Current Cost Financial Statements for 2008 including Openreach

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					Current Cost Financial Statements for 2008
including Openreach Undertakings


Statement by Ofcom
Ofcom Statement on BT’s Current Cost Financial Statements 2007/08


                                                                                                           1.5   As a result of changing its calculation methodology, BT’s previously reported revenues have
Introduction
                                                                                                                 been significantly reduced by £143m (net) and restated for the comparative year 2006/07
1     The purpose of this Statement is to allow Ofcom to comment on the data in, the notes to or                 in the following markets: Traditional Interface Symmetric Broadband Origination (up to
      the presentation of any or all of the regulatory Financial Statements and/or the Accounting                8Mbit/s) and (above 8Mbit/s to 155Mbit/s), Technical Areas (Interconnect Circuits),
      Documents prepared and published by BT (SMP Condition OA6 (c)).                                            Wholesale Trunk Segments and Technical Areas (Point of Handover).The data contained in
                                                                                                                 BT’s RFSs are a key input to our analysis as part of our decisions on prices for products
1.1   Good quality regulatory financial information is a vital source of evidence for us and informs             including leased lines. Therefore, the revised volume and revenue numbers will have an
      a range of decisions and actions such as;                                                                  impact on proposals for new charge controls effective from October.

       - ensuring BT complies with certain conditions placed on it in markets where BT has                 1.6   BT’s 2007/08 results in leased line markets now reflect the revised revenue calculation
      significant market power. These conditions include obligations not to discriminate in favour               methodology. BT has also updated the supporting documentation (the Accounting
      of its downstream businesses and to orientate prices to the costs of provision;                            Documents) to reflect this change so that users can understand the approach followed.
       - providing source financial data for disputes and investigations of alleged anti-competitive
      practices; and                                                                                       1.7   We recognise that BT has deployed considerable resource in improving the methodology
       - setting and monitoring price controls.                                                                  underpinning the revised revenue calculations. It is however important that we fully
                                                                                                                 understand the changes made by BT, the rationale for the new basis of preparation of these
1.2   We believe it is appropriate to use this statement to draw users attention to matters of                   revenue numbers and can confidently apply the new data in our pricing decisions. To assist
      regulatory significance where Ofcom is actively engaged with BT.                                           this process BT has provided a report on the issue including analysis of the restated 2006/07
                                                                                                                 data.
Preparation and reporting of revenues for partial private circuits (PPCs)
                                                                                                           1.8   Given the importance of this issue, we have also commissioned an independent consultant
1.3   On 28 July BT issued a briefing explaining that the regulatory Financial Statements (RFSs)                 (Analysys Mason) to test the accuracy of the new calculations, review and comment on the
      for 2007/08 will not be published until the autumn. BT is required to publish these                        volume measures used, assess the capability of BT’s systems and make recommendations (if
      Statements within four months of the financial year end (by 31 July). The reason given by BT               necessary) for further improvements. The results of this independent study will be made
      for this delay was the need to revise the methodology used to calculate the turnover of                    available as part of our planned consultation on leased line charge controls due for
      partial private circuits.                                                                                  publication later this year.

1.4   We had already identified some concerns in 2007 about the approach used by BT to                     Alternative Interface Symmetric Broadband Origination (AISBO) Market
      calculate PPC revenues as part of our review “Replicability and the PPC Charging Model” 1 .
      These included, for example, difficulty in validating the volumes used for internal services
                                                                                                           Restatement
      and the omission of transfer charges for the internal provision of OSP and other services.           1.9   We also note that the internal revenues attributable to AISBO services have also been
      BT’s revised methodology should also capture and correct for these “Replicability” reporting               restated (increased) in 2006/07. This will impact on our proposed price modelling work and
      issues.                                                                                                    further information and explanations will be sought from BT to understand the basis of this
                                                                                                                 calculation.


1
 See Annex 13 of the Business Connectivity Market Review – 17 January 2008.
http://www.ofcom.org.uk/consult/condocs/bcmr/. This paper was originally published in 2007.




                                                                                                       i
Ofcom Statement on BT’s Current Cost Financial Statements 2007/08


Disclosure of 21CN costs                                                                                           consultation will also include proposals for other improvements as a result of our work on
                                                                                                                   the topics mentioned above and other findings from a review of the 2007/08 RFSs.
1.10 This is the first set of RFSs which disclose the costs of BT’s next generation network (21CN).
     This project is still in its early stages of deployment and we expect to review and monitor             1.16 We will also review and consult on changes to the reporting of leased line services following
     BT’s costing methodologies as more is understood about the cost drivers and services                         publication of our Business Connectivity Market Review later this year. This review will need
     delivered by this new technology. At this time we believe transparency of 21CN costs and                     to take account of revised market definitions and also recommendations for improved
     the way in which these costs are attributed to regulated services is important so that                       disclosure, where necessary, of relevant information where shortfalls have been found.
     stakeholders are provided with relevant information on the impact of 21CN costs on
     regulated services and to inform debate on future developments.

Attribution of low user scheme costs
1.11 In accordance with a Direction made by Ofcom, Low User Scheme costs as calculated by BT
     are excluded from all SMP wholesale markets in 2007/08. We note however that BT has
     accounted for this cost in the Openreach P&L Statement in the other Openreach market
     category.

Access network asset valuation (PIPeR)
1.12 This is the first set of regulatory financial statements that incorporates current cost asset
     valuations of access assets using a new management information system (PIPeR). BT
     describes this change in section 8 (item 4) which explains that this new data is more
     accurate and has identified additional assets not present in the previous survey data. We
     believe that the use of this new data is an important improvement to the quality of the
     financial statements and we will continue to work with BT to track the development of
     PIPeR and further improve the valuation methodology.

1.13 This change has no impact on the regulatory asset value (RAV) used to determine BT’s asset
     base for pricing decisions although it has resulted in an increase in access asset values (and a
     one-off holding gain in 2007/08).

Next steps
1.14 Our main area of focus will be to review the revised methodology BT has used to calculate
     PPC revenues taking account of additional information provided by BT and our own
     independent study. This work will inform our leased line charge control project.

1.15 We also plan to consult on other known changes needed to the RFSs for 2008/09 including
     new reporting formats for geographic markets for wholesale broadband access. This




                                                                                                        ii
Contents
Contents
Current Cost Financial Statements (Annex - see note (z)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page                                         Current Cost Financial Statements (Annex - see note (z)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page

Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1     Section 4.9 - Technical Areas (Point of Handover) (Annex 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 1 - Introduction to accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3                        Section 4.10 - Asymmetric Broadband Origination (Annex 12). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
                                                                                                                                                                              Section 4.11 - Broadband Conveyance in the UK (Annex 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
  Section 1.1 - Purpose & Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
                                                                                                                                                                            Section 5 - Review of Retail Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 2 - Summary of Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
                                                                                                                                                                              Section 5.1 - Financial Performance & Attribution of Current Costs in Retail Markets (Annex 5B) . . . . .66
  Section 2.1 - Consolidated Performance Summary (Annex 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8                                             Section 5.2 - Attribution of Retail Mean Capital Employed (Annex 6B) . . . . . . . . . . . . . . . . . . . . . . . . . .68
  Section 2.2 - Regulatory Financial Review (Annex 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9                                      Section 5.3 - Review of Retail Markets (Annex 10 & 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
  Section 2.3 - Attribution of Wholesale Current Costs 2008 (Annex 5A) . . . . . . . . . . . . . . . . . . . . . . . . . 12
     Section 2.3.1 - Notes on Wholesale P&L sector costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13                                       Section 6 - Other information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
  Section 2.4 - Attribution of Wholesale Current Costs 2007 (Annex 5A)(Restated) . . . . . . . . . . . . . . . . . 14                                                         Section 6.1 - Network Activity Statement - Consolidated 2008 (Annex 15) . . . . . . . . . . . . . . . . . . . . . .72
  Section 2.5 - Attribution of Wholesale Current Cost Mean Capital Employed 2008 (Annex 6A) . . . . . . 15                                                                    Section 6.2 - Network Activity Statement - Consolidated 2007 (Annex 15)(Restated) . . . . . . . . . . . . . .75
     Section 2.5.1 - Notes on Wholesale MCE sector costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16                                           Section 6.3 - Calculation of FAC based on component costs and usage factors (Annex 16) . . . . . . . . . .78
  Section 2.6 - Attribution of Wholesale Current Cost MCE 2007 (Annex 6A)(Restated) . . . . . . . . . . . . . 17                                                                 Section 6.3.1 - Calculation of FAC based on component costs and usage factors 2008 . . . . . . . . . .78
Section 3 - Review of Access Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18                              Section 6.3.2 - Calculation of FAC based on component costs and usage factors 2007 . . . . . . . . . .83
  Section 3.1 - Financial Performance in Access Markets (Annex 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                       19        Section 6.4 - BT Network Services Reconciliation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
  Section 3.2 - Access Markets Review (Annex 10 & 14). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  20           Section 6.4.1 - BT Network Services Reconciliation 2008 (Annex 17) . . . . . . . . . . . . . . . . . . . . . . . .88
     Section 3.2.1 - Access Markets Group Level Review (Annex 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                           20           Section 6.4.2 - BT Network Services Reconciliation 2007 (Annex 17) (Restated). . . . . . . . . . . . . . . .91
     Section 3.2.2 - Access Market Level Financial Review (Annex 14) . . . . . . . . . . . . . . . . . . . . . . . . . .                                            21      Section 7 - Reconciliation Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
  Section 3.3 - Wholesale residential analogue exchange line services (Annex 11). . . . . . . . . . . . . . . . . .                                                 25
  Section 3.4 - Wholesale business analogue exchange line services (Annex 11) . . . . . . . . . . . . . . . . . . .                                                 26        Section 7.1 - BT Reconciliation Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
  Section 3.5 - Wholesale business ISDN2 exchange line services (Annex 11) . . . . . . . . . . . . . . . . . . . . . .                                              27           Section 7.1.1 - BT Reconciliation Statement 2008 (Annex 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
  Section 3.6 - Wholesale residential ISDN2 exchange line services (Annex 12) . . . . . . . . . . . . . . . . . . . .                                               28           Section 7.1.2 - BT Reconciliation Restatement 2007 (Annex 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
  Section 3.7 - Wholesale business ISDN30 exchange line services (Annex 12). . . . . . . . . . . . . . . . . . . . .                                                29           Section 7.1.3 - BT Reconciliation Statement MCE (Annex 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
  Section 3.8 - TISBO (up to and including 8Mbit/s) (Annex 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                      30        Section 7.2 - BT Inter-market turnover reconciliation Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
  Section 3.9 - TISBO (above 8Mbit/s up to and including 155 Mbit/s) (Annex 11) . . . . . . . . . . . . . . . . .                                                   36           Section 7.2.1 - BT Inter-market turnover reconciliation 2008 (Annex 21) . . . . . . . . . . . . . . . . . . . . .98
  Section 3.10 - AISBO (Annex 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   40
                                                                                                                                                                                 Section 7.2.2 - BT Inter-market turnover reconciliation 2007 (Annex 21)(Restated) . . . . . . . . . . . .99
  Section 3.11 - Wholesale local access (Annex 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             43
                                                                                                                                                                            Section 8 - Notes to the Financial Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 4 - Review of Other Wholesale Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
                                                                                                                                                                              Section 8.1 - Notes to the Financial Statements (Annex 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
  Section 4.1 - Financial Performance in Other Wholesale Markets (Annex 8) . . . . . . . . . . . . . . . . . . . . . 45
  Section 4.2 - Review of Other Wholesale Markets (Annex 10 & 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46                                                Section 9 - Price Control Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
     Section 4.2.1 - Market Group Level Review (Annex 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46                                            Section 9.1 - Price Controls in Wholesale Markets (Annex 24). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
     Section 4.2.2 - Market Level Financial Review of Other Wholesale SMP Markets (Annex 14) . . . . . 47                                                                     Section 9.2 - Price Controls in Wholesale Markets (Annex 25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
  Section 4.3 - Call origination on fixed public narrowband networks (Annex 13) . . . . . . . . . . . . . . . . . . 53
  Section 4.4 - Local-tandem conveyance and transit on fixed public narrowband networks (Annex 13) 55                                                                       Section 10 - Statement of Responsibility & Audit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
  Section 4.5 - Single Transit on Fixed Public Narrowband Networks (Annex 13) . . . . . . . . . . . . . . . . . . . 56                                                        Section 10.1 - Statement of Responsibility (Annex 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
  Section 4.6 - Technical Areas (Interconnect Circuits) (Annex 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57                                            Section 10.2 - Report of the Independent Auditors (Annex 23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
  Section 4.7 - Fixed Call Termination (Annex 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
  Section 4.8 - Wholesale Trunk Segments (Annex 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

                                                                                                                                                                        1
Contents

Current Cost Financial Statements (Annex - see note (z)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page
Section 11 - Openreach information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
  Section 11.1 - Openreach P&L Statement 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  115
  Section 11.2 - Openreach P&L Restatement 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   116
  Section 11.3 - Openreach MCE Statement 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   117
  Section 11.4 - Openreach MCE Statement 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   118
  Section 11.5 - Reconciliation of Openreach P&L Statement 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             119
  Section 11.6 - Reconciliation of Openreach P&L Restatement 2007 . . . . . . . . . . . . . . . . . . . . . . . . . .                               120
  Section 11.7 - Reconciliation of Openreach MCE Statement 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             121
  Section 11.8 - Reconciliation of Openreach MCE Statement 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             122
  Section 11.9 - Openreach Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      123
Section 12 - Accounting Documents and other documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
  Section 12.1 - Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
  Section 12.2 - Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129


(z) The form and content as detailed by Ofcom in their final statements and notifications dated 31 August
2005, 16 August 2006, 30 May 2007 and 26 June 2008.




                                                                                                                                                          2
Section 1 - Introduction to accounts
Section 1 - Introduction to accounts




                                              SECTION 1
                                       INTRODUCTION TO ACCOUNTS




                                                 3
Section 1 - Introduction to accounts
Section 1.1 - Purpose & Content
                        Content                                                                          In addition to the information in the Regulatory Financial Statements, Ofcom also requires BT to
                                                                                                         provide additional detailed information to enable Ofcom to regulate effectively and efficiently. This
                                                                                                         additional information is not published by either BT or Ofcom nor is it subject to any independent
Introduction: The Regulatory Regime                                                                      examination.
BT operates within a regulatory regime based on five EC Communication Directives implemented in
April 2002. The Directives, which aim to create harmonised regulation of the electronic                  SMP Markets
communications markets throughout the Community, were transposed into UK law in the
                                                                                                         As referred to above, Ofcom determined that BT has SMP in a number of specified markets. The SMP
Communications Act 2003 (“The Act”). Ofcom use the Act to issue formal Directions on all operators
                                                                                                         status of BT in each market is subject to periodic review by Ofcom, and the requirement to publish
with Significant Market Power (“SMP”) in the UK. The current regulatory framework came into effect
                                                                                                         financial and other relevant information in relation to each market where BT has SMP may change as a
on the 25 July 2003.
                                                                                                         result of these reviews.
Ofcom undertook reviews of communications markets in the UK to determine whether any operators
                                                                                                         The markets in which BT has SMP in the period covered by the Current Cost Financial Statements for
had SMP in specified markets. Following those reviews BT was deemed to have SMP in a number of
                                                                                                         2008 and grouped into groups of markets as defined by Ofcom is detailed below:
wholesale and retail markets, as described below. Where a communications provider (CP) has SMP, the
Act enables Ofcom to impose one or more obligations in relation to each market, including:               Wholesale Access markets:
   • Accounting separation - which requires the operator to maintain accounting systems such that            • Wholesale residential analogue exchange line services*
     the financial results of each SMP market can be separately presented and that costs relating to         • Wholesale business analogue exchange line services*
     products and markets are allocated in a transparent and appropriate way. Accounting separation
     is also used to ensure that there is no undue discrimination.                                           • Wholesale business ISDN2 exchange line services*
   • Cost accounting - Cost accounting obligations in relation to both wholesale and retail activities       • Wholesale residential ISDN2 exchange line services
     are to meet the requirements where there is an obligation in relation to price controls, cost           • Wholesale business ISDN30 exchange line services
     orientation or cost recovery. These requirements have separate cost accounting obligations for          • Traditional interface symmetric broadband origination (up to and including 8Mbit/s)*
     wholesale and retail markets. Wholesale activities include products and services sold to CPs such
     as the provision of network access, the use of the network and the availability of various              • Traditional interface symmetric broadband origination (above 8Mbit/s up to an including
     facilities. Retail activities are those that relate to products and services sold to end-users.           155Mbit/s)*
     Obligations may include price controls for specified SMP products, cost-orientation of prices for       • Alternative interface symmetric broadband origination (all bandwidths)*
     SMP products and the recovery of costs for the purpose of demonstrating transparency.                   • Wholesale local access*
   • Publication - The annual Regulatory Financial Statements satisfy the obligation relating to
                                                                                                         Other Wholesale markets:
     publication of financial information in relation to SMP markets. The publication of information
     relating to SMP markets is intended to provide public assurance that BT has complied with its           •   Call origination on fixed public narrowband networks*
     cost accounting and accounting separation obligations. Ofcom also imposes certain audit                 •   Local-tandem conveyance and transit on fixed public narrowband networks*
     requirements in respect of the published financial statements.
                                                                                                             •   Single transit on fixed public narrowband networks*
The prescribed form and content of the published Regulatory Financial Statements is reviewed regularly       •   Technical areas (Interconnect Circuits)*
by Ofcom, in the light of changes in the regulatory regime and the needs of stakeholders. The relevant
Ofcom documentation is listed below and together form “the Final Statements and Notifications”               •   Fixed call termination*
under the requirements of which the Current Cost Financial Statements for 2008 have been prepared.           •   Wholesale trunk segments*
   • “The Regulatory Financial Reporting Obligations on BT and Kingston Communications” issued               •   Technical areas (Point of Handover)*
     22 July 2004                                                                                            •   Asymmetric broadband origination in the UK
   • “Changes to BT’s Regulatory Financial Reporting Framework” of 31 August 2005                            •   Broadband conveyance in the UK
   • “Changes to BT’s Regulatory Financial Reporting and Audit Requirements” issued 16 August            Retail Markets:
     2006
   • “Changes to BT’s Regulatory Financial Reporting and Audit Requirements” issued 30 May 2007              • Residential analogue exchange line services in the UK
   • “Changes to BT’s 2007/08 Regulatory Financial Statements” issued 26 June 2008                           • Residential local calls in the UK
                                                                                                             • Residential national calls in the UK



                                                                                                     4
Section 1 - Introduction to accounts
    •   Residential IDD calls category A routes (retail IDD routes which are competitive) in the UK           1. Regulatory Accounting Principles - which means the principles applied or used by BT in the
    •   Residential IDD calls category B routes (retail IDD routes which are not competitive) in the UK          preparation of the Current Cost Financial Statements, for example that all costs should be fully
                                                                                                                 allocated.
    •   Residential calls to mobiles in the UK
    •   Residential operator assisted calls in the UK                                                         2. Attribution Methods - which means a high level summary of the practices used by BT to attribute
                                                                                                                 revenue (including appropriate Transfer Charges), costs (including appropriate Transfer Charges)
Wholesale markets which have both cost accounting and accounting separation requirements have                    assets and liabilities to activities or, insofar as those activities have been aggregated to wholesale
been marked with * in the list above. For these wholesale markets, the Current Cost Financial                    segments or retail segments in a given Market or Technical Area (as applicable), to each wholesale
Statements also include details of costs and charges for individual services within each market. The             segment or retail segment.
remaining wholesale markets have accounting separation requirements only. All retail markets have
                                                                                                              3. Transfer Charge System Methodology - which means the methodology of the system employed by
separate retail cost accounting obligations.
                                                                                                                 BT that enables an activity to use a service from another activity and to account for it as though it
                                                                                                                 had purchased that service from an unrelated party (including accounting for it at an appropriate
Key Regulatory Changes                                                                                           amount).
The key regulatory changes affecting / expected to affect the regulatory accounts in 2008/9 are               4. Accounting Policies - which means the manner in which the requirements of the Companies Act
summarised below:                                                                                                1985 as amended by the Companies Act 1989 and Article 4 of the IAS Regulation and BT’s
    • “Review of the Wholesale Broadband Access Markets” final statement published May 2008. The                 accounting policies whenever not superseded by the Regulatory Accounting Principles, are
      review resulted in the deregulation of 70% of the UK wholesale broadband market. The impact                applied by BT in each of the Current Cost Financial Statements. This document details the
      on the regulatory accounts of this review will be reflected in the Current Cost Financial                  accounting policies adopted in preparing the underlying financial information.
      Statements 2009.                                                                                        5. Long Run Incremental Cost (“LRIC”) Methodology - means the long run incremental cost
    • Openreach Financial Framework Review first consultation published May 2008. The review is                  principles, procedures and processes which form the framework under which long run incremental
      expected to be completed in 2008/09 and any newly proposed regulatory measures should take                 costs are determined by BT. This document sets out the principles followed to derive the long run
      effect during 2009. This is expected to impact the pricing of Wholesale Line Rental (WLR) and              incremental network costs.
      Local Loop Unbundling (LLU) and related services, potentially replacing the existing price
                                                                                                              Insofar as there is any inconsistency between any or all of the Primary Accounting Documents, the
      ceilings with price control(s).
                                                                                                              Primary Accounting Documents shall have the order of priority as listed above.
    • Business Connectivity Market Review consultation published July 2008, final statement
      expected later in 2008. This is expected to impact the pricing of wholesale ethernet (Wholesale         The Current Cost Financial Statements for the year ended 31 March 2008 are prepared in accordance
      Extension Services (WES), Backhaul Extension Services (BES) ) as sold by Openreach and Partial          with the Primary Accounting Documents dated 16 September 2008 (“the Primary Accounting
      Private Circuits (PPCs)                                                                                 Documents”) and the Secondary Accounting Documents dated 16 September 2008 (“the Secondary
                                                                                                              Accounting Documents”).
    • Fixed Wholesale Narrowband and Fixed Retail Narrowband market reviews are expected in
      2008/09 and will analyse the markets containing wholesale and retail lines and calls,
      determining market power and setting any appropriate SMP conditions. A review of the
                                                                                                              Re-statement of Prior Year Comparatives
      Network Charge Control (NCC) is expected to follow in 2009.                                             The Current Cost Financial Statements include comparative information for SMP Markets for the year
                                                                                                              ended 31 March 2007 first published on 23 August 2007 which has been re-stated to reflect:
Accounting Documents
                                                                                                                  • additional service granularity and revised revenue calculations in certain markets following
The Current Cost Financial Statements are prepared in accordance with the Accounting Documents,                     Ofcom’s replicability review;
where the Accounting Documents means together the Primary Accounting Documents, the Secondary                     • exclusion of non chargeable in-span connection services from the Technical Areas (Interconnect
Accounting Documents and either the Wholesale Catalogue or the Retail Catalogue as appropriate. The                 Circuits) market; and
Primary Accounting Documents set out the framework under which the statements are to be prepared.
The Secondary Accounting Documents (namely the Detailed Attribution methods (DAM), the Detailed                   • the restatement of Openreach’s segmental results for 2007 in BT Group’s Annual Report
Valuation Methodology (DVM) and the Long Run Incremental Costs: Relationships and Parameters                  These restatements have been described in notes 2 and 3 in Section 8.1. All comparative information
(R&P)) set out more detailed descriptions of the policies, methodologies, systems, processes and              for the SMP Markets for the year ended 31 March 2007 are prepared in accordance with the Primary
procedures for deriving and calculating the costs, revenues, assets and liabilities underlying the Current    Accounting Documents, DAM, DVM & R&P dated 21 August 2007, except where restated as described
Cost Financial Statements.                                                                                    in notes 2 and 3 in Section 8.1.
The Primary Accounting Documents set out the:




                                                                                                          5
Section 1 - Introduction to accounts
Basis of preparation                                                                                          As noted above, the SMP Market Statements for the year ended 31 March 2007 have been prepared in
                                                                                                              accordance with the detailed attribution processes, valuation methods and calculations for long run
The ultimate holding company of the BT Group is BT Group plc (referred to together with its subsidiary        incremental costs and stand alone costs set out in the DAM, DVM and R&P all dated 21 August 2007,
and associated undertakings and joint ventures as the “Group” or “BT”). Substantially all the businesses      except where restated as described in notes 2 and 3 in Section 8.1 of these financial statements.
and activities of the Group are carried out by British Telecommunications plc (the “Company”), its
                                                                                                              BT seeks to review and update non-financial data used within the attribution models at least annually.
subsidiaries, associated undertakings and joint ventures.
                                                                                                              Certain non-financial data employed for the purposes of the Current Cost Financial Statements has
The Company has by agreement with BT Group plc, prepared the Current Cost Financial Statements in             been determined by sampling techniques appropriate to that data. BT reviews and updates attribution
accordance with the Primary Accounting Documents, by disaggregating balances recorded in the                  methods and non-financial data sources on an ongoing basis and, where deemed appropriate, will
general ledgers and other accounting records of the Group maintained in accordance with Article 4 of          make improvements. Depending on the nature of the change, this may require Ofcom’s prior consent.
the IAS Regulation and the Companies Act 1985 and used, in accordance with that Act, for the
                                                                                                              BT’s costing systems used in the preparation of the Current Cost Financial Statements to attribute
preparation of the Group consolidated Statutory Financial Statements for the years ended 31 March
                                                                                                              revenues, costs, assets and liabilities to SMP Markets take as their starting point the general ledgers of
2008 and 31 March 2007 respectively (“the Statutory Financial Statements”).
                                                                                                              the Group which are maintained to the nearest penny. This level of granularity is maintained
The basis of preparation and accounting policies adopted in the Group Statutory Financial Statements          throughout the costing process. However, to be consistent with the presentation of the results of the
are detailed in the Group Annual Report dated 14 May 2008.                                                    Group in the Statutory Financial Statements, the results for each SMP Market are presented in figures
                                                                                                              rounded to the nearest whole million pounds. Due to the level of granularity of reporting (such as the
The structure of the Markets defined by the Final Statements and Notifications does not correspond to         disaggregation of costs by sector within each profit and loss account) and in order to present the most
the way in which the Group is organised for management and accounting purposes. The Current Cost              appropriate view of individual sector costs and the appropriate return for each market it has been
Financial Statements are therefore produced by overlaying the requirements of the regulatory                  necessary to introduce separate “rounding” figures in the profit and loss accounts. The same principle
reporting framework on the management and accounting structure of the Group.                                  has been adopted in all statements in order to achieve internal consistency.
As far as possible, revenues, costs, assets and liabilities are directly associated with a product group or
component using information held within the Group’s accounting records and are directly attributed to         Openreach
that item. Where no such direct association is possible, the remaining revenues, costs, assets and            The Current Cost Financial Statements for 2008 also include financial information to meet the
liabilities are apportioned between two or more markets, services or components using a fully allocated       requirements set out in the Undertakings (section 5.31) agreed between BT and Ofcom effective from
accounting system and employing apportionment bases that reflect as far as possible the causality of          22 September 2005, specifically the need to disclose the results of Openreach separately and to provide
the revenue, cost, asset or liability.                                                                        a reconciliation to the Openreach segmental information shown in the Group Consolidated Statutory
The amounts of revenue, cost, and capital employed attributed to markets, services and components             Final Statements for the year ended 31 March 2008. The form, content and basis of preparation of the
depend critically on the methods of attribution adopted. Typically, in a fully allocated accounting           financial results of Openreach follow, to the fullest extent possible, those used in the preparation of the
system, a range of attribution methods is available. In selecting appropriate attribution methods and         Current Cost Financial Statements. These financial results have been included in Section 11 within the
appropriate non-financial data for use within the attribution models employed in the production of            Current Cost Financial Statements 2008 and related supporting documentation is included in Section 6
these Current Cost Financial Statements, BT has had to make certain estimates and exercise its                of the Primary Accounting Documents dated 16 September 2008.
judgement, having regard to the regulatory accounting principles, including cost causality and                The Openreach financial results include comparative information for SMP Markets for the year ended
objectivity, in order to comply with the requirements of the Primary Accounting Documents. The                31 March 2007 first published on 23 August 2007 which has been re-stated to reflect the restatement
detailed processes by which revenues, costs and capital employed for the year ended 31 March 2008             of Openreach’s segmental results in BT Group’s Annual Report as described in note 3 on page 101. All
are attributed to SMP Markets is set out in the DAM dated 16 September 2008. The Current Cost                 comparative information relating to the Openreach financial results for the year ended 31 March 2007
Financial Statements include the current cost adjustments prepared under the financial capital                have been prepared in accordance with the Primary Accounting Documents dated 21 August 2007,
maintenance convention, including adjustments to historical cost depreciation and fixed assets to             except where restated as described in note 3 on page 101.
reflect current values. The valuation methods applied for the year ended 31 March 2008 are set out in
the DVM dated 16 September 2008. The detailed methods by which the long run incremental costs and
stand alone costs have been calculated are set out in the R&P dated 16 September 2008.
BT has prepared the Current Cost Financial Statements for the year ended 31 March 2008 using the
Wholesale Network Components listed in Annex B of the Primary Accounting Documents dated 16
September 2008. For the prior year ended 31 March 2007 the Financial Statements have been
prepared using the Wholesale Network Components listed in Annex B of the Primary Accounting
Documents dated 21 August 2007. This list remains under continual review with Ofcom and is updated
accordingly.



                                                                                                          6
Section 2 - Summary of Financial Performance
Section 2 - Summary of Financial Performance




                                            SECTION 2
                                SUMMARY OF FINANCIAL PERFORMANCE




                                               7
Section 2 - Summary of Financial Performance
Section 2.1 - Consolidated Performance Summary (Annex 3)
                                                                           CCA      CCA return
                                                                      operating         before   Return on              Return
For the year ended 31 March 2008                           Turnover       costs       taxation    turnover     MCE     on MCE
                                                                £m          £m             £m            %      £m           %
Markets
Access Markets                                               4,746         3,540        1,206      25.4 %    11,146    10.8 %
Other Wholesale Markets                                      1,907         1,267          640      33.6 %     2,555    25.0 %
Retail Markets                                               3,327         2,776          551      16.6 %      (268)    n/a
                                                             9,980         7,583        2,397      24.0 %    13,433    17.8 %

Residual Activities
Wholesale residual activities                                3,339       3,100            239       7.2 %       543    44.0 %
Retail residual activities                                  13,774      13,302            472       3.4 %     3,100    15.2 %
                                                            17,113      16,402            711       4.2 %     3,643    19.5 %

Adjustments                                                      0            (1)           1          n/a        0        n/a

Total Markets & Activities                                  27,093      23,984          3,109      11.5 %    17,076    18.2 %



                                                                           CCA      CCA return
                                                                      operating         before   Return on              Return
Restated for the year ended 31 March 2007                  Turnover       costs       taxation    turnover     MCE     on MCE
                                                                £m          £m             £m            %      £m           %
Markets
Access Markets                                               4,684         3,831          853      18.2 %    11,186     7.6 %
Other Wholesale Markets                                      2,124         1,551          573      27.0 %     2,757    20.8 %
Retail Markets                                               3,401         2,970          431      12.7 %      (413)    n/a
                                                            10,209         8,352        1,857      18.2 %    13,530    13.7 %

Residual Activities
Wholesale residual activities                                3,772       3,395            377      10.0 %       735    51.3 %
Retail residual activities                                  13,762      13,370            392       2.9 %     3,867    10.2 %
                                                            17,534      16,765            769       4.4 %     4,602    16.7 %

Adjustments                                                     (1)           6            (7)         n/a       (1)       n/a

Total Markets & Activities                                  27,742      25,123          2,619       9.5 %    18,131    14.5 %




                                                                       8
Section 2 - Summary of Financial Performance
Section 2.2 - Regulatory Financial Review (Annex 4)
              Regulatory Financial Review (Annex 4)                                                                new charge controls for Wholesale Line Rental (WLR), unbundled local loops (LLU) and related
                                                                                                                   services). This review is expected to be completed in 2008/09 and any newly proposed
                                                                                                                   regulatory measures should take effect during 2009.
Regulatory Financial Review
The regulatory financial review is intended to assist the user’s understanding of the regulatory financial   Wholesale Broadband
statements, and focuses on those matters that are relevant to the users of the information, including        On 21 May 2008, Ofcom published their final statement on the Wholesale Broadband Access Market
accounting policies that are key to the understanding of performance.                                        Review. This resulted in the deregulation of 70% of the UK wholesale broadband market. Ofcom have
The review explains the main factors that underlie each market or groups of markets; in particular those     found that there is no Significant Market Power (SMP) in "Market 3", a geographic market defined on
that have changed or are expected to change in the future. The review includes explanations of new           the basis of BT exchange areas where there is strong network competition. The markets defined by
products and services. This is to assist a user of the financial statements to understand the dynamics of    Ofcom and fixed until the next market review are:
the products and services in each market and the main influences on financial performance and how               • Market 3, covering 1197 exchange areas and 69.2% UK premises, where BT and at least three
these interrelate.                                                                                                other network operators (i.e. LLU operators or cable) are present; BT no longer has SMP.
These regulatory financial reviews have been provided at the level of groupings of markets and then by          • Market 2, covering 670 exchange areas and 13.7% UK premises, where BT and one or two other
individual markets in sections 3 to 5.                                                                            operators have a presence; BT continues to have SMP.
                                                                                                                • Market 1, covering 3720 exchange areas and 16.4% premises, where BT is the only operator; BT
Regulation in the UK                                                                                              continues to have SMP.

Pricing Regulation
                                                                                                             Regulatory Valuation of Copper-Based Local Access Network Assets
    • Retail Price Control - BT is no longer subject to retail price controls covering public-switched
      telephony services. Other wholesale services continue to be subject to price controls                  In August 2005, Ofcom introduced an alternative methodology for determining its view of the current
                                                                                                             cost regulatory asset value of the copper-based local access network. This methodology, which results
    • Network Charge Control (NCC) - BT operates under interconnection agreements with most other            in a lower valuation, is used only by Ofcom for regulatory purposes and is not reflected in the
      Communication Providers (CPs). Our charges for a range of interconnect services are controlled         methodologies employed by BT in producing the Current Cost Financial Statements or required within
      by Ofcom, under the NCC regime. These controls are designed to ensure that our charges are             the asset values of the Group Statutory Financial Statements. These changes were reflected in revised
      reasonably derived from costs, plus an appropriate return on capital employed. Depending on            prices for WLR and LLU announced in late 2005 and are being used in the ongoing negotiations with
      the degree of competition, charges are cap controlled each year by RPI (Retail Price Index)            Ofcom on Openreach's New Pricing Framework.
      minus X for services Ofcom considers unlikely to become competitive in the near future, and
      safeguard cap controlled (ie no increases above RPI) for services likely to become competitive. (X     It is estimated that this regulatory adjustment will reduce the current cost regulatory access asset
      is a number specific to a particular market, indicating the permitted change in controlled prices      valuation at the end of the 2008 financial year by about £550m. It should be noted; however, that, as
      relative to the rate of inflation.) The current NCC period began on 1 October 2005 and will last       agreed with Ofcom, the Current Cost Financial Statements for 2008 have not implemented the Ofcom
      until 30 September 2009. BT must notify Ofcom and other CPs if it intends to amend existing            methodologies and therefore have not adjusted the value of Copper assets to Ofcom’s assessed
      charges or offer new services.                                                                         Regulatory Asset Valuation.
    • Other charge controls - PPCs (Partial Private Circuits) are leased lines that BT sells to other
      network operators. On 1 October 2004, Ofcom introduced a PPC charge control to replace the             BT Undertakings under the Enterprise Act
      annual determinations previously carried out by Oftel. The control is a four-year, three-part RPI      In response to Ofcom’s strategic review of telecommunications, BT proposed a number of legally
      minus X formula covering low and high bandwidth services and equipment. In its consultation            binding Undertakings under the Enterprise Act 2002 (Enterprise Act). These Undertakings were
      on the Business Connectivity Market Review (BCMR), Ofcom has proposed to remove BT’s SMP               accepted by Ofcom and came into force in September 2005.
      designation in relation to higher bandwidth PPCs and certain circuits provided in central
      London. This would result in these services being removed from the charge control. However,            The Undertakings are intended to deliver clarity and certainty to the UK telecommunications industry
      Ofcom has also proposed to extend charge controls to PPC trunk segments, wholesale ethernet            and to support a reduction in regulation over time. Significant structural changes have been made to
      origination services and certain ancillary services. Ofcom is planning to carry out the review of      enable BT to deliver the Undertakings, including the creation of a new access services division
      the PPC charge control later in 2008, following the publication of the final statement in the          (Openreach) and the implementation of restrictions on the sharing of information between upstream
      BCMR.                                                                                                  and downstream divisions of BT. Since the Undertakings came into force, we have made good progress
    • Openreach – On 30 May 2008, Ofcom published the first consultation document on the                     in delivering our commitments.
      Openreach Financial Framework Review: A New Pricing Framework for Openreach (developing                The key Undertakings given by BT are to:



                                                                                                         9
Section 2 - Summary of Financial Performance
    • establish Openreach (with associated reporting requirements – see below)                               Twenty-First Century Network (21CN)
    • deliver equivalence of input for key wholesale products on certain milestone dates, and
      increased transparency for others                                                                      The key driver behind our 21CN platform is customer choice. 21CN is our next generation platform that
                                                                                                             enables software-driven, open innovation by BT, our customers and partners and is critical to our
    • introduce new rules on access to, and sharing of, certain restricted information                       transformation into a software-driven global communications services company.
    • restrict the exercise of influence by other parts of BT on the commercial policy of both
      Openreach and parts of BT Wholesale                                                                    Following input from initial 21CN end users and CPs involved in the South Wales pilot, BT has evolved
                                                                                                             its deployment strategy from one focused on mass migrating customers onto the new network, with
    • ensure fair access and migration to BT’s 21CN for other communications providers                       new services becoming available later, to one that delivers new services to customers from the outset.
    • publish and make available to all BT people a code of practice explaining what they must do to
      comply with the Undertakings                                                                           As a result of the new deployment strategy, new services, such as 21CN ethernet and 21CN broadband,
                                                                                                             will be offered to customers during periods of voluntary take-up, after which customers will be mass
    • create an Equality of Access Board (EAB) to monitor report and advise on BT’s compliance with          migrated, enabling the closure and decommissioning of certain legacy platforms. Through this new
      the Undertakings and the code of practice. The EAB was established on 1 November 2005. The             deployment strategy, BT will be able to deliver new services more quickly, with the associated benefits
      EAB Annual Report 2008 (which does not form part of this report) is available online at                of increased revenue potential and improved customer experience. To date, 21CN has already delivered
      www.bt.com/eabreport                                                                                   cost savings, relating to operating efficiencies and reduced spend on legacy networks, and BT expects
In Ofcom’s annual report on the impact of the Strategic Review of Telecommunications, published in           to deliver more savings in the future.
December 2007, Ofcom reviewed the impact of the Undertakings and concluded that BT’s progress in             The 21CN programme has also been expanded to accommodate the increasing focus on software-
implementing them had delivered benefits for industry and for consumers. Ofcom also identified a             driven services, as well as the potential of emerging technologies and the demand from enterprise
number of areas where changes to the Undertakings are required. These include Openreach’s provision          customers for additional functionality. As a result, the BT innovation platform will be introduced during
of space, power and Ethernet services, and the process for consulting with industry on the deployment        the year, which will enable development and integration of a wide array of new applications that will
of the 21st Century Network (21CN). BT is working closely with Ofcom on the form these changes will          add features and value both to the new 21CN services, and to completely new services.
take.
                                                                                                             As at the year ended 31 March 2008, BT has invested £0.5bn in 21CN network equipment. The majority
Openreach                                                                                                    of this investment is within work in progress, and as such impacts mainly the Mean Capital Employed.
                                                                                                             Although as at the year end, no commercial services were provided over 21CN technology, BT has
Openreach is responsible for the crucial ‘first mile’ of the network in the UK. It was established in        introduced new components to capture 21CN related costs in the 2008 Current Cost Financial
January 2006, following a strategic review of the telecommunications market by Ofcom, to offer all CPs       Statements. This is the first stage of incorporating 21CN into BT’s Regulatory Financial Statements and
– including other BT lines of business – fair, equal and open access to our access and backhaul networks,    is aimed at providing transparency to the costs and where they are being attributed to ensure an
in order to underpin the future development of the industry. Openreach was separately reported within        effective reporting regime as the new network comes into use. No Modern Equivalent Asset (MEA)
BT Group’s results from the 2007 financial year.                                                             adjustments have been made in respect of 21CN assets.
Openreach’s primary products include Local Loop Unbundling (LLU), Wholesale Line Rental (WLR) and            BT has developed parallel legacy and 21CN costing methodologies such that the 21CN costs are
Ethernet. These “equivalence of input” products are sold progressively to BT lines of business, and to       exhausted to legacy services based on the relative usage of legacy assets. This means that capital related
other CPs, at the same arm’s length prices, with the BT lines of business being treated no differently       21CN expenditure will also attract a portion of the overall overhead costs such as general management
than any other customer with regard to access to systems and data.                                           and accommodation which would have been previously captured within the traditional legacy network
There is also extensive other trading between Openreach and BT’s lines of business and the line of           components. This leads to a reduction in costs reported within the traditional legacy network
business profitability is dependent on the transfer price levels. For regulated products and services        components as these are now reported within the new 21CN components. The impact of new 21CN
those transfer prices are market based whilst for other products and services the transfer prices are        components on the existing SMP markets is driven by the relative usage of legacy services and as such
agreed between the relevant lines of business on an arm’s length basis. These intra-group trading            impacts mainly on the calls, partial and private circuits, broadband and Openreach markets.
arrangements are subject to periodic review.                                                                 Migration of customers to 21CN will continue in 2008/09, and new product launches will accelerate the
Openreach began to trade on 1 April 2006 in accordance with section 5.31 of the Undertakings. These          expansion of a customer led, Internet Protocol (IP) enabled, converged network.
Current Cost Final Statements include separate presentation of the financial results of Openreach and a
reconciliation of Openreach’s revenue, operating profit and mean capital employed with the financial         BT Accounting Records
information about Openreach as shown in Group Consolidated Statutory Financial Statements. Also in
accordance with section 5.31 of the Undertakings, this financial information is subject to independent       BT records its transactions in the accounting records in accordance with the UK’s legal requirements and
audit.                                                                                                       under Article 4 of the IAS Regulation.




