronic Directory Enquires
        • service applications e.g. Call Wrapup
      BT is helping its customers run their businesses more effectively
    • Customer premises equipment
      • Evergreen software license
      • Future-proofed offering
      • Cisco IP phones and soft phones
      A range of multimedia kit that is protected against obsolescence
    • The Abbey National (‘abbey’) John Blake Head of Voice Over IP Hosted VoIP is a reality
    • Abbey - Europe’s largest ever deployment of VoIP and IP telephony
      • MM VoIP, LAN, and WAN infrastructure rolled out to 746 branches
      • Rollout achieved in 5 months – 7,000 branch visits
      • 75 branches a week (25 a night at one stage)
      • 9,500 IP phones installed delivering 1.2 inbound and 757,000 internal calls - each month
      • 56 x E1 trunks to existing DPNSS PBXs (1,700 channels), spread across 32 sites (Head Offices with approximately 9,500 users)
      • All traffic: PBX-to-PBX, PBX-to-IP-Phone and PBX/IP-Phone to PSTN will travel over a Cisco QoS-Enabled MPLS WAN
      • £125m in BT contract revenue over 5 years - Incremental pull through revenues
      • Abbey looking to extend its ICT capability into other areas of the banks
      BT successfully rolled out hosted VoIP to more than 700 sites in just five months
    • Why did Abbey choose hosted VoIP?
      • Abbey goal ‘to be the customers’ champion’. A service that stands out in the crowd
      • Problem - too many bespoke branch voice solutions and technologies
      • Abbey dealing with hundreds of contracts/3rd party providers
      • Ability to move staff limited by need to train on differing systems
      • Result
      • ‘ Back to branch’ strategy - One on One CRM application to 12,000 customer facing staff. Voice and data to the desk top
      • Single service from BT
      • Immediate convergence-based cost savings through lower maintenance and operational costs
      • Same telephony solution in each branch
      • Flexible IP infrastructure to meet demands
      BT is helping abbey run its business more effectively
    • Computer Weekly
    • Computer Weekly
    • It is one thing to sell technology…
      • … but quite another to deliver a quality service!
      • VoIP has suffered from the perception of poor quality in the past
      • Early deployments of MM VoIP taught us a lot about this!
      • Carrier services have to offer more to the customer than DIY…
      • So we:
        • Constantly stress the importance of QoS
        • On-line Management Information Reports
        • Developed performance monitoring tools and SLAs
        • Produced comprehensive performance reports for customers
        • Empowered customer users with the ability to help us track faults
      We give our customers the management information to optimise their network performance
    • Management information reports BT is helping its customers run their businesses more effectively
    • Performance monitoring
    • Performance monitoring - meeting SLAs
      • Packet loss
        • Calls with > 0.5% packet loss are flagged up
        • Site details, including CE router software versions, exact timings, and number of calls in total are recorded
      • Jitter
        • Calls with > 25 Jitter are flagged up on the report
    • Quality Reporting Tool - power to the people!
    • Fault identification
    • Combined Report - easy management
    • So, how are we performing?
      • With our largest customer, we are achieving figures like these (10/10/2003):
          • 1 in 2,500 packet loss greater than 0.5%
          • 1 in 70,000 calls with jitter greater than 25ms
          • Less than 1% of calls with a MOS score under 3.7
      • In all, we are producing and analysing more than 5Gb of data per day per customer
      • Exception reports are analysed from device used to number dialled and failure is localised and fixed
      High quality of service and powerful diagnostics
    • Hosted VoIP futures - technologies
      • Video IP phone
      • Instant messaging
      • Wireless IP phone
      • Colour softphone
      • Colour XML applications
    • Hosted VoIP futures - technologies IP Contact Centres
    • Hosted VoIP futures - technologies Hosted Call Recording
    • Centralised operator console BT is helping its customers run their businesses more effectively
    • Is abbey happy?
      • “Nobody had ever pulled off a programme on this scale in such a short time frame. We were a bank in a hurry and BT responded to that. We knew they could rise to the occasion. BT can marshal resources on a huge scale. Few organisations can match them.”
      • “This year alone the bank will save millions of pounds. The technology can deliver that quickly.”
      • Bill Gibbons, Director Technology Services and Support, abbey
    • Thank you Q & A
    • VoIP - Technology or Service ? Brian Levy Group Technology Officer, Service & Solutions
    • VoIP – Where is it happening ?
      • VoIP is only a technology, not a service
      • ‘ Best effort’ Internet voice is providing a low-cost alternative to today’s POTS, particularly attractive when users have a broadband Internet connection
      • In the enterprise space, VoIP is increasingly used to underpin convergent ICT solutions
      VoIP is only a technology; BT is focused on delivering services
    • Consumer VoIP as a cheap POTS alternative
      • Customers are reasonably happy with the cost and performance of today’s VoIP offerings. However.…
        • VoIP is not yet a mainstream application
        • In the absence of QoS management, performance is likely to deteriorate with mass market adoption
        • Customers tend to keep their POTS lines
        • Whilst ‘low price’ is a key driver, it isn’t the only factor
          • if ‘price’ and ‘price alone’ was the primary issue, mobile phones would never have caught on…
          • other factors contributing to the overall user ‘experience’ include
            • service features, convenience, quality, reliability, etc
      Why move to consumer VoIP when there are such competitive PSTN packages around?
    • Some of the challenges facing VoIP when used to replace POTS
      • Quality of Service
        • Uptime, voice quality, ease of use
        • Who does user call when it does not work?