                                                                                                        10
Section 2 - Summary of Financial Performance
Comparability of current and prior year results                                                                      • Low User Scheme (LUS): As directed by Ofcom, BT has amended its attribution methodology so
                                                                                                                       that costs relating to the provision of the LUS are not attributed to SMP wholesale markets. The
As explained in Notes 2 and 3 of the Current Cost Financial Statements, there have been a number of                    prior year information has not been restated but the impact disclosed in note 2 of these Current
changes in the year that impact on the comparability of the current and prior year results. These                      Cost Financial Statements as agreed with Ofcom.
changes are mainly due to the requirements outlined in Ofcom’s Explanatory Statement and                             • The CCA valuation of assets is affected by external factors such as changes in market prices and
Notification entitled “Changes to BT’s 2007/08 regulatory financial statements” issued on 26 June                      by changes to BT’s CCA accounting policies and practices as explained in note 4 of these Current
2008; restatement of Technical Areas (Interconnect Circuits); and the restatement of Openreach                         Cost Financial Statements.
segmental information in BT Group’s Annual Report. These are described below:
    • Reporting on Business Connectivity Markets: Following Ofcom’s review of the replicability of
      services in the Leased Lines Markets1 and as outlined in the “Changes to BT’s 2007/08
      Regulatory Financial Statements” issued on 26 June 2008, additional service granularity has
      been included within the Current Cost Financial Statements 2008 in the Traditional Interface
      Symmetric Broadband Origination (up to and including 8Mbit/s and >8Mbits), Technical Areas
      and the Wholesale Trunk Segments markets. BT has revised the “price x quantity” methodology
      and calculation rules for determining internal and external revenues to reflect managements
      best estimate of the actual revenue earning system size rather than a working system size basis
      used in previous years. The corresponding prior year comparatives have been restated as
      necessary to reflect the above changes in the respective markets.
    • The Technical Areas (Interconnect Circuits) results have been restated to exclude non chargeable
      in-span connection services previously included in revenue.
    • Restatement of Openreach’s segmental results in the Group Annual Report: In the Alternative
      Interface Symmetric Broadband Origination (AISBO) market, the prior year comparatives have
      been restated to reflect the restatement in Openreach’s segmental results in BT Group plc’s
      Annual Report and Accounts for the year ended 31 March 2008 as a result of system
      improvements following the creation of new internal operating divisions (BT Design and BT
      Operate) identifying additional internal usage.
    • The AISBO market for 2008 also reflect greater service level granularity as requested by Ofcom.
      The increased disaggregation of the turnover has meant it has not been possible to show prior
      year comparatives as agreed with Ofcom.
    • In the Asymmetric Broadband Origination market, the service level information has been
      expanded to give greater granularity of IPstream and Datastream services as requested by
      Ofcom. The increased disaggregation of the turnover has meant it has not been possible to show
      prior year comparatives as agreed with Ofcom.
    • There is an increase in the number of components for wholesale services to provide transparency
      of 21CN costs, new services or, as agreed with Ofcom, increased transparency in existing
      services (i.e. greater disaggregation). The prior year component information has not been
      restated as these services either did not exist, or the information is not readily available to allow
      effective restatement.
    • The calculation of notional debtors in the 2008 Current Cost Financial Statements have been
      changed to reflect equivalent settlement terms experienced by BT with its external customers.
      The comparatives have not been restated to reflect this change in calculation.


1.         The results of the review were included in the Business Connectivity Market Review published on 17
January 2008: http://www.ofcom.org.uk/consult/condocs/llmr/statement/



                                                                                                                11
Section 2 - Summary of Financial Performance
Section 2.3 - Attribution of Wholesale Current Costs 2008 (Annex 5A)
For the year ended 31 March 2008




                                                                                                                                                                                                                                                                                                                                                                                                                          Local-tandem conveyance and transit on
                                                                           Wholesale business analogue exchange




                                                                                                                                                      Wholesale residential ISDN2 exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Technical areas (Interconnect Circuits)
                                                                                                                                                                                             Wholesale business ISDN30 exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Total Other Wholesale & SMP Markets
                                                                                                                  Wholesale business ISDN2 exchange




                                                                                                                                                                                                                                   TISBO (up to and including 8Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Technical areas (Point of Handover)
                                                                                                                                                                                                                                                                                                                                                                                                                          fixed public narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Broadband conveyance in the UK
                                                                                                                                                                                                                                                                         TISBO (above 8Mbit/s up to and
                                          Wholesale residential analogue




                                                                                                                                                                                                                                                                                                                                                                                       Call origination on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Single transit on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Wholesale trunk segments
                                                                                                                                                                                                                                                                                                           AISBO (all bandwidths)




                                                                                                                                                                                                                                                                                                                                     Wholesale local access
                                          exchange line services




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Fixed call termination
                                                                                                                                                                                                                                                                                                                                                                                       narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                   narrowband networks
                                                                                                                                                                                                                                                                                                                                                                Total Access Markets
                                                                                                                                                                                                                                                                         including 155Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Wholesale Residual
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          ASBO in the UK




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Total Markets
                                                                           line services




                                                                                                                  line services




                                                                                                                                                      line services




                                                                                                                                                                                             line services
                                                       £m                                  £m                                    £m                                   £m                                    £m                    £m                                                  £m                  £m                        £m                         £m                                    £m                                    £m                                   £m                  £m                                        £m                        £m                         £m                                    £m                £m                                  £m                                      £m                      £m
Operating Costs of Wholesale Service:

Provision/Maintenance                             229                                       84                                    15                                               -                                 7            45                                                          6                    3                80                        469                                     27                                             6                                  1           14                                        20                                 4                                     -                 68                19                                 159                                     129                     757
Network Support                                   204                                       63                                           8                                         -                         11                   42                                                          7           24                        26                        385                                     13                                             7                                     -                       5                           13                                6                                      -                 23                           4                       71                                      29                     485
General Support                                   221                                       82                                           7                                         -                         27                   70                                                          9           18                        70                        504                                     17                                             2                                     -        10                                                 7                         6                                     -                 43                            4                       89                                      76                     669
General Management                                256                               107                                           17                                               -                         29                   104                                                  39                 48                        53                        653                                     39                                             6                                  2           22                                        22                        10                                             -                 113                           6                      220                                     159                    1,032
Finance and Billing                                     17                                          6                                    1                                         -                                 3            11                                                          1                    2                         7                 48                                            4                                          -                                  -                       1                                   2                         1                                      -                      9                       1                       18                                              7               73
Accommodation                                     119                                       44                                    11                                               -                         22                   88                                                   14                 10                        29                        337                                     45                                    15                                          1           11                                        39                        10                                             -                 87                            7                      215                                      56                     608
Bad Debts                                                         -                                     -                                   -                                      -                                    -                              -                                         -                      -                        -                     0                                         -                                      -                                  -                               -                               -                          -                                 -                         -                          -                              0                                     -                  0
Other Costs                                                    3                                    1                                       -                                      -                                    -                               -                                        -                      -                        -                     4                                     3                                          -                                  -                               -                               -                          -                                 -                      3                             -                              6                        2,427                   2,437
Depreciation - Lands & Building                         12                                          4                                    1                                         -                                 1            10                                                          1                         -           11                         40                                            6                                       1                                     -                       1                                   6                         1                                     -                  19                           2                       36                                             8                84
              - Access                            332                               100                                           24                                               -                         16                   46                                                          8           42                        18                        586                                            2                                       1                        n/a                                  1                                   2                         3                 n/a                                   123                           1                      133                                      11                     730
              - Switch and Transmission                 77                                  24                                    13                                               -                         30                   123                                                   47                37                                 4                355                                     61                                    14                                          1           16                                        54                        46                                      5                        37                57                                 291                                      90                     736
              - Other related                           63                                  25                                           4                                         -                                 8            37                                                          9                    8                26                        180                                     15                                             4                                  1                          9                          12                                 5                                     -                 74                            4                      124                                     135                     439
Sub Total Depreciation                            484                               153                                           42                                           0                             55                   216                                                   65                87                        59 1,161                                                          84                                    20                                          2           27                                        74                        55                                      5                        253               64                                 584                                     244                    1,989
Sub total HCA Operating Costs             1,533                                     540                                    101                                                 0                      154                         576                                            141                      192                       324 3,561                                                  232                                          56                                          6           90                                        177                       92                                      5                        599               105                               1,362                                   3,127                   8,050
CCA Adjustments
Holding (gain)/loss                           (199)                                     (59)                                         (8)                                           -                            (6)               (16)                                                    (5)             (16)                      (12)                      (321)                                      (4)                                    (1)                                        -                               -                     (4)                      (4)                                          -                   (1)                 (2)                             (16)                                      (8)                  (345)
Supplementary Depreciation                        114                                       34                                           2                                         -                            (2)               (20)                                             (13)                                 -           12                        127                                 (12)                                          (3)                                        -            (3)                                   (11)                      (12)                           (2)                               (39)              (11)                                (93)                                    (17)                    17
Other Adjustments                                 113                                       37                                           7                                         -                                    -              (9)                                                (3)                (5)                             1                141                                     10                                                -                                  -                               -                           8                  (4)                                           -                (11)                                -                              3                            (3)                  141
Roundings                                                      1                                    5                                    3                                         -                                 3                          8                                      10                          2                             -             32                                            1                                       3                                     -                               -                           1                         3                              2                                 -                    1                       11                                              1               44
Total CCA Operating Costs                 1,562                                     557                                    105                                                 0                      149                         539                                            130                      173                       325 3,540                                                  227                                          55                                          6           87                                        171                       75                                      5                        548               93                                1,267                                   3,100                   7,907




                                                                                                                                                                                                                                                                                            12
Section 2 - Summary of Financial Performance
Section 2.3.1 - Notes on Wholesale P&L sector costs                                                         Other Costs
The notes below are intended to provide a brief description of the sectors reported in the Attribution of   Other Costs are dominated by payments to other UK communications providers, but also include
Wholesale Current Cost statement and the key drivers of these sectors to aid the user of the Current Cost   payments to overseas administrations and internal product transfer charge costs. The key drivers
Financial Statements 2008. Further details of these sectors can be found in the Detailed Attributions       include the pence per minute charging of the other operators for BT traffic on their network.
Methods (DAM) which outlines in detail the key bases, descriptions and drivers of the network
components.                                                                                                 Depreciation
Provision/Maintenance                                                                                       Depreciation is analysed between land and buildings, access, switch and transmission and other
                                                                                                            (including network power, computers and software). The key drivers are the surveys of BT’s asset base
Provision/Maintenance includes costs of network provision, installation and maintenance. The most           that allocate the depreciation charge through classes of work on the basis of surveys and engineering
material cost relates to D side copper which is allocated on the basis of the number of lines.              models and direct mapping of BT classes of work (COW) to network components and then onto the
                                                                                                            appropriate service based on usage factors and actual service volumes.
Network Support
Network Support contains costs of activities necessary to support the running of BT’s network (plant
support costs such as group property). The key drivers for the apportionment of network support costs
include pay, the relative floor space occupied by fixed assets or the current cost replacement value of
assets.

General Support
Wholesale General Support includes planning, development, supplies, transport, computing, customer
service, personnel & administration, customer support and other general support costs. The key drivers
for the apportionment of general support include pay costs and various activity surveys.

General Management
General Management includes operator services, costs of general management activities and other
general expenses. The key drivers for the apportionment of general management include analysis of call
minutes (for operator services), various activity surveys and pay costs.

Finance and Billing
Finance and Billing includes costs associated with activities of a financial nature, such as budget
building, management reporting, and billing and collection costs. The key drivers for the
apportionment of finance and billing include various activity surveys and pay costs.

Accommodation
The wholesale accommodation sector includes exchange and office building costs. Wholesale
accommodation costs are mainly apportioned based on the usage of floor space and different utilities.

Bad Debts
Bad debts include costs associated with writing off amounts that cannot be collected from customers.
The key driver is revenue.




                                                                                                       13
Section 2 - Summary of Financial Performance
Section 2.4 - Attribution of Wholesale Current Costs 2007 (Annex 5A)(Restated)
Restated for the year ended 31 March 2007




                                                                                                                                                                                                                                                                                                                                                                                                                                 Local-tandem conveyance and transit on
                                                                             Wholesale business analogue exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Technical areas (Interconnect Circuits)
                                                                                                                                                        Wholesale residential ISDN2 exchange




                                                                                                                                                                                               Wholesale business ISDN30 exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Total Other Wholesale & SMP Markets
                                                                                                                    Wholesale business ISDN2 exchange




                                                                                                                                                                                                                                     TISBO (up to and including 8Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Technical areas (Point of Handover)
                                                                                                                                                                                                                                                                                                                                                                                                                                 fixed public narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Broadband conveyance in the UK
                                                                                                                                                                                                                                                                           TISBO (above 8Mbit/s up to and
                                            Wholesale residential analogue




                                                                                                                                                                                                                                                                                                                                                                                              Call origination on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Single transit on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale trunk segments
                                                                                                                                                                                                                                                                                                             AISBO (all bandwidths)




                                                                                                                                                                                                                                                                                                                                            Wholesale local access
                                            exchange line services




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Fixed call termination
                                                                                                                                                                                                                                                                                                                                                                                              narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                          narrowband networks
                                                                                                                                                                                                                                                                                                                                                                       Total Access Markets
                                                                                                                                                                                                                                                                           including 155Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Wholesale Residual
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  ASBO in the UK




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Total Markets
                                                                             line services




                                                                                                                    line services




                                                                                                                                                        line services




                                                                                                                                                                                               line services
                                                        £m                                  £m                                   £m                                    £m                                    £m                     £m                                                 £m                   £m                             £m                         £m                                     £m                                    £m                                   £m                 £m                                        £m                        £m                          £m                                    £m                £m                                  £m                                       £m                      £m
Operating Costs of Wholesale Service:

Provision/Maintenance                              246                                       85                                   20                                              -                                 7               42                                                        5                       5                    45                        455                                      19                                             6                                     -                       9                          15                                 4                                       -               115                20                                188                                      119                     762
Network Support                                    200                                       59                                   10                                              -                           12                    47                                                        6             16                             12                        362                                      15                                             8                                     -                       5                          12                                 6                                       -                26                            4                      76                                       31                     469
General Support                                    242                                       79                                          8                                        -                           19                    54                                                        5             14                             46                        467                                      13                                             4                                     -                       6                                   5                         4                                       -                63                            1                      96                                       66                     629
General Management                                 283                                       88                                   14                                              -                           29                    108                                                 19                  28                             45                        614                                      38                                    10                                             -       12                                         19                        21                                       1                       123                17                                241                                       73                     928
Finance and Billing                                      16                                         7                                    1                                        -                                  2              11                                                          -                     1                              3                41                                             4                                       1                                     -                       1                                   3                         1                                       -                12                            2                      24                                       11                      76
Accommodation                                      124                                       43                                   12                                              -                           17                    91                                                  12                            7                    20                        326                                      47                                    16                                          1          10                                         38                        13                                               -                89                11                                225                                       62                     613
Bad Debts                                                      1                                       -                                    -                                     -                                    -                              -                                         -                         -                              -                     1                                        -                                       -                                  -                               -                                -                          -                                 -                        -                            -                              0                                      -                1
Other Costs                                              30                                         7                                    1                                        -                                  1                          8                                               -                     1                              2                50                                             3                                       1                                     -                       1                                   2                         1                                       -                     7                        2                      17                                     2,768                   2,835
Depreciation - Lands & Building                          12                                         4                                    1                                        -                                 1               10                                                          -                         -                          7                35                                             6                                       1                                     -                               -                           5                         1                                       -                17                            2                      32                                               9               76
              - Access                             346                                       97                                   30                                           1                              17                    54                                                        9             33                                       6               593                                             3                                       1                       n/a                                   1                                   3                         4                 n/a                                   141                            2                     155                                       14                     762
              - Switch and Transmission                  93                                  27                                   15                                              -                           33                    155                                                 52                  26                                       2               403                                      80                                    18                                          1          18                                         66                        53                                       2                        43                72                                353                                      112                     868
              - Other related                            60                                  27                                          4                                        -                                  6              30                                                        6                       7                    15                        155                                      11                                             4                                     -                       1                                   7                         6                                       -                79                            5                     113                                      133                     401
Sub Total Depreciation                             511                                155                                         50                                           1                              57                    249                                                 67                  66                             30 1,186                                                    100                                          24                                          1          20                                         81                        64                                       2                       280                81                                653                                      268                    2,107
Sub total HCA Operating Costs               1,653                                     523                                   116                                                1                       144                          610                                           114                       138                            203 3,502                                                   239                                          70                                          2          64                                        175                       114                                       3                       715               138                               1,520                                    3,398                   8,420
CCA Adjustments
Holding (gain)/loss                            (350)                                     (98)                                  (13)                                               -                              (3)                    (8)                                                (2)                 (4)                         (10)                      (488)                                       (2)                                            -                                  -                               -                    (2)                                    -                                 -                 (3)                                 -                    (7)                                 (12)                   (507)
Supplementary Depreciation                         126                                       35                                          1                                        -                              (2)                (26)                                             (16)                                 -                          3               121                                  (15)                                          (3)                                        -            (4)                                  (13)                      (13)                            (1)                               (53)              (17)                               (119)                                     (22)                    (20)
Other Adjustments                                  407                                112                                         19                                              -                           14                    65                                                  11                  31                                       5               664                                      43                                    13                                             -                       5                          36                        20                                               -                11                19                                147                                       32                     843
Roundings                                                      2                                (1)                                      5                                     2                                     3                          3                                             7                       9                              2                32                                                -                                    2                                  1                          3                                   2                         2                               1                             1               (2)                             10                                          (1)                  41
Total CCA Operating Costs                   1,838                                     571                                   128                                                3                       156                          644                                           114                       174                            203 3,831                                                   265                                          82                                          3          68                                        198                       123                                       3                       671               138                               1,551                                    3,395                   8,777




                                                                                                                                                                                                                                                                                                                                      14
Section 2 - Summary of Financial Performance
Section 2.5 - Attribution of Wholesale Current Cost Mean Capital Employed 2008 (Annex 6A)
For the year ended 31 March 2008




                                                                                                                                                                                                                                                                                                                                                                                                                                    Local-tandem conveyance and transit on
                                                                                 Wholesale business analogue exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Technical areas (Interconnect Circuits)
                                                                                                                                                            Wholesale residential ISDN2 exchange


                                                                                                                                                                                                   Wholesale business ISDN30 exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Total Other Wholesale & SMP Markets
                                                                                                                        Wholesale business ISDN2 exchange




                                                                                                                                                                                                                                           TISBO (up to and including 8Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Technical areas (Point of Handover)
                                                                                                                                                                                                                                                                                                                                                                                                                                    fixed public narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Broadband conveyance in the UK
                                                                                                                                                                                                                                                                                 TISBO (above 8Mbit/s up to and
                                                Wholesale residential analogue




                                                                                                                                                                                                                                                                                                                                                                                                 Call origination on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Single transit on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale trunk segments




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Total Wholesale Markets
                                                                                                                                                                                                                                                                                                                   AISBO (all bandwidths)


                                                                                                                                                                                                                                                                                                                                              Wholesale local access
                                                exchange line services




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Fixed call termination
                                                                                                                                                                                                                                                                                                                                                                                                 narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                             narrowband networks
                                                                                                                                                                                                                                                                                                                                                                          Total Access Markets
                                                                                                                                                                                                                                                                                 including 155Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Wholesale Residual
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       ASBO in the UK
                                                                                 line services


                                                                                                                        line services


                                                                                                                                                            line services


                                                                                                                                                                                                   line services
                                                             £m                                  £m                                    £m                                   £m                                    £m                      £m                                                  £m                  £m                         £m                          £m                                    £m                                    £m                                   £m                  £m                                         £m                        £m                          £m                                     £m                £m                                  £m                                      £m                      £m
Non-current Assets
Land & Buildings                                  101                                      40                                    13                                                     -                    12                           91                                              21                       11                       111                          400                              55                                      13                                     1                    13                                          47                        14                           -                                   153                 13                                309                                      73                      782
Access - Copper                                 3,127                                     942                                   126                                                     -                     9                           25                                               -                        -                       191                        4,420                               -                                       -                                   n/a                     -                                           -                       n/a                         n/a                                   253                n/a                                253                                      83                    4,756
Access - Fibre                                      2                                       -                                     -                                                     -                   115                          270                                              57                      283                         -                          727                             n/a                                     n/a                                   n/a                     5                                         n/a                       n/a                         n/a                                   n/a                n/a                                  5                                       8                      740
Access - Duct                                   2,089                                     618                                    77                                                     -                    60                          286                                              57                      262                        94                        3,543                             101                                      57                                   n/a                    20                                          91                       106                         n/a                                    52                 53                                480                                     140                    4,163
Switch                                            230                                      73                                    41                                                     -                    15                            -                                             n/a                      n/a                        23                          382                             155                                      23                                     5                    11                                         137                       n/a                         n/a                                    16                n/a                                347                                     120                      849
Transmission                                      199                                      59                                     9                                                     -                    72                          363                                             152                      191                         7                        1,052                             106                                      43                                     7                    89                                          96                       136                          12                                   141                142                                772                                     163                    1,987
Other                                             254                                     179                                    34                                                     -                    12                          147                                             119                      116                       113                          974                              84                                      12                                     8                    65                                          72                        17                           -                                   291                 12                                561                                     336                    1,871

Investments                                               n/a                                 n/a                                   n/a                                  n/a                                   n/a                        n/a                                               n/a                   n/a                        n/a                                 0                          n/a                                  n/a                                   n/a                    n/a                                        n/a                       n/a                         n/a                                    n/a               n/a                                               0                         n/a                              0

Total Non-current Assets                        6,002                            1,911                                           300                                                 0                      295                         1,182                                            406                      863                       539 11,498                                                   501                                  148                                          21                 203                                        443                       273                         12                                    906                220                               2,727                                    923 15,148


Current Assets
Stocks                                                    n/a                                 n/a                                   n/a                                  n/a                                   n/a                        n/a                                               n/a                   n/a                        n/a                                 0                          n/a                                  n/a                                   n/a                    n/a                                        n/a                       n/a                         n/a                                          1           n/a                                               1                         35                      36
Debtors
- Internal                                                 228                                         86                                   22                                          -                              40                        73                                                19                 54                         37                      559                                        28                                     10                                       2                                  9                     21                         31                                        -                   108                     12                            221                                     (44)                    736
- External                                                 101                                         33                                    4                                          -                               1                         6                                                 -                  2                         10                      157                                         2                                      -                                       -                                  1                      1                          -                                        -                    12                      1                             17                                     422                     596

Total Current Assets                                       329                                 119                                          26                                           0                             41                        79                                                19                 56                         47                      716                                        30                                     10                                        2                10                                     22                         31                                          0                 121                     13                            239                                     413                   1,368




Liabilities falling due within one year
 - Internal                                          n/a                               n/a                                          n/a                                  n/a                                   n/a                        n/a                                              n/a                    n/a                        n/a       0                                                    n/a                                  n/a                                   n/a                    n/a                                        n/a                       n/a                         n/a                                    n/a               n/a                                   0                                     n/a       0
 - External                                         (425)                             (162)                                         (30)                                   -                                   (39)                      (147)                                             (40)                   (55)                      (106) (1,004)                                                   (60)                                 (16)                                   (2)                   (23)                                       (45)                      (17)                          -                                   (188)              (19)                               (370)                                   (785) (2,159)

Total Liabilities falling due within one year       (425)                             (162)                                         (30)                                             0                         (39)                      (147)                                             (40)                   (55)                      (106) (1,004)                                                   (60)                                 (16)                                         (2)             (23)                                       (45)                      (17)                                     0                        (188)              (19)                               (370)                                   (785) (2,159)

Net Current Assets/Liabilities                            (96)                                (43)                                         (4)                                       0                                     2              (68)                                             (21)                            1                 (59)                       (288)                               (30)                                         (6)                                      0           (13)                                       (23)                      14                                       0                         (67)                  (6)                            (131)                                   (372)                   (791)

Total Assets less Current Liabilities           5,906                            1,868                                           296                                                 0                      297                         1,114                                            385                      864                       480 11,210                                                   471                                  142                                          21                 190                                        420                       287                         12                                    839                214                               2,596                                    551 14,357

Provisions for liabilities & charges                      (32)                                (11)                                         (3)                                          -                             (5)                 (20)                                                    (3)                (1)                        (8)                      (83)                               (11)                                         (4)                                        -              (1)                                      (9)                       (2)                                         -                   (18)                  (2)                             (47)                                       (9)                 (139)

Roundings                                                            1                                       -                                 3                                        -                                  3                            5                                             5              (1)                              3                  19                                            2                                 (1)                                  (1)                            1                                   3                               -                          1                               1                            -                                6                                1                26

Mean Capital Employed                           5,875                            1,857                                           296                                                 0                      295                         1,099                                            387                      862                       475 11,146                                                   462                                  137                                          20                 190                                        414                       285                         13                                    822                212                               2,555                                    543 14,244




                                                                                                                                                                                                                                                                                                                                                                                                                                               15
Section 2 - Summary of Financial Performance
Section 2.5.1 - Notes on Wholesale MCE sector costs                                                           Transmission
The notes below are intended to provide a brief description of the Fixed Asset sectors and Working            This sector contains the asset values for transmission. Transmission includes Core Transmission
Capital reported in the Attribution of Wholesale Current Cost Mean Capital Employed statement and the         Synchronous Digital Hierarchy (SDH), Plesiosynchronous Digital Hierarchy (PDH), Asynchronous
key drivers of the sector to aid the user of the financial statements. Further details of these sectors can   Transfer Mode (ATM), Cables and Repeaters. The Core Transmission is used to link exchanges. The key
be found in the Detailed Attributions Methods (DAM) which outlines in detail the key bases,                   drivers are the surveys of BT’s asset base that allocate the depreciation charge through classes of work
descriptions and drivers of the network components.                                                           on the basis of surveys, engineering models and direct mapping of COW to network components and
                                                                                                              then onto the appropriate service based on usage factors and actual service volumes.
Land & Buildings
This sector contains the asset values that are booked to BT Classes of Work (COWs) for land and               Other
buildings, including freehold, long leases and short leases. The sector includes corporate offices, and       This sector contains the asset values for a range of assets used by BT Businesses including categories
network buildings owned by BT. Asset values are mainly apportioned based on the usage of floor space          such as Software, Motor Transport and 21CN. The key drivers are the surveys of BT’s asset base that
and the usage of the different utilities.                                                                     allocate the depreciation charge through classes of work on the basis of surveys, engineering models
                                                                                                              and direct mapping of COW to network components and then onto the appropriate service based on
Access - Copper                                                                                               usage factors and actual service volumes.
This sector contains the asset values for access copper (all the copper cables in the access network and
all other necessary equipment required to carry signals between the user and the exchange.) This is split     Working Capital
into “Main” and Distribution” Copper. The key drivers are the surveys of BT’s asset base that allocate        The figures for debtors and creditors include an approximation of the internal “notional” debtors and
the depreciation charge through classes of work on the basis of surveys, engineering models and direct        creditors that would be incurred if trades between BT’s lines of business were undertaken to a third
mapping of COW to network components and then onto the appropriate service based on usage factors             party and at arms length. They are based upon the average trading terms of BT Group’s external trades.
and actual service volumes.                                                                                   External debtors reflect BT’s external debts being allocated to services and products.
Access - Fibre
This sector contains the asset values for access fibre. The key drivers are the surveys of BT’s asset base
that allocate the depreciation charge through classes of work on the basis of surveys, engineering
models and direct mapping of COW to network components and then onto the appropriate service
based on usage factors and actual service volumes.

Access - Duct
This sector contains the asset values for duct. Duct is a pipe, tube or conduit through which
underground cables are passed. The key drivers are the surveys of BT’s asset base that allocate the
depreciation charge through classes of work on the basis of surveys, engineering models and direct
mapping of COW to network components and then onto the appropriate service based on usage factors
and actual service volumes.

Switch
This sector contains the asset values for switching equipment. This equipment is located in BT
exchanges. The key drivers are the surveys of BT’s asset base that allocate the depreciation charge
through classes of work on the basis of surveys and engineering models and direct mapping of COW to
network component and then onto the appropriate service based on usage factors and actual service
volumes.




                                                                                                         16
Section 2 - Summary of Financial Performance
Section 2.6 - Attribution of Wholesale Current Cost Mean Capital Employed 2007 (Annex 6A)(Restated)
Restated for the year ended 31 March 2007




                                                                                                                                                                                                                                                                                                                                                                                                                                   Local-tandem conveyance and transit on
                                                                                 Wholesale business analogue exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Technical areas (Interconnect Circuits)
                                                                                                                                                            Wholesale residential ISDN2 exchange


                                                                                                                                                                                                   Wholesale business ISDN30 exchange




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Total Other Wholesale & SMP Markets
                                                                                                                        Wholesale business ISDN2 exchange




                                                                                                                                                                                                                                           TISBO (up to and including 8Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Technical areas (Point of Handover)
                                                                                                                                                                                                                                                                                                                                                                                                                                   fixed public narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Broadband conveyance in the UK
                                                                                                                                                                                                                                                                                 TISBO (above 8Mbit/s up to and
                                                Wholesale residential analogue




                                                                                                                                                                                                                                                                                                                                                                                                Call origination on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Single transit on fixed public




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Wholesale trunk segments




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Total Wholesale Markets
                                                                                                                                                                                                                                                                                                                   AISBO (all bandwidths)


                                                                                                                                                                                                                                                                                                                                             Wholesale local access
                                                exchange line services




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Fixed call termination
                                                                                                                                                                                                                                                                                                                                                                                                narrowband networks




                                                                                                                                                                                                                                                                                                                                                                                                                                                                            narrowband networks
                                                                                                                                                                                                                                                                                                                                                                         Total Access Markets
                                                                                                                                                                                                                                                                                 including 155Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Wholesale Residual
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      ASBO in the UK
                                                                                 line services


                                                                                                                        line services


                                                                                                                                                            line services


                                                                                                                                                                                                   line services
                                                             £m                                  £m                                    £m                                   £m                                    £m                      £m                                                  £m                  £m                        £m                          £m                                    £m                                    £m                                   £m                  £m                                         £m                        £m                          £m                                     £m                £m                                  £m                                       £m                      £m
Non-current Assets
Land & Buildings                                   92                                      31                                    12                                                  -                       11                           83                                              13                        6                       74                          322                              46                                      14                                     1                     9                                          37                        13                           -                                   123                 13                                256                                       69                      647
Access - Copper                                 3,044                                     847                                   131                                                  3                        7                           37                                               -                        -                       57                        4,126                               -                                       -                                   n/a                     -                                           -                         -                         n/a                                   303                  -                                303                                       96                    4,525
Access - Fibre                                      3                                       1                                     -                                                  -                      115                          269                                              54                      231                        -                          673                             n/a                                     n/a                                   n/a                     5                                         n/a                       n/a                         n/a                                   n/a                n/a                                  5                                        7                      685
Access - Duct                                   2,314                                     628                                    85                                                  2                       73                          355                                              63                      197                       25                        3,742                             135                                      74                                   n/a                    25                                         111                        80                         n/a                                    61                 41                                527                                      174                    4,443
Switch                                            304                                      92                                    53                                                  1                       19                            -                                             n/a                      n/a                       18                          487                             213                                      25                                     4                    13                                         177                       n/a                         n/a                                    11                n/a                                443                                      136                    1,066
Transmission                                      189                                      51                                    11                                                  -                       75                          446                                             142                      134                        3                        1,051                              95                                      56                                     -                    41                                          79                       135                           6                                   126                180                                718                                      174                    1,943
Other                                             229                                     147                                    23                                                  -                       17                          167                                              40                       51                       94                          768                              78                                      23                                     1                    16                                          61                        48                           1                                   242                 55                                525                                      385                    1,678

Investments                                               n/a                                 n/a                                   n/a                                  n/a                                   n/a                        n/a                                               n/a                   n/a                       n/a                                 0                          n/a                                  n/a                                   n/a                    n/a                                        n/a                       n/a                         n/a                                    n/a               n/a                                               0                          n/a                              0

Total Non-current Assets                        6,175                            1,797                                           315                                                 6                      317                         1,357                                            312                      619                       271 11,169                                                  567                                  192                                                 6           109                                        465                       276                                      7                        866                289                               2,777                                    1,041 14,987


Current Assets
Stocks                                                    n/a                                 n/a                                   n/a                                  n/a                                   n/a                        n/a                                               n/a                   n/a                       n/a                                 0                          n/a                                  n/a                                   n/a                    n/a                                        n/a                       n/a                         n/a                                            -         n/a                                               0                          32                      32
Debtors
- Internal                                                 329                                 119                                          31                                          1                              54                 109                                                      31                 48                        39                      761                                        47                                     14                                       3                 16                                     33                         49                                        -                   166                     22                            350                                       93                   1,204
- External                                                  93                                  28                                           5                                          -                               1                   8                                                       -                  1                         2                      138                                         2                                      1                                       -                  -                                      1                          -                                        -                     7                      1                             12                                      375                     525

Total Current Assets                                       422                                 147                                          36                                           1                             55                 117                                                      31                 49                        41                      899                                        49                                     15                                        3                16                                     34                         49                                          0                 173                     23                            362                                      500                   1,761




Liabilities falling due within one year
 - Internal                                          n/a                               n/a                                          n/a                                  n/a                                   n/a                        n/a                                              n/a                    n/a                       n/a                           0                                n/a                                  n/a                                   n/a                    n/a                                        n/a                       n/a                         n/a                                    n/a               n/a                                   0                                      n/a       0
 - External                                         (369)                             (125)                                         (29)                                  (1)                                  (32)                      (135)                                             (23)                   (36)                      (55)                       (805)                               (54)                                 (18)                                   (1)                   (15)                                       (38)                      (23)                          -                                   (154)              (30)                               (333)                                    (773) (1,911)

Total Liabilities falling due within one year       (369)                             (125)                                         (29)                                         (1)                           (32)                      (135)                                             (23)                   (36)                      (55)                       (805)                               (54)                                 (18)                                         (1)             (15)                                       (38)                      (23)                                     0                        (154)              (30)                               (333)                                    (773) (1,911)

Net Current Assets/Liabilities                                53                                  22                                           7                                     0                             23                     (18)                                                        8           13                        (14)                        94                                        (5)                                   (3)                                      2                          1                              (4)                    26                                       0                         19                    (7)                             29                                      (273)                   (150)

Total Assets less Current Liabilities           6,228                            1,819                                           322                                                 6                      340                         1,339                                            320                      632                       257 11,263                                                  562                                  189                                                 8           110                                        461                       302                                      7                        885                282                               2,806                                     768 14,837

Provisions for liabilities & charges                      (32)                                (11)                                         (3)                                          -                             (5)                 (24)                                                    (5)                (1)                       (5)                      (86)                               (11)                                         (5)                                        -              (1)                                      (9)                       (4)                                         -                   (19)                  (3)                             (52)                                     (33)                   (171)

Roundings                                                               -                                    -                             (1)                                       2                                     1                                   -                                      6              (1)                             2                          9                                        -                              (2)                                        -                        1                                    3                         2                                     -                           -             (1)                                           3                                     -            12

Mean Capital Employed                           6,196                            1,808                                           318                                                 8                      336                         1,315                                            321                      630                       254 11,186                                                  551                                  182                                                 8           110                                        455                       300                                      7                        866                278                               2,757                                     735 14,678




                                                                                                                                                                                                                                                                                                                                                                                                                                             17
Section 3 - Review of Access Markets
Section 3 - Review of Access Markets




                                               SECTION 3
                                       REVIEW OF ACCESS MARKETS




                                                 18
Section 3 - Review of Access Markets
Section 3.1 - Financial Performance in Access Markets (Annex 7)
                                                                                                                                                  Total CCA                              Mean
                                                        Internal    External   Roundings        Total                       CCA                   Operating              Return on      Capital   Return on
For the year ended 31 March 2008                        Turnover   Turnover     Turnover    Turnover     HCA Costs   Adjustments     Roundings         costs   Return     turnover    Employed         MCE
                                                              £m         £m          £m           £m           £m             £m           £m            £m       £m              %         £m            %
Wholesale residential analogue exchange line services      1,719        217            0       1,936        1,533             28             1        1,562      374        19.3 %       5,875        6.3 %
Wholesale business analogue exchange line services           553        181            0         734          540             12             5          557      177        24.1 %       1,857        9.5 %
Wholesale business ISDN2 exchange line services              138         47            0         185          101               1            3          105       80        42.8 %         296       26.7 %
Wholesale residential ISDN2 exchange line services             0          0            0           0            0               0            0            0         0         0.0 %          0        0.0 %
Wholesale business ISDN30 exchange line services             270         69            0         339          154              (8)           3          149      190        56.2 %         295       64.5 %
TISBO (up to and including 8Mbit/s)                          303        333            0         636          576            (45)            8          539       97        15.2 %       1,099        8.8 %
TISBO (above 8Mbit/s up to and including 155Mbit/s)          141         23           (3)        161          141            (21)           10          130       31        20.1 %         387        8.4 %
AISBO (all bandwidths)                                       266        174           (1)        439          192            (21)            2          173      266        61.0 %         862       31.1 %
Wholesale local access                                         0        316            0         316          324               1            0          325        (9)       (2.5)%        475       (1.7)%

Total Access Markets                                       3,390      1,360           (4)        4,746      3,561             (53)          32        3,540    1,206        25.4 %      11,146       10.8 %


                                                                                                                                                  Total CCA                              Mean
                                                        Internal    External   Roundings        Total                       CCA                   Operating              Return on      Capital   Return on
Restated for the year ended 31 March 2007               Turnover   Turnover     Turnover    Turnover     HCA Costs   Adjustments     Roundings         costs   Return     turnover    Employed         MCE
                                                              £m         £m          £m           £m           £m            £m            £m            £m       £m              %         £m            %
Wholesale residential analogue exchange line services      1,795        230           0        2,025        1,653           183              2        1,838      187          9.2 %      6,196        3.0 %
Wholesale business analogue exchange line services           596        145           0          741          523            49             (1)         571      170        23.0 %       1,808        9.4 %
Wholesale business ISDN2 exchange line services              155         36           0          191          116              7             5          128       63        32.7 %         318       19.6 %
Wholesale residential ISDN2 exchange line services             5          0           0            5            1              0             2            3         2       40.4 %           8       25.3 %
Wholesale business ISDN30 exchange line services             286         48           0          334          144              9             3          156      178        53.7 %         336       53.4 %
TISBO (up to and including 8Mbit/s)                          335        306           0          641          610            31              3          644        (3)       (0.7)%      1,315       (0.3)%
TISBO (above 8Mbit/s up to and including 155Mbit/s)          144         15           0          159          114             (7)            7          114       45        28.2 %         321       14.0 %
AISBO (all bandwidths)                                       252         90           2          344          138            27              9          174      170        49.4 %         630       26.9 %
Wholesale local access                                         0        244           0          244          203             (2)            2          203       41        16.3 %         254       15.7 %

Total Access Markets                                       3,568      1,114            2         4,684      3,502            297            32        3,831      853        18.2 %      11,186        7.6 %




                                                                                            19
Section 3 - Review of Access Markets
Section 3.2 - Access Markets Review (Annex 10 & 14)
Section 3.2.1 - Access Markets Group Level Review (Annex 10)                                                    Access Markets Openreach Level Review
The overall trend in the access markets is a migration of volumes and revenues from the traditional             A calculation of the return for all Openreach markets has been performed and is described as part of the
Wholesale Line Rental (WLR) markets to the Wholesale Local Access (local loop unbundling) and                   Openreach Notes in section 11.9. This explains the return before and after adjusting for a number of
Alternative Interface Symmetric Broadband Origination (AISBO) markets which has continued to see                significant items.
significant growth. This is driven by a combination of the move by residential customers to cable and
mobile operators and the growth of local loop unbundling which has resulted in significant demand for
high bandwidth access products within the AISBO market.
Within the WLR product set there is a continuing shift of line volumes away from BT Retail to other
operators and this is reflected in the split of internal and external revenue. This external growth is driven
by a small number of large Communication Providers (CPs).
There has been growth in the year in the Traditional Interface Symmetric Broadband Origination
(TISBO) external markets due to migrations to higher bandwidth products. However this is more than
offset by the reduction in internal revenues due to increased competition, leading to an overall
reduction in TISBO revenue. In addition, during the year, BT revised the “price x quantity” methodology
and calculation rules to calculate the internal and external revenues to reflect a revenue system size
rather than a working system size basis. The corresponding prior year comparatives have been restated
as necessary to reflect this change in the TISBO markets.
The revenue fall in the WLR markets has been balanced by the substantial rises in the Wholesale Local
Access Market and the AISBO market as mentioned above. In addition, the prior year comparatives in
the AISBO market have been restated to reflect the restatement in Openreach’s segmental results in BT
Group plc’s Annual Report and Accounts for the year ended 31 March 2008 as explained in note 2
within section 8.1 of these financial statements. The net result is that the overall revenue from the
access markets is broadly stable compared to last year.
In the Wholesale Local Access, AISBO and TISBO markets, BT charges other parties upfront for the sale
and installation of equipment in its exchanges. Turnover is recognised and received in the year of sale
but the capitalised costs are depreciated over the life of the asset. The non-matched element between
sales and costs of these items may give rise to variances in the reported return. The CCA return reported
in the 2007/08 financial statements includes approximately £60m profit relating to services containing
non-matched elements in the Wholesale Local Access market, approximately £43m profit relating to
services containing non-matched elements in the AISBO market and approximately £83m profit
relating to services containing non-matched elements in the in the TISBO markets.
Costs of the Access Markets have fallen compared to last year but this is predominantly due to Current
Cost Accounting (CCA) adjustments. Whilst Historic Costs (HCA) has remained broadly stable, under
CCA; this was impacted by the following:
    • In 2006/07, there was a large holding gain (Profit & Loss (P&L) credit) due to the rise in the cost
      of copper. This was however offset by the current cost valuation of old duct assets written-off as
      a result of the harmonisation of asset lives for all duct at 40 years.
    • In 2007/08, there has been a material P&L credit due to the impact of additional assets
      identified during the change in data source system to PIPeR (Physical Inventory for Planning
      and eRecords) for the valuation of BT’s Access Network. However, this is offset by a reduction of
      the asset valuation applied to Dropwire assets, following revision of the index used. Both these
      changes being further explained in Section 8.1 – note 4.



                                                                                                           20
Section 3 - Review of Access Markets
Section 3.2.2 - Access Market Level Financial Review (Annex 14)                                               Key Regulatory Changes
Market: Wholesale Residential Analogue Exchange Line Services                                                 There have been no significant changes to this market in the year. However, Ofcom are currently
                                                                                                              undertaking a consultation "A New Pricing Framework for Openreach". The consultation relates to the
Definition                                                                                                    future regulation of prices for products and services, in particular those within the Openreach copper
                                                                                                              access portfolio, some of which are currently (price) regulated in the form of charge ceilings.
This market includes the relevant Wholesale Line Rental (WLR) services, providing the links between a
residential end user and the remote concentrator unit by means of analogue technology.                        Key Market Changes
An analogue exchange line provides a single 64 Kbit/s channel, designed originally to support voice           Connection volumes are down slightly from 1.0m in 2006/07 to 0.7m in 2007/08, whilst rental
traffic, but also capable of supporting data modems with bandwidths of up to 56 Kbit/s, DSL Services,         volumes were stable at 5.8m. During the year there has been a significant movement in volumes from
and facsimile traffic. These are the most common types of exchange lines, installed in most residential       internal to external customers.
homes.
                                                                                                              WLR is a CP PSTN and ISDN product which enables CPs to offer their own branded telephony service to
Key Regulatory Changes                                                                                        their customers using the Openreach network. WLR3, the equivalent product, allows orders to be
                                                                                                              placed on an EMP. The EMP is a common business to business interface used by BT Retail and external
There have been no significant changes to this market in the year. However, Ofcom are currently               CPs. The launch of WLR3 ensured service and product equivalence for CPs and other parts of BT such as
undertaking a consultation "A New Pricing Framework for Openreach". The consultation relates to the           BT Retail. The EMP can handle significant transaction volume and reduces manual input by the CP or
future regulation of prices for products and services, in particular those within the Openreach copper        Openreach.
access portfolio, some of which are currently (price) regulated in the form of charge ceilings.

Key Market Changes
                                                                                                              Market: Wholesale Business ISDN2 Exchange Line Services
Rental volumes are down from 19.2m in 2006/07 to 18.4m in 2007/08 with significant volumes also
migrating from internal to external service rentals. This is in line with market trends which have seen an    Definition
increase in external volumes due to communications providers offering their own branded telephony
services using WLR as an input. Connection volumes are down from 1.1m to 0.9m in 2007/08. The                 This market includes the relevant WLR services, providing the links between a business end user and the
reduction in revenue and costs is as a result of the overall decline in volumes due to migrations to Local    remote concentrator unit by means of ISDN2 technology.
Loop Unbundling (LLU) and the move of customers to cable and mobile operators.                                Digital ISDN2 exchange lines are basic rate ISDN lines, which provide a means to deploy a wide range
WLR is a Communications Provider (CP) PSTN and ISDN product which enables CPs to offer their own              of digital services over a standard local loop. A single ISDN2 line supports two 64Kbit/s channels for
branded telephony service to their customers using the Openreach network. WLR3, the equivalent                voice and data calls, plus a 16 Kbit/s channel for signalling.
product, allows orders to be placed on an Equivalence Management Platform (EMP). The EMP is a
common business to business interface used by BT Retail and external CPs. The launch of WLR3 ensured          Key Regulatory Changes
service and product equivalence for CPs and other parts of BT such as BT Retail. The EMP can handle
                                                                                                              There have been no significant changes to this market in the year. However, Ofcom are currently
significant transaction volume and reduces manual input by the CP or Openreach.
                                                                                                              undertaking a consultation "A New Pricing Framework for Openreach" which relates to the future
                                                                                                              regulation of prices for products and services, in particular those within the Openreach copper access
                                                                                                              portfolio, some of which are currently (price) regulated in the form of charge ceilings.
Market: Wholesale Business Analogue Exchange Line Services
                                                                                                              Key Market Changes
Definition                                                                                                    There is a general product migration to broadband that affects all ISDN 2 products and a continuing
This market includes the relevant WLR services, providing the links between a business end user and the       shift in volumes from BT Retail to other CPs which is in line with the general movement in the wholesale
remote concentrator unit by means of analogue technology.                                                     line rental market.
An analogue exchange line provides a single 64 Kbit/s channel, designed originally to support voice
traffic, but also capable of supporting data modems with bandwidths of up to 56 Kbit/s, DSL Service
and facsimile traffic. These are the most common types of exchange lines, installed in many small
business premises.



                                                                                                         21
Section 3 - Review of Access Markets
Market: Wholesale Residential ISDN2 Exchange Line Services                                                   The external ISDN30 product continued to see growth throughout the reporting period, due to
                                                                                                             customers switching from BT Retail to other CPs.
Definition
This market includes the relevant WLR services, providing the links between a residential end user and       Market: Traditional Interface Symmetric Broadband Origination (up to and
the remote concentrator unit by means of ISDN2 technology.
                                                                                                             including 8Mbit/s)
Digital ISDN2 exchange lines are basic rate ISDN lines, which provide a means to deploy a wide range
of digital services over a standard local loop. A single ISDN2 line supports two 64Kbit/s channels for       Definition
voice and data calls, plus a 16 Kbit/s channel for signalling.
                                                                                                             Traditional Interface Symmetric Broadband Origination (TISBO) services include:
Key Regulatory Changes
                                                                                                                 • Wholesale terminating segments (Partial Private Circuits (PPCs)
There have been no significant changes to this market in the year. However, Ofcom are currently                  • Radio Base Station (RBS) backhaul (but the core conveyance element of an RBS backhaul circuit
undertaking a consultation "A New Pricing Framework for Openreach" which relates to the future                     is included in the trunk segments market)
regulation of prices for products and services, in particular those within the Openreach copper access
portfolio, some of which are currently (price) regulated in the form of charge ceilings.                         • Local Loop Unbundling (LLU) backhaul which consists of LLU backhaul trunk and LLU backhaul
                                                                                                                   link. LLU backhaul links are regarded as a symmetric broadband origination service and should
Key Market Changes                                                                                                 therefore be included within the TISBO or AISBO markets, depending on the technology in use –
                                                                                                                   bandwidth considerations being taken into account in the case of the Synchronous Digital
The decline in turnover and costs for this market results from the reduction in volumes over the year as           Hierarchy (SDH) technology.
customers move from ISDN services to broadband.                                                                  • Symmetrical Digital Subscriber Line (SDSL)
ISDN2 Digital Home was withdrawn on 31 July 2007. Openreach no longer sells any residential ISDN2            Ofcom concluded that BT has Significant Market Power (SMP) in the low and high bandwidth TISBO
products.                                                                                                    markets and, as such, it is appropriate that regulation be imposed on all circuits and technical areas that
                                                                                                             fall within these markets, including RBS backhaul circuits. The majority of the regulation for these two
                                                                                                             markets is identical, and Ofcom therefore considered the regulatory remedies for these markets
Market: Wholesale Business ISDN30 Exchange Line Services                                                     together

Definition                                                                                                   Key Regulatory Changes
                                                                                                             PPCs are leased lines that BT sells to other network operators. On 1 October 2004, Ofcom introduced a
This market includes the relevant WLR services, providing the links between an end user and the remote
                                                                                                             PPC charge control to replace the annual determinations previously carried out by Oftel. The control
concentrator unit by means of ISDN30 technology.
                                                                                                             arises from regulation established in the Leased Lines Market Review (LLMR) and deals with PPC
Digital ISDN30 exchange lines are primary rate ISDN lines, which provide a means to deploy a wide            terminating segments (the ‘access’ part of the leased line network). The control is a four year RPI-X type
range of digital services over a 2Mbit/s bearer. A single ISDN30 line supports thirty 64Kbit/s channels      control with three separate baskets:
for voice and data calls, plus a 64 Kbit/s channel for signalling. ISDN30 lines are used only by business
                                                                                                                 • Low Bandwidth Basket (RPI-4%)
customers, and always in conjunction with a business Private Branch Exchange (PBX).
                                                                                                                 • High Bandwidth Basket (RPI-6.5%); and
Key Regulatory Changes                                                                                           • Equipment Basket (RPI-8.9%).
There have been no significant changes to this market in the year. However, Ofcom are currently              Charges prior to the control were maintained as starting charges and BT is required to make price
undertaking a consultation "A New Pricing Framework for Openreach" which relates to the future               reductions each year which comply with the controls. However, control formulae are constructed to
regulation of prices for products and services, in particular those within the Openreach copper access       allow BT some discretion in the timing of the price changes and the ability to meet the control by re-
portfolio, some of which are currently (price) regulated in the form of charge ceilings.                     balancing different elements of the PPC charges.

Key Market Changes                                                                                           Following a determination from Ofcom published in January 2007, BT introduced a monthly billing
                                                                                                             option for PPCs. This option was available from 1 January 2008. Prior to this date PPCs were billed
There have been no significant market changes in the year although channel volumes have risen slightly       quarterly in advance but customers now have the option of either monthly or quarterly in advance.
as customers maximise the utilisation of bearers.



                                                                                                        22
Section 3 - Review of Access Markets
In 2008 Ofcom published its consultation document on the Business Connectivity Market Review. It             part of the leased line network). The control is a four year RPI-X type control with three separate
proposed that charge controls for low bandwidth terminating segments should remain due to BT’s               baskets:
enduring SMP. However, it also proposed that RBS backhaul, SDSL and PPC ancillary services such as
excess construction charges should also be included in the charge controls, an extension of existing             • Low Bandwidth Basket (RPI-4%);
regulation. Ofcom’s Final Statement is due to be published later this year, followed by a separate               • High Bandwidth Basket (RPI-6.5%); and
consultation on specific charge control measures. The outcome of this statement will impact future               • Equipment Basket (RPI-8.9%).
years.
                                                                                                             Charges prior to the control were maintained as starting charges and BT is required to make price
Key Market changes                                                                                           reductions each year which comply with the controls. However, control formulae are constructed to
                                                                                                             allow BT some discretion in the timing of the price changes and the ability to meet the control by re-
There has been a migration of external customers from 64K/bit circuits to 2M/bit circuits. In addition       balancing different elements of the PPC charges.
the demand for Time Division Multiplexing (TDM) circuits has stagnated as customers anticipate
migration to 21CN services.                                                                                  Following a determination from Ofcom published in January 2007, BT introduced a monthly billing
                                                                                                             option for PPCs. This option was available from 1 January 2008. Prior to this date PPCs were billed
There has been a change to the presentation and calculation of service revenue. The increased level of       quarterly in advance but customers now have the option of either monthly or quarterly in advance.
granularity aims to improve the transparency of reporting as requested by Ofcom in their Explanatory
Statement and Notification entitled “Changes to BT’s 2007/08 Regulatory Financial Statements”                Earlier in 2008 Ofcom published its consultation document on the Business Connectivity Market
issued on 26 June 2008. As discussed further in note 2 and note 3 in Section 8.1 of these Current Cost       Review. Ofcom identified the following markets:
Financial Statements, the comparative results for the financial year ended 31 March 2007 for this                • High bandwidth Traditional Interface terminating segments at 34/45 Mb in the CELA area:
market have also been restated to reflect these changes.                                                           Ofcom identified a separate geographic market which roughly equates to the central London
                                                                                                                   congestion charging area and Docklands. BT would not have SMP in this area.
                                                                                                                 • High bandwidth Traditional Interface terminating segments at 34/45 Mb in the rest of the UK
Market: Traditional Interface Symmetric Broadband Origination (above 8Mbit/s                                       i.e. outside the CELA area: Ofcom proposed that BT would continue to have SMP in this market.
up to and including 155Mbit/s)                                                                                   • Very high bandwidth Traditional Interface termination segments at 155 Mb and above: Ofcom
                                                                                                                   has proposed that BT would not have SMP in this market.
Definition                                                                                                   Ofcom’s Final Statement is due to be published later this year followed by a separate consultation on
TISBO services include:                                                                                      specific charge control measures. The outcome of this statement will impact future years.

    • Wholesale terminating segments (PPCs),                                                                 Key Market Changes
    • RBS backhaul (but the core conveyance element of an RBS backhaul circuit is included in the            Despite some migration from the lower bandwidth market, significant competition has affected this
      trunk segments market)                                                                                 market. In addition customers are looking for 21st Century Network (21CN) alternatives where possible.
    • LLU backhaul which consists of LLU backhaul trunk and LLU backhaul link. LLU backhaul links
      are regarded as a symmetric broadband origination service and should therefore be included             There has been a change to the presentation and calculation of service revenue. The increased level of
      within the TISBO or AISBO markets, depending on the technology in use - bandwidth                      granularity aims to improve the transparency of reporting as requested by Ofcom in their Explanatory
      considerations being taken into account in the case of the SDH technology.                             Statement and Notification entitled “Changes to BT’s 2007/08 regulatory financial statements” issued
                                                                                                             on 26 June 2008. As discussed further in note 2 and note 3 in Section 8.1 of these Current Cost Financial
    • SDSL                                                                                                   Statements, the comparative results for the financial year ended 31 March 2007 for this market have
Ofcom concluded that BT has SMP in the low and high bandwidth TISBO markets and, as such, it is              also been restated to reflect these changes.
appropriate that regulation be imposed on all circuits and technical areas that fall within these markets,
including RBS backhaul circuits. The majority of the regulation for these two markets is identical, and
Ofcom therefore considered the regulatory remedies for these markets together.
                                                                                                             Market: Alternative Interface Symmetric Broadband Origination (all bandwidths)
Key Regulatory Changes                                                                                       Definition
PPCs are leased lines that BT sells to other network operators. On 1 October 2004, Ofcom introduced a
                                                                                                             Alternative Interface Symmetric Broadband Origination (AISBO) services include the following ethernet
PPC charge control to replace the annual determinations previously carried out by Oftel. The control
                                                                                                             services:
arises from regulation established in the LLMR and deals with PPC terminating segments (the ‘access’



                                                                                                        23
Section 3 - Review of Access Markets
    • Wholesale Extension Services (WES)                                                                    This market includes Local Loop Unbundling (LLU) services, including Metallic Path Facility (MPF) and
    • Backhaul Extension Services (BES)                                                                     Shared Metallic Path Facility (SMPF).
    • Backhaul Network Services (BNS)                                                                       Key Regulatory Changes
Ofcom concluded that BT has SMP in the Wholesale AISBO market (UK excluding Hull) and, as such, it
                                                                                                            There have been no significant changes to this market in the year. However, Ofcom are currently
is appropriate that regulation be imposed on all bandwidths that fall within this market. These products
                                                                                                            undertaking a consultation "A New Pricing Framework for Openreach" which relates to the future
are covered by the Undertakings obligations and as such are managed out of Openreach.
                                                                                                            regulation of prices for products and services, in particular those within the Openreach copper access
                                                                                                            portfolio, some of which are currently (price) regulated in the form of charge ceilings.
Key Regulatory Changes
WES and BES are specifically covered by the Undertakings, and as such are managed out of Openreach.         Key Market Changes
BNS was developed since the Undertakings were agreed but is also covered by these obligations and
                                                                                                            There has been continued growth in external LLU lines in the last 12 months. The total number of
hence also be managed out of Openreach.
                                                                                                            external LLU lines had grown for MPF from 485,000 to 1,200,000 (872,000 mid year volume) lines
There have been no key regulatory changes affecting these products in the 2007/08 period that is the        and for SMPF from 1,425,000 to 3,000,000 lines (2,323,000 mid year volume).
subject of these accounts. It is worth noting that Ofcom are consulting on the Business Connectivity
                                                                                                            The market has also seen significant churn via ceases and migrations, as end users switch regularly
Market in their Business Connectivity Market Review (BCMR) and a statement is expected later in 2008.
                                                                                                            between different consumer broadband providers.
Key Market Changes                                                                                          The market has seen significantly reduced growth in LLU Room Builds. The large LLU providers,
                                                                                                            comfortable in the fact that LLU offers them the most cost effective solution to deliver broadband
WES volumes have showed continued growth driven by migration of services from legacy networks, and          services, have been striving to maximise their LLU footprints across UK exchanges as quickly as possible.
increased demand for high bandwidth access products. BES volumes have shown strong growth mainly            In total 1,607 new POPs were handed over this year, compared to 4,467 last year. New Room Builds
due to demand generated by expansion into new exchange areas and increased sales of broadband               have peaked and are forecasted to be considerably lower next year.
services in existing exchange areas by LLU providers. BNS is a new high speed point to point single un-
contended data circuit that will enable operators to provide a link between the digital local exchange
co-mingling site(s) or Base Station Controller site(s) and an aggregation point at a BT location. This
service was launched during the financial year.
There has been a change to the presentation of service revenue during the year. The increased level of
granularity aims to improve the transparency of reporting as requested by Ofcom in their Explanatory
Statement and Notification entitled “Changes to BT’s 2007/08 Regulatory Financial Statements”
issued on 26 June 2008. The increased disaggregation of the turnover has meant it has not been
possible to show prior year comparatives as agreed with Ofcom.
As discussed further in note 3, the prior year comparatives have been restated to reflect the restatement
in Openreach’s segmental results in BT Group plc’s Annual Report and Accounts for the year ended 31
March 2008.



Market: Wholesale Local Access
Definition
Ofcom has determined that BT has significant market power in the market for "Wholesale Local Access
in the UK excluding the Hull Area". Local Access can be defined as those network elements that
comprise metallic loop access networks or 'cable' access networks, between end user premises and the
facility at which those access networks connect to other communications infrastructure. In practice, this
is generally a Main Distribution Frame (for a metallic loop access network) or a cable head-end (for a
'cable' access network).



                                                                                                       24
Section 3 - Review of Access Markets
Section 3.3 - Wholesale residential analogue exchange line services (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Wholesale residential analogue exchange line services
Summary
                                       Internal Sales -   Internal Sales -                                                                                                                                                                                 Return on
                                         services only      services also                                                                                                                                  Total CCA                                Mean       mean
                                              provided           provided          External                      Turnover    Operating                      Holding Supplementary        Other             operating                 Return on     capital    capital
                                             internally         externally           Sales       Roundings        (note 1)      costs Depreciation       (gain)/loss  depreciation adjustments   Roundings      costs       Return    turnover   employed employed
                                                    £m                 £m               £m             £m              £m          £m          £m                £m            £m          £m          £m         £m           £m                     £m

2008                                                 -             1,719               217                 -        1,936       1,049         484             (199)          114          113           1       1,562         374       19.3 %      5,875       6.3 %
2007                                                 -             1,795               230                 -        2,025       1,142         511             (350)          126          407           2       1,838         187        9.2 %      6,196       3.0 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                                  Non-discrimination                                                              Cost orientation

                                                                             Internal Sales - Internal Sales -
                                                                               services also services only                                                                                                               Unaudited
                                                                                    provided         provided     External                                                           Average      FAC (see Unaudited         LRIC     Average
                                                                                  externally        internally      Sales    Roundings   Turnover          Volume Unit (b)              price    Section 6) LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2008                                                         £m              £m            £m          £m          £m                                           £           £           £            £
Service
Wholesale residential analogue internal service rentals                               1,641                -            -           -        1,641      16,295,298 line                100.68       112.94       75.26      142.25        0.89
Wholesale residential analogue external service rentals                                   -                -          217           -          217       2,154,302 line                100.68       114.20       76.40      149.81        0.88
                                                                                                                                                        18,449,600

Wholesale residential analogue internal service connections                              78                -            -           -              78     882,317 conn                  88.00        78.93       73.56       98.76        1.11

Roundings                                                                                  -               -            -           -              -

                                                                                      1,719                -          217           -        1,936


for the year ended 31 March 2007
Service
Wholesale residential analogue internal service rentals                               1,699                -            -           -        1,699      16,870,788 line                100.68       124.89       67.16      151.43        0.81
Wholesale residential analogue external service rentals                                   -                -          230           -          230       2,287,192 line                100.68       122.28       64.52      149.61        0.82
                                                                                                                                                        19,157,980

Wholesale residential analogue internal service connections                              96                -            -           -              96    1,091,571 conn                 88.00        53.25       50.14       61.90        1.65

Roundings                                                                                  -               -            -           -              -

                                                                                      1,795                -          230           -        2,025




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                              25
Section 3 - Review of Access Markets
Section 3.4 - Wholesale business analogue exchange line services (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Wholesale business analogue exchange line services
Summary
                                       Internal Sales -   Internal Sales -                                                                                                                                                                                Return on
                                         services only      services also                                                                                                                                 Total CCA                                Mean       mean
                                              provided           provided          External                      Turnover    Operating                     Holding Supplementary        Other             operating                 Return on     capital   capital
                                             internally         externally           Sales       Roundings        (note 1)      costs Depreciation      (gain)/loss  depreciation adjustments   Roundings      costs       Return    turnover   employed employed
                                                    £m                 £m               £m             £m              £m          £m          £m               £m            £m          £m          £m         £m           £m                     £m

2008                                                 -               553               181                 -          734         387         153             (59)           34           37            5        557         177       24.1 %     1,857       9.5 %
2007                                                 -               596               145                 -          741         368         155             (98)           35          112           (1)       571         170       23.0 %     1,808       9.4 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                                  Non-discrimination                                                             Cost orientation

                                                                             Internal Sales - Internal Sales -
                                                                               services also services only                                                                                                              Unaudited
                                                                                    provided         provided     External                                                          Average      FAC (see Unaudited         LRIC     Average
                                                                                  externally        internally      Sales    Roundings   Turnover         Volume Unit (b)              price    Section 6) LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2008                                                         £m              £m            £m          £m          £m                                          £           £           £            £
Service
Wholesale business analogue internal service rentals                                    488                -            -           -          488      4,434,117 line                110.00       106.90       71.82      135.83        1.03
Wholesale business analogue external service rentals                                      -                -          155           -          155      1,405,512 line                110.00       107.26       72.13      138.96        1.03
                                                                                                                                                        5,839,629

Wholesale business analogue internal service connections                                 60                -            -           -              60    685,129 conn                  88.00        79.38       73.96      101.04        1.11
Wholesale business analogue external service connections                                  -                -           23           -              23    262,834 conn                  88.00        78.99       73.57      101.53        1.11
                                                                                                                                                         947,963

Wholesale business analogue internal service takeovers                                     5               -            -           -              5    2,747,690 tover                  2.00       10.51        9.24       21.59        0.19
Wholesale business analogue external service transfers                                     -               -            3           -              3    1,561,216 transfer               2.00        9.81        8.51       19.41        0.20
                                                                                                                                                        4,308,906

Roundings                                                                                  -               -            -           -              -

                                                                                        553                -          181           -          734


for the year ended 31 March 2007
Service
Wholesale business analogue internal service rentals                                    516                -            -           -          516      4,693,937 line                110.00       113.09       60.29      138.61        0.97
Wholesale business analogue external service rentals                                      -                -          126           -          126      1,145,742 line                110.00       112.54       59.71      138.92        0.98
                                                                                                                                                        5,839,679

Wholesale business analogue internal service connections                                 74                -            -           -              74     839,532 conn                 88.00        58.99       55.65       68.18        1.49
Wholesale business analogue external service connections                                  -                -           14           -              14     162,494 conn                 88.00        58.70       55.39       74.94        1.50
                                                                                                                                                        1,002,026

Wholesale business analogue internal service takeovers                                     6               -            -           -              6    3,022,557 tover                  2.00        4.14        2.98        6.64        0.48
Wholesale business analogue external service transfers                                     -               -            5           -              5    2,657,112 transfer               2.00       11.73       10.31       23.10        0.17
                                                                                                                                                        5,679,669

Roundings                                                                                  -               -            -           -              -

                                                                                        596                -          145           -          741




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                         26
Section 3 - Review of Access Markets
Section 3.5 - Wholesale business ISDN2 exchange line services (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Wholesale business ISDN2 exchange line services
Summary
                                       Internal Sales -    Internal Sales -                                                                                                                                                                                 Return on
                                          services only      services also                                                                                                                                 Total CCA                                 Mean       mean
                                               provided           provided          External                      Turnover    Operating                     Holding Supplementary        Other             operating                  Return on     capital   capital
                                              internally         externally           Sales       Roundings        (note 1)      costs Depreciation      (gain)/loss  depreciation adjustments   Roundings      costs       Return     turnover   employed employed
                                                    £m                  £m               £m             £m              £m          £m          £m               £m            £m          £m          £m         £m           £m                      £m

2008                                                  -               138                 47                -          185          59          42             (8)             2            7           3         105            80      42.8 %       296      26.7 %
2007                                                  -               155                 36                -          191          66          50            (13)             1           19           5         128            63      32.7 %       318      19.6 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                                   Non-discrimination                                                             Cost orientation

                                                                              Internal Sales - Internal Sales -
                                                                                services also services only                                                                                                              Unaudited
                                                                                     provided         provided     External                                                          Average      FAC (see Unaudited         LRIC      Average
                                                                                   externally        internally      Sales    Roundings   Turnover        Volume Unit (b)               price    Section 6) LRIC Floor     Ceiling    price/FAC
for the year ended 31 March 2008                                                          £m              £m            £m          £m          £m                                          £           £           £            £
Service
Wholesale business ISDN2 internal service rentals                                        119                -            -           -          119      1,081,377 chann               110.00        85.60       62.62      113.74         1.29
Wholesale business ISDN2 external service rentals                                          -                -           38           -           38        347,538 chann               110.00        86.14       63.13      115.89         1.28
                                                                                                                                                         1,428,915

Wholesale business ISDN2 internal service connections                                     19                -            -           -              19    161,615 chann                116.49        40.50       37.81       51.58         2.88
Wholesale business ISDN2 external service connections                                      -                -            8           -               8     67,093 chann                116.48        51.75       48.68       76.22         2.25
                                                                                                                                                          228,708

Wholesale business ISDN2 internal service takovers                                          0               -            -           -              0      47,979 chann                   5.65       19.99       18.90       40.67         0.28
Wholesale business ISDN2 external service transfers                                         -               -            1           -              1     119,594 chann                   5.65       14.29       13.38       28.36         0.40
                                                                                                                                                          167,573

Roundings                                                                                   -               -            -           -              -

                                                                                         138                -           47           -          185


for the year ended 31 March 2007
Service
Wholesale business ISDN2 internal service rentals                                        132                -            -           -          132      1,201,133 chann               110.00       103.65       71.70      129.90         1.06
Wholesale business ISDN2 external service rentals                                          -                -           28           -           28        258,193 chann               110.00       104.52       72.53      131.89         1.05
                                                                                                                                                         1,459,326

Wholesale business ISDN2 internal service connections                                     23                -            -           -              23    194,848 chann                116.50        32.88       31.07       38.63         3.54
Wholesale business ISDN2 external service connections                                      -                -            7           -               7     59,980 chann                116.49        40.86       38.80       56.49         2.85
                                                                                                                                                          254,828

Wholesale business ISDN2 internal service takovers                                          0               -            -           -              0      38,565 chann                   5.65        2.36        1.75        3.68         2.39
Wholesale business ISDN2 external service transfers                                         -               -            1           -              1     108,894 chann                   5.65       10.47        9.61       21.93         0.54
                                                                                                                                                          147,459

Roundings                                                                                   -               -            -           -              -

                                                                                         155                -           36           -          191




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                            27
Section 3 - Review of Access Markets
Section 3.6 - Wholesale residential ISDN2 exchange line services (Annex 12)
Market summary
                                                                                                                                  obligations
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with non discrimination o
Wholesale residential ISDN2 exchange line services
Summary
                                       Internal Sales -    Internal Sales -                                                                                                                                                                           Return on
                                         services only       services also                                                                                                                                Total CCA                            Mean       mean
                                              provided            provided          External                      Turnover    Operating                    Holding Supplementary        Other             operating             Return on     capital    capital
                                             internally          externally           Sales       Roundings        (note 1)      costs Depreciation     (gain)/loss  depreciation adjustments   Roundings      costs   Return    turnover   employed employed
                                                    £m                  £m               £m             £m              £m          £m          £m              £m            £m          £m          £m         £m       £m                     £m

2008                                                   -                0                   -               -            0           0              0          0              0            0           -          0        0       0.0 %          0        0.0 %
2007                                                   -                5                   -               -            5           0              1          0              0            0           2          3        2      40.4 %          8       25.3 %




                                                                                                                               Non-discrimination

                                                                              Internal Sales - Internal Sales -
                                                                                services also services only
                                                                                     provided         provided     External                                                         Average
                                                                                   externally        internally      Sales    Roundings   Turnover       Volume Unit (b)               price
for the year ended 31 March 2008                                                          £m              £m            £m          £m          £m                                         £
Service
Wholesale residential ISDN2 internal service connections                                    0               -            -           -              0         19 conn                 116.49

Wholesale residential ISDN2 internal service rentals                                        0               -            -           -              0      1,307 chann                135.36

Roundings                                                                                   -               -            -           -              -

                                                                                            0               -            -           -              0


for the year ended 31 March 2007
Service
Wholesale residential ISDN2 internal service connections                                    0               -            -           -              0         444 conn                116.49

Wholesale residential ISDN2 internal service rentals                                        5               -            -           -              5     35,004 chann                135.36
Wholesale residential ISDN2 external service rentals                                        -               -             -          -              -        -                          -
                                                                                                                                                          35,004

Roundings                                                                                   -               -            -           -              -

                                                                                            5               -             -          -              5




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                         28
Section 3 - Review of Access Markets
Section 3.7 - Wholesale business ISDN30 exchange line services (Annex 12)
Market summary
                                                                                                                                  obligations
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with non discrimination o
Wholesale business ISDN30 exchange line services
Summary
                                       Internal Sales -   Internal Sales -                                                                                                                                                                            Return on
                                         services only      services also                                                                                                                                 Total CCA                            Mean       mean
                                              provided           provided          External                      Turnover    Operating                     Holding Supplementary        Other             operating             Return on     capital   capital
                                             internally         externally           Sales       Roundings        (note 1)      costs Depreciation      (gain)/loss  depreciation adjustments   Roundings      costs   Return    turnover   employed employed
                                                    £m                 £m               £m             £m              £m          £m          £m               £m            £m          £m          £m         £m       £m                     £m

2008                                                 -               270                 69                -          339          99          55              (6)            (2)          0           3        149      190      56.2 %        295      64.5 %
2007                                                 -               286                 48                -          334          87          57              (3)            (2)         14           3        156      178      53.7 %        336      53.4 %




                                                                                                                              Non-discrimination

                                                                             Internal Sales - Internal Sales -
                                                                               services also services only
                                                                                    provided         provided     External                                                          Average
                                                                                  externally        internally      Sales    Roundings   Turnover        Volume Unit (b)               price
for the year ended 31 March 2008                                                         £m              £m            £m          £m          £m                                          £
Service
Wholesale business ISDN30 internal service connections                                     9               -            -           -              9     210,322 conn                  40.71
Wholesale business ISDN30 external service connections                                     -               -            3           -              3      82,404 chann                 40.71
                                                                                                                                                         292,726

Wholesale business ISDN30 internal service rentals                                      260                -            -           -          260      1,846,394 chann               141.00
Wholesale business ISDN30 external service rentals                                        -                -           65           -           65        458,317 chann               141.00
                                                                                                                                                        2,304,711

Wholesale business ISDN30 internal service takeovers                                       1               -            -           -              1     158,934 chann                   3.98
Wholesale business ISDN30 external service transfer                                        -               -            1           -              1     188,150 chann                   3.98
                                                                                                                                                         347,084

Roundings                                                                                  -               -            -           -              -

                                                                                        270                -           69           -          339


for the year ended 31 March 2007
Service
Wholesale business ISDN30 internal service connections                                   13                -            -           -              13    327,499 conn                  40.71
Wholesale business ISDN30 external service connections                                    -                -            3           -               3     81,409 chann                 40.71
                                                                                                                                                         408,908

Wholesale business ISDN30 internal service rentals                                      273                -            -           -          273      1,938,413 chann               141.00
Wholesale business ISDN30 external service rentals                                        -                -           44           -           44        312,237 chann               141.00
                                                                                                                                                        2,250,650

Wholesale business ISDN30 internal service takeovers                                       0               -            -           -              0      44,271 chann                   3.98
Wholesale business ISDN30 external service transfer                                        -               -            1           -              1     142,466 chann                   3.98
                                                                                                                                                         186,737

Roundings                                                                                  -               -            -           -              -

                                                                                        286                -           48           -          334




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                         29
Section 3 - Review of Access Markets
Section 3.8 - TISBO (up to and including 8Mbit/s) (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Traditional interface symmetric broadband origination (up to and including 8Mbit/s)
Summary
                                         Internal Sales -   Internal Sales -                                                                                                                                                                                       Return on
                                           services only      services also                                                                                                                                      Total CCA                                Mean         mean
                                                provided           provided          External                      Turnover    Operating                     Holding Supplementary        Other                  operating                Return on      capital      capital
                                               internally         externally           Sales       Roundings        (note 1)      costs Depreciation      (gain)/loss  depreciation adjustments     Roundings         costs      Return    turnover    employed    employed
                                                      £m                 £m               £m             £m              £m          £m          £m               £m            £m          £m            £m            £m          £m                      £m

2008                                                   -               303               333                 -          636         360         216             (16)           (20)         (9)             8         539           97      15.2 %        1,099         8.8 %
2007 (Restated)                                        -               335               306                 -          641         361         249              (8)           (26)         65              3         644           (3)     (0.7)%        1,315        (0.3)%




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                                    Non-discrimination                                                                                         Cost orientation

                                                                               Internal Sales - Internal Sales -
                                                                                 services also services only                                                                           Average      Proportion                                        Unaudited
                                                                                      provided         provided     External                                                          price per    included in    Average      FAC (see Unaudited         LRIC      Average
                                                                                    externally        internally      Sales    Roundings   Turnover        Volume Unit (b)            price list   calculation       price    Section 6) LRIC Floor     Ceiling    price/FAC
for the year ended 31 March 2008                                                           £m              £m            £m          £m          £m                                           £                          £           £           £            £
Service
Internal Partial and Private Circuits 64Kbit/s - connection                                  1               -            -           -              1       1,836 cct                                              499.94     2,740.53    2,540.43     4,554.26         0.18
External Partial and Private Circuits 64Kbit/s - connection                                  -               -            1           -              1       2,198 cct                                              499.94     2,740.53    2,540.43     4,554.26         0.18
                                                                                                                                                             4,034
Partial and Private Circuits 64Kbit/s - link
Main link fixed charge per year                                                                                                                                                           62.81           1.00       62.81
Enhanced maintenance fixed charge per year                                                                                                                                                40.31           0.18        7.18
Total Internal                                                                             19                -            -           -              19    271,663 lk                                                69.99       159.98      147.28      237.68          0.44

Main link fixed charge per year                                                                                                                                                           62.81           1.00       62.81
Enhanced maintenance fixed charge per year                                                                                                                                                40.31           0.18        7.18
Total External                                                                               -               -            7           -              7      98,268 lk                                                69.99       159.98      147.28      237.68          0.44

Partial and Private Circuits 64Kbit/s - transmission
Terminating segment charge per year                                                                                                                                                        1.75           1.00        1.75
Enhanced maintenance per kilometre charge per year                                                                                                                                         0.01           1.00        0.01
Total Internal                                                                             12                -            -           -              12   6,653,640 km                                                1.76         4.55        3.25       11.04          0.39

Terminating segment charge per year                                                                                                                                                        1.75           1.00        1.75
Enhanced maintenance per kilometre charge per year                                                                                                                                         0.01           1.00        0.01
Total External                                                                               -               -            4           -              4    2,406,809 km                                                1.76         4.55        3.25       11.04          0.39

Partial and Private Circuits 64Kbit/s - local end
Local end fixed charge per year                                                                                                                                                          289.67           0.77      222.76
Enhanced maintenance fixed charge per year                                                                                                                                                40.31           0.63       25.47
Total Internal                                                                             23                -            -           -              23     90,845 le                                               248.23       747.80      658.05     1,047.25         0.33

Local end fixed charge per year                                                                                                                                                          289.67           1.00      289.67
Enhanced maintenance fixed charge per year                                                                                                                                                40.31           0.82       33.13
Total External                                                                               -               -            6           -              6      17,606 le                                               322.80       747.80      658.05     1,047.25         0.43




                                                                                                                                                           30
Section 3 - Review of Access Markets
Section 3.8 - TISBO (up to and including 8Mbit/s) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                         Non-discrimination                                                                             Cost orientation

                                                                     Internal Sales - Internal Sales -
                                                                       services also services only                                                               Average       Proportion                                      Unaudited
                                                                            provided         provided    External                                                price per    included in   Average     FAC (see Unaudited         LRIC      Average
                                                                          externally        internally     Sales    Roundings   Turnover       Volume Unit (b)   price list   calculation      price   Section 6) LRIC Floor     Ceiling    price/FAC
for the year ended 31 March 2008                                                 £m              £m           £m          £m          £m                                 £                        £           £           £            £
Partial and Private Circuits 2Mbit/s - connection
Internal Partial and Private Circuits 2Mbit/s - connection                       14                -           -           -              14     8,389 cct                                  1,695.04    1,599.18    1,476.47     2,622.55        1.06
External Partial and Private Circuits 2Mbit/s - connection                        -                -          27           -              27    15,758 cct                                  1,690.26    1,599.18    1,476.47     2,622.55        1.06
                                                                                                                                                24,147
Partial and Private Circuits 2Mbit/s - link
Main link fixed charge per year                                                                                                                                     410.00           1.00     410.00
Enhanced maintenance fixed charge per year                                                                                                                          131.79           0.40      53.06
Total Internal                                                                   43                -           -           -              43    92,112 lk                                     463.06      339.22      284.97      576.13         1.37

Main link fixed charge per year                                                                                                                                     795.30           1.00     795.30
Enhanced maintenance fixed charge per year                                                                                                                          131.79           0.40      53.06
Total External                                                                     -               -          50           -              50    59,307 lk                                     848.36      339.22      284.97      576.13         2.50

Partial and Private Circuits 2Mbit/s - distribution
Terminating segment charge per year                                                                                                                                  45.34           1.00      45.34
Enhanced maintenance per kilometre charge per year                                                                                                                    1.48           1.00       1.48
Total Internal                                                                   42                -           -           -              42   904,552 km                                      46.82       50.09       41.41       93.54         0.93

Terminating segment charge per year                                                                                                                                  45.34           1.00      45.34
Enhanced maintenance per kilometre charge per year                                                                                                                    1.48           1.00       1.48
Total External                                                                     -               -          25           -              25   541,554 km                                      46.82       50.09       41.41       93.54         0.93

Partial and Private Circuits 2Mbit/s - local end CLZ
Local end fixed charge per year                                                                                                                                     392.38           0.77     301.74
Enhanced maintenance fixed charge per year                                                                                                                          131.08           0.38      49.43
Total internal CLZ                                                                 7               -           -           -              7     19,890 le                                     351.17

Partial and Private Circuits 2Mbit/s - local end non CLZ
Local end fixed charge per year                                                                                                                                     691.92           0.77     532.09
Enhanced maintenance fixed charge per year                                                                                                                          132.49           0.48      63.85
Total internal non CLZ                                                           86                -           -           -              86   144,849 le                                     595.94

Partial and Private Circuits 2Mbit/s - local end CLZ
Local end fixed charge per year                                                                                                                                     392.38           1.00     392.38
Enhanced maintenance fixed charge per year                                                                                                                          131.08           0.49      64.28
Total External CLZ                                                                 -               -           1           -              1      2,638 le                                     456.66

Partial and Private Circuits 2Mbit/s - local end non CLZ
Local end fixed charge per year                                                                                                                                     691.92           1.00     691.92
Enhanced maintenance fixed charge per year                                                                                                                          132.49           0.63      83.03
Total External non CLZ                                                             -               -          41           -              41    52,409 le                                     774.95

Weighted average price for CLZ/non CLZ // Nationally averaged cost                                                                                                                            614.80    1,043.48      760.65     1,382.02        0.59




                                                                                                                                               31
Section 3 - Review of Access Markets
Section 3.8 - TISBO (up to and including 8Mbit/s) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                           Non-discrimination                                                                                   Cost orientation

                                                                         Internal Sales - Internal Sales -
                                                                           services also services only                                                                   Average       Proportion                                       Unaudited
                                                                                provided         provided    External                                                    price per    included in   Average     FAC (see Unaudited          LRIC      Average
                                                                              externally        internally     Sales Roundings       Turnover          Volume Unit (b)   price list   calculation      price   Section 6) LRIC Floor      Ceiling    price/FAC
for the year ended 31 March 2008                                                     £m              £m          £m          £m            £m                                   £                         £           £           £             £

Internal SDSL                                                                        12                -          -            -            12             (u2)                                         (s2)      281.76      228.88       489.45          n/a

External Radio Backhaul Service - sub 2 Mbit/s connection                             -                -          0            -             0             235 cct                                    499.94    2,850.24    2,643.25      4,715.00        0.18

External Radio Backhaul Service - sub 2 Mbit/s rentals                                 -               -         16            -            16             (u3)                                         (s3)    1,037.14      925.65      1,493.49         n/a

External Radio Backhaul Service - 2 Mbit/s connection                                  -               -         25            -            25           4,488 cct                                  5,502.61    1,759.20    1,626.33      2,845.45        3.13

External Radio Backhaul Service - 2 Mbit/s rentals                                     -               -         89            -            89             (u3)                                         (s3)    1,840.12    1,440.51      2,710.16         n/a
Support Service
Internal Third Party Customer Infrastructure                                         21                -          -            -            21             (u1)                                         (s1)
External Third Party Customer Infrastructure                                          -                -         32            -            32             (u1)                                         (s1)

Internal Protected Path Variants and Resilience                                        7               -          -            -             7             (u5)                                         (s5)
External Protected Path Variants and Resilience                                        -               -          4            -             4             (u5)                                         (s5)
                                                                                                                                                                                                                                  (s)

Internal Excess construction charges                                                 16                -          -            -            16             (u1)                                         (s1)
External Excess construction charges                                                  -                -          5            -             5             (u1)                                         (s1)

Roundings                                                                              -               -          -            -             -

                                                                                    303                -        333            -           636




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(s) Costs associated with support services are included within the above reported services and hence not disclosed separately.