      • User-community
        • Restricted to a closed user group of people who’ve installed a certain software client, or able to call anyone on the PSTN?
      • Scalability
      • Interoperability/inter-working
        • On-net, off-net, numbering, supplementary services & platforms
      • Regulatory considerations
        • Lifeline, emergency calls, lawful intercept
      Vonage is an equivalent price to BT Together option 3 for unlimited national calls
    • VoIP and BTs 21st Century Network
      • VoIP dovetails with the strategic goals of BTs 21st Century Network
      • 21CN will enable BT to
        • Deliver innovative products more rapidly
        • Improve the customer experience
        • Transform costs
      Speed to Market 21C Customer Experience Cost Transformation VoIP will underpin BT’s next generation of voice and multimedia services on a single converged platform, the 21CN
    • 21CN: Network convergence BT will eventually offer voice and multimedia on a single converged network ~30,000 Multi- Service Access Devices ~100 Metro Nodes ~10 Core Routers End Customer Internet Peering Data Centre International Networks Logical Nodes ~80,000 PCPs in the Access Network ~100,000 Remote Concs, DLAMS & Data Muxes ~1000 + Voice Switches and Data Cross Connects ~170 Core Switches (DMSU / NGS) Data Centre Logical Nodes Today Aggregation Service Edge Core Future
    • A new customer experience But it is not just about network convergence…. Network Convergence Network rationalisation Cost transformation Operator push
    • A new customer experience We will deliver innovative converged services in a way that is simple and complete Network Convergence Network rationalisation Cost transformation Operator push Customer Benefits Service Convergence Customer experience ‘ Offer Set’ approach Customer pull
    • Wholesale broadband growth
      • Orders > 45,000 per week (average of the last four weeks)
      • DSL market share of Broadband*
        • Total 57%
        • Q3 adds 77%
      • Retail market share of DSL 46%
      • 1Mb product launched
      • Broadband economics are on track
      * Including OLOs’ Midband customers (BT estimates) as at 31.12.03 End user connections as at February 2004 - 2 million Building a customer base for converged services
    • What is service convergence?
      • Bringing together the telephone, Internet, mobility and multimedia into a consistent easy-to-use service
      • A new customer experience framework for 21st century communications
      Is this the way …. A key component of the service will be device independence ?
    • Broadband, VoIP and the mobility network of the future
      • A broadband-connected WiFi ‘hub’ device is capable of providing a voice and data experience far beyond that of a 3G network today
      • Every home and office has the potential to be a ‘hotspot’ for a transformational set of converged services
        • fixed/mobile, voice/data/multimedia
        • WiFi-enabled devices with VoIP as the underlying voice technology
      Bluetooth/WiFi Public Internet Broadband access Broadband, VoIP and WiFi – fundamental enablers of BT’s future converged portfolio
    • ‘21st Century products’ to meet the life-style requirements of ‘21st Century customers’
      • A range of terminals based upon WiFi and VoIP technologies
        • Options to include colour displays, cameras, smart-card capability, etc
      • An intelligence layer providing a portfolio of converged services
        • Voice, data, Internet, ‘click-to-dial’ from UK and International Directories, collaborative working, messaging, ‘push-to-talk’, presence/location-based services, gaming/entertainment, personal address book, call management, secure online payments, etc
      • Single authentication service
        • Personalised, easy-to-use, trusted and flexible
        • Quality-assured
        • Value-for-money
      A portfolio of converged services, underpinned by VoIP
    • Home Worker package
      • Secure Connectivity (Security and Encryption) back to the office environment
        • supports both voice and data, allowing access to the company internal phone, email and data services
      • Supports outbound calling with billing to the company
      • Full directory enablement, presence - and location-aware
      • Office feature phone access
      Today BT is a market leader in home working over VPN
    • Business Services
      • Businesses are currently using VoIP as a voice and data convergence technology (network convergence)
      • Generally, multimedia and advanced services are not the initial driver for the deployment of VoIP
      • Businesses would like a fully-converged voice/data infrastructure with an advanced set of services affording real business benefits
      • BT is a market leader in providing RFC 2547 VPNs…
      • … the execution of our ICT strategy will see us build upon this capability to develop a suite of truly transformational converged service offers
      • These will be leveraged from BT’s common intelligence layer which is a key attribute of our new 21CN infrastructure
      We are well positioned to grow profitable business as convergence accelerates
    • Conclusions
      • VoIP is a technology, not a service
      • Over time best-effort ‘Internet voice’ will not meet customer aspirations for future converged services
      • BT’s broadband rollout, WiFi and VoIP technology enables the fixed infrastructure to become the mobility network of the future
      • This infrastructure can deliver a data and voice customer experience far beyond that of any 3G network
      • For the business marketplace BT is developing a set of directory and presence enabled mobile/fixed voice/data services
      • For BT VoIP is a key technology driving both the both network and service convergence and enabling the creation of a whole new set of new and exciting services for the customer
      Today’s announcements are just the start…
    • Thank you Q & A
    • VoIP Industry Analyst Briefing March 11, 2004 Jeff Richardson Ian Morfett John Blake David Axam Brian Levy Nicola Rossi
    • VoIP Industry Analyst Briefing March 11, 2004 Jeff Richardson Ian Morfett John Blake David Axam Brian Levy Nicola Rossi
    • VoIP Industry Analyst Briefing March 11, 2004 Jeff Richardson Ian Morfett John Blake David Axam Brian Levy Nicola Rossi