                                                                                                                                                      32
Section 3 - Review of Access Markets
Section 3.8 - TISBO (up to and including 8Mbit/s) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                  Non-discrimination                                                                              Cost orientation

                                                              Internal Sales - Internal Sales -
                                                                services also services only                                                                Average       Proportion                                      Unaudited
                                                                     provided         provided    External                                                 price per    included in   Average     FAC (see Unaudited         LRIC     Average
                                                                   externally        internally     Sales    Roundings   Turnover        Volume Unit (b)   price list   calculation      price   Section 6) LRIC Floor     Ceiling   price/FAC

Restated for the year ended 31 March 2007                                 £m              £m           £m          £m          £m                                  £                        £           £           £            £
Service
Internal Partial and Private Circuits 64Kbit/s - connection                 1                -          -           -              1       2,504 cct                                    499.94      483.98      441.69      742.65        1.03
External Partial and Private Circuits 64Kbit/s - connection                 -                -          2           -              2       3,317 cct                                    499.94      483.98      441.69      742.65        1.03
                                                                                                                                           5,821
Partial and Private Circuits 64Kbit/s - link
Main link fixed charge per year                                                                                                                               62.81           1.00      62.81
Enhanced maintenance fixed charge per year                                                                                                                    40.31           0.18       7.18
Total Internal                                                            23                 -           -          -              23    329,376 lk                                      69.99      118.38      106.08      160.94        0.59

Main link fixed charge per year                                                                                                                               62.81           1.00      62.81
Enhanced maintenance fixed charge per year                                                                                                                    40.31           0.18       7.18
Total External                                                              -                -          8           -              8     113,894 lk                                      69.99      118.38      106.08      160.94        0.59

Partial and Private Circuits 64Kbit/s - transmission
Terminating segment charge per year                                                                                                                            3.82           1.00       3.82
Enhanced maintenance per kilometre charge per year                                                                                                             0.01           1.00       0.01
Total Internal                                                            32                 -           -          -              32   8,317,050 km                                      3.83        5.62        3.77       19.05        0.68

Terminating segment charge per year                                                                                                                            3.82           1.00       3.82
Enhanced maintenance per kilometre charge per year                                                                                                             0.01           1.00       0.01
Total External                                                              -                -         11           -              11   2,875,930 km                                      3.83        5.62        3.77       19.05        0.68

Partial and Private Circuits 64Kbit/s - local end
Local end fixed charge per year                                                                                                                              289.67           0.77     223.05
Enhanced maintenance fixed charge per year                                                                                                                    40.31           0.63      25.51
Total Internal                                                            30                 -           -          -              30    121,106 le                                     248.56      496.54      414.23      655.89        0.50

Local end fixed charge per year                                                                                                                              289.67           1.00     289.67
Enhanced maintenance fixed charge per year                                                                                                                    40.31           0.82      33.13
Total External                                                              -                -          9           -              9      27,214 le                                     322.80      496.54      414.23      655.89        0.65




                                                                                                                              33
Section 3 - Review of Access Markets
Section 3.8 - TISBO (up to and including 8Mbit/s) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                            Non-discrimination                                                                             Cost orientation

                                                                        Internal Sales - Internal Sales -
                                                                          services also services only                                                               Average       Proportion                                      Unaudited
                                                                               provided         provided    External                                                price per    included in   Average     FAC (see Unaudited         LRIC      Average
                                                                             externally        internally     Sales    Roundings   Turnover       Volume Unit (b)   price list   calculation      price   Section 6) LRIC Floor     Ceiling    price/FAC

Restated for the year ended 31 March 2007                                           £m              £m           £m          £m          £m                                 £                        £           £           £            £
Partial and Private Circuits 2Mbit/s - connection
Internal Partial and Private Circuits 2Mbit/s - connection                          16                 -          -           -              16     9,182 cct                                  1,711.02    1,724.40    1,652.17     2,425.00        0.99
External Partial and Private Circuits 2Mbit/s - connection                           -                 -         37           -              37    12,504 cct                                  2,986.78    1,724.40    1,652.17     2,425.00        1.73
                                                                                                                                                   21,686
Partial and Private Circuits 2Mbit/s - link
Main link fixed charge per year                                                                                                                                       416.09           1.00     416.09
Enhanced maintenance fixed charge per year                                                                                                                            133.74           0.38      50.49
Total Internal                                                                      46                 -           -          -              46    98,882 lk                                     466.58      291.46      264.13      437.21         1.60

Main link fixed charge per year                                                                                                                                       416.09           2.36     981.90
Enhanced maintenance fixed charge per year                                                                                                                            133.74           0.38      50.49
Total External                                                                        -                -         42           -              42    41,131 lk                                   1,032.39      291.46      264.13      437.21         3.54

Partial and Private Circuits 2Mbit/s - distribution
Terminating segment charge per year                                                                                                                                    45.77           1.00      45.77
Enhanced maintenance per kilometre charge per year                                                                                                                      1.50           1.00       1.50
Total Internal                                                                      44                 -           -          -              44   920,668 km                                      47.27       60.25       45.96      151.29         0.78

Terminating segment charge per year                                                                                                                                    45.77           1.00      45.77
Enhanced maintenance per kilometre charge per year                                                                                                                      1.50           1.00       1.50
Total External                                                                        -                -         19           -              19   395,874 km                                      47.27       60.25       45.96      151.29         0.78

Partial and Private Circuits 2Mbit/s - local end non CLZ
Local end fixed charge per year                                                                                                                                       698.44           0.77     537.80
Enhanced maintenance fixed charge per year                                                                                                                            133.74           0.48      64.09
Total Internal non CLZ                                                              97                 -           -          -              97   161,153 le                                     601.89      936.02      621.09     1,153.97        0.64

Partial and Private Circuits 2Mbit/s - local end CLZ
Local end fixed charge per year                                                                                                                                       396.08           1.00     396.08
Enhanced maintenance fixed charge per year                                                                                                                            133.74           0.49      65.06
Total External CLZ                                                                    -                -          1           -              1      1,682 le                                     461.14

Partial and Private Circuits 2Mbit/s - local end non CLZ
Local end fixed charge per year                                                                                                                                       698.44           1.00     698.44
Enhanced maintenance fixed charge per year                                                                                                                            133.74           0.63      83.81
Total External non CLZ                                                                -                -         30           -              30    38,114 le                                     782.25

Weighted average price for external CLZ/non CLZ // Nationally averaged cost                                                                                                                     768.68       936.02      621.09     1,153.97        0.82




                                                                                                                                        34
Section 3 - Review of Access Markets
Section 3.8 - TISBO (up to and including 8Mbit/s)(continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                             Non-discrimination                                                                                 Cost orientation

                                                                         Internal Sales - Internal Sales -
                                                                           services also services only                                                                   Average       Proportion                                       Unaudited
                                                                                provided         provided    External                                                    price per    included in   Average     FAC (see Unaudited          LRIC      Average
                                                                              externally        internally     Sales    Roundings    Turnover          Volume Unit (b)   price list   calculation      price   Section 6) LRIC Floor      Ceiling    price/FAC

Restated for the year ended 31 March 2007                                            £m              £m           £m          £m           £m                                    £                        £           £           £             £

Internal SDSL                                                                          7               -            -          -              7            (u2)                                         (s2)      274.38      207.07       480.71          n/a

External Radio Backhaul Service - sub 2 mbit/s connection                              -               -           5           -              5            542 cct                                  9,814.87      494.99      451.56       734.62        19.83

External Radio Backhaul Service - sub 2 mbit/s rentals                                 -               -          13           -              13           (u3)                                         (s3)      641.73      543.04       857.93          n/a

External Radio Backhaul Service - 2 mbit/s connection                                  -               -          17           -              17         4,574 cct                                  3,819.70    1,756.88    1,680.57      2,408.95        2.17

External Radio Backhaul Service - 2 mbit/s rentals                                     -               -          69           -              69           (u3)                                         (s3)    1,471.00    1,073.19      2,006.84         n/a
Support Service
Internal Third Party Customer Infrastructure                                         22                -           -           -              22           (u1)                                         (s1)
External Third Party Customer Infrastructure                                          -                -          35           -              35           (u1)                                         (s1)

Internal Protected Path Variants and Resilience                                        7               -           -           -              7            (u5)                                         (s5)
External Protected Path Variants and Resilience                                        -               -           4           -              4            (u5)                                         (s5)
                                                                                                                                                                                                                                  (s)

Internal Excess construction charges                                                 10                -           -           -              10           (u1)                                         (s1)
External Excess construction charges                                                  -                -           4           -               4           (u1)                                         (s1)

Roundings                                                                              -               -            -          -              -

                                                                                    335                -         306           -           641




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(s) Costs associated with support services are included within the above reported services and hence not disclosed separately.




                                                                                                                                         35
Section 3 - Review of Access Markets
Section 3.9 - TISBO (above 8Mbit/s up to and including 155Mbit/s) (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Traditional interface symmetric broadband origination (above 8Mbit/s up to and including 155Mbit/s)
Summary
                                        Internal Sales -    Internal Sales -                                                                                                                                                                                       Return on
                                           services only      services also                                                                                                                                      Total CCA                                Mean         mean
                                                provided           provided          External                      Turnover    Operating                     Holding Supplementary        Other                  operating                Return on      capital     capital
                                               internally         externally           Sales       Roundings        (note 1)      costs Depreciation      (gain)/loss  depreciation adjustments     Roundings         costs      Return    turnover    employed    employed
                                                     £m                  £m               £m             £m              £m          £m          £m               £m            £m          £m            £m            £m          £m                      £m

2008                                                   -               141                 23               (3)         161          76          65              (5)           (13)         (3)            10         130           31      20.1 %         387         8.4 %
2007 (Restated)                                        -               144                 15                -          159          47          67              (2)           (16)         11              7         114           45      28.2 %         321        14.0 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                                    Non-discrimination                                                                                         Cost orientation

                                                                               Internal Sales - Internal Sales -
                                                                                 services also services only                                                                          Average       Proportion                                        Unaudited
                                                                                      provided         provided     External                                                          price per    included in    Average      FAC (see Unaudited         LRIC      Average
                                                                                    externally        internally      Sales    Roundings   Turnover        Volume Unit (b)            price list   calculation       price    Section 6) LRIC Floor     Ceiling    price/FAC
for the year ended 31 March 2008                                                           £m              £m            £m          £m          £m                                           £                          £           £           £            £
Service
Internal Partial and Private Circuits 34/45Mbit/s - connection                               0               -            -           -              0           85 cct                                            1,637.06    1,294.18    1,190.19     2,104.51        1.26
External Partial and Private Circuits 34/45Mbit/s - connection                               -               -            1           -              1          311 cct                                            1,637.06    1,294.18    1,190.19     2,104.51        1.26
                                                                                                                                                                396
Partial and Private Circuits 34/45Mbit/s - link
Main link fixed charge per year                                                                                                                                                        2,940.35           1.00     2,940.35
Enhanced maintenance fixed charge per year                                                                                                                                               200.54           0.47        95.22
Total Internal                                                                             10                -            -           -              10      3,159 lk                                              3,035.57    4,555.34    3,587.71     8,004.55        0.67

Main link fixed charge per year                                                                                                                                                        2,940.35           1.00     2,940.35
Enhanced maintenance fixed charge per year                                                                                                                                               200.54           0.47        95.22
Total External                                                                               -               -            4           -              4       1,244 lk                                              3,035.57    4,555.34    3,587.71     8,004.55        0.67

Partial and Private Circuits 34/45Mbit/s - distribution
Terminating segment charge per year                                                                                                                                                      461.67           1.00      461.67
Enhanced maintenance per kilometre charge per year                                                                                                                                         2.27           1.00        2.27
Total Internal                                                                             20                -            -           -              20     42,080 km                                               463.94       413.95      352.67      703.15         1.12

Terminating segment charge per year                                                                                                                                                      461.67           1.00      461.67
Enhanced maintenance per kilometre charge per year                                                                                                                                         2.27           1.00        2.27
Total External                                                                               -               -            6           -              6      13,575 km                                               463.94       413.95      352.67      703.15         1.12

Partial and Private Circuits 34/45Mbit/s - local end
Local end fixed charge per year                                                                                                                                                        3,252.44           0.77     2,501.13
Enhanced maintenance fixed charge per year                                                                                                                                               200.54           0.40        80.99
Total Internal                                                                             12                -            -           -              12      4,680 le                                              2,582.12    5,739.39    3,943.88     7,753.59        0.45

Local end fixed charge per year                                                                                                                                                        3,252.44           1.00     3,252.44
Enhanced maintenance fixed charge per year                                                                                                                                               200.54           0.53       105.32
Total External                                                                               -               -            4           -              4       1,218 le                                              3,357.76    5,739.39    3,943.88     7,753.59        0.59




                                                                                                                                                           36
Section 3 - Review of Access Markets
Section 3.9 - TISBO (above 8Mbit/s) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                             Non-discrimination                                                                                  Cost orientation

                                                                         Internal Sales - Internal Sales -
                                                                           services also services only                                                                   Average       Proportion                                        Unaudited
                                                                                provided         provided    External                                                    price per    included in   Average      FAC (see Unaudited          LRIC      Average
                                                                              externally        internally     Sales    Roundings    Turnover          Volume Unit (b)   price list   calculation      price    Section 6) LRIC Floor      Ceiling    price/FAC
for the year ended 31 March 2008                                                     £m              £m           £m          £m           £m                                    £                         £           £           £             £
Partial and Private Circuits 140/155Mbit/s - connection
Internal Partial and Private Circuits 140/155Mbit/s - connection                       0               -           -           -               0             8 cct                                   1,804.72    1,294.18    1,190.19      2,104.51        1.39
External Partial and Private Circuits 140/155Mbit/s - connection                       -               -           0           -               0            28 cct                                   1,804.72    1,294.18    1,190.19      2,104.51        1.39
                                                                                                                                                            36
Partial and Private Circuits 140/155Mbit/s - link
Main link fixed charge per year                                                                                                                                          10,391.84           1.00   10,391.84
Enhanced maintenance fixed charge per year                                                                                                                                  378.65           0.40      152.60
Total Internal                                                                       32                -           -           -              32         2,990 lk                                   10,544.44   15,862.59   12,259.80     29,877.75        0.66

Main link fixed charge per year                                                                                                                                          10,391.84           1.00   10,391.84
Enhanced maintenance fixed charge per year                                                                                                                                  378.65           0.40      152.60
Total External                                                                         -               -           2           -               2           153 lk                                   10,544.44   15,862.59   12,259.80     29,877.75        0.66

Partial and Private Circuits 140/155Mbit/s - distribution
Terminating segment charge per year                                                                                                                                       1,214.91           1.00    1,214.91
Enhanced maintenance per kilometre charge per year                                                                                                                            5.40           1.00        5.40
Total Internal                                                                       38                -           -           -              38        30,783 km                                    1,220.31      638.80      529.65      1,195.43        1.91

Terminating segment charge per year                                                                                                                                       1,214.91           1.00    1,214.91
Enhanced maintenance per kilometre charge per year                                                                                                                            5.40           1.00        5.40
Total External                                                                         -               -           3           -               3         2,097 km                                    1,220.31      638.80      529.65      1,195.43        1.91

Partial and Private Circuits 140/155Mbit/s - local end
Local end fixed charge per year                                                                                                                                          15,394.02           0.77   11,838.00
Enhanced maintenance fixed charge per year                                                                                                                                  378.65           0.46      173.83
Total Internal                                                                       19                -           -           -              19         1,596 le                                   12,011.83   14,640.20   10,167.72     18,974.36        0.82

Local end fixed charge per year                                                                                                                                          15,394.02           1.00   15,394.02
Enhanced maintenance fixed charge per year                                                                                                                                  378.65           0.60      226.05
Total External                                                                         -               -           1           -               1            85 le                                   15,620.07   14,640.20   10,167.72     18,974.36        1.07


Support Service
Internal Protected Path Variants and Resilience                                      10                -           -           -              10           (u4)                                          (s4)
External Protected Path Variants and Resilience                                       -                -           2           -               2           (u4)                                          (s4)
                                                                                                                                                                                                                                   (s)

Roundings                                                                              -               -           -          (3)             (3)

                                                                                    141                -          23          (3)          161




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(s) Costs associated with support services are included within the above reported services and hence not disclosed separately.




                                                                                                                                                      37
Section 3 - Review of Access Markets
Section 3.9 - TISBO (above 8Mbit/s) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                     Non-discrimination                                                                              Cost orientation

                                                                 Internal Sales - Internal Sales -
                                                                   services also services only                                                               Average       Proportion                                       Unaudited
                                                                        provided         provided    External                                                price per    included in   Average      FAC (see Unaudited         LRIC      Average
                                                                      externally        internally     Sales    Roundings   Turnover       Volume Unit (b)   price list   calculation      price    Section 6) LRIC Floor     Ceiling    price/FAC

Restated for the year ended 31 March 2007                                    £m              £m           £m          £m          £m                                 £                         £           £           £            £
Service
Internal Partial and Private Circuits 34/45Mbit/s - connection                 0               -           -           -              0         159 cct                                 1,716.05
External Partial and Private Circuits 34/45Mbit/s - connection                 -               -           0           -              0         276 cct                                 1,716.05
                                                                                                                                                435
Partial and Private Circuits 34/45Mbit/s - link
Main link fixed charge per year                                                                                                                              3,015.19           1.02    3,071.38
Enhanced maintenance fixed charge per year                                                                                                                     205.65           0.48       99.60
Total Internal                                                               11                -           -           -              11    3,406 lk                                     3,170.98    2,183.02    1,935.24     2,989.00        1.45

Main link fixed charge per year                                                                                                                              3,015.19           1.02    3,071.38
Enhanced maintenance fixed charge per year                                                                                                                     205.65           0.48       99.60
Total External                                                                 -               -           3           -              3     1,053 lk                                     3,170.98    2,183.02    1,935.24     2,989.00        1.45

Partial and Private Circuits 34/45Mbit/s - distribution
Terminating segment charge per year                                                                                                                            473.42           1.02     482.24
Enhanced maintenance per kilometre charge per year                                                                                                               2.33           1.02       2.37
Total Internal                                                               19                -           -           -              19   40,096 km                                      484.61       481.34      384.23     1,050.49        1.01

Terminating segment charge per year                                                                                                                            473.42           1.02     482.24
Enhanced maintenance per kilometre charge per year                                                                                                               2.33           1.02       2.37
Total External                                                                 -               -           5           -              5    10,519 km                                      484.61       481.34      384.23     1,050.49        1.01

Partial and Private Circuits 34/45Mbit/s - local end
Local end fixed charge per year                                                                                                                              3,346.81           0.78    2,625.21
Enhanced maintenance fixed charge per year                                                                                                                     205.65           0.41       84.60
Total Internal                                                               11                -           -           -              11    4,146 le                                     2,709.81    4,947.13    3,110.86     5,861.18        0.55

Local end fixed charge per year                                                                                                                              3,346.81           1.02    3,409.37
Enhanced maintenance fixed charge per year                                                                                                                     205.65           0.54      110.20
Total External                                                                 -               -           3           -              3         935 le                                   3,519.57    4,947.13    3,110.86     5,861.18        0.71




                                                                                                                                           38
Section 3 - Review of Access Markets
Section 3.9 - TISBO (above 8Mbit/s) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                           Non-discrimination                                                                                     Cost orientation

                                                                         Internal Sales - Internal Sales -
                                                                           services also services only                                                                   Average       Proportion                                         Unaudited
                                                                                provided         provided    External                                                    price per    included in    Average      FAC (see Unaudited          LRIC      Average
                                                                              externally        internally     Sales Roundings       Turnover          Volume Unit (b)   price list   calculation       price    Section 6) LRIC Floor      Ceiling    price/FAC
Restated for the year ended 31 March 2007                                            £m              £m          £m          £m            £m                                   £                           £           £           £             £
Partial and Private Circuits 140/155Mbit/s - connection
Internal Partial and Private Circuits 140/155Mbit/s - connection                      0                -          -            -             0              45 cct                                   1,804.72
External Partial and Private Circuits 140/155Mbit/s - connection                      -                -          0            -             0              23 cct                                   1,804.72
                                                                                                                                                            68
Partial and Private Circuits 140/155Mbit/s - link
Main link fixed charge per year                                                                                                                                          10,391.84          1.00    10,391.84
Enhanced maintenance fixed charge per year                                                                                                                                  378.65          0.40       152.60
Total Internal                                                                       31                -          -            -            31           2,903 lk                                    10,544.44    4,811.72    4,362.13      7,388.56        2.19

Main link fixed charge per year                                                                                                                                          10,391.84          1.00    10,391.84
Enhanced maintenance fixed charge per year                                                                                                                                  378.65          0.40       152.60
Total External                                                                        -                -          0            -             0              46 lk                                    10,544.44    4,811.72    4,362.13      7,388.56        2.19

Partial and Private Circuits 140/155Mbit/s - distribution
Terminating segment charge per year                                                                                                                                       1,214.91          1.00     1,214.91
Enhanced maintenance per kilometre charge per year                                                                                                                            5.40          1.00         5.40
Total Internal                                                                       35                -          -            -            35          28,622 km                                     1,220.31      523.81     409.57       1,294.92        2.33

Terminating segment charge per year                                                                                                                                       1,214.91          1.00     1,214.91
Enhanced maintenance per kilometre charge per year                                                                                                                            5.40          1.00         5.40
Total External                                                                        -                -          1            -             1             559 km                                     1,220.31      523.81     409.57       1,294.92        2.33

Partial and Private Circuits 140/155Mbit/s - local end
Local end fixed charge per year                                                                                                                                          15,394.02          0.77    11,853.40
Enhanced maintenance fixed charge per year                                                                                                                                  378.65          0.46       174.06
Total Internal                                                                       23                -          -            -            23           1,945 le                                    12,027.46   14,641.13    9,954.89     17,914.47        0.82

Local end fixed charge per year                                                                                                                                          15,394.02          1.00    15,394.02
Enhanced maintenance fixed charge per year                                                                                                                                  378.65          0.40       152.60
Total External                                                                        -                -          1            -             1              45 le                                    15,546.62   14,641.13    9,954.89     17,914.47        1.06


Support Service
Internal Protected Path Variants and Resilience                                      14                -          -            -            14             (u4)                                           (s4)
External Protected Path Variants and Resilience                                       -                -          2            -             2             (u4)                                           (s4)
                                                                                                                                                                                                                                    (s)

Roundings                                                                             -                -          -            -             -

                                                                                    144                -         15            -           159




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(s) Costs associated with support services are included within the above reported services and hence not disclosed separately.




                                                                                                                                                      39
Section 3 - Review of Access Markets
Section 3.10 - AISBO (Annex 11)
Market summary
                                                                                                                                              mination obligations
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrim
Alternative interface symmetric broadband origination (all bandwidths)
Summary
                                                  Internal Sales -    Internal Sales -                                                                                                                                                                                  Return on
                                                     services only      services also                                                                                                                                 Total CCA                                  Mean       mean
                                                          provided           provided          External                      Turnover    Operating                  Holding Supplementary        Other                operating                   Return on     capital   capital
                                                         internally         externally           Sales       Roundings        (note 1)      costs Depreciation   (gain)/loss  depreciation adjustments   Roundings         costs        Return     turnover   employed employed
                                                               £m                  £m               £m             £m              £m          £m          £m            £m            £m          £m          £m            £m            £m                      £m

2008                                                             -               266               174                (1)         439         109          83         (16)             0           (5)           2          173             266      61.0 %       862      31.1 %
2007 (Restated)                                                  -               252                90                 2          344          72          66          (4)             0           31            9          174             170      49.4 %       630      26.9 %



Note 1: Comparison of Average internal and external charges with each
other and with FAC                                                                                                                 Non-discrimination                                                                    Cost orientation

                                                                                         Internal Sales - Internal Sales -
                                                                                           services also services only
                                                                                                provided         provided     External                                                       Average      FAC (see    Unaudited      Unaudited     Average
                                                                                              externally        internally      Sales    Roundings   Turnover     Volume Unit (b)               price    Section 6)   LRIC Floor   LRIC Ceiling   price/FAC
for the year ended 31 March 2008                                                                     £m              £m            £m          £m          £m                                       £            £            £              £
Service
Internal Wholesale extension services 10Mbit rental                                                  83                -            -           -          83      24,441 line                3,408.00     2,715.91     1,088.72       3,482.11        1.25
External Wholesale extension services 10Mbit rental                                                   -                -            9           -           9       2,524 line                3,408.00     2,715.91     1,088.72       3,482.11        1.25
                                                                                                                                                                   26,965

Internal Wholesale extension services 100Mbit rental                                                 46                -            -           -          46       8,287 line                5,500.00     2,761.20     1,131.84       3,642.72        1.99
External Wholesale extension services 100Mbit rental                                                  -                -           28           -          28       5,055 line                5,500.00     2,761.20     1,131.84       3,642.72        1.99
                                                                                                                                                                   13,342

Internal Wholesale extension services 1000Mbit rental                                                16                -            -           -          16       1,031 line              15,556.00      3,332.46     1,588.66       5,019.26        4.67
External Wholesale extension services 1000Mbit rental                                                 -                -            5           -           5         348 line              15,556.00      3,332.46     1,588.66       5,019.26        4.67
                                                                                                                                                                    1,379

Internal Wholesale extension services other bandwidth rental                                           1               -            -           -           1         152 line                4,363.00     2,721.78     1,094.23       3,502.29        1.60
External Wholesale extension services other bandwidth rental                                           -               -            4           -           4         971 line                4,363.00     2,721.78     1,094.23       3,502.29        1.60
                                                                                                                                                                    1,123

Internal Wholesale extension services 10Mbit connection                                              20                -            -           -          20       5,815 conn                3,408.00     2,882.89     2,556.45       5,485.77        1.18
External Wholesale extension services 10Mbit connection                                               -                -            4           -           4       1,059 conn                3,408.00     2,882.89     2,556.45       5,485.77        1.18
                                                                                                                                                                    6,874

Internal Wholesale extension services 100Mbit connection                                             15                -            -           -          15       2,810 conn                5,472.00     3,010.76     2,670.65       5,749.69        1.82
External Wholesale extension services 100Mbit connection                                              -                -            8           -           8       1,479 conn                5,472.00     3,010.76     2,670.65       5,749.69        1.82
                                                                                                                                                                    4,289

Internal Wholesale extension services 1000Mbit connection                                              4               -            -           -           4         396 conn              11,022.00    10,797.29      9,571.91      20,476.24        1.02
External Wholesale extension services 1000Mbit connection                                              -               -            4           -           4         330 conn              11,022.00    10,797.29      9,571.91      20,476.24        1.02
                                                                                                                                                                      726

Internal Wholesale extension services other bandwidth connection                                       1               -            -           -           1          36 conn              20,639.00    69,374.93     61,477.02     130,943.41        0.30
External Wholesale extension services other bandwidth connection                                       -               -            1           -           1          35 conn              20,639.00    69,374.93     61,477.02     130,943.41        0.30
                                                                                                                                                                       71




                                                                                                                                                         40
Section 3 - Review of Access Markets
Section 3.10 - AISBO (continued)
Note 1: Comparison of Average internal and external charges with each
other and with FAC                                                                                                            Non-discrimination                                                               Cost orientation

                                                                                     Internal Sales - Internal Sales -
                                                                                       services also services only
                                                                                            provided         provided    External                                                  Average      FAC (see    Unaudited      Unaudited        Average
                                                                                          externally        internally     Sales    Roundings    Turnover        Volume Unit (b)      price    Section 6)   LRIC Floor   LRIC Ceiling      price/FAC
for the year ended 31 March 2008                                                                 £m              £m           £m          £m           £m                                 £            £            £                 £

External Backhaul extension services 100Mbit rental                                                -               -          10           -            10        3,542 line        2,917.00     1,490.66       658.39       2,020.82           1.96

External Backhaul extension services 1000Mbit rental                                               -               -          15           -            15        1,861 line        8,168.00     2,004.66     1,060.75       3,194.59           4.07

External Backhaul extension services other bandwidth rental                                        -               -           5           -             5        1,386 line        3,650.00     1,482.73       650.88       1,992.96           2.46

External Backhaul extension services 100Mbit connection                                            -               -           3           -             3        1,127 conn        2,750.00     1,822.40     1,567.68       3,917.37           1.51

External Backhaul extension services 1000Mbit connection                                           -               -           5           -             5          900 conn        5,490.00     6,581.30     5,658.36      14,099.64           0.83

External Backhaul extension services other bandwidth connection                                    -               -           0           -             0           86 conn        3,034.00     1,920.79     1,651.33       4,113.61           1.58

External Backhaul network services all bandwidth connection                                        -               -           9           -             9          256 conn       34,610.00   23,557.46     22,734.42      29,062.09           1.47

External Backhaul network services all bandwidth rental                                            -               -           5           -             5          618 line        8,048.00     3,968.48     1,213.69      10,021.70           2.03

Internal Main link rental charges                                                                68                -           -           -            68       125,206 km          540.00       353.07        230.10            890.62        1.53
External Main link rental charges                                                                 -                -          55           -            55       101,771 km          540.00       353.07        230.10            890.62        1.53
                                                                                                                                                                 226,977


Support Service
Internal Excess construction charges                                                             12                -           -           -            12           (u3)               (s3)
External Excess construction charges                                                              -                -           4           -             4           (u3)               (s3)
                                                                                                                                                                                                                     (s)

Roundings                                                                                          -               -           -          (1)           (1)

                                                                                                266                -         174          (1)          439




                                                                                                                                                           es;
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometre
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(s) Costs associated with support services are included within the above reported services and hence not disclosed separately.




                                                                                                                                                      41
Section 3 - Review of Access Markets
Section 3.10 - AISBO (continued)
Note 1: Comparison of Average internal and external charges with each
other and with FAC                                                                                                            Non-discrimination                                                               Cost orientation

                                                                                     Internal Sales - Internal Sales -
                                                                                       services also services only
                                                                                            provided         provided    External                                                  Average      FAC (see    Unaudited      Unaudited     Average
                                                                                          externally        internally     Sales    Roundings    Turnover        Volume Unit (b)      price    Section 6)   LRIC Floor   LRIC Ceiling   price/FAC

Restated for the year ended 31 March 2007                                                        £m              £m           £m          £m           £m                                 £            £            £              £
Service
Internal Wholesale and Lan extension services 10Mbit rental                                      77                -           -           -            77       26,270 line        2,923.38     5,014.99     1,685.55       5,333.03        0.58
External Wholesale and Lan extension services 10Mbit rental                                       -                -           2           -             2          758 line        2,923.38     5,014.99     1,685.55       5,333.03        0.58
                                                                                                                                                                 27,028

Internal Wholesale and Lan extension services 100Mbit rental                                     87                -           -           -            87        9,694 line        9,015.98     5,097.45     1,764.62       5,664.29        1.77
External Wholesale and Lan extension services 100Mbit rental                                      -                -           4           -             4          462 line        9,015.98     5,097.45     1,764.62       5,664.29        1.77
                                                                                                                                                                 10,156

Internal Wholesale and Lan extension services 1000Mbit rental                                    35                -           -           -            35        1,108 line       31,471.15     5,250.26     1,911.13       6,278.11        5.99
External Wholesale and Lan extension services 1000Mbit rental                                     -                -           8           -             8          259 line       31,471.15     5,250.26     1,911.13       6,278.11        5.99
                                                                                                                                                                  1,367

Internal Wholesale and Lan extension services other bandwidth rental                               9               -           -           -             9          312 line       29,131.00   13,749.28      9,593.12      16,839.57        2.12
External Wholesale and Lan extension services other bandwidth rental                               -               -          12           -            12          406 line       29,131.00   13,749.28      9,593.12      16,839.57        2.12
                                                                                                                                                                    718

Internal Wholesale and Lan extension services 10Mbit connection                                  30                -           -           -            30        4,506 conn        6,564.00     4,425.30     4,138.00       6,029.56        1.48
External Wholesale and Lan extension services 10Mbit connection                                   -                -           5           -             5          771 conn        6,564.00     4,425.30     4,138.00       6,029.56        1.48
                                                                                                                                                                  5,277

Internal Wholesale and Lan extension services 100Mbit connection                                 13                -           -           -            13        2,399 conn        5,624.00     4,578.41     4,280.60       6,174.71        1.23
External Wholesale and Lan extension services 100Mbit connection                                  -                -           7           -             7        1,268 conn        5,624.00     4,578.41     4,280.60       6,174.71        1.23
                                                                                                                                                                  3,667

Internal Wholesale and Lan extension services 1000Mbit connection                                  1               -           -           -             1           52 conn       16,019.00   16,448.84     15,376.43      21,906.73        0.97
External Wholesale and Lan extension services 1000Mbit connection                                  -               -           3           -             3          189 conn       16,019.00   16,448.84     15,376.43      21,906.73        0.97
                                                                                                                                                                    241

Internal Wholesale and Lan extension services other bandwidth connection                           0               -           -           -             0           22 conn       10,429.00     5,329.38     4,980.69       6,959.46        1.96
External Wholesale and Lan extension services other bandwidth connection                           -               -           0           -             0           37 conn       10,429.00     5,329.38     4,980.69       6,959.46        1.96
                                                                                                                                                                     59

External Backhaul extension services 100Mbit rental                                                -               -          12           -            12        1,355 line        8,917.00     5,302.82     1,814.87       5,072.76        1.68

External Backhaul extension services 1000Mbit rental                                               -               -          13           -            13          575 line       22,860.00     5,408.83     1,916.52       5,498.62        4.23

External Backhaul extension services other bandwidth rental                                        -               -           4           -             4          275 line       15,851.00     5,340.37     1,850.88       5,223.63        2.97

External Backhaul extension services 100Mbit connection                                            -               -          10           -            10        1,854 conn        5,500.00     1,618.68     1,520.12       2,237.80        3.40

External Backhaul extension services 1000Mbit connection                                           -               -           9           -             9          833 conn       10,400.00     5,766.30     5,413.01       7,683.18        1.80

External Backhaul extension services other bandwidth connection                                    -               -           1           -             1          117 conn        6,385.00     2,265.28     2,127.63       3,171.98        2.82

Roundings                                                                                          -               -           -            2            2

                                                                                                252                -          90            2          344




                                                                                                                                                           es;
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometre
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                      42
Section 3 - Review of Access Markets
Section 3.11 - Wholesale local access (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Wholesale local access
Summary
                                       Internal Sales -    Internal Sales -                                                                                                                                                                                  Return on
                                          services only      services also                                                                                                                                 Total CCA                                  Mean       mean
                                               provided           provided          External                      Turnover    Operating                     Holding Supplementary        Other             operating                   Return on     capital    capital
                                              internally         externally           Sales       Roundings        (note 1)      costs Depreciation      (gain)/loss  depreciation adjustments   Roundings      costs       Return      turnover   employed employed
                                                    £m                  £m               £m             £m              £m          £m          £m               £m            £m          £m          £m         £m           £m                       £m

2008                                                  -                  -              316                 -          316         265          59             (12)            12           1           0         325            (9)      (2.5)%       475       (1.7)%
2007                                                  -                  -              244                 -          244         173          30             (10)             3           5           2         203            41       16.3 %       254       15.7 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                                   Non-discrimination                                                             Cost orientation

                                                                              Internal Sales - Internal Sales -
                                                                                services also services only                                                                                                              Unaudited
                                                                                     provided         provided     External                                                          Average      FAC (see Unaudited         LRIC       Average
                                                                                   externally        internally      Sales    Roundings   Turnover         Volume Unit (b)              price    Section 6) LRIC Floor     Ceiling     price/FAC
for the year ended 31 March 2008                                                          £m              £m            £m          £m          £m                                          £           £           £             £
Service
MPF Connections (External)                                                                  -               -           34           -              34    949,842 line                  36.00        53.18       49.79       62.68          0.68

MPF Rentals (External)                                                                      -               -           70           -              70    871,952 line                  80.00       105.86       64.85      127.14          0.76

MPF Room Build (External)                                                                   -               -           23           -              23       1,607 rooms            14,160.75       254.48      239.01      839.47         55.65

MPF Hostel Rentals (External)                                                               -               -           45           -              45       8,626 hostels            5,160.15    3,462.33    2,916.98     4,285.62         1.49

MPF Tie Cables (External)                                                                   -               -           23           -              23     45,840 ca                   506.00       364.64      246.82      405.60          1.39

SMPF Connections (External)                                                                 -               -           85           -              85   2,451,644 conn                 34.86        54.71       51.21       66.52          0.64

SMPF Rentals (External)                                                                     -               -           36           -              36   2,322,720 line                 15.60        20.61       17.08       30.34          0.76

Roundings                                                                                   -               -            -           -              -

                                                                                            -               -          316           -          316



for the year ended 31 March 2007
Service
MPF Connections (External)                                                                  -               -           24           -              24    472,760 line                  49.85        81.07       77.16      102.22          0.61

MPF Rentals (External)                                                                      -               -           18           -              18    226,673 line                  80.00       127.82       72.96      175.60          0.63

MPF Room Build (External)                                                                   -               -           77           -              77       4,467 r                17,207.30     1,156.70    1,119.71     3,695.87        14.88

MPF Hostel Rentals (External)                                                               -               -           18           -              18       5,975 hostels            3,042.34    4,758.00    4,351.92     6,286.37         0.64

MPF Tie Cables (External)                                                                   -               -           44           -              44     87,718 ca                   500.11       117.98       55.26      166.77          4.24

SMPF Connections (External)                                                                 -               -           52           -              52   1,488,109 conn                 34.78        64.25       59.43       90.55          0.54

SMPF Rentals (External)                                                                     -               -           11           -              11    730,650 line                  15.60        31.20       27.71       52.45          0.50

Roundings                                                                                   -               -             -          -               -

                                                                                            -               -          244           -          244




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                                          43
Section 4 - Review of Other Wholesale Markets
Section 4 - Review of Other Wholesale Markets




                                             SECTION 4
                                REVIEW OF OTHER WHOLESALE MARKETS




                                                44
Section 4 - Review of Other Wholesale Markets
Section 4.1 - Financial Performance in Other Wholesale Markets (Annex 8)
                                                                                                                                              Total CCA                              Mean
                                                      Internal    External   Roundings       Total                      CCA                   Operating              Return on      Capital   Return on
For the year ended 31 March 2008                      Turnover   Turnover     Turnover    Turnover     HCA Costs Adjustments     Roundings         costs   Return     turnover    Employed         MCE
                                                            £m         £m          £m          £m            £m           £m           £m            £m       £m              %         £m            %
Call origination on FPN networks                           156         90            0        246           232            (6)          1           227       19          7.8 %        462        4.2 %
Local-tandem conveyance and transit on FPN networks         49         34            0         83            56            (4)          3            55       28        33.3 %         137       20.2 %
Single transit on FPN networks                               1         14            1         16             6             0           0             6       10        60.5 %          20       46.5 %
Technical areas (Interconnect Circuits)                      4         78            1         83            90            (3)          0            87        (4)       (5.5)%        190       (2.4)%
Fixed call termination                                      65        116            0        181           177            (7)          1           171       10          5.1 %        414        2.2 %
Wholesale trunk segments                                   213         53           (1)       265            92          (20)           3            75      190        71.7 %         285       66.9 %
Technical areas (Point of Handover)                          0          6            0          6             5            (2)          2             5         1       25.5 %          13       12.7 %
Asymmetric broadband origination in the UK                 519        402            1        922           599          (51)           0           548      374        40.5 %         822       45.5 %
Broadband conveyance in the UK                             101          4            0        105           105          (13)           1            93       12        11.8 %         212        5.9 %

Total Other Wholesale Markets                            1,108        797            2         1,907       1,362         (106)          11        1,267      640        33.6 %       2,555       25.0 %


                                                                                                                                              Total CCA                              Mean
                                                      Internal    External   Roundings        Total                     CCA                   Operating              Return on      Capital   Return on
Restated for the year ended 31 March 2007             Turnover   Turnover     Turnover    Turnover     HCA Costs Adjustments     Roundings         costs   Return     turnover    Employed         MCE
                                                            £m         £m          £m           £m           £m           £m           £m            £m       £m              %         £m            %
Call origination on FPN networks                           198        102           1          301          239           26             0          265       36        11.5 %         551        6.2 %
Local-tandem conveyance and transit on FPN networks         52         34           0           86           70           10             2           82         4         4.7 %        182        2.3 %
Single transit on FPN networks                               1         15           0           16            2             0            1            3       13        79.4 %           8      166.1 %
Technical areas (Interconnect Circuits)                      7         77           0           84           64             1            3           68       16        17.8 %         110       13.5 %
Fixed call termination                                      89        122           0          211          175           21             2          198       13          6.2 %        455        2.9 %
Wholesale trunk segments                                   220         36           0          256          114             7            2          123      133        52.2 %         300       44.6 %
Technical areas (Point of Handover)                          0          7           0            7            3            (1)           1            3         4       56.5 %           7       46.0 %
Asymmetric broadband origination in the UK               1,027          0           0        1,027          715          (45)            1          671      356        34.7 %         866       41.2 %
Broadband conveyance in the UK                             133          3           0          136          138             2           (2)         138        (2)       (1.2)%        278       (0.6)%

Total Other Wholesale Markets                            1,727        396            1         2,124       1,520          21            10        1,551      573        27.0 %       2,757       20.8 %




                                                                                          45
Section 4 - Review of Other Wholesale Markets
Section 4.2 - Review of Other Wholesale Markets (Annex 10 & 14)
              –
Section 4.2.1 - Market Group Level Review (Annex 10)
The overall view of the Other Wholesale Markets has seen a reduction in revenues due to the decline in
the traditional calls market and decline in revenues from broadband as a result of increased competition
from other providers (Local Loop Unbundling (LLU), broadcast, mobile).
Growth in LLU continues to erode call origination along with the substitution impact of mobile and
Voice over IP (VOIP) calls. This can be seen in the decline in revenue in the Call Origination, Local
Tandem Conveyance and Technical Areas (Interconnect) Markets.
In the Partial Private Circuit (PPC) Markets, revenues have declined due to increased competition.
During the year, BT revised the “price x quantity” methodology and calculation rules to calculate the
internal and external revenues to reflect a revenue system size rather than a working system size basis.
In addition, in the Technical Areas (Interconnect Circuits) market, the results have been restated to
exclude non chargeable in-span connection services previously included in revenue. The corresponding
prior year comparatives have been restated as necessary to reflect this change in the Wholesale Trunk
Segments, Technical Areas (Interconnect Circuits) and Technical areas (Point of Handover) markets.
The Broadband Origination and Conveyance Markets have been impacted by competition and
consolidation in the market with other service providers offering bundled packages and media content.
This has resulted in price cuts by BT Wholesale and overall decrease in revenue generated by the
broadband markets.
Overall revenue in the Other Wholesale Markets has declined mainly due to the decline in the traditional
markets and competition impacting broadband revenues. Costs in the Other Wholesale Markets have
reduced slightly due to reduction in legacy switch and transmission costs which is partly offset by
increased costs due to 21st Century Network (21CN) investment.
In the Technical areas (Interconnect Circuits) and Technical areas (Point of Handover) markets, BT
charges other parties upfront for the sale and installation of equipment in its exchanges. Turnover is
recognised and received in the year of sale but the capitalised costs are depreciated over the life of the
asset. The non-matched element between sales and costs of these items may give rise to variances in
the reported return. The CCA return reported in the 2007/08 financial statements approximately £37m
loss relating to services containing non-matched elements in the Technical areas (Interconnect Circuits)
market and increased approximately £1m profit relating to services containing non-matched elements
in the Technical areas (Point of Handover) market.
Overall the Mean Capital Employed (MCE) for Other Wholesale Markets has reduced by approximately
8%. This is a factor of the assets for legacy switch and transmission becoming fully depreciated offset
by the increasing investment in BT’s 21CN network.




                                                                                                        46
Section 4 - Review of Other Wholesale Markets
(Annex 14) – Market Level Financial Review of Other Wholesale SMP Markets
Section 4.2.2 -                                                                                                 The substitution impact of VOIP (Voice Over IP) calls is growing and will potentially have a greater
                                                                                                                impact in the future as Broadband Service Providers move towards double and triple play offerings in a
(Annex 14)                                                                                                      move to consolidate market share and grow revenue.
Market: Call Origination on Fixed Public Narrowband Networks                                                    Similarly growth in Local Loop Unbundling (LLU) lines is beginning to erode call origination volumes
                                                                                                                with major players marketing bundled packages to their customers, where voice services are provided
Definition                                                                                                      alongside high speed data.

Call Origination can be defined as the conveyance of a call originating on a customer’s exchange line           As agreed with Ofcom, FRIACO will no longer be reported separately due to the reduced popularity of
from the remote concentrator to and over the local exchange.                                                    this service as evidenced by customers migrating to broadband services and significantly reduced
                                                                                                                minute usage and costs over the past few years.
“Call Origination Services” is defined as any and all of the following specific services provided by the
Dominant Provider:
    • call origination (including operator assistance and emergency intermediate services); and                 Market: Local-Tandem Conveyance and Transit on Fixed Public Narrowband
    • call origination (including emergency intermediate services).                                             Networks
Key Regulatory Changes                                                                                          Definition
In August 2005 Ofcom confirmed that BT still has Significant Market Power (SMP) in the Fixed Call               Local-tandem conveyance (LTC) and local-tandem transit (LTT) are services that convey traffic
Origination Market. The price control applicable to this market is shown below. This is effective from 1        between a local and a tandem exchange. A tandem exchange is a telephone exchange whose primary
October 2005 to 30 September 2009. Flat Rate Internet Access Call Origination (FRIACO) and Product              function to switch traffic between telephone exchanges in a Public Electronic Communications
Management, Policy and Planning (PPP) are also services that contribute to this market.                         Network.
                                                                                                                LTC is the service that an originating or terminating operator provides to convey calls between a local
                                                                                                                exchange and a tandem exchange.
                                                             Current NCC
     Service                                                                                                    LTT is a service that a transit operator provides to convey calls between a local exchange and a tandem
                                                             (Oct 2005 – Sept 2009)                             exchange when a call originates and terminates on networks other than its own.
     Call Origination                                        RPI - 3.75%                                        Key Regulatory Changes
     DLE FRIACO                                              RPI - 8%                                           In August 2005 Ofcom confirmed that whilst BT still has SMP in the Local to Tandem Conveyance and
     Single Tandem FRIACO                                    RPI - 8.5%                                         Transit Market, there is sufficient potential competition for regulation to be reduced. As such a
                                                                                                                safeguard cap has been applied to BT’s charges, allowing increases of no more than inflation. The price
     Product Management, Policy and Planning (PPP)           RPI + 0.75%                                        control applicable to this market is RPI-0%, effective from 1 October 2005 to 30 September 2009.
                                                                                                                Product Management, Policy and Planning (PPP) is also a service that contributes to LTC and LTT.

Ofcom plans to conduct a review of the Wholesale Narrowband Market in 2008/09, followed by a
further review of the Network Charge Control (NCC) in 2009.                                                                                                                Current NCC
                                                                                                                     Service
                                                                                                                                                                           (Oct 2005 – Sept 2009)
Key Market Changes
The market has declined steadily throughout the year driven by two main factors:                                     Local-tandem conveyance and transit                   RPI - 0%
    • The migration of narrowband data dial traffic to broadband services; and
                                                                                                                     Product Management, Policy and Planning (PPP)         RPI + 0.75%
    • The ongoing migration of call origination minutes from fixed public narrowband networks to
      mobile networks.




                                                                                                           47
Section 4 - Review of Other Wholesale Markets
Ofcom plans to conduct a review of the Wholesale Narrowband Market in 2008/09, followed by a
further review of the NCC in 2009.
                                                                                                                                                                        Current NCC
Key Market Changes                                                                                                Service
                                                                                                                                                                        (Oct 2005 – Sept 2009)
The reduction in turnover is mainly due to the decline in Local-tandem conveyance volumes explained
below.                                                                                                            Single Transit                                        RPI – 11.5%
Overall the fixed line calls market is shrinking, driven by the substitution of broadband and mobile.
                                                                                                                  Product Management, Policy and Planning (PPP)         RPI + 0.75%
In addition, the 21CN programme has meant that the closure of local exchanges (DLEs) will impact on
Communication Providers (CPs) interconnect arrangements with BT.
LTC has declined steadily throughout the year driven by the following main factors:                          Ofcom plans to conduct a review of the Wholesale Narrowband Market in 2008/09, followed by a
    • The migration of narrowband data dial traffic to broadband services                                    further review of the NCC in 2009.
    • The ongoing migration of LTC minutes from fixed public narrowband networks to mobile                   Key Market Changes
      networks
    • Increasing levels of local exchange interconnect                                                       The growth in the volumes of single transit calls during the financial year ended 31 March 2008 was
                                                                                                             mainly due to more originating traffic from other operators’ networks which transits BT. Growth in calls
The substitution impact of VOIP (Voice Over IP) calls is growing and will potentially have a greater         originating in the mobile market has also contributed to this increase in transit.
impact in the future as broadband service providers move towards double and triple play offerings in a
move to consolidate market share and grow revenue.
Similarly growth in LLU lines is beginning to erode LTC volumes with major players marketing bundled         Market: Technical Areas (Interconnect Circuits)
offerings to their customers, where voice services are provided alongside high speed data.
                                                                                                             Definition
                                                                                                             Ofcom has the ability to apply remedies to technical areas as part of the overall obligation that
Market: Single Transit on Fixed Public Narrowband Networks                                                   addresses SMP in a particular market. Interconnect Circuits have been identified as an appropriate
                                                                                                             technical area for the purpose of imposing appropriate regulatory remedies. Interconnect Circuits link
Definition                                                                                                   the exchanges of two interconnecting Communication Providers (CPs) in order to enable traffic to pass
                                                                                                             between their networks.
Single transit is the service an operator provides when a call originates and terminates on networks
other than its own and the originating and terminating operators are directly connected at the same              • BT provides the following types of Interconnect Circuits:
transit operator’s tandem exchange. The call is therefore transited through a single tandem exchange.            • Customer-Sited Interconnect (CSI): BT provides a point of interconnection at the site of the
While Inter-Tandem Conveyance (ITC) and Inter-Tandem Transit (ITT) are essentially transmission                    interconnecting CP by extending its network using a 2Mbit/s circuit.
services, single transit is a connection service that connects two operators who are not directly                • In-Span Interconnect (ISI): BT and the other CP build out their networks to a handover point
connected.                                                                                                         located between their switches. The handover point is normally close to the BT exchange and
                                                                                                                   therefore most of the build is the responsibility of the interconnecting CP.
Due to the terms of competition being different in single transit, the market review concluded that
single transit is in a separate market to ITT/ITC.                                                               • Interconnection Extension Circuit (IEC): IECs allow an interconnecting CP with an existing ISI to
                                                                                                                   extend this point of interconnection to a new building. In order to do this, BT provides a 2MBit/s
Key Regulatory Changes                                                                                             circuit between the two buildings. An IEC is subject to the same per km charge as a CSI but has a
                                                                                                                   reduced fixed charge.
In August 2005 Ofcom confirmed that BT still has SMP in the Single Transit market. Product                       • Virtual Interconnect Circuit (VIC): VIC is an operationally efficient alternative to physical
Management, Policy and Planning (PPP) is also a service that contributes to Single Transit.                        interconnect at Digital Local Exchanges (DLE) allowing CPs to continue to benefit from Local
                                                                                                                   Exchange Segment (LES) rates whilst physically connecting to the Next Generation Switch
                                                                                                                   (NGS). VIC is an important part of BT’s commitment to maintaining commercial stability as the
                                                                                                                   company moves its interconnect services onto the new 21st Century Network (21CN) platform.



                                                                                                        48
Section 4 - Review of Other Wholesale Markets
Ofcom determined that Interconnect Circuits should properly be considered as a Technical Area as set       market have also been restated to reflect the above changes and to exclude non chargeable in-span
out by the Commission.                                                                                     connection services previously included in revenue.

Key Regulatory Changes
In August 2005 Ofcom confirmed that BT still has SMP in the Interconnection Circuits market. The price     Market: Fixed Call Termination
control applicable to this market is RPI-5.25% effective from 1 October 2005 to 30 September 2009.
                                                                                                           Definition
                                                                                                           The review of the Fixed Geographic Call Termination Market was concerned with the wholesale
                                                          Current NCC                                      conveyance service fixed geographic call termination only.
       Service
                                                          (Oct 2005 – Sept 2009)                           The economic market is defined as fixed geographic call termination on each individual Public
                                                                                                           Electronic Communications Network (PECN). This definition is slightly narrower than that
       Interconnection circuits                           RPI – 5.25%                                      recommended by the European Commission, which could be judged to include non-geographic call
                                                                                                           termination services as well. The difference is deemed justifiable in that non-geographic call
                                                                                                           termination markets are subject to different payment arrangements that are not purely ‘calling party
                                                                                                           pays’ and, moreover, they are competitive in the UK.
Following a determination from Ofcom published in January 2007, BT introduced a monthly billing
option for Interconnect Circuits. This option was available from 1 January 2008. Prior to this date        All PECNs that terminate fixed geographic calls have SMP in the provision of call termination services
Interconnect circuits were billed quarterly in advance but customers now have the option of either         when providing such services to all other PECNs. Ofcom therefore designated that each relevant PECN
monthly or quarterly in advance.                                                                           has SMP.
Ofcom plans to conduct a review of the Wholesale Narrowband Market in 2008/09, followed by a               Key Regulatory Changes
further review of the NCC in 2009.
                                                                                                           In August 2005 Ofcom confirmed that BT still has SMP in the Fixed Termination Market. The price
Key Market Changes                                                                                         control applicable to this market is RPI-5% effective from 1 October 2005 to 30 September 2009.
                                                                                                           Product Management, Policy and Planning (PPP) is also a service that contributes to Call Termination.
Overall the fixed line calls market is shrinking. The contraction of the fixed market is driven by
substitution of broadband and mobile. The decline in narrow-band dial-up including FRIACO is also
accelerating.
                                                                                                                                                                        Current NCC
Interconnect Circuit volumes have declined slowly throughout the year driven by several factors:                Service
                                                                                                                                                                        (Oct 2005 – Sept 2009)
   •   The migration of narrowband data dial traffic to broadband services.
   •   The ongoing migration from fixed public narrowband networks to mobile networks.                          Call Termination                                        RPI - 5%
   •   The continuing migration from CSI to the cheaper ISI product as CPs increasingly self build.
   •   CPs building their own 21CN networks and considering requirements for NGN inter-connects                 Product Management, Policy and Planning (PPP)           RPI + 0.75%
       with the BT network.
The substitution impact of VOIP (Voice Over IP) calls is growing and will potentially have a greater
impact in the future as Broadband Service Providers move towards double and triple play offerings in a     Ofcom plans to conduct a review of the Wholesale Narrowband Market in 2008/09, followed by a
move to consolidate market share and grow revenue.                                                         further review of the Network Charge Control in 2009.
There has been a change to the presentation and calculation of service revenue. The increased level of     Key Market Changes
granularity aims to improve the transparency of reporting as requested by Ofcom in their Explanatory
Statement and Notification entitled “Changes to BT’s 2007/08 Regulatory Financial Statements”              Overall the fixed line calls market is shrinking. The contraction of the fixed market is driven by
issued on 26 June 2008. As discussed further in note 2 and note 3 in section 8.1 of these Current Cost     substitution of broadband and mobile.
Financial Statements, the comparative results for the financial year ended 31 March 2007 for this
                                                                                                           Call termination has declined steadily throughout the year driven by two main factors:




                                                                                                      49
Section 4 - Review of Other Wholesale Markets
    • The migration of narrowband data dial traffic to broadband services; and                              market share and high profitability as well as the fact that BT has not de-averaged any of its charges for
    • The ongoing migration of call termination minutes from fixed public narrowband networks to            these services since the last market review.
      mobile networks.                                                                                      Ofcom also proposed to increase regulation in this market by imposing a charge control (to be consulted
The substitution impact of VOIP (Voice Over IP) calls is growing and will potentially have a greater        upon) and requiring prices to be notified at 90 days as opposed to the existing 1 day. It has also changed
impact in the future as Broadband Service Providers move towards bundled offerings in a move to             the definition of trunk segments from one based on links between two BT SDH Tier 1 nodes to one based
consolidate market share and grow revenue.                                                                  on routes between defined major urban areas.

Similarly growth in LLU lines is beginning to erode call termination volumes with major players             Ofcom’s final statement is due to be published later this year followed by a separate consultation on
marketing bundled offerings to their customers, where voice services are provided alongside high            specific charge control measures. The outcome of this statement will impact future years.
speed data.
                                                                                                            Key Market Changes
                                                                                                            There is significant competition on major trunk routes. Prices have remained constant during the year
Market: Wholesale Trunk Segments                                                                            but with most customers continuing to rationalise their networks, the average trunk distance per circuit
                                                                                                            continues to fall. Current network rationalisation is shortening of the PPC tails and not the cessation of
Definition                                                                                                  circuits, therefore should have no or minimum impact on circuit volumes. The increase in volumes and
                                                                                                            revenue is due to the continued growth in the 2mbit/s and 34/45mbit/s (albeit, small growth for 34/
This market covers the provision of trunk segments across core transmission networks. These trunk           45mbit/s) market and the continued migration from Retail Private Circuit s (RPC) to PPC.
services are often used to provide a link between origination services where a CP does not have available
network to its nearest point of connection. As in the case of symmetric broadband origination services,     There has been a change to the presentation and calculation of service revenue. The increased level of
trunk segment services may be used to provide a wide range of downstream retail services.                   granularity aims to improve the transparency of reporting as requested by Ofcom in their Explanatory
                                                                                                            Statement and Notification entitled “Changes to BT’s 2007/08 Regulatory Financial Statements”
The particular services provided are the same as described for symmetric broadband origination. The         issued on 26 June 2008. “As discussed further in note 2 and note 3 in section 8.1 of these Current Cost
trunk market also includes core transmission of the AISBO services mentioned.. No stand alone trunk         Financial Statements, the comparative results for the financial year ended 31 March 2007 for this
segment services were sold to third parties, although such a service may be requested at some point in      market have also been restated to reflect these changes.
the future.
LLU backhaul consists of LLU backhaul trunk and LLU backhaul link. LLU backhaul trunk is similar to the
trunk segment of a leased line and is hence a substitute for trunk segments. Therefore LLU backhaul         Market: Technical Areas (Point of Handover)
trunk segments are considered to be part of the wholesale trunk segment market.
Additionally, LLU backhaul services and RBS backhaul circuits may, in particular circumstances, involve
                                                                                                            Definition
some trunk segment services as part of the overall service. This would correspond to intra core             Point of Handover (PoH) is a technical area associated with TISBO market, rather than a market in itself.
transmission on the BT network. The core conveyance element of an RBS backhaul circuit is included in       It is a necessary technical function to enable network interconnection, in order to allow the provision of
the trunk segments market.                                                                                  wholesale products in the TISBO market.
Ofcom concluded that a national market exists for trunk segments and that BT has SMP in the national        BT is required to provide PoH in two varieties: Customer Sited Handover at 155Mbit/s (CSH) and In-
market for wholesale trunk segments.                                                                        Span Handover at 155Mbit/s (ISH). When providing CSH, BT delivers TISBO services to the premises of
SDSL based circuits fall into the market for low bandwidth traditional interface symmetric broadband        its wholesale customers. When providing ISH, BT and the wholesale customer connect their networks
origination. Core conveyance relating to these services is carried across BT’s Asynchronous Transfer        at a notional mid-point.
Mode (ATM) network, rather than its Synchronous Digital Hierarchy (SDH) network. Ofcom therefore
considered that its SMP finding is equally applicable to trunk segments conveyed across the ATM             Key Regulatory Changes
network as well as the SDH network.                                                                         BT is currently required to provide CSH and ISH PoH services up to the 155Mbit/s level, on terms which
                                                                                                            are cost-oriented and published. Publication of changes to price or terms must be at least on the day it
Key Regulatory Changes                                                                                      happens.
In 2008 Ofcom published its consultation document on the Business Connectivity Market Review.               BT currently has an obligation to ensure cost orientation for trunk segments up to 155Mbit/s.
Ofcom proposed that BT continues to have SMP in the market for trunk segments. This is based upon




                                                                                                       50
Section 4 - Review of Other Wholesale Markets
In 2008, Ofcom published its consultation document on the Business Connectivity Market Review.               In November 2006 it was agreed with Ofcom that BT would make pricing commitments in relation to
Ofcom proposed that BT continues to have SMP in the market for trunk segments based upon market              price ceilings and price floors for the current BT IPStream service and the Wholesale Broadband Connect
share and high profitability as well as the fact that BT has not de-averaged any of its charges for these    service, which launched on 30th April 2008. These commitments took effect at the earlier of 1.5m lines
services since the last market review.                                                                       being unbundled and 30 April 2007 and replace previous commitments made with Ofcom in June
                                                                                                             2005. By the end of the financial year, the number of unbundled lines reached 4.2m.
Ofcom also proposed to increase regulation in this market by imposing a charge control (to be consulted
upon) and requiring prices to be notified at 90 days as opposed to the existing 1 day. It has also changed   Key Market Changes
the definition of trunk segments from one based on links between two BT SDH Tier 1 nodes to one based
on routes between defined major urban areas.                                                                 The wholesale broadband market continued to witness increasing competition due to LLU access.
                                                                                                             During the year, LLU lines grew from 1.9m to 4.2m. The combined DSL and cable market has grown
Ofcom’s final statement is due to be published later this year, with a separate consultation on specific
                                                                                                             from 14m to 16.4m lines.
charge control measures. The outcome of this statement will impact future years.
                                                                                                             BT Wholesale reduced IPstream prices in May 2007 and January 2008. Datastream prices were also
Key Market Changes                                                                                           reduced in January 08. BT Wholesale launched both its 21CN broadband access product, Wholesale
                                                                                                             Broadband Connect, and its 21CN managed backhaul solution, Wholesale Broadband Managed
Customers are looking to rationalise their networks, i.e. reduce the number of sites and consequently        Connect, in April 2008.
points of handover and instead increase the bandwidth to remaining sites. It is expected that the
increased bandwidth requirement will result in additional revenues in 2008/09.                               There has been a change to the presentation of service revenue during the year. The increased level of
                                                                                                             granularity aims to improve the transparency of reporting as requested by Ofcom in their Explanatory
There has been a change to the presentation and calculation of service revenue. The increased level of       Statement and Notification entitled “Changes to BT’s 2007/08 Regulatory Financial Statements”
granularity aims to improve the transparency of reporting as requested by Ofcom in their Explanatory         issued on 26 June 2008. The increased disaggregation of the turnover has meant it has not been
Statement and Notification entitled “Changes to BT’s 2007/08 Regulatory Financial Statements”                possible to show prior year comparatives as agreed with Ofcom.
issued on 26 June 2008. “As discussed further in note 2 on page 101, the comparative results for the
financial year ended 31 March 2007 for this market have also been restated to reflect these changes.

                                                                                                             Market: Broadband Conveyance in the UK
Market: Asymmetric Broadband Origination in the UK                                                           Definition
Definition                                                                                                   The Broadband Conveyance Market includes the conveyance of broadband traffic across the core
                                                                                                             network to allow interconnecting operators to differentiate the technical characteristics of the services
Asymmetric Broadband Origination extends from the end user’s premises to the first suitable point of         they offer to their ISP and other customers. Digital Subscriber Line (DSL) based broadband conveyance
interconnection within the core network, i.e. the parent node. Asymmetric Broadband Origination              is the conveyance of broadband traffic beyond the parent node of the core network. On a DSL based
therefore consists of asymmetric local access and backhaul.                                                  network, there is no distinction between symmetric broadband conveyance and asymmetric broadband
Asymmetric Digital Subscriber Line (ADSL) and cable are currently the predominant technologies used          conveyance. This is because the symmetric or asymmetric nature of the traffic is determined at the
to support asymmetric broadband origination in the UK. For ADSL technology the asymmetric access             DSLAM.
service would be an ADSL enabled telephone line, the multiplexer would be a Digital Subscriber Line          Broadband conveyance allows the onwards transit of asymmetric broadband origination traffic across
Access Multiplexer (DSLAM) located in the local exchange and the backhaul would be a connection              the core network. The two services do not overlap.
between the DSLAM and the core network. For the cable technology the asymmetric access service
would be a combination of a fibre access ring and coaxial drops, the multiplexer would be a universal        The broadband conveyance market in the UK includes conveyance from the parent core network node
broadband router (UBR) located at the cable head end and the backhaul would be a connection                  to a distant node across the core network.
between the UBR and the core network. Similarly, other technologies such as broadband fixed wireless,
satellite, digital broadcast systems and power-line systems could be employed to supply these                Given the network topology and functionality, broadband conveyance is a service which is primarily
broadband services.                                                                                          delivered by BT via its ATM network. Although IP conveyance is a possible partial substitute for ATM
                                                                                                             conveyance (although currently incapable of delivering the same functionality) and the functionality
Key Regulatory Changes                                                                                       deliverable by BT’s IP network is likely to grow in the future, Ofcom concluded that the market will in
                                                                                                             practice not include IP conveyance services within the lifetime of the current review. Nevertheless, if in
This market was reviewed in Ofcom’s Wholesale Broadband Access Market Review, the final statement            practice IP functionality were to reach equivalent levels to ATM functionality, then IP conveyance
of which was published on 21st May 2008. The impact on the regulatory accounts of this review will be        services would logically form part of the same market.
reflected in the accounts for the forthcoming year.


                                                                                                        51
Section 4 - Review of Other Wholesale Markets
Key Regulatory Changes
In November 2006 BT reached agreement with Ofcom that BT would make pricing commitments in
relation to price ceilings and price floors for the current BT IPStream service and the Wholesale
Broadband Connect (WBC) service, which launched on 30th April 2008.
Ofcom completed their review of the Wholesale Broadband Access market and published their final
statement on 21st May 2008 that will impact the forthcoming year.

Key Market Changes
Overall costs have decreased despite broadband volumes remaining largely consistent with the prior
year. This is a result of decreasing depreciation charges for core transmission equipment due to these
assets becoming fully depreciated. This is a consequence of early investment in the ATM network having
adequate capacity for subsequent volume growth meaning significant further investment was not
required.




                                                                                                    52
Section 4 - Review of Other Wholesale Markets
Section 4.3 - Call origination on fixed public narrowband networks (Annex 13)
Market summary
                                                                                                                                                    on
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discriminatio obligations where a cost gradient applies
Call origination on fixed public narrowband networks
Summary
                                                           Internal Sales -   Internal Sales -                                                                                                                                                                          Return on
                                                             services only       services also                                                                                                                              Total CCA                            Mean       mean
                                                                  provided            provided         External                      Turnover    Operating                Holding Supplementary        Other                operating           Return on       capital   capital
                                                                 internally         externally           Sales       Roundings        (note 1)      costs Depreciation (gain)/loss  depreciation adjustments Roundings           costs   Return  turnover     employed employed
                                                                        £m                 £m               £m             £m              £m          £m          £m          £m            £m          £m        £m              £m       £m                     £m

2008                                                                    4                152                90                 -          246         148          84         (4)            (12)           10         1         227        19      7.8 %         462       4.2 %
2007                                                                    8                190               102                 1          301         139         100         (2)            (15)           43         -         265        36     11.5 %         551       6.2 %




Note 1: Comparison of Average internal and external charges with each other and
with FAC                                                                                                                                                                              Non- discrimination                                                                           Cost orientation
                                                                                                                                                                                    NCC traffic minutes (mm)                        Average NCC rates (ppm)

                                                                                                 Internal Sales - Internal Sales -
                                                                                                   services also services only                                                                                                                                                                Unaudited
                                                                                                        provided         provided     External                                                                                                              Weighted             Unaudited        LRIC     Average
                                                                                                      externally        internally      Sales    Roundings   Turnover        Day          Evening   Weekend      24 hours         Day    Evening Weekend     Average         FAC LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2008                                                                             £m              £m            £m          £m          £m                                                            ppm       ppm      ppm          ppm         ppm       ppm         ppm
Service
Internal Wholesale call originating local exchange segment PSTN and ISDN (excl OA)                           16                -            -           -           16     3,762           3,543       2,794      10,099        0.252     0.116     0.091        0.160      0.212     0.173       0.365       0.75
External Wholesale call originating local exchange segment PSTN and ISDN (excl OA)                            -                -           70           -           70    21,327           8,754       6,698      36,779        0.252     0.116     0.091        0.190      0.212     0.173       0.365       0.90

Internal Wholesale call originating local exchange segment (incl Operator Assistance)                       114                -            -           -         114     31,102          17,040      13,027      61,169        0.261     0.120     0.094        0.186      0.215     0.176       0.371       0.87
External Wholesale call originating local exchange segment (incl Operator Assistance)                         -                -            8           -           8      2,189           1,017         920       4,126        0.261     0.120     0.094        0.189      0.215     0.176       0.371       0.88

Internal Wholesale call originating local exchange segment (ISDN) (incl OA)                                  14                -            -           -           14     5,009             698         442       6,149        0.261     0.120     0.094        0.233      0.217     0.178       0.375       1.07

Internal Wholesale call origination local exchange Stick                                                       -               4            -           -            4     1,687           1,044         777       3,508        0.150     0.069     0.054        0.114      0.142     0.106       0.258       0.80

Internal Wholesale call origination local exchange Stick (ISDN)                                                -               0            -           -            0      280               28            20       328        0.150     0.069     0.054        0.137      0.145     0.108       0.262       0.95

Internal Wholesale PPP                                                                                         8               -            -           -            8    48,265          24,215      18,426      90,906        0.012     0.006     0.005        0.009      0.010     0.010       0.016       0.90
External Wholesale PPP                                                                                         -               -           12           -           12    72,859          33,755      27,205     133,819        0.012     0.006     0.005        0.009      0.010     0.010       0.016       0.91

Roundings                                                                                                      -               -            -           -           -

                                                                                                            152                4           90           -         246




                                                                                                                                                                 53
Section 4 - Review of Other Wholesale Markets
Section 4.3 - Call origination on fixed public narrowband networks (continued)
Note 1: Comparison of Average internal and external charges with each other and
with FAC                                                                                                                                                                   Non- discrimination                                                                    Cost orientation
                                                                                                                                                                         NCC traffic minutes (mm)                   Average NCC rates (ppm)

                                                                                          Internal Sales - Internal Sales -
                                                                                            services also services only                                                                                                                                        Unaudited Unaudited
                                                                                                 provided         provided    External                                                                                                      Weighted           LRIC Floor        LRIC     Average
                                                                                               externally        internally     Sales    Roundings   Turnover      Day         Evening   Weekend      24 hours    Day    Evening Weekend     Average   FAC (o)         (o) Ceiling (o)   price/FAC
for the year ended 31 March 2007                                                                      £m              £m          £m           £m         £m                                                     ppm       ppm      ppm         ppm       ppm         ppm        ppm
Service
Internal Wholesale call originating local exchange segment PSTN and ISDN (excl OA)                      5               -           -           -           5      689          1,775       1,186       3,650    0.253    0.116     0.091      0.137     0.214       0.162      0.416        0.64
External Wholesale call originating local exchange segment PSTN and ISDN (excl OA)                      -               -          73           -          73   21,755          9,656       7,214      38,625    0.253    0.116     0.091      0.189     0.214       0.162      0.416        0.88

Internal Wholesale call originating local exchange segment (incl Operator Assistance)                137                -           -           -         137   37,450         20,351      15,343      73,144    0.262    0.120     0.094      0.187     0.216       0.165      0.421        0.87
External Wholesale call originating local exchange segment (incl Operator Assistance)                  -                -           8           -           8    2,238          1,033         959       4,230    0.262    0.120     0.094      0.189     0.216       0.165      0.421        0.88

Internal Wholesale call originating local exchange segment (ISDN) (incl OA)                           15                -           -           -          15    5,293            836         537       6,666    0.262    0.120     0.094      0.225     0.216       0.164      0.420        1.04

Internal Wholesale call origination local exchange Stick                                                -               7           -           -           7    1,959          1,253         931       4,143    0.229    0.105     0.083      0.169     0.150       0.101      0.347        1.13

Internal Wholesale call origination local exchange Stick (ISDN)                                         -               1           -           -           1     381              48            34       463    0.229    0.105     0.083      0.216     0.145       0.098      0.330        1.49

Internal Wholesale local exchange call origination circuit excluding FRIACO port (o)                  20                -           -           -          20    5,361          5,331       4,153      14,845    0.133    0.133     0.133      0.135    86.990      63.375    177.713        0.00
External Wholesale local exchange call origination circuit excluding FRIACO port (o)                   -                -           7           -           7    1,842          1,825       1,428       5,095    0.133    0.133     0.133      0.137    86.990      63.375    177.713        0.00

Internal Wholesale FRIACO port at the local exchange (o)                                                3               -           -           -           3    5,361          5,331       4,153      14,845    0.023    0.023     0.023      0.020    19.400      11.914     22.653        0.00
External Wholesale FRIACO port at the local exchange (o)                                                -               -           1           -           1    1,842          1,825       1,428       5,095    0.023    0.023     0.023      0.020    19.400      11.914     22.653        0.00

Internal Wholesale PPP for FRIACO (o)                                                                   2               -           -           -           2    5,361          5,331       4,153      14,845    0.013    0.013     0.013      0.013     3.790       3.617      5.460        0.00
External Wholesale PPP for FRIACO (o)                                                                   -               -           1           -           1    1,842          1,825       1,428       5,095    0.013    0.013     0.013      0.020     3.790       3.617      5.460        0.00

Internal Wholesale PPP                                                                                  8               -           -           -           8   51,635         25,949      19,240      96,824    0.012    0.006     0.004      0.008     0.007       0.006      0.010        1.18
External Wholesale PPP                                                                                  -               -          12           -          12   71,824         34,947      27,867     134,638    0.012    0.006     0.004      0.009     0.007       0.006      0.010        1.27

Roundings                                                                                               -               -           -            1          1

                                                                                                     190                8         102            1        301




(o) Unit costs have been recalculated on a 64kbit/s basis for FRIACO charging purposes.




                                                                                                                                                        54
Section 4 - Review of Other Wholesale Markets
Section 4.4 - Local-tandem conveyance and transit on fixed public narrowband networks (Annex 13)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-d
                                                                                                                                        discrimination obligations where a cost gradient applies
Local-tandem conveyance and transit on fixed public narrowband networks
Summary
                                            Internal Sales -   Internal Sales -                                                                                                                                                                           Return on
                                              services only      services also                                                                                                                                Total CCA                            Mean       mean
                                                   provided           provided          External                      Turnover    Operating                Holding Supplementary        Other                 operating           Return on       capital   capital
                                                  internally         externally           Sales       Roundings        (note 1)      costs Depreciation (gain)/loss  depreciation adjustments Roundings            costs   Return  turnover     employed employed
                                                         £m                 £m               £m             £m              £m          £m          £m          £m            £m          £m        £m               £m       £m                     £m

2008                                                     4                 45                 34                -           83          36          20            (1)             (3)            0       3          55        28     33.3 %         137      20.2 %
2007                                                     1                 51                 34                -           86          46          24             0              (3)           13       2          82         4      4.7 %         182       2.3 %




Note 1: Comparison of Average internal and external charges with
each other and with FAC                                                                                                                                                   Non- discrimination                                                                         Cost orientation

                                                                                                                                                                        NCC traffic minutes (mm)                      Average NCC rates (ppm)

                                                                                  Internal Sales - Internal Sales -
                                                                                    services also services only                                                                                                                                                                 Unaudited
                                                                                         provided         provided     External                                                                                                               Weighted             Unaudited        LRIC     Average
                                                                                       externally        internally      Sales    Roundings   Turnover           Day          Evening   Weekend 24 hours            Day    Evening Weekend     Average         FAC LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2008                                                              £m              £m            £m          £m          £m                                                             ppm       ppm      ppm          ppm         ppm       ppm         ppm
Service
Internal Wholesale local-tandem conveyance segment                                            40                -            -           -          40     26,124             13,607      10,262     49,993       0.111     0.051     0.040        0.080      0.062     0.049       0.119       1.29
External Wholesale local-tandem conveyance segment                                             -                -           34           -          34     23,023             10,120       8,006     41,149       0.111     0.051     0.040        0.083      0.062     0.049       0.119       1.33

Internal Wholesale local-tandem conveyance segment (ISDN)                                       5               -            -           -            5        4,248             618         385      5,251       0.111     0.051     0.040        0.099      0.062     0.049       0.119       1.59

Internal Wholesale local-tandem transmission stick                                              -               3            -           -            3    12,116              6,728       5,021     23,865       0.018     0.008     0.007        0.013      0.046     0.037       0.091       0.28

Internal Wholesale local-tandem transmission stick (ISDN)                                       -               1            -           -            1        2,653             353         236      3,242       0.018     0.008     0.007        0.016      0.046     0.037       0.092       0.35

Roundings                                                                                       -               -            -           -           -

                                                                                              45                4           34           -          83


                                                                                  Internal Sales - Internal Sales -
                                                                                    services also services only                                                                                                                                                                 Unaudited
                                                                                         provided         provided     External                                                                                                               Weighted             Unaudited        LRIC     Average
                                                                                       externally        internally      Sales    Roundings   Turnover           Day          Evening   Weekend 24 hours            Day    Evening Weekend     Average         FAC LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2007                                                              £m              £m            £m          £m          £m                                                             ppm       ppm      ppm          ppm         ppm       ppm         ppm
Service
Internal Wholesale local-tandem conveyance segment                                            46                -            -           -          46     31,434             15,815      11,857     59,106       0.107     0.049     0.039        0.078      0.083     0.063       0.193       0.94
External Wholesale local-tandem conveyance segment                                             -                -           34           -          34     23,923             10,961       8,483     43,367       0.107     0.049     0.039        0.078      0.083     0.063       0.193       0.94

Internal Wholesale local-tandem conveyance segment (ISDN)                                       5               -            -           -            5        4,336             711         448      5,495       0.107     0.049     0.039        0.091      0.079     0.061       0.179       1.15

Internal Wholesale local-tandem transmission stick                                              -               1            -           -            1    17,610              9,010       6,784     33,404       0.004     0.002     0.001        0.003      0.031     0.024       0.082       0.10

Internal Wholesale local-tandem transmission stick (ISDN)                                       -               0            -           -            0        3,029             484         320      3,833       0.004     0.002     0.001        0.000      0.051     0.039       0.137       0.00

Roundings                                                                                       -               -            -           -           -

                                                                                              51                1           34           -          86




                                                                                                                                                          55
Section 4 - Review of Other Wholesale Markets
Section 4.5 - Single Transit on Fixed Public Narrowband Networks (Annex 13)
Market summary
                                                                                                                                        discrimination obligations where a cost gradient applies
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-d
Single transit on fixed public narrowband networks
Summary
                                         Internal Sales -   Internal Sales -                                                                                                                                                                       Return on
                                           services only      services also                                                                                                                            Total CCA                            Mean       mean
                                                provided           provided          External                      Turnover    Operating                Holding Supplementary        Other             operating           Return on       capital    capital
                                               internally         externally           Sales       Roundings        (note 1)      costs Depreciation (gain)/loss  depreciation adjustments Roundings        costs   Return  turnover     employed employed
                                                      £m                 £m               £m             £m              £m          £m          £m          £m            £m          £m        £m           £m       £m                     £m

2008                                                    -                1                 14                1           16           4           2          0               0            0       0            6       10     60.5 %          20      46.5 %
2007                                                    -                1                 15                -           16           1           1          0               0            0       1            3       13     79.4 %           8     166.1 %




Note 1: Comparison of Average internal and external charges with
each other and with FAC                                                                                                                                             Non- discrimination                                                                         Cost orientation

                                                                                                                                                                  NCC traffic minutes (mm)                     Average NCC rates (ppm)

                                                                               Internal Sales - Internal Sales -
                                                                                 services also services only                                                                                                                                                              Unaudited
                                                                                      provided         provided     External                                                                                                           Weighted              Unaudited        LRIC     Average
                                                                                    externally        internally      Sales    Roundings   Turnover         Day         Evening   Weekend 24 hours           Day    Evening Weekend     Average          FAC LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2008                                                           £m              £m            £m          £m          £m                                                         ppm       ppm      ppm           ppm         ppm       ppm         ppm
Service
Internal Wholesale single transit segment PSTN & ISDN                                        1               -            -           -           1      1,687             465         348     2,500       0.070     0.032     0.025        0.040       0.027     0.022       0.049       1.48
External Wholesale single transit segment PSTN & ISDN                                        -               -           14           -          14     14,712           7,354       6,388    28,454       0.070     0.032     0.025        0.049       0.027     0.022       0.049       1.82

Roundings                                                                                    -               -            -           1            1

                                                                                             1               -           14            1         16


                                                                               Internal Sales - Internal Sales -
                                                                                 services also services only                                                                                                                                                              Unaudited
                                                                                      provided         provided     External                                                                                                           Weighted              Unaudited        LRIC     Average
                                                                                    externally        internally      Sales    Roundings   Turnover         Day         Evening   Weekend 24 hours           Day    Evening Weekend     Average          FAC LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2007                                                           £m              £m            £m          £m          £m                                                         ppm       ppm      ppm           ppm         ppm       ppm         ppm
Service
Internal Wholesale single transit segment PSTN & ISDN                                        1               -            -           -           1      1,560             420         305     2,285       0.076     0.035     0.027        0.044       0.015     0.012       0.020       2.92
External Wholesale single transit segment PSTN & ISDN                                        -               -           15           -          15     13,400           7,387       6,499    27,286       0.076     0.035     0.027        0.055       0.015     0.012       0.020       3.66

Roundings                                                                                    -               -            -           -           -

                                                                                             1               -           15           -          16




                                                                                                                                                       56
Section 4 - Review of Other Wholesale Markets
Section 4.6 - Technical Areas (Interconnect Circuits) (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Technical areas (Interconnect Circuits)
Summary
                                         Internal Sales -    Internal Sales -                                                                                                                                                                               Return on
                                           services only       services also                                                                                                                              Total CCA                                  Mean       mean
                                                provided            provided          External                      Turnover    Operating                  Holding Supplementary        Other             operating                   Return on     capital    capital
                                               internally          externally           Sales       Roundings        (note 1)      costs Depreciation   (gain)/loss  depreciation adjustments   Roundings      costs       Return      turnover   employed employed
                                                      £m                  £m               £m             £m              £m          £m          £m            £m            £m          £m          £m         £m           £m                       £m

2008                                                     -                4                 78                1           83          63          27           0              (3)          0           0          87            (4)      (5.5)%       190       (2.4)%
2007 (Restated)                                          -                7                 77                -           84          44          20           0              (4)          5           3          68            16       17.8 %       110       13.5 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                              Non- discrimination                                                                Cost orientation

                                                                                Internal Sales - Internal Sales -
                                                                                  services also services only                                                                                                           Unaudited
                                                                                       provided         provided     External                                                       Average      FAC (see Unaudited         LRIC       Average
                                                                                     externally        internally      Sales    Roundings   Turnover     Volume Unit (b)            price (v)   Section 6) LRIC Floor     Ceiling     price/FAC

for the year ended 31 March 2008                                                            £m              £m            £m          £m          £m                                       £           £           £             £
Service
Internal Wholesale standard CSI connection (v)                                                0               -            -           -           0         394 cct                 1,020.00    1,314.09    1,214.81     2,286.92         0.78
External Wholesale standard CSI connection (v)                                                -               -            3           -           3       3,178 cct                 1,020.00    1,314.09    1,214.81     2,286.92         0.78
                                                                                                                                                           3,572

Internal Wholesale standard CSI rental - fixed (v)                                            3               -            -           -           3       2,225 cct                 1,146.00      659.49      498.55      940.06          1.74
External Wholesale standard CSI rental - fixed (v)                                            -               -           20           -          20      17,955 cct                 1,146.00      659.49      498.55      940.06          1.74
                                                                                                                                                          20,180

Internal Wholesale standard CSI rentals - per km (v)                                          1               -            -           -           1      58,648 km                    22.80         6.07        4.99       12.62          3.76
External Wholesale standard CSI rentals - per km (v)                                          -               -           11           -          11     473,498 km                    22.80         6.07        4.99       12.62          3.76
                                                                                                                                                         532,146

External Wholesale ISI rentals                                                                -               -            -           -           -       8,289 100m                    0.00      335.56      302.16      504.59          0.00

External Nominated ISI - per km                                                               -               -            3           -           3      46,028 100m                  68.75        42.38       29.34      106.35          1.62

External Wholesale IEC connections                                                            -               -            0           -           0       1,051 cct                  161.52       177.40      164.00      308.73          0.91

External Wholesale IEC rentals - fixed                                                        -               -            8           -           8      16,913 cct                  497.04       508.09      426.37      843.76          0.98

External Wholesale IEC rentals - per km                                                       -               -           11           -          11     471,000 km                    22.80         9.53        7.06       21.14          2.39

Internal Wholesale intra-building circuits connections (v)                                    0               -            -           -           0         155 cct                  820.56     5,335.51    4,179.78     8,916.52         0.15
External Wholesale intra-building circuits connections (v)                                    -               -            9           -           9      10,554 cct                  820.56     5,335.51    4,179.78     8,916.52         0.15
                                                                                                                                                          10,709

Internal Wholesale intra-building circuits rentals (v)                                        0               -            -           -           0       1,266 cct                   94.44        86.16       74.58      138.54          1.10
External Wholesale intra-building circuits rentals (v)                                        -               -            8           -           8      85,872 cct                   94.44        86.16       74.58      138.54          1.10
                                                                                                                                                          87,138

External Wholesale rearrangements                                                             -               -            5           -           5      11,825 cct                  419.16       458.62      423.97      798.13          0.91

Roundings                                                                                     -               -            -            1          1

                                                                                              4               -           78            1         83




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(v) Revenue shared by BT and OCPs will cause different average charges for the year to occur.




                                                                                                                                                                       57
Section 4 - Review of Other Wholesale Markets
Section 4.6 - Technical Areas (Interconnect Circuits) (continued)
Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                     Non- discrimination                                                              Cost orientation

                                                                         Internal Sales - Internal Sales -
                                                                           services also services only                                                                                                       Unaudited
                                                                                provided         provided    External                                                    Average      FAC (see Unaudited         LRIC      Average
                                                                              externally        internally     Sales    Roundings    Turnover          Volume Unit (b)   price (v)   Section 6) LRIC Floor     Ceiling    price/FAC

Restated for the year ended 31 March 2007                                            £m              £m          £m           £m           £m                                   £           £           £            £
Service
Internal Wholesale standard CSI connection (v)                                         1               -           -           -              1             468 cct      1,200.00       701.53      672.82      992.92         1.71
External Wholesale standard CSI connection (v)                                         -               -           2           -              2          1,791 cct       1,200.00       701.53      672.82      992.92         1.71
                                                                                                                                                         2,259

Internal Wholesale standard CSI rental - fixed (v)                                     3               -           -           -             3           2,010 cct       1,412.31       543.19      430.18      640.56         2.60
External Wholesale standard CSI rental - fixed (v)                                     -               -          27           -            27          19,465 cct       1,412.31       543.19      430.18      640.56         2.60
                                                                                                                                                        21,475

Internal Wholesale standard CSI rentals - per km (v)                                   3               -           -           -             3         123,356 km           22.52         8.18        6.05       23.59         2.75
External Wholesale standard CSI rentals - per km (v)                                   -               -          11           -            11         471,931 km           22.52         8.18        6.05       23.59         2.75
                                                                                                                                                      595,287

External Wholesale ISI rentals                                                         -               -           -           -             -            8,611 100m         0.00       364.42      324.30      480.12         0.00

External Nominated ISI - per km                                                        -               -           3           -              3         42,157 100m         68.75        12.36        8.96       37.68         5.56

External Wholesale IEC connections                                                     -               -           0           -              0           1,835 cct        190.00        94.71       90.83      134.04         2.01

External Wholesale IEC rentals - fixed                                                 -               -           6           -              6         13,858 cct         452.00       527.06      465.37      700.30         0.86

External Wholesale IEC rentals - per km                                                -               -           9           -              9        382,203 km           22.52        14.17        9.79       44.48         1.59

Internal Wholesale intra-building circuits connections (v)                             0               -           -           -              0             158 cct        780.00     2,253.54    1,829.86     2,737.06        0.35
External Wholesale intra-building circuits connections (v)                             -               -           8           -              8          10,803 cct        780.00     2,253.54    1,829.86     2,737.06        0.35
                                                                                                                                                        10,961

Internal Wholesale intra-building circuits rentals (v)                                 0               -           -           -              0           1,162 cct         85.00        74.72       64.26       97.11         1.14
External Wholesale intra-building circuits rentals (v)                                 -               -           8           -              8          92,567 cct         85.00        74.72       64.26       97.11         1.14
                                                                                                                                                        93,729

External Wholesale rearrangements                                                      -               -           3           -              3           5,129 cct        499.04       262.37      251.63      371.35         1.90

Roundings                                                                              -               -           -           -             -

                                                                                       7               -          77           -            84




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(v) Revenue shared by BT and OCPs will cause different average charges for the year to occur.




                                                                                                                                         58
Section 4 - Review of Other Wholesale Markets
Section 4.7 - Fixed Call Termination (Annex 13)
Market summary
                                                                                                                                        discrimination obligations where a cost gradient applies
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-d
Fixed call termination
Summary
                                             Internal Sales -   Internal Sales -                                                                                                                                                                            Return on
                                               services only      services also                                                                                                                                 Total CCA                            Mean       mean
                                                    provided           provided          External                      Turnover    Operating                Holding Supplementary        Other                  operating           Return on       capital   capital
                                                   internally         externally           Sales       Roundings        (note 1)      costs Depreciation (gain)/loss  depreciation adjustments Roundings             costs   Return  turnover     employed employed
                                                          £m                 £m               £m             £m              £m          £m          £m          £m            £m          £m        £m                £m       £m                     £m

2008                                                       4                61               116                 -          181         103          74            (4)            (11)            8        1         171        10      5.1 %         414       2.2 %
2007                                                       8                81               122                 -          211          94          81            (2)            (13)           36        2         198        13      6.2 %         455       2.9 %




Note 1: Comparison of Average internal and external charges with
each other and with FAC                                                                                                                                                    Non- discrimination                                                                          Cost orientation
                                                                                                                                                                         NCC traffic minutes (mm)                       Average NCC rates (ppm)

                                                                                   Internal Sales - Internal Sales -
                                                                                     services also services only                                                                                                                                                                  Unaudited
                                                                                          provided         provided     External                                                                                                                Weighted             Unaudited        LRIC     Average
                                                                                        externally        internally      Sales    Roundings   Turnover           Day          Evening   Weekend 24 hours             Day    Evening Weekend     Average         FAC LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2008                                                               £m              £m            £m          £m          £m                                                              ppm       ppm      ppm          ppm         ppm       ppm         ppm
Service
Internal Wholesale call termination local exchange segment                                     54                -            -           -           54    17,070              8,570       6,403      32,043       0.231     0.106     0.083        0.169      0.203     0.165       0.347       0.83
External Wholesale call termination local exchange segment                                      -                -          116           -          116    37,727             17,178      13,197      68,102       0.231     0.106     0.083        0.170      0.203     0.165       0.347       0.84

Internal Wholesale call termination local exchange segment (ISDN)                                7               -            -           -            7        2,933             381         257       3,571       0.231     0.106     0.083        0.196      0.205     0.167       0.350       0.96

Internal Wholesale call termination local exchange stick                                         -               4            -           -            4        1,687           1,044         777       3,508       0.150     0.069     0.054        0.114      0.142     0.106       0.258       0.80

Internal Wholesale call termination local exchange stick (ISDN)                                  -               0            -           -            0         280               28            20      328        0.150     0.069     0.054        0.137      0.145     0.108       0.262       0.95

Roundings                                                                                        -               -            -           -            -

                                                                                               61                4          116           -          181


                                                                                   Internal Sales - Internal Sales -
                                                                                     services also services only                                                                                                                                                                  Unaudited
                                                                                          provided         provided     External                                                                                                                Weighted             Unaudited        LRIC     Average
                                                                                        externally        internally      Sales    Roundings   Turnover           Day          Evening   Weekend 24 hours             Day    Evening Weekend     Average         FAC LRIC Floor     Ceiling   price/FAC
for the year ended 31 March 2007                                                               £m              £m            £m          £m          £m                                                              ppm       ppm      ppm          ppm         ppm       ppm         ppm
Service
Internal Wholesale call termination local exchange segment                                     72                -            -           -           72    22,678             11,071       8,316      42,065       0.235     0.107     0.085        0.171      0.202     0.154       0.384       0.85
External Wholesale call termination local exchange segment                                      -                -          122           -          122    38,703             18,145      13,671      70,519       0.235     0.107     0.085        0.173      0.202     0.154       0.384       0.86

Internal Wholesale call termination local exchange segment (ISDN)                                9               -            -           -            9        3,410             532            354    4,296       0.235     0.107     0.085        0.209      0.210     0.160       0.415       1.00

Internal Wholesale call termination local exchange stick                                         -               7            -           -            7        1,959            1,253           931    4,143       0.229     0.105     0.083        0.169      0.157     0.106       0.373       1.08

Internal Wholesale call termination local exchange stick (ISDN)                                  -               1            -           -            1          381              48            34      463        0.229     0.105     0.083        0.216      0.150     0.102       0.350       1.44

Roundings                                                                                        -               -            -           -            -

                                                                                               81                8          122           -          211




                                                                                                                                                           59
Section 4 - Review of Other Wholesale Markets
Section 4.8 - Wholesale Trunk Segments (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Wholesale trunk segments
Summary
                                         Internal Sales -     Internal Sales -                                                                                                                                                                               Return on
                                           services only        services also                                                                                                                               Total CCA                                 Mean       mean
                                                provided             provided          External                      Turnover    Operating                   Holding Supplementary        Other             operating                  Return on     capital    capital
                                               internally           externally           Sales       Roundings        (note 1)      costs Depreciation    (gain)/loss  depreciation adjustments   Roundings      costs       Return     turnover   employed employed
                                                      £m                   £m               £m             £m              £m          £m          £m             £m            £m          £m          £m         £m           £m                      £m

2008                                                      -              213                 53               (1)         265          37          55            (4)           (12)         (4)          3          75         190        71.7 %       285       66.9 %
2007 (Restated)                                           -              220                 36                0          256          50          64             0            (13)         20           2         123         133        52.2 %       300       44.6 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                               Non- discrimination                                                                 Cost orientation

                                                                                 Internal Sales - Internal Sales -
                                                                                   services also services only                                                                                                            Unaudited
                                                                                        provided         provided     External                                                        Average      FAC (see Unaudited         LRIC      Average
                                                                                      externally        internally      Sales    Roundings   Turnover      Volume Unit (b)               price    Section 6) LRIC Floor     Ceiling    price/FAC

for the year ended 31 March 2008                                                             £m              £m            £m          £m          £m                                        £           £           £            £
Service
Internal Partial and Private circuits 2Mbit/s - trunk                                       139                -            -           -         139     1,357,140 km                  102.24        27.80       23.53       47.88         3.68
External Partial and Private circuits 2Mbit/s - trunk                                         -                -           41           -          41       396,241 km                  102.24        27.80       23.53       47.88         3.68
                                                                                                                                                          1,753,381

Internal Partial and Private circuits 34/45Mbit/s - trunk                                    32                -            -           -          32       58,097 km                   552.16       306.87      258.31      535.07         1.80
External Partial and Private circuits 34/45Mbit/s - trunk                                     -                -            9           -           9       16,291 km                   552.16       306.87      258.31      535.07         1.80
                                                                                                                                                            74,388

Internal Partial and Private circuits 140/155Mbit/s - trunk                                  20                -            -           -          20       75,909 km                   260.00       238.29      191.94      473.14         1.09
External Partial and Private circuits 140/155Mbit/s - trunk                                   -                -            1           -           1        3,670 km                   260.00       238.29      191.94      473.14         1.09
                                                                                                                                                            79,579

Internal Partial and Private circuits 622Mbit/s - trunk                                      17                -            -           -          17       14,477 km                  1,202.04    1,028.47      759.63     2,296.69        1.17


Support Service
Internal Protected Path Variants and Resilience                                                5               -            -           -             5        (u3)                        (s3)
External Protected Path Variants and Resilience                                                -               -            2           -             2        (u3)                        (s3)
                                                                                                                                                                                                                     (s)

Roundings                                                                                      -               -            -          (1)         (1)

                                                                                            213                -           53          (1)        265




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(s) Costs associated with support services are included within the above reported services and hence not disclosed separately.




                                                                                                                                                 60
Section 4 - Review of Other Wholesale Markets
Section 4.8 - Wholesale Trunk Segments (continued)

Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                      Non- discrimination                                                            Cost orientation

                                                                         Internal Sales - Internal Sales -
                                                                           services also services only                                                                                                      Unaudited
                                                                                provided         provided    External                                                    Average     FAC (see Unaudited         LRIC      Average
                                                                              externally        internally     Sales    Roundings    Turnover          Volume Unit (b)      price   Section 6) LRIC Floor     Ceiling    price/FAC

Restated for the year ended 31 March 2007                                            £m              £m           £m          £m           £m                                  £           £           £            £
Service
Internal Partial and Private circuits 2Mbit/s - trunk                               146                -           -           -           146       1,430,803 km          102.24       35.34       28.92       73.65         2.89
External Partial and Private circuits 2Mbit/s - trunk                                 -                -          29           -            29         286,285 km          102.24       35.34       28.92       73.65         2.89
                                                                                                                                                     1,717,088

Internal Partial and Private circuits 34/45Mbit/s - trunk                            37                -           -           -            37          66,298 km          552.16      402.86      329.23      839.62         1.37
External Partial and Private circuits 34/45Mbit/s - trunk                             -                -           6           -             6          11,744 km          552.16      402.86      329.23      839.62         1.37
                                                                                                                                                        78,042

Internal Partial and Private circuits 140/155Mbit/s - trunk                          16                -           -           -            16          60,573 km          260.00      331.58      257.71      814.07         0.78
External Partial and Private circuits 140/155Mbit/s - trunk                           -                -           0           -             0             913 km          260.00      331.58      257.71      814.07         0.78
                                                                                                                                                        61,486

Internal Partial and Private circuits 622Mbit/s - trunk                              15                -           -           -            15          12,248 km        1,247.87    1,505.86    1,093.38     4,427.47        0.83


Support Service
Internal Protected Path Variants and Resilience                                       6                -           -           -              6            (u3)              (s3)
External Protected Path Variants and Resilience                                       -                -           1           -              1            (u3)              (s3)
                                                                                                                                                                                                       (s)

Roundings                                                                              -               -           -           -             -

                                                                                    220                -          36           -           256




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(s) Costs associated with support services are included within the above reported services and hence not disclosed separately.




                                                                                                                                         61
Section 4 - Review of Other Wholesale Markets
Section 4.9 - Technical Areas (Point of Handover) (Annex 11)
Market summary
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with cost orientation and non-discrimination obligations
Technical Areas (Point of Handover)
Summary
                                       Internal Sales -   Internal Sales -                                                                                                                                                                                    Return on
                                         services only      services also                                                                                                                               Total CCA                                      Mean       mean
                                              provided           provided          External                      Turnover    Operating                   Holding Supplementary        Other             operating                       Return on     capital    capital
                                             internally         externally           Sales       Roundings        (note 1)      costs Depreciation    (gain)/loss  depreciation adjustments   Roundings      costs            Return     turnover   employed employed
                                                    £m                 £m               £m             £m              £m          £m          £m             £m            £m          £m          £m         £m                £m                      £m

2008                                                 -                  -                 6                -            6           0           5            0              (2)          0           2           5                 1       25.5 %        13       12.7 %
2007 (Restated)                                      -                  -                 7                -            7           1           2            0              (1)          0           1           3                 4       56.5 %         7       46.0 %




Note 1: Comparison of Average internal and external charges
with each other and with FAC                                                                                           Non- discrimination                                                                  Cost orientation

                                                                             Internal Sales - Internal Sales -
                                                                               services also services only                                                                                                                 Unaudited
                                                                                    provided         provided     External                                                        Average      FAC (see Unaudited              LRIC      Average
                                                                                  externally        internally      Sales    Roundings   Turnover      Volume Unit (b)               price    Section 6) LRIC Floor          Ceiling    price/FAC
for the year ended 31 March 2008                                                         £m              £m            £m          £m          £m                                        £           £           £                 £
Service
External Customer Sited Handover connection                                                -               -            0           -             0         341 conn               1,296.66    1,262.83    1,152.79          1,542.06        1.03

External Customer Sited Handover rental                                                    -               -            4           -             4       4,796 line                775.72       755.56      689.72           922.62         1.03

External In Span Handover connection                                                       -               -            2           -             2          55 conn              41,505.33   40,328.93   36,814.60         49,246.34        1.03

External In Span Handover rental                                                           -               -            0           -             0         365 line                602.00       587.12      535.96           716.94         1.03

Roundings                                                                                  -               -            -           -           -

                                                                                           -               -            6           -             6


Restated for the year ended 31 March 2007
Service
External Point of handover                                                                                                                                                        11,289.49   15,004.39   13,309.12         19,908.74        0.75

External Customer Sited Handover connection                                                -               -            1           -             1         354 conn               1,820.56

External Customer Sited Handover rental                                                    -               -            4           -             4       4,359 line                820.00
                                                                                                                                                                                                                     (t)
External In Span Handover connection                                                       -               -            2           -             2          59 conn              26,331.72

External In Span Handover rental                                                           -               -            0           -             0         303 line                590.10

Roundings                                                                                  -               -            -           -           -

                                                                                           -               -            7           -             7




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(t) Costs associated with Technical Areas (Point of Handover) services are included within the above reported service and hence not disclosed seeparately.




                                                                                                                                             62
Section 4 - Review of Other Wholesale Markets
Section 4.10 - Asymmetric Broadband Origination (Annex 12)
Market summary
                                                                                                                                  obligations
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with non discrimination o
Asymmetric broadband origination in the UK
Summary
                                        Internal Sales -   Internal Sales -
                                          services only      services also                                                                                                                                  Total CCA                            Mean     Return on
                                               provided           provided          External                      Turnover    Operating                  Holding Supplementar          Other                operating             Return on     capital mean capital
                                              internally         externally           Sales       Roundings        (note 1)      costs Depreciation   (gain)/loss y depreciation adjustments    Roundings        costs   Return    turnover   employed    employed
                                                     £m                 £m               £m             £m              £m          £m          £m            £m             £m          £m           £m           £m       £m                     £m

2008                                                  -               519               402                 1          922         346         253           (1)           (39)         (11)            0        548       374      40.5 %        822         45.5 %
2007                                                  -             1,027                 -                 -        1,027         435         280           (3)           (53)          11             1        671       356      34.7 %        866         41.2 %




                                                                                                                        Non- discrimination

                                                                              Internal Sales - Internal Sales -
                                                                                services also services only
                                                                                     provided         provided     External                                                        Average
                                                                                   externally        internally      Sales    Roundings   Turnover      Volume Unit (b)               price
for the year ended 31 March 2008                                                          £m              £m            £m          £m          £m                                        £
Service
Internal IPstream end user access - connection                                            65                -            -           -          65    1,877,260 conn                  34.86
External IPstream end user access - connection                                             -                -           39           -          39    1,123,703 conn                  34.86
                                                                                                                                                      3,000,963

Internal IPstream end user access - rental                                               381                -            -           -         381    4,426,629 line                  86.10
External IPstream end user access - rental                                                 -                -          286           -         286    3,196,724 line                  89.33
                                                                                                                                                      7,623,353

Internal Datastream end user access - connection                                            0               -            -           -           0       1,088 conn                   34.86
External Datastream end user access - connection                                            -               -            6           -           6     171,874 conn                   34.86
                                                                                                                                                       172,962

Internal Datastream end user access - rental                                                4               -            -           -           4      51,036 line                   75.61
External Datastream end user access - rental                                                -               -           65           -          65     825,261 line                   78.71
                                                                                                                                                       876,297

Internal Virtual Paths handover (k)                                                        1                -            -           -           1       1,398 pipes                 680.75
External Virtual Paths handover (k)                                                        -                -            3           -           3       2,476 pipes               1,234.52
Internal Backhaul circuits (excluding Virtual Paths) (l)                                  61                -            -           -          61     927,113 cct                    65.93

Ancillary charges (migration, cessation, re-grades)                                         7               -            3           -          10         (u2)                         (s2)

Roundings                                                                                   -               -            -           1           1

                                                                                         519                -          402            1        922


for the year ended 31 March 2007
Service
                                                                                                                                               766    8,118,337 line                  94.36 ADSL rentals
                                                                                                                                                75      503,603 cct                  149.50 Backhaul circuits
Internal Asymmetric broadband origination in the UK - Rental                             841                -            -           -         841
Internal Asymmetric broadband origination in the UK - Connection                         186                -            -           -         186    4,636,836 conn                  40.17

Roundings                                                                                   -               -            -           -           -

                                                                                       1,027                -            -           -        1,027




                                                                                                                                               m
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
      lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.
(k) This service comprises a number of individual prices.
(l) Backhaul circuits represents the elements of IPStream Centrals and Datastream Virtual Paths which fall into the asymmetric broadband origin nation market.




                                                                                                                                                                       63
Section 4 - Review of Other Wholesale Markets
Section 4.11 - Broadband Conveyance in the UK (Annex 12)
Market summary
                                                                                                                                  obligations
Purpose of statement: to provide more detail on financial performance and first order tests of compliance with non discrimination o
Broadband conveyance in the UK
Summary
                                        Internal Sales -   Internal Sales -                                                                                                                                                                         Return on
                                          services only      services also                                                                                                                              Total CCA                            Mean       mean
                                               provided           provided          External                      Turnover    Operating                  Holding Supplementary        Other             operating             Return on     capital    capital
                                              internally         externally           Sales       Roundings        (note 1)      costs Depreciation   (gain)/loss  depreciation adjustments   Roundings      costs   Return    turnover   employed employed
                                                     £m                 £m               £m             £m              £m          £m          £m            £m            £m          £m          £m         £m       £m                     £m

2008                                                  -               101                  4                -          105          41          64           (2)           (11)          0           1         93       12      11.8 %        212        5.9 %
2007                                                  -               133                  3                -          136          57          81            0            (17)         19          (2)       138       (2)     (1.2)%        278       (0.6)%




                                                                                                                        Non- discrimination

                                                                              Internal Sales - Internal Sales -
                                                                                services also services only
                                                                                     provided         provided     External                                                       Average
                                                                                   externally        internally      Sales    Roundings   Turnover     Volume Unit                   price
for the year ended 31 March 2008                                                          £m              £m            £m          £m          £m                                       £
Service
Internal Broadband conveyance in the UK                                                  101                -            -           -         101         (u6)                        (s6)
External Broadband conveyance in the UK                                                    -                -            4           -           4         (u4)                        (s4)

Roundings                                                                                   -               -            -           -           -

                                                                                         101                -            4           -         105


for the year ended 31 March 2007
Service
Internal Broadband conveyance in the UK                                                  133                -            -           -         133         (u6)                        (s6)
External Broadband conveyance in the UK                                                    -                -            3           -           3         (u4)                        (s4)

Roundings                                                                                   -               -            -           -           -

                                                                                         133                -            3           -         136




(sx) This service comprises a number of individual prices as indicated by the value of x.
(ux) This service comprises a number of individual volumetrics as indicated by the value of x.




                                                                                                                                              64
Section 5 - Review of Retail Markets
Section 5 - Review of Retail Markets




                                               SECTION 5
                                       REVIEW OF RETAIL MARKETS




                                                 65
Section 5 - Review of Retail Markets
Section 5.1 - Financial Performance & Attribution of Current Costs in Retail Markets (Annex 5B)
For the year ended 31 March 2008




                                                                                                                                                                                                                                      Residential calls to mobiles in the UK




                                                                                                                                                                                                                                                                               Residential operator assisted calls in
                                        Residential analogue exchange line




                                                                                                                   Residential national calls in the UK




                                                                                                                                                          Residential IDD calls category A




                                                                                                                                                                                                  Residential IDD calls category B




                                                                                                                                                                                                                                                                                                                          BT Retail markets consolidation
                                                                              Residential local calls in the UK




                                                                                                                                                                                                                                                                                                                                                                                      Total Retail Markets & Activities
                                        services in the UK




                                                                                                                                                                                                                                                                                                                                                                Retail Residual
                                                                                                                                                                                                                                                                               the UK
                                                                                                                                                          routes




                                                                                                                                                                                                  routes
                                                       £m                    £m                                   £m                                                    £m                                      £m                   £m                                                         £m                        £m                                   £m                    £m

Turnover                                1,989                                504                                  143                                             159                                            11                  515                                                                  6             3,327                               13,774                17,101
Operating Costs of Retail Markets
Charges from Wholesale Markets          1,728                                81                                   59                                                     10                                                 -        13                                                                      -          1,891                                3,359                 5,250

Outpayments                                         n/a                      27                                   12                                                     52                                              1           249                                                     n/a                         341                                  682                  1,023

Marketing & Sales                                       59                   11                                                 4                                                5                                          -        12                                                                      -            91                                  185                   276

Finance and Billing                                     26                                2                                     1                                                   -                                       -                       2                                                        -            31                                  138                   169

Computing                                               14                                2                                     1                                                   -                                       -                       2                                                        -            19                                  153                   172

Customer Service                                        43                                2                                             -                                           -                                       -                       1                                                        -            46                                  171                   217

General Management                               109                         14                                                 4                                                3                                          -        13                                                                      -           143                                 5,292                 5,435

Messaging Payments                                              2            29                                   13                                                             1                                          -                       6                                        n/a                          51                                 1,698                 1,749

Bad Debts                                                       2                         7                                     4                                                7                                          -        22                                                                      -            42                                   54                    96

Other Costs                                             67                   17                                                 5                                                8                                          -        17                                                                      -           114                                 1,782                 1,896

Sub total HCA Operating Costs           2,050                                192                                  103                                                     86                                             1           337                                                                  0             2,769                               13,514                16,283

CCA Adjustments
Holding (gain)/loss                                 n/a                      n/a                                  n/a                                                n/a                                     n/a                     n/a                                                     n/a                                      0                        n/a                                0

Supplementary depreciation                          n/a                      n/a                                  n/a                                                n/a                                     n/a                     n/a                                                     n/a                                      0                        n/a                                0

Other Adjustments                                   n/a                      n/a                                  n/a                                                n/a                                     n/a                     n/a                                                     n/a                                      0                       (211)                 (211)

Roundings                                                          -                       1                                            -                                        2                                       2                          1                                                     1                           7                          (1)                              6

Total CCA Operating Costs               2,050                                193                                  103                                                    88                                              3           338                                                                  1             2,776                               13,302                16,078

Return                                              (61)                     311                                   40                                                    71                                              8           177                                                                  5              551                                  472                  1,023




                                                                                                                                                                                             66
Section 5 - Review of Retail Markets
Section 5.1 - Financial Performance & Attribution of Current Costs in Retail Markets (Annex 5B) (continued)
Restated for the year ended 31 March 2007




                                                                                                                                                                                                                                                     Residential calls to mobiles in the UK




                                                                                                                                                                                                                                                                                              Residential operator assisted calls in
                                                       Residential analogue exchange line




                                                                                                                                  Residential national calls in the UK




                                                                                                                                                                         Residential IDD calls category A




                                                                                                                                                                                                                 Residential IDD calls category B




                                                                                                                                                                                                                                                                                                                                         BT Retail markets consolidation
                                                                                             Residential local calls in the UK




                                                                                                                                                                                                                                                                                                                                                                                                     Total Retail Markets & Activities
                                                       services in the UK




                                                                                                                                                                                                                                                                                                                                                                               Retail Residual
                                                                                                                                                                                                                                                                                              the UK
                                                                                                                                                                         routes




                                                                                                                                                                                                                 routes
                                                                      £m                    £m                                   £m                                                    £m                                      £m                   £m                                                         £m                        £m                                   £m                    £m

Turnover                                              2,039                                 529                                  150                                             166                                            10                  499                                                                  8             3,401                               13,762                17,163
Operating Costs of Retail Markets
Charges from Wholesale Markets                        1,803                                 102                                  67                                                             9                                          -        17                                                                   1             1,999                                4,141                 6,140

Outpayments                                                        n/a                      27                                   11                                                     73                                              2           302                                                     n/a                         415                                  818                  1,233

Marketing & Sales                                                      64                   13                                                 4                                                3                                          -        11                                                                      -            95                                   41                   136

Finance and Billing                                                    32                                2                                     1                                                   -                                       -                       2                                                        -            37                                  113                   150

Computing                                                              17                                4                                     1                                                1                                          -                       3                                                        -            26                                  161                   187

Customer Service                                                       51                                 5                                    2                                                1                                          -                       3                                                        -            62                                  177                   239

General Management                                                     89                   15                                                 5                                               3                                          -                        9                                                        -           121                                 4,348                 4,469

Messaging Payments                                                             8            38                                   16                                                             1                                          -                       6                                        n/a                          69                                 1,259                 1,328

Bad Debts                                                                      2                         9                                     4                                                8                                          -        26                                                                      -            49                                   88                   137

Other Costs                                                            50                   17                                                 5                                        10                                                 -        13                                                                      -            95                                 2,158                 2,253

Sub total HCA Operating Costs                         2,116                                 232                                  116                                             109                                                    2           392                                                                  1             2,968                               13,304                16,272

CCA Adjustments
Holding (gain)/loss                                                n/a                      n/a                                  n/a                                                n/a                                     n/a                     n/a                                                     n/a                                      0                                 -                          0

Supplementary depreciation                                         n/a                      n/a                                  n/a                                                n/a                                     n/a                     n/a                                                     n/a                                      0                                 -                          0

Other Adjustments                                                  n/a                      n/a                                  n/a                                                n/a                                     n/a                     n/a                                                     n/a                                      0                        67                    67

Roundings                                                                  (1)                   (1)                                           1                                                1                                       2                                  -                                                -                        2                          (1)                               1

Total CCA Operating Costs                             2,115                                 231                                  117                                             110                                                    4           392                                                                  1             2,970                               13,370                16,340

Return                                                             (76)                     298                                   33                                                    56                                              6           107                                                                  7              431                                  392                   823




                                                                                                                                                                                                            67
Section 5 - Review of Retail Markets
Section 5.2 - Attribution of Retail Mean Capital Employed (Annex 6B)
For the year ended 31 March 2008




                                                                                                                                                                                                                                      Residential calls to mobiles in the UK

                                                                                                                                                                                                                                                                                Residential operator assisted calls in
                                                Residential analogue exchange line




                                                                                                                         Residential national calls in the UK

                                                                                                                                                                Residential IDD calls category A



                                                                                                                                                                                                   Residential IDD calls category B




                                                                                                                                                                                                                                                                                                                           BT Retail markets consolidation
                                                                                     Residential local calls in the UK




                                                                                                                                                                                                                                                                                                                                                                                       Total Retail Markets
                                                services in the UK




                                                                                                                                                                                                                                                                                                                                                                 Retail Residual
                                                                                                                                                                                                                                                                                the UK
                                                                                                                                                                routes



                                                                                                                                                                                                   routes
                                                               £m                    £m                                  £m                                                   £m                                 £m                   £m                                                         £m                       £m                                    £m                    £m
Non-current Assets
Accommodation Land & Buildings                               16                        3                                   1                                                           4                                     -          3                                                       -                         27                                   600                   627
Motor Transport                                               1                        -                                   -                                                           -                                     -          -                                                     n/a                          1                                    56                    57
General Computers                                             7                        2                                   -                                                           -                                     -          1                                                       -                         10                                    92                   102
Software                                                     25                        3                                   1                                                           3                                     -          3                                                       -                         35                                   806                   841
International Transmission                                  n/a                      n/a                                 n/a                                                           4                                     -        n/a                                                     n/a                          4                                    47                    51
Other                                                         -                        -                                   -                                                           4                                     -          -                                                       -                          4                                 2,556                 2,560

Investments                                                 n/a                      n/a                                 n/a                                               n/a                                n/a                     n/a                                                     n/a                                      0                       105                   105

Total Non-current Assets                                         49                               8                                    2                                        15                                        0                          7                                                     0              81                                 4,262                 4,343

Current Assets
Stocks                                                      n/a                      n/a                                 n/a                                               n/a                                n/a                     n/a                                                     n/a                                      0                        91                    91
Debtors
- internal                                               n/a                         n/a                                 n/a                                               n/a                                n/a                     n/a                                                     n/a                          0                                   n/a                     0
- external                                               115                          66                                  18                                                36                                  3                      65                                                       3                        306                                 5,439                 5,745

Total Current Assets                                     115                         66                                  18                                                     36                                        3           65                                                                   3             306                                 5,530                 5,836


Liabilities falling due within one year
 - internal                                          (203)                           (13)                                    (8)                                            (7)                                        -              (31)                                                                     -         (262)                                 (474)                 (736)
 - external                                          (279)                           (28)                                    (9)                                           (35)                                       (2)             (36)                                                                     -         (389)                               (6,125)               (6,514)

Total Liabilities falling due within one year        (482)                           (41)                                (17)                                              (42)                                       (2)             (67)                                                                 0             (651)                               (6,599)               (7,250)

Net Current Assets/Liabilities                       (367)                           25                                                1                                           (6)                                    1               (2)                                                              3             (345)                               (1,069)               (1,414)

Total Assets less Current Liabilities                (318)                           33                                                3                                               9                                  1                          5                                                     3             (264)                               3,193                 2,929

Provisions for liabilities and charges                              (5)                  (1)                                                  -                                           -                                  -            (1)                                                                  -              (7)                               (91)                  (98)

Roundings                                                               2                         1                                           -                                    (2)                                       -                       2                                                         -                       3                          (2)                         1

Mean Capital Employed                                (321)                           33                                                3                                               7                                  1                          6                                                     3             (268)                               3,100                 2,832




                                                                                                                                                                                                                                                                               68
Section 5 - Review of Retail Markets
Section 5.2 - Attribution of Retail Mean Capital Employed (Annex 6B) (continued)
For the year ended 31 March 2007




                                                                                                                                                                                                                                           Residential calls to mobiles in the UK

                                                                                                                                                                                                                                                                                     Residential operator assisted calls in
                                                     Residential analogue exchange line




                                                                                                                              Residential national calls in the UK

                                                                                                                                                                     Residential IDD calls category A



                                                                                                                                                                                                        Residential IDD calls category B




                                                                                                                                                                                                                                                                                                                                BT Retail markets consolidation
                                                                                          Residential local calls in the UK




                                                                                                                                                                                                                                                                                                                                                                                            Total Retail Markets
                                                     services in the UK




                                                                                                                                                                                                                                                                                                                                                                      Retail Residual
                                                                                                                                                                                                                                                                                     the UK
                                                                                                                                                                     routes



                                                                                                                                                                                                        routes
                                                                    £m                    £m                                  £m                                                   £m                                 £m                   £m                                                         £m                       £m                                    £m                    £m
Non-current Assets
Accommodation Land & Buildings                                    16                        3                                   1                                                           4                                  -             2                                                       -                         26                                   584                   610
Motor Transport                                                    1                        -                                   -                                                           -                                  -             -                                                       -                          1                                    76                    77
General Computers                                                  9                        2                                   1                                                           -                                  -             2                                                       -                         14                                    61                    75
Software                                                          24                        4                                   1                                                           3                                  -             3                                                       -                         35                                   635                   670
International Transmission                                       n/a                      n/a                                 n/a                                                           8                                  1           n/a                                                     n/a                          9                                   131                   140
Other                                                              -                        -                                   -                                                           5                                  -             -                                                       -                          5                                 2,108                 2,113

Investments                                                      n/a                      n/a                                 n/a                                               n/a                                n/a                     n/a                                                     n/a                                      0                       102                   102

Total Non-current Assets                                              50                               9                                    3                                        20                                        1                          7                                                     0              90                                 3,697                 3,787

Current Assets
Stocks                                                           n/a                      n/a                                 n/a                                               n/a                                n/a                     n/a                                                     n/a                                      0                        96                    96
Debtors
- internal                                                    n/a                         n/a                                 n/a                                               n/a                                n/a                     n/a                                                     n/a                          0                                   n/a                     0
- external                                                    106                          68                                  18                                                30                                  2                      66                                                       3                        293                                 6,522                 6,815

Total Current Assets                                          106                         68                                  18                                                     30                                        2           66                                                                   3             293                                 6,618                 6,911


Liabilities falling due within one year
 - internal                                               (292)                           (21)                                (13)                                              (13)                                        -              (51)                                                                     -         (390)                                 (814)               (1,204)
 - external                                               (289)                           (29)                                 (9)                                              (39)                                       (2)             (34)                                                                     -         (402)                               (5,564)               (5,966)

Total Liabilities falling due within one year             (581)                           (50)                                (22)                                              (52)                                       (2)             (85)                                                                 0             (792)                               (6,378)               (7,170)

Net Current Assets/Liabilities                            (475)                           18                                      (4)                                           (22)                                           0           (19)                                                                 3             (499)                                 240                  (259)

Total Assets less Current Liabilities                     (425)                           27                                      (1)                                                   (2)                                    1           (12)                                                                 3             (409)                               3,937                 3,528

Provisions for liabilities and charges                                   (6)                  (1)                                                  -                                           -                                  -            (1)                                                                  -              (8)                               (69)                  (77)

Roundings                                                                    3                               -                                     -                                        1                                     -                              -                                                  -                       4                          (1)                         3

Mean Capital Employed                                     (428)                           26                                      (1)                                                   (1)                                    1           (13)                                                                 3             (413)                               3,867                 3,454




                                                                                                                                                                                                                                                                                    69
Section 5 - Review of Retail Markets
Section 5.3 - Review of Retail Markets (Annex 10 & 14)
                        Retail Markets (Annex 10 & 14)
In the financial year 2008, revenues in the published residential markets have continued to decline
partly due to a reduction in volumes resulting from increased competition and the impact of CPS (Carrier
Pre Select), WLR and LLU. The slowing rate of decline reflects BT’s robust defence of the traditional
market through innovative pricing packages for all our customers in a highly competitive market e.g.
changes to payment methods for line rental introduced during 2007 to encourage paper free billing
have helped to slow the rate of decline in revenue.
Network charges have decreased for Residential Analogue Exchange Line Services in the UK due to
lower volumes. Residential Local, National and Fixed to Mobile Calls in the UK have lower NCC charges
due to lower volumes. There was no material change for the two IDD Markets. Retail operating costs
have also decreased as a result of the fall in numbers of connections and rentals.
Mean Capital Employed has increased due to a reduction in current liabilities. This is because of a
reduction in the notional creditors that follows the reduction in network charge for these markets. It
should also be noted that the method for deriving the notional creditors used an average of 59 debtor
days in 2006/07 and 43 days in 2007/08 and therefore further reduced the balance.




                                                                                                      70
Section 6 - Other information
Section 6 - Other information




                                    SECTION 6
                                OTHER INFORMATION




                                       71
Section 6 - Other information
Section 6.1 - Network Activity Statement - Consolidated 2008 (Annex 15)
for year ended 31 March 2008
Network Activity Statement - Consolidated (this is a consolidation of all markets where there are cost accounting obligations)
                                                                                                                                                                                                                  Total of
                                                                                                                                                                                                                 operating                          Average costs
                                                                                                                                                                                                                 costs and                         per min/unit on
                                                                                                                               Holding gain          Total CCA         CCA mean      Applicable                 capital costs                       a current cost
                                                                             HCA operating           Supplementary            and other CCA          operating          capital     rate of return   Capital     relating to                       basis relating to
Fully Allocated Cost (£m)                                                        cost                 depreciation             adjustments             costs           employed     on capital %      costs     current year     Volume (b)          current year

SMP Cost Accounting components

Local exchange concentrator                                                                 108                         (9)                  10                  109         189             11.4          22             131     229,709   mm              0.056p
Local exchange processor                                                                    118                         (8)                   8                  118         178             11.4          20             138     225,813   mm              0.061p
Main exchange switching                                                                      23                          0                    0                   23          56             11.4           6              29     165,741   mm              0.017p
Remote - local transmission link                                                             60                         (6)                   3                   57          44             11.4           5              62     185,397   mm              0.033p
Remote - local transmission length (c)                                                       44                          0                   (8)                  36         300             11.4          34              70     330,847   mm              0.021p
Local - tandem transmission link                                                             33                         (3)                   1                   31          20             11.4           2              33      89,453   mm              0.037p
Local - tandem transmission length (c)                                                       13                          0                   (3)                  10          84             11.4          10              20     362,083   mm              0.006p
Product management policy & planning                                                         25                          0                    0                   25          (2)            11.4           0              25     242,755   mm              0.010p
Interconnect local end rental 2Mbit                                                           4                          0                    0                    4          12             11.4           1               5      19,201   cct           £268.15
Interconnect 2Mbit connection                                                                10                          0                    0                   10           0             11.4           0              10       7,841   cct          £1,314.09
Interconnect extension circuits (IEC) 2Mbit link                                              6                         (1)                   0                    5           6             11.4           1               6      16,913   cct           £355.72
Customer Sited Interconnect cct (CSI) 2Mbit link                                              5                         (1)                   0                    4           8             11.4           1               5      21,159   cct           £237.36
Interconnect extension circuits (IEC) 2Mbit per km                                            3                          0                    0                    3          15             11.4           2               5     471,000   km               £9.53
Customer Sited Interconnect cct (CSI) 2Mbit per km                                            3                          0                    0                    3          11             11.4           1               4     532,146   km               £6.07
In Span Interconnect circuits (ISI) transmission                                              3                          0                    0                    3           3             11.4           0               3       8,289   100m          £335.56
Nominated In Span I/Connect cct (ISI) transmission                                            1                          0                    0                    1           8             11.4           1               2      46,028   100m            £42.38
Intra Building Circuit (IBC) connection                                                      17                          0                    0                   17          11             11.4           1              18      10,709   cct          £1,717.43
Intra Building Circuit (IBC) rental                                                           8                         (1)                   0                    7           7             11.4           1               8      87,138   cct             £86.16
PC rental 2Mbit link per km distribution                                                     70                         (9)                  (5)                  56         205             11.4          23              79   1,817,348   km              £43.81
PC rental 2Mbit link per km trunk                                                            43                         (7)                  (3)                  33         137             11.4          16              49   2,023,120   km              £24.24
PC rental 34Mbit link per km distribution                                                    19                         (3)                  (2)                  14          52             11.4           6              20      55,655   km            £368.84
PC rental 34Mbit link per km trunk                                                           18                         (3)                  (2)                  13          54             11.4           6              19      74,388   km            £267.07
PC rental 140Mbit link per km distribution                                                   17                         (2)                  (2)                  13          55             11.4           6              19      32,880   km            £586.67
PC rental 140Mbit link per km trunk                                                          14                         (2)                  (2)                  10          53             11.4           6              16      79,579   km            £217.33
PC rental 622Mbit link per km trunk                                                          11                         (1)                  (2)                   8          52             11.4           6              14      14,477   km           £1,028.47
Point of Handover electronics                                                                 7                         (2)                   0                    5          13             11.4           2               7   6,763,994   eq               £0.96
PC rental 64Kbit link                                                                        52                         (5)                   1                   48          52             11.4           6              54     388,264   lk            £136.99
PC rental 2Mbit link                                                                         27                         (3)                   0                   24          54             11.4           6              30     181,218   lk            £163.77
PC rental 34Mbit link                                                                         7                         (1)                   0                    6          12             11.4           1               7       4,403   lk           £1,489.25
PC rental 140Mbit link                                                                       13                         (2)                   0                   11          25             11.4           3              14       3,143   lk           £4,233.58
PC rental 64Kbit link per km transmission                                                    27                         (1)                  (4)                  22         147             11.4          17              39   9,509,469   km               £4.03
64Kbit PC link connection cct provision                                                       6                          0                    0                    6           0             11.4           0               6       4,269   cct          £1,478.94
64Kbit PC link connection cct rearrangements                                                  4                          0                    0                    4           0             11.4           0               4       2,321   cct          £1,625.74
2Mbit and above PC link connection cct provision                                             38                          0                    0                   38           1             11.4           0              38      29,069   cct          £1,294.18
PC rental 64Kbit link local end                                                              58                          0                   (2)                  56          80             11.4           9              65     109,058   le            £589.83
PC rental 34Mbit link local end                                                              24                         (2)                  (2)                  20          68             11.4           8              28       5,898   le           £4,690.04
PC rental 140Mbit link local end                                                             21                         (3)                  (2)                  16          58             11.4           7              23       1,681   le          £13,700.88
PC rental 2Mbit local end copper                                                             28                          0                    0                   28          28             11.4           3              31      33,566   le            £928.09
PC rental 2Mbit local end fibre                                                             145                         (3)                 (12)                 130         417             11.4          48             178     265,047   le            £668.45

(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(c) Unit of length is 10 kilometres.




                                                                                                                                                                                    72
Section 6 - Other information
Section 6.1 - Network Activity Statement - Consolidated 2008 (Annex 15) (continued)
for year ended 31 March 2008
Network Activity Statement - Consolidated (this is a consolidation of all markets where there are cost accounting obligations)
                                                                                                                                                                                                                  Total of
                                                                                                                                                                                                                 operating                              Average costs
                                                                                                                                                                                                                 costs and                               per unit on a
                                                                                                                              Holding gain           Total CCA         CCA mean      Applicable                 capital costs                            current cost
                                                                              HCA operating          Supplementary           and other CCA           operating          capital     rate of return   Capital     relating to                           basis relating to
Fully Allocated Cost (£m)                                                         cost                depreciation            adjustments              costs           employed     on capital %      costs     current year       Volume (b)            current year

SMP Cost Accounting components

Wholesale & LAN extension services electronics                                               35                         0                     0                   35          89             11.4         10               45       15,768     conn          £2,851.47
Wholesale & LAN extension services fibre etc                                                 80                        (1)                  (14)                  65         384             11.4         44              109       42,809     line          £2,534.78
Wholesale & LAN extension services BNS                                                        2                         0                     0                    2           8             11.4          1                3          618     line          £3,864.92
Backhaul extension services electronics                                                       6                         0                     0                    6          16             11.4          2                8        4,484     conn          £1,801.10
Backhaul extension services fibre etc                                                         6                         0                    (1)                   5          32             11.4          4                9        6,789     line          £1,302.35
Wholesale & LAN extension services BNS electronics                                            5                         0                     0                    5          11             11.4          1                6          256     conn         £23,295.74
Ethernet main links                                                                          25                         1                    (7)                  19         226             11.4         26               45      226,977     km             £199.96
SG & A private circuits                                                                      45                         0                     0                   45          (3)            11.4          0               45            (a)                        (a)
SG & A partial private circuits                                                              77                         0                     0                   77          (7)            11.4         (1)              76            (a)                        (a)
National OA non chargeable                                                                    2                         0                     0                    2           1             11.4          0                2       71,172     mm               0.003p
Emergency OA (999) non chargeable                                                            10                         0                     0                   10           4             11.4          0               10      120,952     mm               0.009p
SDSL connections                                                                              0                         0                     0                    0           0             11.4          0                0        4,399     conn             £16.84
Wholesale Access specific                                                                    25                         0                     0                   25         114             10.0         11               36    6,346,925     trans             £5.68
Routeing & records                                                                           56                         0                     0                   56          (1)            10.0          0               56    2,967,574     line             £18.78
MDF Hardware jumpering                                                                      243                         0                     0                  243           0             10.0          0              243    4,962,319     line             £49.04
Software jumpering                                                                           11                         0                     0                   11           0             10.0          0               11   10,174,932     line              £1.09
E side copper capital                                                                        82                        34                   (72)                  44         774             10.0         77              121   26,946,332     line              £4.47
E side copper current                                                                        94                         0                     0                   94          81             10.0          8              102   31,786,520     line              £3.21
D side copper capital                                                                       635                        99                  (217)                 517       5,610             10.0        561            1,078   26,946,332     line             £39.99
D side copper current                                                                       333                         0                     0                  333          (2)            10.0          0              333   31,786,520     line             £10.48
Local exchanges general frames capital                                                       67                         7                     5                   79          42             10.0          4               83   51,404,007     line              £1.61
Local exchanges general frames current                                                       83                         0                     0                   83          22             10.0          2               85   51,234,792     line              £1.66
PSTN line test equipment                                                                     18                         0                     0                   18          57             10.0          6               24   28,182,013     line              £0.85
Dropwire capital & PSTN NTE                                                                 316                        42                   152                  510       1,183             10.0        118              628   25,887,586     line             £24.28
Business PSTN drop maintenance                                                               35                         0                     0                   35           1             10.0          0               35    5,839,629     line              £6.02
Residential PSTN drop maintenance                                                           125                         0                     0                  125           8             10.0          1              126   19,332,855     line              £6.50
ISDN2 drop maintenance                                                                        7                         0                     0                    7           0             10.0          0                7    1,430,222     chann             £4.78
PSTN line cards                                                                             199                       (17)                   15                  197         349             10.0         35              232   24,289,229     line              £9.58
ISDN2 line cards                                                                             26                        (3)                    3                   26          70             10.0          7               33    1,430,222     chann            £22.95
Pair gain                                                                                     3                         0                     0                    3           4             10.0          0                3      386,929     eq                £8.06
ISDN2 NTE                                                                                    14                         0                     0                   14          19             10.0          2               16    1,430,222     chann            £11.30
Broadband line testing systems                                                               45                         0                     0                   45          88             11.4         10               55   11,705,625     line              £4.66
DSLAM capital/maintenance                                                                   278                       (33)                   (9)                 236         416             11.4         47              283    8,510,953     line             £33.30
External WLR SG & A                                                                           9                         0                     0                    9           0             11.4          0                9            (a)                        (a)
Internal WLR SG & A                                                                          25                         0                     0                   25           2             11.4          0               25            (a)                        (a)
SG & A other access                                                                          33                         0                     0                   33          (7)            11.4         (1)              32            (a)                        (a)

(a) This component is attributed on a % basis so no volume or unit cost is derivable.
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
    lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                                                  73
Section 6 - Other information
Section 6.1 - Network Activity Statement - Consolidated 2008 (Annex 15) (continued)
Network Activity Statement - Consolidated (this is a consolidation of all markets where there are cost accounting obligations)
                                                                                                                                                                                                                      Total of
                                                                                                                                                                                                                     operating                                 Average costs
                                                                                                                                                                                                                     costs and                                  per unit on a
                                                                                                                               Holding gain          Total CCA          CCA mean      Applicable                    capital costs                               current cost
                                                                              HCA operating          Supplementary            and other CCA          operating           capital     rate of return   Capital        relating to                              basis relating to
Fully Allocated Cost (£m)                                                         cost                depreciation             adjustments             costs            employed     on capital %     costs         current year       Volume (b)               current year

SMP Cost Accounting components

Local Loop Unbundling room build                                                               0                        0                      0                   0            0             10.0           0                  0         1,607     rooms               -£1.28
Local Loop Unbundling hostel rentals                                                          13                        0                      0                  13           48             10.0           5                 18         8,626     hostels          £2,071.15
Local Loop Unbundling hostel rentals power & vent                                             10                        0                     (4)                  6           45             11.4           5                 11         8,626     hostels          £1,357.09
Local Loop Unbundling tie cables                                                               9                        5                     (4)                 10           64             10.0           6                 16        45,840     ca                £360.06
Local Loop Unbundling systems development                                                      9                        0                      0                   9           44             10.0           4                 13             (a)                           (a)
Directories                                                                                   39                        0                      0                  39           (6)            11.4          (1)                38             (a)                           (a)
Service assurance Retail                                                                      22                        0                      0                  22            3             10.0           0                 22             (a)                           (a)
Service assurance Global services                                                              2                        0                      0                   2            1             10.0           0                  2             (a)                           (a)
Service Centres - Provision                                                                   47                        0                      0                  47           (8)            10.0          (1)                46             (a)                           (a)
Sales product management                                                                      31                        0                      0                  31           (2)            11.4           0                 31             (a)                           (a)
Service Centres - Assurance                                                                   17                        0                      0                  17           (1)            10.0           0                 17             (a)                           (a)
Combi Card voice                                                                              42                        0                      0                  42           89             11.4          10                 52    24,289,229     line                 £2.13
Combi Card broadband                                                                          16                        0                      0                  16           35             11.4           4                 20     8,510,953     line                 £2.39
Core/Metro (voice)                                                                            31                        0                      0                  31          105             11.4          12                 43       437,962     mm                  0.010p
Border gateway & signalling firewall                                                           0                        0                      0                   0            0             11.4           0                  0       252,319     mm                  0.000p
MSAN - POSI (dense) link voice                                                                 7                        0                      0                   7           20             11.4           2                  9        57,427     mm                  0.016p
MSAN - POSI (non dense) link voice                                                             5                        0                      0                   5           13             11.4           1                  6       172,282     mm                  0.004p
Access Cards (other services)                                                                 12                        0                      0                  12           27             11.4           3                 15             (a)                           (a)
MSAN-Metro connectivity (dense)                                                               81                        0                      0                  81          263             11.4          30                111             (a)                           (a)
MSAN-Metro connectivity (non dense)                                                            0                        0                      0                   0            0             11.4           0                  0             (a)                           (a)
Core/Metro connectivity                                                                       27                        0                      0                  27           92             11.4          11                 38             (a)                           (a)
Edge Ethernet ports                                                                           11                        0                      0                  11           39             11.4           4                 15             (a)                           (a)
iNode (call set up and features)                                                               9                        0                      0                   9           51             11.4           6                 15             (a)                           (a)

ATM customer interface 2Mbit                                                                  (n)                                                                                                                                            (n)
ATM customer interface 34Mbit                                                                 (n)                                                                                                                                            (n)
ATM customer interface > 155Mbit                                                              (n)                                                                                                                                            (n)
ATM network interface                                                                         (n)                                                                                                                                            (n)
ATM network switching                                                                         (n)                                                                                                                                            (n)
Inter ATM transmissions                                                                       (n)                                                                                                                                            (n)
ISDN30 connections                                                                            (n)                                                                                                                                            (n)
ISDN30 access                                                                                 (n)                                                                                                                                            (n)
ISDN30 line cards                                                                             (n)                                                                                                                                            (n)
ADSL connections                                                                              (n)                                                                                                                                            (n)
Broadband backhaul circuits (excl Virtual Paths)                                              (n)                                                                                                                                            (n)
MSAN - BRAS (dense) link broadband                                                            (n)                                                                                                                                            (n)
MSAN - BRAS (non dense) link broadband                                                        (n)                                                                                                                                            (n)
Core/Metro (broadband)                                                                        (n)                                                                                                                                            (n)

SMP Accounting Separation components                                                        371                       (23)                  (11)                 337          757                          86                 423            n/a                            n/a

Residual components                                                                      3,101                        (13)                  (11)             3,077            466                          52               3,129            n/a                            n/a

Roundings                                                                                     (3)                       (5)                  (3)                 (11)          (5)                              4              (7)           n/a                            n/a

Total                                                                                     8,097                        15                  (206)             7,906         14,244                        1,505              9,411

(a) This component is attributed on a % basis so no volume or unit cost is derivable.
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
    lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(n) Accounting Separation components require no costs to be disclosed.




                                                                                                                                                                                     74
Section 6 - Other information
Section 6.2 - Network Activity Statement - Consolidated 2007 (Annex 15)(Restated)
Restated for year ended 31 March 2007
Network Activity Statement - Consolidated (this is a consolidation of all markets where there are cost accounting obligations)
                                                                                                                                                                                                               Total of
                                                                                                                                                                                                              operating                           Average costs
                                                                                                                                                                                                              costs and                          per min/unit on
                                                                                                                              Holding gain           Total CCA         CCA mean    Applicable                capital costs                        a current cost
                                                                             HCA operating           Supplementary           and other CCA           operating          capital   rate of return   Capital    relating to                        basis relating to
Fully Allocated Cost (£m)                                                        cost                 depreciation            adjustments              costs           employed   on capital %     costs     current year      Volume (b)          current year

SMP Cost Accounting components

Local exchange concentrator                                                                 127                       (13)                   17                  131        298            11.4         34             165      272,343   mm              0.061p
   Local exchange processor set-up                                                          118                        (9)                   10                  119        198            11.4         23             142      257,395   mm              0.055p
   Local exchange processor duration                                                         24                        (2)                    1                   23         43            11.4          5              28      257,395   mm              0.011p
Local exchange processor                                                                    142                       (11)                   11                  142        241            11.4         28             170      257,395   mm              0.066p
   Main exchange set-up                                                                      16                         0                     0                   16         45            11.4          5              21      174,612   mm              0.012p
   Main exchange call duration                                                               16                         0                     0                   16         27            11.4          3              19      174,612   mm              0.011p
Main exchange switching                                                                      32                         0                     0                   32         72            11.4          8              40      174,612   mm              0.023p
Remote - local transmission link                                                             62                        (7)                    4                   59         59            11.4          7              66      218,441   mm              0.030p
Remote - local transmission length (c)                                                       57                         2                    41                  100        397            11.4         45             145      389,319   mm              0.037p
Local - tandem transmission link                                                             35                        (4)                    2                   33         26            11.4          3              36      108,168   mm              0.033p
Local - tandem transmission length (c)                                                       17                         1                    13                   31        112            11.4         13              44      428,227   mm              0.010p
FRIACO Ports                                                                                  3                         0                     0                    3          6            11.4          1               4       19,939   mm              0.016p
Product management policy & planning                                                         18                         0                     0                   18          2            11.4          0              18      270,021   mm              0.007p
Interconnect local end rental 2Mbit                                                           4                         0                     0                    4         14            11.4          2               6       21,475   cct            £269.94
Interconnect 2Mbit connection                                                                 9                         0                     0                    9          2            11.4          0               9       13,127   cct            £701.53
Interconnect Extension Circuits (IEC) 2Mbit link                                              7                        (1)                    0                    6          9            11.4          1               7       13,858   cct            £527.06
Customer Sited Interconnect cct (CSI) 2Mbit link                                              6                        (1)                    0                    5          9            11.4          1               6       21,475   cct            £273.25
Interconnect Extension Circuits (IEC) 2Mbit per km                                            6                         0                     3                    9         30            11.4          3              12      836,208   km              £14.17
Customer Sited Interconnect cct (CSI) 2Mbit per km                                            3                         0                     1                    4         16            11.4          2               6      722,238   km               £8.18
In Span Interconnect circuits (ISI) transmission                                              3                        (1)                    0                    2          4            11.4          0               2        8,611   100m           £364.42
Nominated In Span I/Connect cct (ISI) transmission                                            0                         0                     0                    0          2            11.4          0               0       42,157   100m            £12.36
Intra Building Circuit (IBC) connection                                                      23                         0                     0                   23         17            11.4          2              25       10,961   cct          £2,253.54
Intra Building Circuit (IBC) rental                                                           7                        (1)                    0                    6          7            11.4          1               7       93,729   cct             £74.72
PC rental 2Mbit link per km distribution                                                     92                       (10)                   20                  102        297            11.4         34             136    2,269,544   km              £59.57
PC rental 2Mbit link per km trunk                                                            56                        (8)                    9                   57        164            11.4         19              76    2,327,948   km              £32.39
PC rental 34Mbit link per km distribution                                                    24                        (4)                    3                   23         72            11.4          8              31       67,787   km             £473.78
PC rental 34Mbit link per km trunk                                                           24                        (3)                    4                   25         61            11.4          7              32       83,890   km             £363.45
PC rental 140Mbit link per km distribution                                                   18                        (2)                    4                   20         62            11.4          7              27       52,379   km             £498.33
PC rental 140Mbit link per km trunk                                                          19                        (2)                    4                   21         50            11.4          6              27       84,481   km             £311.85
PC rental 622Mbit link per km trunk                                                          12                        (1)                    4                   15         39            11.4          4              19       13,482   km           £1,505.86
Point of Handover electronics                                                                 3                        (1)                    0                    2          7            11.4          1               3          228   eq          £15,004.39
PC rental 64Kb link                                                                          61                        (7)                    2                   56         75            11.4          9              65      575,013   lk            £112.87
PC rental 2Mb link                                                                           38                        (5)                    1                   34         64            11.4          7              41      180,220   lk            £227.24
PC rental 34Mb link                                                                           9                        (2)                    0                    7         19            11.4          2               9        4,704   lk           £2,073.77
PC rental 140Mb link                                                                         16                        (3)                    0                   13         35            11.4          4              17        4,050   lk           £4,362.22
PC rental 64Kbit link per km transmission                                                    35                         0                    20                   55        180            11.4         20              75   13,591,324   km               £5.48
64Kbit PC link connection cct provision                                                       3                         0                     0                    3          0            11.4          0               3        6,399   cct           £410.69
2Mbit PC link connection cct provision                                                       35                         0                     0                   35          7            11.4          1              36       26,261   cct          £1,354.02
64Kbit PC installation                                                                        0                         0                     0                    0          0            11.4          0               0        6,831   cct              £2.93
PC rental 64Kbit link local end                                                              62                        (1)                    0                   61         90            11.4         10              71      201,973   le            £355.32
PC rental 34Mbit link local end                                                              25                        (2)                    1                   24         71            11.4          8              32        6,970   le           £4,608.61
PC rental 140Mbit link local end                                                             22                        (3)                    1                   20         59            11.4          7              27        1,992   le          £13,492.47
PC rental 2Mbit local end copper                                                             38                         0                     0                   38         45            11.4          5              43       50,260   le            £849.82
PC rental 2Mbit local end fibre                                                             160                        (4)                   10                  166        460            11.4         52             218      331,460   le            £661.83

(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(c) Unit of length is 10 kilometres.




                                                                                                                                                                       75
Section 6 - Other information
Section 6.2 - Network Activity Statement - Consolidated 2007 (Annex 15) (Restated)(continued)
Restated for year ended 31 March 2007
Network Activity Statement - Consolidated (this is a consolidation of all markets where there are cost accounting obligations)
                                                                                                                                                                                                               Total of
                                                                                                                                                                                                              operating                              Average costs
                                                                                                                                                                                                              costs and                               per unit on a
                                                                                                                              Holding gain           Total CCA       CCA mean      Applicable                capital costs                            current cost
                                                                              HCA operating          Supplementary           and other CCA           operating        capital     rate of return   Capital    relating to                           basis relating to
Fully Allocated Cost (£m)                                                         cost                depreciation            adjustments              costs         employed     on capital %     costs     current year       Volume (b)            current year

SMP Cost Accounting components

Wholesale & LAN extension services electronics                                               31                        0                      0                 31           76            11.4          9              40        9,245     conn           £4,332.83
Wholesale & LAN extension services fibre etc                                                 96                        0                     24                120          500            11.4         57             177       35,569     line           £4,983.24
Wholesale & LAN extension services BNS                                                        5                        0                      0                  5           10            11.4          1               6          718     conn           £8,686.63
Backhaul extension services electronics                                                       3                        0                      0                  3           10            11.4          1               4        2,804     conn           £1,562.05
Backhaul extension services fibre etc                                                         5                        0                      2                  7           35            11.4          4              11        2,205     line           £5,234.92
SG & A private circuits                                                                      46                        0                      0                 46            3            11.4          0              46            (a)                         (a)
SG & A partial private circuits                                                              40                        0                      0                 40            3            11.4          0              40            (a)                         (a)
National OA non chargeable                                                                    4                        0                      0                  4            2            11.4          0               4       84,293     mm                0.005p
Emergency OA (999) non chargeable                                                             9                        0                      0                  9            5            11.4          1              10      129,634     mm                0.008p
SDSL connections                                                                              0                        0                      0                  0            0            11.4          0               0        1,528     conn              £40.58
Wholesale Access specific                                                                    16                        0                      0                 16           89            10.0          9              25    8,006,653     trans              £3.12
Routeing & records                                                                           51                        0                      0                 51           10            10.0          1              52    2,743,851     line              £19.03
MDF Hardware jumpering                                                                      158                        0                      0                158            2            10.0          0             158    5,482,433     line              £28.85
Software jumpering                                                                           17                        0                      0                 17            5            10.0          0              17   11,556,860     line               £1.54
E side copper capital                                                                        91                       18                   (100)                 9          692            10.0         69              78   27,390,810     line               £2.85
E side copper current                                                                        91                        0                      0                 91           13            10.0          1              92   30,707,837     line               £3.01
D side copper capital                                                                       639                      119                    274              1,032        5,711            10.0        571           1,603   27,390,810     line              £58.55
D side copper current                                                                       307                        0                      0                307           25            10.0          3             310   30,707,837     line              £10.08
Local exchanges general frames capital                                                       64                        3                      1                 68            8            10.0          1              69   45,495,013     line               £1.51
Local exchanges general frames current                                                       62                        0                      0                 62            5            10.0          1              63   45,202,068     line               £1.39
PSTN line test equipment                                                                     21                        0                      0                 21           41            10.0          4              25   28,195,071     line               £0.88
Dropwire capital & PSTN NTE                                                                 308                       54                   (125)               237        1,221            10.0        122             359   25,978,225     line              £13.81
Business PSTN drop maintenance                                                               39                        0                      0                 39            3            10.0          0              39    5,839,679     line               £6.67
Residential PSTN drop maintenance                                                           186                        0                      0                186           13            10.0          1             187   19,391,376     line               £9.65
ISDN2 drop maintenance                                                                       10                        0                      0                 10            1            10.0          0              10    1,494,330     chann              £7.01
PSTN line cards                                                                             232                      (23)                    26                235          505            10.0         50             285   24,997,659     line              £11.41
ISDN2 line cards                                                                             32                       (3)                     4                 33           72            10.0          7              40    1,494,330     chann             £27.25
Pair gain                                                                                     5                        0                      0                  5           11            10.0          1               6      709,812     eq                 £7.93
ISDN2 NTE                                                                                    24                        0                      1                 25           36            10.0          4              29    1,494,330     chann             £18.99
Broadband line testing systems                                                               27                        0                      0                 27           75            10.0          8              35    8,125,060     line               £4.22
DSL rentals                                                                                 344                      (42)                    (2)               300          562            11.4         64             364    8,125,060     line              £44.76
SG & A Wholesale Access                                                                       7                        0                      0                  7            0            10.0          0               7            (a)                         (a)
SG & A Retail Access                                                                         27                        0                      0                 27            1            10.0          0              27            (a)                         (a)
SG & A Wholesale                                                                             65                        0                      0                 65           13            10.0          1              66            (a)                         (a)

(a) This component is attributed on a % basis so no volume or unit cost is derivable.
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
    lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.




                                                                                                                                                                     76
Section 6 - Other information
Section 6.2 - Network Activity Statement - Consolidated 2007 (Annex 15) (Restated)(continued)
Restated for year ended 31 March 2007
Network Activity Statement - Consolidated (this is a consolidation of all markets where there are cost accounting obligations)
                                                                                                                                                                                                                      Total of
                                                                                                                                                                                                                     operating                             Average costs
                                                                                                                                                                                                                     costs and                              per unit on a
                                                                                                                               Holding gain          Total CCA         CCA mean       Applicable                    capital costs                           current cost
                                                                             HCA operating           Supplementary            and other CCA          operating          capital      rate of return   Capital        relating to                          basis relating to
Fully Allocated Cost (£m)                                                        cost                 depreciation             adjustments             costs           employed      on capital %     costs         current year    Volume (b)              current year

SMP Cost Accounting components

Local Loop Unbundling room build                                                               0                         0                     0                  0            10             10.0              1               1     4,467     r                 £237.52
Local Loop Unbundling hostel rentals                                                           7                         0                     0                  7            27             10.0              3              10     5,975     hostels          £1,626.28
Local Loop Unbundling hostel rentals power and vent                                           15                        (1)                    0                 14            39             10.0              4              18     5,975     hostels          £2,934.56
Local Loop Unbundling tie cables                                                               7                         2                    (5)                 4            44             10.0              4               8    87,718     ca                £104.98
Local Loop Unbundling systems development                                                     10                         0                     0                 10            55             10.0              5              15         (a)                           (a)
Low user scheme                                                                               11                         0                     0                 11             1             11.4              0              11         (a)                           (a)
Directories                                                                                   47                         0                     0                 47            (4)            11.4              0              47         (a)                           (a)
Service assurance Retail                                                                      53                         0                     0                 53             2             11.4              0              53         (a)                           (a)
Service assurance Global Services                                                              5                         0                     0                  5             0             11.4              0               5         (a)                           (a)
Service centres - Provision                                                                   43                         0                     0                 43            (3)            10.0              0              43         (a)                           (a)
Sales product management                                                                      27                         0                     0                 27            34             10.0              3              30         (a)                           (a)
Service centres - Assurance                                                                   15                         0                     0                 15             2             10.0              0              15         (a)                           (a)


ATM customer interface 2Mbit                                                                  (n)                                                                                                                                        (n)
ATM customer interface 34Mbit                                                                 (n)                                                                                                                                        (n)
ATM customer interface > 155Mbit                                                              (n)                                                                                                                                        (n)
ATM network interface                                                                         (n)                                                                                                                                        (n)
ATM network switching                                                                         (n)                                                                                                                                        (n)
Inter ATM transmissions                                                                       (n)                                                                                                                                        (n)
ISDN30 connections                                                                            (n)                                                                                                                                        (n)
ISDN30 access                                                                                 (n)                                                                                                                                        (n)
ISDN30 line cards                                                                             (n)                                                                                                                                        (n)
ADSL connections                                                                              (n)                                                                                                                                        (n)
Broadband backhaul circuits                                                                   (n)                                                                                                                                        (n)

SMP Accounting Separation components                                                        461                       (32)                   41                  470          823                          93                 563        n/a                            n/a

Residual components                                                                      3,383                        (21)                   20              3,382            706                          78               3,460        n/a                            n/a

Roundings                                                                                     11                        -                     -                  11             3                               7              18        n/a                            n/a

Total                                                                                     8,470                       (20)                  336              8,786          14,677                       1,551             10,337

(a) This component is attributed on a % basis so no volume or unit cost is derivable.
(b) mm = million minutes; ms = million seconds; line = lines; trans = transactions; cust = customers; r = rooms; ca = cables; cct = circuits; km = kilometres;
     lk = links; conn = connections; eq = equipment units; le = local ends; chann = channels; tover = takeovers; 100m = 100 metres.
(n) Accounting Separation components require no costs to be disclosed.




                                                                                                                                                                       77
Section 6 - Other information
Section 6.3 - Calculation of FAC based on component costs and usage factors (Annex 16)
Section 6.3.1 - Calculation of FAC based on component costs and usage factors 2008
for year ended 31 March 2008



                                                                                                                     Wholesale residential analogue                                                                                                                                            Wholesale business analogue                                                                                                                                                                                  Wholesale business ISDN2 exchange
                                                                                                                        exchange line services                                                                                                                                                   exchange line services                                                                                                                                                                                                line services




                                                                                                                                                                                                                        Wholesale residential analogue external
                                                                                                                            Wholesale residential analogue internal




                                                                                                                                                                          Wholesale residential analogue internal




                                                                                                                                                                                                                                                                                                         Wholesale business analogue external




                                                                                                                                                                                                                                                                                                                                                                                       Wholesale business analogue external




                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Wholesale business analogue external
                                                                                                                                                                                                                                                                  Wholesale business analogue internal




                                                                                                                                                                                                                                                                                                                                                Wholesale business analogue internal




                                                                                                                                                                                                                                                                                                                                                                                                                              Wholesale business analogue internal
                                                                             Average cost per unit (from annex 15)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale business ISDN2 external




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Wholesale business ISDN2 external




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale business ISDN2 external
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Wholesale business ISDN2 internal




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale business ISDN2 internal




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Wholesale business ISDN2 internal
                                                                                                                            service connections




                                                                                                                                                                                                                                                                  service connections



                                                                                                                                                                                                                                                                                                         service connections




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            service connections



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                service connections
                                                                                                                                                                                                                                                                                                                                                service takeovers



                                                                                                                                                                                                                                                                                                                                                                                       service transfers




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        service transfers
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    service takovers
                                                                                                                                                                          service rentals




                                                                                                                                                                                                                        service rentals




                                                                                                                                                                                                                                                                                                                                                                                                                              service rentals


                                                                                                                                                                                                                                                                                                                                                                                                                                                                     service rentals




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            service rentals


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                service rentals
Fully Allocated Cost (£)
Components                                          Unit (p)                                                            £                                             £                                             £                                                    £                                      £                                      £                                      £                                      £                                      £                                     £                                   £                                   £                                   £                                   £                                   £


E side copper capital                               £/line                 4.47                                                                                                     4.71                                          4.71                                                                                                                                                                                                 4.40                                   4.40                                                                                                                                                                                   2.14                                2.14
E side copper current                               £/line                 3.21                                                                                                     3.70                                          3.70                                                                                                                                                                                                 3.21                                   3.21                                                                                                                                                                                   2.27                                2.27
D side copper capital                               £/line                39.99                                                                                             42.10                                         42.10                                                                                                                                                                                                39.34                                  39.34                                                                                                                                                                                  19.13                               19.13
D side copper current                               £/line                10.48                                                                                             12.07                                         12.07                                                                                                                                                                                                10.48                                  10.48                                                                                                                                                                                          7.40                                7.40
Local exchanges general frames capital              £/line                 1.61                                                                                                     1.64                                          1.64                                                                                                                                                                                                 1.64                                   1.64                                                                                                                                                                                   0.81                                0.81
Local exchanges general frames current              £/line                 1.66                                                                                                     1.69                                          1.69                                                                                                                                                                                                 1.69                                   1.69                                                                                                                                                                                   0.83                                0.83
PSTN line test equipment                            £/line                 0.85                                                                                                     0.98                                          0.98                                                                                                                                                                                                 0.85                                   0.85                                                                                                                                                                                   0.60                                0.60
Dropwire capital & PSTN NTE                         £/line                24.28                                                                                             24.28                                         24.28                                                                                                                                                                                                24.28                                  24.28                                                                                                                                                                                  12.14                               12.14
Business PSTN drop maintenance                      £/line                 6.02                                                                                                                                                                                                                                                                                                                                                        6.02                                   6.02
Residential PSTN drop maintenance                   £/line                 6.50                                                                                                     6.50                                          6.50
PSTN line cards                                     £/line                 9.58                                                                                                     9.58                                          9.58                                                                                                                                                                                                 9.58                                   9.58
Pair gain                                           £/eq                   8.06                                                                                                     0.11                                          0.11                                                                                                                                                                                                 0.18                                   0.18
Routeing & records                                  £/line                18.78                                               18.78                                                                                                                                18.78                                  18.78                                                                                                                                                                                              14.09                               14.09
MDF Hardware jumpering                              £/line                49.04                                               49.04                                                                                                                                49.04                                  49.04                                                                                                                                                                                              19.54                               19.92
Software jumpering                                  £/line                 1.09                                                       1.09                                                                                                                                 1.09                                   1.09                                                                          1.09                                                                                                                0.54                                 0.54                                0.54                                0.54
Wholesale Access specific                           £/trans                5.68                                                       5.68                                                                                                                                 5.68                                   5.68                                   5.68                                   5.68                                                                                                                2.84                                 2.84                                2.84                                2.84
ISDN2 drop maintenance                              £/chann                4.78                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      4.78                                4.78
ISDN2 line cards                                    £/chann               22.95                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              22.95                               22.95
ISDN2 NTE                                           £/chann               11.30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              11.30                               11.30
Combi Card voice                                    £/line                 2.13                                                                                                     2.13                                          2.13                                                                                                                                                                                                 2.13                                   2.13
Directories (q)                                     %                     £38m                                                                                                      1.56                                          1.56                                                                                                                                                                                                 1.57                                   1.56
Service assurance Retail (q)                        %                     £22m                                                        0.08                                          1.23                                                                                   0.13                                                                          0.10                                                                          0.34                                                                         0.01                                                                                                                                             0.04
Service assurance Global services (q)               %                      £2m                                                                                                                                                                                             0.14                                                                          0.12                                                                          0.39                                                                         0.02                                                                                                                                             0.05
Service Centres - Provision (q)                     %                     £46m                                                        3.91                                                                                                                                 2.94                                   2.43                                   4.45                                   3.02                                                                                                                3.30                         12.48                               15.49                               10.66
Sales product management (q)                        %                     £31m                                                        0.35                                          0.39                                          2.91                                     0.31                                   1.97                                   0.00                                   0.02                                   0.52                                   1.64                                  0.16                                 1.09                                0.52                                0.25                                0.28                                0.88
Service Centres - Assurance (q)                     %                     £17m                                                                                                      0.26                                          0.24                                                                                                                                                                                                 0.28                                   0.26                                                                                                                                                                                   0.26                                0.27
External WLR SG & A (q)                             %                      £9m                                                                                                                                                                                                                                                                                                                                                                                                                                                                           0.79                                                                                                                                            0.02
Internal WLR SG & A (q)                             %                     £25m                                                                                                      0.01                                                                                   1.27                                                                          0.16                                                                                                                                                                                                                                0.60
Access Cards (other services) (q)                   %                     £15m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       0.62                                0.62



Fully Allocated Costs (£)                                                                                                     78.93                                   112.94                                        114.20                                         79.38                                  78.99                                  10.51                                          9.81 106.90 107.26                                                                                           40.50                               51.75                               19.99                               14.29                               85.60                               86.14


                                                                                                                                                                                   n;
(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction £/cct = £ per circuit;
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipment units;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   78
Section 6 - Other information
Section 6.3.1 - Calculation of FAC based on component costs and usage factors 2008 (continued)
for year ended 31 March 2008


                                                                                                                                                                          Traditional interface symmetric broadband origination (up to and including 8Mbit/s)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Wholesale local access




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Partial and Private Circuits 2Mbit/s - local
                                                                                                                                                                               Partial and Private Circuits 64Kbit/s - link




                                                                                                                                                                                                                                                                                                                                                                                                                                                    Partial and Private Circuits 2Mbit/s - link
                                                                                                                                                                                                                                                                                                                    Radio Backhaul Service - sub 2 Mbit/s



                                                                                                                                                                                                                                                                                                                                                            Radio Backhaul Service - sub 2 Mbit/s
                                                                                      Average cost per unit (from annex 15)


                                                                                                                                Partial and Private Circuits 64Kbit/s -




                                                                                                                                                                                                                              Partial and Private Circuits 64Kbit/s -



                                                                                                                                                                                                                                                                        Partial and Private Circuits 64Kbit/s -




                                                                                                                                                                                                                                                                                                                                                                                                      Partial and Private Circuits 2Mbit/s -




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Partial and Private Circuits 2Mbit/s -




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Radio Backhaul Service - 2 Mbit/s
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Radio Backhaul Service - 2 Mbit/s




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         MPF Hostel Rentals (External)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              SMPF Connections (External)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    MPF Connections (External)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      MPF Room Build (External)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              MPF Tie Cables (External)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                SMPF Rentals (External)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      MPF Rentals (External)
                                                                                                                                                                                                                              transmission




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  distribution
                                                                                                                                connection




                                                                                                                                                                                                                                                                                                                    connection




                                                                                                                                                                                                                                                                                                                                                                                                      connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            connection
                                                                                                                                                                                                                                                                        local end




                                                                                                                                                                                                                                                                                                                                                            rentals




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                rentals



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         SDSL
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           end
Fully Allocated Cost (£)
Components                                                     Unit (p)                                                            £                                       £                                                     £                                         £                                           £                                       £                                         £                                      £                                                    £                                        £                                               £                                   £                                  £          £                                 £                               £                                  £                                    £                               £                                 £


E side copper capital                                          £/line               4.47                                                                                                                                                                                          5.16                                                                                5.16                                                                                                                                                                             9.05                                                                              9.05                         4.73                                         4.47
E side copper current                                          £/line               3.21                                                                                                                                                                                          3.21                                                                                3.21                                                                                                                                                                             6.44                                                                              6.44                         3.92                                         3.92                                                                                                                                                                      0.71
D side copper capital                                          £/line              39.99                                                                                                                                                                                 46.17                                                                               46.17                                                                                                                                                                           80.89                                                                               80.89                               42.28                                        39.99
D side copper current                                          £/line              10.48                                                                                                                                                                                 10.48                                                                               10.48                                                                                                                                                                           21.05                                                                               21.05                               12.80                                        12.80                                                                                                                                                                      2.33
Local exchanges general frames capital                         £/line               1.61                                                                                                                                                                                          1.61                                                                                1.61                                                                                                                                                                             2.91                                                                              2.91                         3.22                                         3.22                                                                                                                                                                      4.83
Local exchanges general frames current                         £/line               1.66                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              3.32                                         3.32                                                                                                                                                                      4.97
Dropwire capital & PSTN NTE                                    £/line              24.28                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             24.28                                        24.28
Residential PSTN drop maintenance                              £/line               6.50                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              6.50                                         6.50
Routeing & records                                             £/line              18.78                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             18.78      18.78
MDF Hardware jumpering                                         £/line              49.04                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             49.04      30.65                                                                                                                                                                     49.04
Software jumpering                                             £/line               1.09                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              1.09       1.09                                                                                                                                                                      1.09
64Kbit PC link connection cct provision (y)                    £/cct             2,362.85                                     2,362.85                                                                                                                                                                            2,362.85
PC rental 64Kbit link                                          £/lk               136.99                                                                                  136.99                                                                                                                                                                            136.99
PC rental 64Kbit link per km transmission                      £/km                 4.03                                                                                                                                                4.03                                                                                                                          4.03
PC rental 64Kbit link local end                                £/le               589.83                                                                                                                                                                                589.83                                                                              589.83
2Mbit and above PC link connection cct provision               £/cct             1,294.18                                                                                                                                                                                                                                                                                                           1,294.18                                                                                                                                                                              1,294.18
PC rental 2Mbit link                                           £/lk               163.77                                                                                                                                                                                                                                                                                                                                                       163.77                                                                                                                                                                           163.77
PC rental 2Mbit link per km distribution                       £/km                43.81                                                                                                                                                                                                                                                                                                                                                                                                           43.81                                                                                                                         43.81
PC rental 2Mbit local end copper                               £/le               928.09                                                                                                                                                                                                                                                                                                                                                                                                                                                   159.05                                                                                66.45
PC rental 2Mbit local end fibre                                £/le               668.45                                                                                                                                                                                                                                                                                                                                                                                                                                                   553.90                                                                               620.59
PC rental 2Mbit link per km trunk                              £/km                24.24                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         24.24
Broadband line testing systems                                 £/line               4.66                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              4.66                                         4.66                                                                                                                                                                      4.66
DSLAM capital/maintenance                                      £/line              33.30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             33.30
SDSL connections                                               £/conn              16.84                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             16.84
Local Loop Unbundling room build                               £/rooms              -1.28                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         -1.28
Local Loop Unbundling hostel rentals                           £/hostel rental   2,071.15                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         2,071.15
Local Loop Unbundling hostel rentals power & vent              £/hostel rental   1,357.09                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         1,357.09
Local Loop Unbundling tie cables                               £/cable            360.06                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 360.06
Combi Card broadband                                           £/line               2.39                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              2.39
Local Loop Unbundling systems development (q)                  %                   £13m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          1.84                              1.32                           26.14                             13.45                                  1.35                            1.83                              2.69
Service Centres - Provision (q)                                %                   £46m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               5.68       0.67                                                             18.05                                                                                                    2.30
Sales product management (q)                                   %                   £31m                                                   6.20                                                                                          0.02                                                                                                                                                            15.65                                                                                               0.77                                                                                                                                                                 0.15                              0.35                          211.57                             19.48                                  1.96                            0.45                              0.42
Service Centres - Assurance (q)                                %                   £17m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              34.42                                         1.03                                                              1.16                                  1.27                                                              0.00
SG & A private circuits (q)                                    %                   £45m                                        107.41                                      10.98                                                        0.23                             60.05                                                                                                                          81.79                                   17.04                                                       0.67                           142.12
SG & A partial private circuits (q)                            %                   £76m                                        264.07                                      12.01                                                        0.27                             31.29                                     487.39                                   239.66                                   207.56                                     28.59                                                       4.84                             46.89                                         465.02                               627.36
SG & A other access (q)                                        %                   £32m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              14.51
Access Cards (other services) (q)                              %                   £15m                                                                                                                                                                                                                                                                                                                                                                                                                                                      21.18                                                                               21.20
MSAN-Metro connectivity (dense) (q)                            %                  £111m                                                                                                                                                                                                                                                                                                                                                        129.67                                                                                                                                                                           152.19
MSAN-Metro connectivity (non dense) (q)                        %                    £0m                                                                                                                                                                                                                                                                                                                                                          0.15                                                                                                                                                                                    0.17



Fully Allocated Costs (£)                                                                                                     2,740.53                                    159.98                                                        4.55                            747.80 2,850.24 1,037.14 1,599.18                                                                                                                                      339.22                                              50.09 1,043.48 1,759.20 1,840.12                                                                                                                                 281.76      53.18                            105.86                          254.48 3,462.33                                                         364.64                           54.71                             20.61


                                                                                      M
(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction; £/cct = £ per circuit;
                                                                                          m
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipment units;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.
(y) Unit costs calculated as a weighted average of the 64Kbit PC link connection cct provision & 64Kbit PC link connection cct rearrangements.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          79
Section 6 - Other information
Section 6.3.1 - Calculation of FAC based on component costs and usage factors 2008 (continued)
for year ended 31 March 2008



                                                                                                                                                                                                                                                                                                                                                                                                                                  Local-tandem conveyance and                                                                                                                                                                                     Single transit on fixed
                                                                                                                                       Call origination on fixed public narrowband
                                                                                                                                                                                                                                                                                                                                                                                                                                      transit on fixed public                                                                                                                                                                                      public narrowband                                                            Fixed call termination
                                                                                                                                                         networks
                                                                                                                                                                                                                                                                                                                                                                                                                                     narrowband networks                                                                                                                                                                                                networks

                                                                                                                                                                                                                                                                                                                                                                                                                                   Local-tandem
                                                                                                                                                                                                                                                                                                     PPP                                                                                                                                                                                                                                                                                                                                                                                                                 Call Termination
                                                                                                                                     Call Origination Basket (ad)                                                                                                                                                         Retail Sticks                                                                                             conveyance                                                                                             Retail Sticks                                                                                          Single Transit Basket (ae)                                                                                                                                                            Retail Sticks
                                                                                                                                                                                                                                                                                                    Basket                                                                                                                                                                                                                                                                                                                                                                                                                    basket
                                                                                                                                                                                                                                                                                                                                                                                                                                      basket




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Wholesale local-tandem conveyance segment (ISDN)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale call termination local exchange segment


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale call termination local exchange segment
                                                                                                                                        Wholesale call originating local exchange segment




                                                                                                                                                                                            Wholesale call originating local exchange segment




                                                                                                                                                                                                                                                Wholesale call originating local exchange segment




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Wholesale local-tandem transmission stick (ISDN)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Wholesale call termination local exchange stick


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Wholesale call termination local exchange stick
                                                                                                                                                                                                                                                                                                                              Wholesale call origination local exchange Stick


                                                                                                                                                                                                                                                                                                                                                                                Wholesale call origination local exchange Stick




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Wholesale single transit segment PSTN & ISDN
                                                                                                                                                                                                                                                                                                                                                                                                                                        Wholesale local-tandem conveyance segment




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Wholesale local-tandem transmission stick
                                                                                             Average cost per unit (from annex 15)




                                                                                                                                                                                            (incl Operator Assistance)
                                                                                                                                        PSTN and ISDN (excl OA)




                                                                                                                                                                                                                                                (ISDN) (incl OA)



                                                                                                                                                                                                                                                                                                          Wholesale PPP




                                                                                                                                                                                                                                                                                                                                                                                (ISDN)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    (ISDN)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              (ISDN)
Fully Allocated Cost (£)
Components                                                       Unit (p)                                                               £                                                   £                                                   £                                                     £                   £                                                         £                                               £                                               £                                                      £                                               £                                                                  £                                                             £                                                           £                                               £                                                         £


Local exchange concentrator                                      ppm                      0.056                                           0.056                                               0.056                                               0.056                                                                   0.056                                                   0.056                                                                                                                                                                                                                                                                                                                                    0.056                                                      0.056                                             0.056                                                   0.056
Local exchange processor                                         ppm                      0.061                                           0.061                                               0.061                                               0.061                                                                                                                                                                             0.002                                           0.002                                                                                                                                                                               0.000                                              0.061                                                      0.061
Remote - local transmission link                                 ppm                      0.033                                           0.027                                               0.027                                               0.027                                                                   0.027                                                   0.027                                                                                                                                                                                                                                                                                                                                    0.027                                                      0.027                                             0.027                                                   0.027
Remote - local transmission length                               ppm (per 10km)           0.021                                           0.030                                               0.030                                               0.030                                                                   0.030                                                   0.030                                                                                                                                                                                                                                                                                                                                    0.030                                                      0.030                                             0.030                                                   0.030
National OA non chargeable                                       ppm                      0.003                                                                                               0.003                                               0.003
Emergency OA (999) non chargeable                                ppm                      0.009                                           0.009                                               0.009                                               0.009
Main exchange switching                                          ppm                      0.017                                                                                                                                                                                                                                                                                                                                     0.015                                           0.015                                                                                                                                                                               0.012
Local - tandem transmission link                                 ppm                      0.037                                                                                                                                                                                                                                                                                                                                     0.027                                           0.027                                                  0.027                                           0.027
Local - tandem transmission length                               ppm (per 10km)           0.006                                                                                                                                                                                                                                                                                                                                     0.018                                           0.018                                                  0.018                                           0.018
Product management policy & planning                             ppm                      0.010                                                                                                                                                                                                       0.010
Core/Metro (voice)                                               ppm                      0.010                                           0.017                                               0.017                                               0.017                                                                   0.017                                                   0.017                                             0.000                                           0.000                                                  0.000                                           0.000                                                                        0.010                                              0.017                                                      0.017                                             0.017                                                   0.017
Border gateway & signalling firewall                             ppm                      0.000                                           0.000                                               0.000                                               0.000                                                                   0.000                                                   0.000                                             0.000                                           0.000                                                  0.000                                           0.000                                                                        0.000                                              0.000                                                      0.000                                             0.000                                                   0.000
MSAN - POSI (dense) link voice                                   ppm                      0.016                                           0.004                                               0.004                                               0.004                                                                   0.004                                                   0.004                                                                                                                                                                                                                                                                                                                                    0.004                                                      0.004                                             0.004                                                   0.004
MSAN - POSI (non dense) link voice                               ppm                      0.004                                           0.003                                               0.003                                               0.003                                                                   0.003                                                   0.003                                                                                                                                                                                                                                                                                                                                    0.003                                                      0.003                                             0.003                                                   0.003
Edge Ethernet ports (q)                                          %                        £15m                                            0.001                                               0.001                                               0.001                                                                   0.001                                                   0.002                                             0.000                                           0.000                                                  0.001                                           0.001                                                                        0.001                                              0.001                                                      0.001                                             0.001                                                   0.002
iNode (call set up and features) (q)                             %                        £15m                                            0.004                                               0.004                                               0.006                                                                   0.004                                                   0.006                                             0.000                                           0.000                                                  0.000                                           0.000                                                                        0.004                                              0.004                                                      0.006                                             0.004                                                   0.006



Fully Allocated Costs (£)                                                                                                                 0.212                                               0.215                                               0.217                                               0.010               0.142                                                   0.145                                             0.062                                           0.062                                                  0.046                                           0.046                                                                        0.027                                              0.203                                                      0.205                                             0.142                                                   0.145


(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s ciircuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction; £/cct = £ per circuit;
                                                                                                  r                                                                    64Kbit/s port; £/eq = £ per equipment units;
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 6
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.
                                                                                            excl. Operator Assistance) due to immaterial volumes.
(ad) Does not include the service Wholesale Call originating local exchange segment (ISDN) (e
                                                                                            volumes.
(ae) Does not include the service Wholesale Single transit segment (ISDN) due to immaterial v




                                                                                                                                                                                                                                                                                                                                                                                                                                     80
Section 6 - Other information
Section 6.3.1 - Calculation of FAC based on component costs and usage factors 2008 (continued)
for year ended 31 March 2008



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Technical Areas (Point of
                                                                                                                                                                                                                                                                Technical areas (Interconnect Circuits)                                                                                                                                                                                                                                                                                                                                                                                                                               Wholesale trunk segments
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Handover)

                                                                                                                                                                                                                                                                                               Interconnect Specific Basket




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Partial and Private circuits 140/155Mbit/s - trunk
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Partial and Private circuits 34/45Mbit/s - trunk
                                                                                                                                                                                                                                                                                                                                                                                                                                                  Wholesale intra-building circuits connections




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Partial and Private circuits 622Mbit/s - trunk
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Partial and Private circuits 2Mbit/s - trunk
                                                                                                                                                                                                                      Wholesale standard CSI rentals - per km




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Wholesale intra-building circuits rentals




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Customer Sited Handover connection
                                                                                  Average cost per unit (from annex 15)




                                                                                                                                                                          Wholesale standard CSI rental - fixed
                                                                                                                                 Wholesale standard CSI connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Customer Sited Handover rental
                                                                                                                                                                                                                                                                                                                                                                                                          Wholesale IEC rentals - per km




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      In Span Handover connection
                                                                                                                                                                                                                                                                                                                                                                      Wholesale IEC rentals - fixed
                                                                                                                                                                                                                                                                                                                                     Wholesale IEC connections




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Wholesale rearrangements




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        In Span Handover rental
                                                                                                                                                                                                                                                                                                       Nominated ISI - per km
                                                                                                                                                                                                                                                                       Wholesale ISI rentals
Fully Allocated Cost (£)
Components                                                Unit (p)                                                           £                                        £                                           £                                                £                               £                             £                                £                                   £                                       £                                                   £                                                £                                £                                        £                                    £                                 £                             £                                                   £                                                      £                                                          £


Interconnect local end rental 2Mbit                       £/2Mbit cct         268.15                                                                                 268.15
Customer Sited Interconnect cct (CSI) 2Mbit link          £/2Mbit cct         237.36                                                                                 237.36
Customer Sited Interconnect cct (CSI) 2Mbit per km        £/km                  6.07                                                                                                                              6.07
Interconnect 2Mbit connection                             £/2Mbit cct       1,314.09                                      1,314.09                                                                                                                                                                                              177.40                                                                                                                                                                                                            458.62
Intra Building Circuit (IBC) rental                       £/2Mbit cct          86.16                                                                                                                                                                                                                                                                                                                                                                                                              86.16
Intra Building Circuit (IBC) connection                   £/2Mbit cct       1,717.43                                                                                                                                                                                                                                                                                                                                                       1,717.43
Interconnect extension circuits (IEC) 2Mbit link          £/2Mbit cct         355.72                                                                                                                                                                                                                                                                             355.72
Interconnect extension circuits (IEC) 2Mbit per km        £/km                  9.53                                                                                                                                                                                                                                                                                                                  9.53
In Span Interconnect circuits (ISI) transmission          £/100m              335.56                                                                                                                                                                              335.56
Nominated In Span I/Connect cct (ISI) transmission        £/100m               42.38                                                                                                                                                                                                               42.38
Point of Handover electronics                             £/eq                  0.96                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              1,262.83                                   755.56 40,328.93                                                       587.12
PC rental 2Mbit link per km trunk                         £/km                 24.24                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              24.24
PC rental 34Mbit link per km trunk                        £/km                267.07                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  267.07
PC rental 140Mbit link per km trunk                       £/km                217.33                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         217.33
PC rental 622Mbit link per km trunk                       £/km              1,028.47                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   1,028.47
SG & A private circuits (q)                               %                    £45m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   1.98                                             21.46                                                  19.67
SG & A partial private circuits (q)                       %                    £76m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   1.58                                             18.34                                                     1.29
MSAN-Metro connectivity (dense) (q)                       %                   £111m                                                                                  153.84                                                                                                                                                                                      152.19
MSAN-Metro connectivity (non dense) (q)                   %                     £0m                                                                                    0.14                                                                                                                                                                                        0.18
Core/Metro connectivity (q)                               %                    £38m                                                                                                                                                                                                                                                                                                                                                        2,768.51
Edge Ethernet ports (q)                                   %                    £15m                                                                                                                                                                                                                                                                                                                                                         849.57



Fully Allocated Costs (£)                                                                                                 1,314.09                                   659.49                                       6.07                                            335.56                           42.38                        177.40                           508.09                               9.53 5,335.51                                                                               86.16                                           458.62                          1,262.83                                   755.56 40,328.93                                                       587.12                        27.80                                               306.87                                                 238.29                                                    1,028.47


                                                                                  r                                                                                                               r
(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction; £/cct = £ per circuit;
                                                                                        oom = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipm
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/ro                                                                                                               ment units;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.




                                                                                                                                                                                                                                                                                                                                                                                                                                             81
Section 6 - Other information
Section 6.3.1 - Calculation of FAC based on component costs and usage factors 2008 (continued)
for year ended 31 March 2008




                                                                                                                          Traditional interface symmetric broadband origination (above
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Alternative interface symmetric broadband origination (all bandwidths)
                                                                                                                                       8Mbit/s up to and including 155Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Backhaul extension services other bandwidth connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Partial and Private Circuits 140/155Mbit/s - distribution
                                                                                                                                                                                                                                                                                                                                                                                  Partial and Private Circuits 140/155Mbit/s - connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Backhaul network services all bandwidth connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Wholesale extension services other bandwidth rental
                                                                                                                                                                                                                                                     Partial and Private Circuits 34/45Mbit/s - distribution




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Partial and Private Circuits 140/155Mbit/s - local end
                                                                                                                                Partial and Private Circuits 34/45Mbit/s - connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Backhaul extension services other bandwidth rental
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Wholesale extension services 1000Mbit connection
                                                                                                                                                                                                                                                                                                                     Partial and Private Circuits 34/45Mbit/s - local end




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Backhaul extension services 1000Mbit connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Wholesale extension services 100Mbit connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Backhaul extension services 100Mbit connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale extension services 10Mbit connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Backhaul network services all bandwidth rental
                                                                                                                                                                                                                                                                                                                                                                                                                                                   Partial and Private Circuits 140/155Mbit/s - link




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Wholesale extension services other bandwidth
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Wholesale extension services 1000Mbit rental
                                                                                                                                                                                              Partial and Private Circuits 34/45Mbit/s - link




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Backhaul extension services 1000Mbit rental
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale extension services 100Mbit rental




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Backhaul extension services 100Mbit rental
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Wholesale extension services 10Mbit rental
                                                                                  Average cost per unit (from annex 15)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Main link rental charges
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  connection
Fully Allocated Cost (£)
Components                                                Unit (p)                                                          £                                                             £                                                      £                                                               £                                                            £                                                                £                                                        £                                                                  £                                                              £                                                 £                                                  £                                                    £                                                           £                                                    £                                                     £                                                       £                                               £                                                 £                                                  £                                                          £                                                    £                                                     £                                                               £                                                           £                                                     £


2Mbit and above PC link connection cct provision          £/cct           1,294.18                                        1,294.18                                                                                                                                                                                                                                          1,294.18
PC rental 34Mbit link                                     £/lk            1,489.25                                                                                                      1,489.25
PC rental 140Mbit link                                    £/lk            4,233.58                                                                                                                                                                                                                                                                                                                                                           4,233.58
PC rental 34Mbit link per km distribution                 £/km              368.84                                                                                                                                                              368.84
PC rental 140Mbit link per km distribution                £/km              586.67                                                                                                                                                                                                                                                                                                                                                                                                                     586.67
PC rental 34Mbit link local end                           £/le            4,690.04                                                                                                                                                                                                                             4,690.04
PC rental 140Mbit link local end                          £/le           13,700.88                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      13,700.88
Wholesale & LAN extension services electronics            £/conn          2,851.47                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            2,851.47 2,965.53 10,721.53 69,262.25
Wholesale & LAN extension services fibre etc              £/line          2,534.78                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      2,534.78 2,534.78 2,534.78                                                                                                                                2,534.78
Wholesale & LAN extension services BNS                    £/line          3,864.92                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     3,864.92
Backhaul extension services electronics                   £/conn          1,801.10                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               1,801.10 6,537.97 1,909.16
Backhaul extension services fibre etc                     £/line          1,302.35                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               1,302.35 1,302.35 1,302.35
Wholesale & LAN extension services BNS electronics £/conn                23,295.74                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         23,295.74
Ethernet main links                                       £/km              199.96                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             199.96
Sales product management (q)                              %                   £31m                                                                                                                                                                3.79                                                                                                                                                                                                                                                  15.91                                                                                                                             33.75                                             79.07                                             208.12                                                39.18                                                       31.42                                                45.23                                                 75.76                                                  112.68                                           40.94                                            112.84                                              33.19                                                      21.30                                                43.33                                                 11.63                                                          261.72                                                     103.56
SG & A private circuits (q)                               %                   £45m                                                                                                       147.63                                                  12.16                                                          118.18                                                                                                                        608.97                                                    29.56                                                             748.96
SG & A partial private circuits (q)                       %                   £76m                                                                                                       315.69                                                  29.16                                                          328.42                                                                                                                         95.13                                                     6.66                                                             190.36
Access Cards (other services) (q)                         %                   £15m                                                                                                                                                                                                                              602.75                                                                                                                                                                                                                                                                                                                   147.38                                            147.35                                             589.56                                               147.82                                                                                                                                                                                                                                                                         147.37                                            589.47                                             147.19
MSAN-Metro connectivity (dense) (q)                       %                 £111m                                                                                                       2,599.82                                                                                                                                                                                                                                            10,912.50                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          117.92
MSAN-Metro connectivity (non dense) (q)                   %                    £0m                                                                                                         2.95                                                                                                                                                                                                                                                12.41                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             0.14
Core/Metro connectivity (q)                               %                   £38m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              35.05



Fully Allocated Costs (£)                                                                                                 1,294.18 4,555.34                                                                                                     413.95 5,739.39 1,294.18 15,862.59                                                                                                                                                                                                                     638.80 14,640.20 2,715.91 2,761.20 3,332.46                                                                                                                                                                                                                                                2,721.78                                                    2,882.89 3,010.76 10,797.29 69,374.93 1,490.66 2,004.66 1,482.73 1,822.40 6,581.30 1,920.79 23,557.46 3,968.48                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   353.07


                                                                                  r
(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per tra
                                                                                                                                                                           ansaction; £/cct = £ per circuit;
                                                                                        oom = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s po £/eq = £ per equipment units;
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/ro                                                                                        ort;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         82
Section 6 - Other information
Section 6.3.2 - Calculation of FAC based on component costs and usage factors 2007
for the year ended 31 March 2007


                                                                                                                     Wholesale residential analogue                                                                                                                                            Wholesale business analogue                                                                                                                                                                                  Wholesale business ISDN2 exchange
                                                                                                                        exchange line services                                                                                                                                                   exchange line services                                                                                                                                                                                                line services




                                                                                                                                                                                                                        Wholesale residential analogue external
                                                                                                                            Wholesale residential analogue internal




                                                                                                                                                                          Wholesale residential analogue internal




                                                                                                                                                                                                                                                                                                         Wholesale business analogue external




                                                                                                                                                                                                                                                                                                                                                                                       Wholesale business analogue external




                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Wholesale business analogue external
                                                                                                                                                                                                                                                                  Wholesale business analogue internal




                                                                                                                                                                                                                                                                                                                                                Wholesale business analogue internal




                                                                                                                                                                                                                                                                                                                                                                                                                              Wholesale business analogue internal
                                                                             Average cost per unit (from annex 15)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale business ISDN2 external




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Wholesale business ISDN2 external




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale business ISDN2 external
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Wholesale business ISDN2 internal




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale business ISDN2 internal




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Wholesale business ISDN2 internal
                                                                                                                            service connections




                                                                                                                                                                                                                                                                  service connections



                                                                                                                                                                                                                                                                                                         service connections




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            service connections


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                service connections
                                                                                                                                                                                                                                                                                                                                                service takeovers


                                                                                                                                                                                                                                                                                                                                                                                       service transfers




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        service transfers
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    service takovers
                                                                                                                                                                          service rentals




                                                                                                                                                                                                                        service rentals




                                                                                                                                                                                                                                                                                                                                                                                                                              service rentals



                                                                                                                                                                                                                                                                                                                                                                                                                                                                     service rentals




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            service rentals


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                service rentals
Fully Allocated Cost (£)
Components                                          Unit (p)                                                            £                                             £                                             £                                                    £                                      £                                      £                                      £                                      £                                      £                                     £                                   £                                   £                                    £                                   £                                   £


E side copper capital                               £/line                 2.85                                                                                                     3.03                                          3.03                                                                                                                                                                                                 2.77                                   2.77                                                                                                                                                                                   1.44                                1.44
E side copper current                               £/line                 3.01                                                                                                     3.33                                          3.33                                                                                                                                                                                                 3.01                                   3.01                                                                                                                                                                                   2.19                                2.19
D side copper capital                               £/line                58.55                                                                                             62.17                                         62.17                                                                                                                                                                                                 56.89                                 56.89                                                                                                                                                                                  29.53                               29.53
D side copper current                               £/line                10.08                                                                                             11.16                                         11.16                                                                                                                                                                                                 10.08                                 10.08                                                                                                                                                                                          7.36                                7.36
Local exchanges general frames capital              £/line                 1.51                                                                                                     1.54                                          1.54                                                                                                                                                                                                 1.54                                   1.54                                                                                                                                                                                   0.75                                0.75
Local exchanges general frames current              £/line                 1.39                                                                                                     1.42                                          1.42                                                                                                                                                                                                 1.42                                   1.42                                                                                                                                                                                   0.70                                0.70
PSTN line test equipment                            £/line                 0.88                                                                                                     0.98                                          0.98                                                                                                                                                                                                 0.88                                   0.88                                                                                                                                                                                   0.65                                0.65
Dropwire capital & PSTN NTE                         £/line                13.81                                                                                             13.81                                         13.81                                                                                                                                                                                                 13.81                                 13.81                                                                                                                                                                                          6.90                                6.90
Business PSTN drop maintenance                      £/line                 6.67                                                                                                                                                                                                                                                                                                                                                        6.67                                   6.67
Residential PSTN drop maintenance                   £/line                 9.65                                                                                                     9.65                                          9.65
PSTN line cards                                     £/line                11.41                                                                                             11.41                                         11.41                                                                                                                                                                                                 11.41                                 11.41
Pair gain                                           £/eq                   7.93                                                                                                     0.21                                          0.21                                                                                                                                                                                                 0.28                                   0.28
Routeing & records                                  £/line                19.03                                               19.03                                                                                                                                 19.03                                 19.03                                                                                                                                                                                              14.27                               14.27
MDF Hardware jumpering                              £/line                28.85                                               28.85                                                                                                                                 34.59                                 28.85                                                                                                                                                                                              15.74                               15.74
Software jumpering                                  £/line                 1.54                                                       1.54                                                                                                                                 1.54                                   1.54                                                                           1.54                                                                                                                0.77                                0.77                                0.77                                0.77
Wholesale Access specific                           £/trans                3.12                                                       3.12                                                                                                                                 3.12                                   3.12                                   3.12                                    3.12                                                                                                                1.56                                1.56                                1.56                                1.56
ISDN2 drop maintenance                              £/chann                7.01                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      7.01                                7.01
ISDN2 line cards                                    £/chann               27.25                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              27.25                               27.25
ISDN2 NTE                                           £/chann               18.99                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              18.99                               18.99
Low user scheme (q)                                 %                     £11m                                                                                                      0.69
Directories (q)                                     %                     £47m                                                                                                      1.85                                          1.85                                                                                                                                                                                                 1.85                                   1.85
Service assurance Retail (q)                        %                     £53m                                                        0.33                                          2.79                                                                                   0.19                                                                          0.54                                                                          0.83                                                                          0.03                                                                    0.00                                                                    0.10
Service assurance Global Services (q)               %                      £5m                                                                                                                                                                                             0.16                                                                          0.44                                                                          0.68                                                                          0.03                                                                    0.00                                                                    0.08
Service centres - Provision (q)                     %                     £43m                                                                                                                                                                                                                                    5.50                                                                           7.01                                                                                                                                                    8.09                                                                    8.04
Sales product management (q)                        %                     £30m                                                        0.31                                          0.51                                          0.34                                     0.28                                   0.57                                   0.04                                    0.01                                  0.63                                   0.45                                   0.41                                0.35                                0.00                                0.05                                0.48                                0.37
Service centres - Assurance (q)                     %                     £15m                                                                                                                                                    1.02                                                                                                                                                                                                                                        1.12                                                                                                                                                                                                                       1.14
SG & A Wholesale Access (q)                         %                      £7m                                                                                                                                                    0.36                                                                            0.09                                                                           0.05                                                                         0.36                                                                       0.08                                                                    0.05                                                                    0.24
SG & A Retail Access (q)                            %                     £27m                                                        0.07                                          0.34                                                                                   0.08                                                                                                                                                        0.34                                                                          0.07                                                                    0.03                                                                    0.22



Fully Allocated Costs (£)                                                                                                     53.25                                   124.89                                        122.28                                          58.99                                 58.70                                          4.14                            11.73 113.09 112.54                                                                                                 32.88                               40.86                                       2.36                        10.47 103.65 104.52


(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction £/cct = £ per circuit;
                                                                                                                                                                                   n;
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipment units;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.




                                                                                                                                                                                                                                                                                                                                                                                                                                                  83
Section 6 - Other information
Section 6.3.2 - Calculation of FAC based on component costs and usage factors 2007 (continued)
for the year ended 31 March 2007


                                                                                                                                                                        Traditional interface symmetric broadband origination (up to and including 8Mbit/s)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale local access




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Partial and Private Circuits 2Mbit/s - local
                                                                                                                                                                             Partial and Private Circuits 64Kbit/s - link




                                                                                                                                                                                                                                                                                                                                                                                                                                                Partial and Private Circuits 2Mbit/s - link
                                                                                                                                                                                                                                                                                                                Radio Backhaul Service - sub 2 mbit/s



                                                                                                                                                                                                                                                                                                                                                        Radio Backhaul Service - sub 2 mbit/s
                                                                                      Average cost per unit (from annex 15)


                                                                                                                              Partial and Private Circuits 64Kbit/s -




                                                                                                                                                                                                                            Partial and Private Circuits 64Kbit/s -



                                                                                                                                                                                                                                                                      Partial and Private Circuits 64Kbit/s -




                                                                                                                                                                                                                                                                                                                                                                                                  Partial and Private Circuits 2Mbit/s -




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Partial and Private Circuits 2Mbit/s -




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Radio Backhaul Service - 2 mbit/s
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Radio Backhaul Service - 2 mbit/s




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         SMPF Connections (External)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                MPF Connections (External)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           SMPF Rentals (External)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  MPF Rentals (External)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          MPF Hostel Rentals
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  MPF Room Build




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    MPF Tie Cables
                                                                                                                                                                                                                            transmission




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              distribution
                                                                                                                              connection




                                                                                                                                                                                                                                                                                                                connection




                                                                                                                                                                                                                                                                                                                                                                                                  connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        connection
                                                                                                                                                                                                                                                                      local end




                                                                                                                                                                                                                                                                                                                                                        rentals




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            rentals



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     SDSL
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       end
Fully Allocated Cost (£)
Components                                                     Unit (p)                                                          £                                       £                                                     £                                         £                                         £                                       £                                         £                                      £                                                    £                                        £                                               £                                   £                                  £          £                                 £                               £                       £                         £                    £                                 £


E side copper capital                                          £/line               2.85                                                                                                                                                                                        3.18                                                                              3.18                                                                                                                                                                            5.75                                                                              5.75                          3.05                                         2.85
E side copper current                                          £/line               3.01                                                                                                                                                                                        3.01                                                                              3.01                                                                                                                                                                            6.42                                                                              6.42                          3.68                                         3.68                                                                                                                                     0.65
D side copper capital                                          £/line              58.55                                                                                                                                                                                65.32                                                                            65.32                                                                                                                                                                         117.94                                                                               117.94                               62.71                                        58.55
D side copper current                                          £/line              10.08                                                                                                                                                                                10.08                                                                            10.08                                                                                                                                                                           21.52                                                                               21.52                               12.32                                        12.32                                                                                                                                     2.19
Local exchanges general frames capital                         £/line               1.51                                                                                                                                                                                        1.51                                                                              1.51                                                                                                                                                                            2.72                                                                              2.72                          3.01                                         3.01                                                                                                                                     4.52
Local exchanges general frames current                         £/line               1.39                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          2.79                                         2.79                                                                                                                                     4.18
Dropwire capital & PSTN NTE                                    £/line              13.81                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         13.81                                        13.81
Residential PSTN drop maintenance                              £/line               9.65                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          9.65                                         9.65
Routeing & records                                             £/line              19.03                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    19.03
MDF Hardware jumpering                                         £/line              28.85                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    49.84                                                                                                                                    43.94
Software jumpering                                             £/line               1.54                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          1.54       1.54                                                                                                                                     1.54
64Kbit PC link connection cct provision (y)                    £/cct              413.81                                      413.81                                                                                                                                                                            413.81
PC rental 64Kb link                                            £/lk               112.87                                                                                112.87                                                                                                                                                                          112.87
PC rental 64Kbit link per km transmission                      £/km                 5.48                                                                                                                                             5.48                                                                                                                        5.48
PC rental 64Kbit link local end                                £/le               355.32                                                                                                                                                                              355.32                                                                            355.32
2Mbit PC link connection cct provision                         £/cct             1,354.02                                                                                                                                                                                                                                                                                                       1,354.02                                                                                                                                                                              1,354.02
PC rental 2Mb link                                             £/lk               227.24                                                                                                                                                                                                                                                                                                                                                   227.24                                                                                                                                                                           227.24
PC rental 2Mbit link per km distribution                       £/km                59.57                                                                                                                                                                                                                                                                                                                                                                                                       59.57                                                                                                                         59.57
PC rental 2Mbit local end copper                               £/le               849.82                                                                                                                                                                                                                                                                                                                                                                                                                                               151.72                                                                                56.09
PC rental 2Mbit local end fibre                                £/le               661.83                                                                                                                                                                                                                                                                                                                                                                                                                                               543.67                                                                               618.15
PC rental 2Mbit link per km trunk                              £/km                32.39                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     32.39
Broadband line testing systems                                 £/line                4.22                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         4.22                                         4.22                                                                                                                                     4.22
DSL rentals                                                    £/line              44.76                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         44.76
SDSL connections                                               £/conn              40.58                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         40.58
Local Loop Unbundling room build                               £/room             237.52                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     237.52
Local Loop Unbundling hostel rentals                           £/hostel rental   1,626.28                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          1,626.28
Local Loop Unbundling hostel rentals power and vent            £/hostel rental   2,934.56                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          2,934.56
Local Loop Unbundling tie cables                               £/cable            104.98                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       104.98
Local Loop Unbundling systems development (q)                  %                   £15m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      2.25                              0.78                            0.22                   0.17                       0.32                 7.04                              5.05
Service centres - Provision (q)                                %                   £43m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      7.52                                                            133.20                                                                  10.88
Sales product management (q)                                   %                   £30m                                        10.05                                      0.55                                                       0.01                                       4.47                                                                                                               27.83                                    10.13                                                      0.42                                       3.67                                                                                                           13.15       0.89                              3.27                          785.76                 186.95                       6.63                 0.85                              0.43
Service centres - Assurance (q)                                %                   £15m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       12.89                                                  10.04                       6.05                                                   9.96
SG & A private circuits (q)                                    %                   £46m                                        17.40                                      3.58                                                       0.09                              44.47                                                                                                                       91.66                                    19.61                                                      0.14                             55.16
SG & A partial private circuits (q)                            %                   £40m                                        42.72                                      1.38                                                       0.04                                       9.18                             81.18                                   84.96                                   250.89                                     34.48                                                      0.12                             27.45                                          402.86                               323.21
SG & A Wholesale (q)                                           %                   £66m                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          59.11



Fully Allocated Costs (£)                                                                                                     483.98                                    118.38                                                       5.62                             496.54                                    494.99                                  641.73 1,724.40                                                                    291.46                                              60.25                                   936.02 1,756.88 1,471.00                                                                                                 274.38      81.07                            127.82 1,156.70 4,758.00                                                          117.98                64.25                             31.20


                                                                                      M
(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction; £/cct = £ per circuit;
                                                                                          m
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipment units;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.
                                                                                     Kbit
(y) Unit costs calculated as a weighted average of the 64Kbit PC link connection & 64K PC installation components.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       84
Section 6 - Other information
Section 6.3.2 - Calculation of FAC based on component costs and usage factors 2007 (continued)
for the year ended 31 March 2007


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Local-tandem conveyance and                                                                                                                                                                                     Single transit on fixed
                                                                                                                                                                                           Call origination on fixed public narrowband networks                                                                                                                                                                                                                                                                                                                                         transit on fixed public                                                                                                                                                                                      public narrowband                                                            Fixed call termination
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       narrowband networks                                                                                                                                                                                                networks

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Local-tandem
                                                                                                                                                                                                                                                                                                     PPP                  FRIACO call origination Local                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Call Termination
                                                                                                                                    Call Origination Basket (ad)                                                                                                                                                                                                                                                                                                           Retail Sticks                                                                                              conveyance                                                                                             Retail Sticks                                                                                          Single Transit Basket (ae)                                                                                                                                                            Retail Sticks
                                                                                                                                                                                                                                                                                                    Basket                    Exchange Basket (l)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               basket
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        basket




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Wholesale local-tandem conveyance segment (ISDN)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Wholesale call termination local exchange segment
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Wholesale call termination local exchange segment
                                                                                                                                       Wholesale call originating local exchange segment




                                                                                                                                                                                            Wholesale call originating local exchange segment




                                                                                                                                                                                                                                                Wholesale call originating local exchange segment




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Wholesale local-tandem transmission stick (ISDN)
                                                                                                                                                                                                                                                                                                                                                                                     Wholesale FRIACO port at the local exchange (o)
                                                                                                                                                                                                                                                                                                                             Wholesale local exchange call origination circuit




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Wholesale call termination local exchange stick
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Wholesale call termination local exchange stick
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Wholesale call origination local exchange Stick
                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Wholesale call origination local exchange Stick




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Wholesale single transit segment PSTN & ISDN
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Wholesale local-tandem conveyance segment




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Wholesale local-tandem transmission stick
                                                                                                                                       PSTN and ISDN (excl.operator assistance)
                                                                                            Average cost per unit (from annex 15)




                                                                                                                                                                                                                                                (ISDN) (incl Operator Assistance)




                                                                                                                                                                                                                                                                                                                                                                                                                                            Wholesale PPP for FRIACO (o)
                                                                                                                                                                                                                                                                                                                             excluding FRIACO port (o)
                                                                                                                                                                                            (incl Operator Assistance)




                                                                                                                                                                                                                                                                                                          Wholesale PPP




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  (ISDN)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      (ISDN)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                (ISDN)
Fully Allocated Cost (£)
Components                                                      Unit (p)                                                               £                                                    £                                                   £                                                     £                      £                                                   £                                                     £                                   £                                                         £                                                £                                               £                                                      £                                               £                                                                  £                                                             £                                                           £                                               £                                                        £


Local exchange concentrator                                     ppm                     0.061                                            0.061                                                0.061                                               0.061                                                                                                                                                                                                                    0.061                                                    0.061                                                                                                                                                                                                                                                                                                                                    0.061                                                      0.061                                             0.061                                                   0.061
Local exchange concentrator (o)                                 £/64k cct               30.90                                                                                                                                                                                                                                  30.90
Local exchange processor                                        ppm                     0.066                                            0.066                                                0.066                                               0.066                                                                                                                                                                                                                                                                                                                               0.002                                           0.003                                                                                                                                                                               0.000                                              0.066                                                      0.066
Local exchange processor (o)                                    £/64k cct               16.77                                                                                                                                                                                                                                  16.77
Remote - local transmission link                                ppm                     0.030                                             0.024                                               0.024                                               0.024                                                                                                                                                                                                                    0.024                                                    0.024                                                                                                                                                                                                                                                                                                                                    0.024                                                      0.024                                             0.025                                                  0.024
Remote - local transmission link (o)                            £/64k cct               12.10                                                                                                                                                                                                                                  12.10
Remote - local transmission length                              ppm (per 10km)          0.037                                             0.055                                               0.052                                               0.052                                                                                                                                                                                                                    0.065                                                    0.060                                                                                                                                                                                                                                                                                                                                    0.051                                                      0.059                                             0.071                                                  0.065
Remote - local transmission length (o)                          £/64k cct               27.22                                                                                                                                                                                                                                  27.22
National OA non chargeable                                      ppm                     0.005                                                                                                 0.005                                               0.005
Emergency OA (999) non chargeable                               ppm                     0.008                                             0.008                                               0.008                                               0.008
FRIACO Ports (o)                                                £/64k cct               19.40                                                                                                                                                                                                                                                                                    19.40
PPP for FRIACO (o)                                              £/64k cct                3.79                                                                                                                                                                                                                                                                                                                                              3.79
Main exchange switching                                         ppm                     0.023                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         0.020                                           0.021                                                                                                                                                                               0.015
Local - tandem transmission link                                ppm                     0.033                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         0.027                                           0.025                                                  0.015                                           0.023
Local - tandem transmission length                              ppm (per 10km)          0.010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         0.034                                           0.030                                                  0.016                                           0.028
Product management policy & planning                            ppm                     0.007                                                                                                                                                                                                         0.007



Fully Allocated Costs (£)                                                                                                                 0.214                                               0.216                                               0.216                                               0.007                    86.99                                             19.40                                                     3.79                            0.150                                                    0.145                                             0.083                                           0.079                                                  0.031                                           0.051                                                                        0.015                                              0.202                                                      0.210                                             0.157                                                  0.150


                                                                                              ircuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction; £/cct = £ per circuit;
(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s ci                                                                                                     c
                                                                                                 r
    £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipme units;
                                                                                                                                                                                                        ent
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
                                                                                           tment ratio plus FRIACO port plus PPP.
(l) DLE FRIACO virtual path calculated as LECO circuit excl. outgoing port * DLE LECO adjust
(o) Unit costs have been recalculated on a 64kbit/s basis for FRIACO charging purposes.
                                                                                            excl. Operator Assistance) due to immaterial volumes.
(ad) Does not include the service Wholesale Call originating local exchange segment (ISDN) (e
                                                                                            v
(ae) Does not include the service Wholesale Single transit segment (ISDN) due to immaterial volumes.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 85
Section 6 - Other information
Section 6.3.2 - Calculation of FAC based on component costs and usage factors 2007 (continued)
for the year ended 31 March 2007


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Technical Areas
                                                                                                                                                                                                                                                              Technical areas (Interconnect Circuits)                                                                                                                                                                                                                                                                             (Point of
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Handover)

                                                                                                                                                                                                                                                                                             Interconnect Specific Basket




                                                                                                                                                                                                                                                                                                                                                                                                                                               Wholesale intra-building circuits connections
                                                                                                                                                                                                                    Wholesale standard CSI rentals - per km




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Wholesale intra-building circuits rentals
                                                                                  Average cost per unit (from annex 15)




                                                                                                                                                                        Wholesale standard CSI rental - fixed
                                                                                                                               Wholesale standard CSI connection




                                                                                                                                                                                                                                                                                                                                                                                                       Wholesale IEC rentals - per km
                                                                                                                                                                                                                                                                                                                                                                   Wholesale IEC rentals - fixed
                                                                                                                                                                                                                                                                                                                                  Wholesale IEC connections




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale rearrangements
                                                                                                                                                                                                                                                                                                     Nominated ISI - per km
                                                                                                                                                                                                                                                                     Wholesale ISI rentals




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Point of handover
Fully Allocated Cost (£)
Components                                               Unit (p)                                                          £                                        £                                           £                                                £                               £                            £                                £                                   £                                       £                                                   £                                                £                                     £


Interconnect local end rental 2Mbit                      £/2Mbit cct        269.94                                                                                 269.94
Customer Sited Interconnect cct (CSI) 2Mbit link         £/2Mbit cct        273.25                                                                                 273.25
Customer Sited Interconnect cct (CSI) 2Mbit per km       £/km                  8.18                                                                                                                             8.18
Interconnect 2Mbit connection                            £/2Mbit cct        701.53                                        701.53                                                                                                                                                                                              94.71                                                                                                                                                                                                            262.37
Intra Building Circuit (IBC) rental                      £/2Mbit cct          74.72                                                                                                                                                                                                                                                                                                                                                                                                            74.72
Intra Building Circuit (IBC) connection                  £/2Mbit cct       2,253.54                                                                                                                                                                                                                                                                                                                                                     2,253.54
Interconnect Extension Circuits (IEC) 2Mbit link         £/2Mbit cct         527.06                                                                                                                                                                                                                                                                           527.06
Interconnect Extension Circuits (IEC) 2Mbit per km       £/km                 14.17                                                                                                                                                                                                                                                                                                                14.17
In Span Interconnect circuits (ISI) transmission         £/100m              364.42                                                                                                                                                                             364.42
Nominated In Span I/Connect cct (ISI) transmission       £/100m               12.36                                                                                                                                                                                                             12.36
Point of Handover electronics                            £/eq            15,004.39                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        15,004.39



Fully Allocated Costs (£)                                                                                                 701.53                                   543.19                                       8.18                                            364.42                          12.36                         94.71                           527.06                               14.17 2,253.54                                                                              74.72                                           262.37                                     15,004.39


(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbitt cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 metres; £/trans = £ per transaction; £/cct = £ per circuit;
                                                                           per
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ p line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipment units;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               86
Section 6 - Other information
Section 6.3.2 - Calculation of FAC based on component costs and usage factors 2007 (continued)
for the year ended 31 March 2007


                                                                                                                            Traditional interface symmetric broadband
                                                                                                                          origination (above 8Mbit/s up to and including                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Alternative interface symmetric broadband origination (all bandwidths)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Wholesale trunk segments
                                                                                                                                              155Mbit/s)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Wholesale and Lan extension services 10Mbit connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Backhaul extension services other bandwidth connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Wholesale and Lan extension services other bandwidth




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale and Lan extension services other bandwidth
                                                                                                                                                                                                                                                                                                                                                                             Partial and Private Circuits 140/155Mbit/s - distribution




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Wholesale and Lan extension services 1000Mbit rental
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Wholesale and Lan extension services 100Mbit rental
                                                                                                                                                                                       Partial and Private Circuits 34/45Mbit/s - distribution




                                                                                                                                                                                                                                                                                                                                                                                                                                                Partial and Private Circuits 140/155Mbit/s - local end



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Wholesale and Lan extension services 10Mbit rental




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Backhaul extension services other bandwidth rental
                                                                                                                                                                                                                                                       Partial and Private Circuits 34/45Mbit/s - local end




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Backhaul extension services 1000Mbit connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Backhaul extension services 100Mbit connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Wholesale and Lan extension services 1000Mbit




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Partial and Private circuits 140/155Mbit/s - trunk
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Wholesale and Lan extension services 100Mbit
                                                                                                                                                                                                                                                                                                                    Partial and Private Circuits 140/155Mbit/s - link




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Partial and Private circuits 34/45Mbit/s - trunk
                                                                                                                                Partial and Private Circuits 34/45Mbit/s - link




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Backhaul extension services 1000Mbit rental




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Partial and Private circuits 622Mbit/s - trunk
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Backhaul extension services 100Mbit rental




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Partial and Private circuits 2Mbit/s - trunk
                                                                                  Average cost per unit (from annex 15)




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  connection




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    connection
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             rental
Fully Allocated Cost (£)
Components                                                Unit (p)                                                          £                                                      £                                                               £                                                            £                                                        £                                                                  £                                                              £                                                         £                                                          £                                                            £                                                        £                                                               £                                           £                                                  £                                                       £                                                 £                                                  £                                                          £                                                    £                                                     £                                                             £                                                   £                                                       £                                                          £


PC rental 34Mb link                                       £/lk             2,073.77                                       2,073.77
PC rental 140Mb link                                      £/lk             4,362.22                                                                                                                                                                                                                           4,362.22
PC rental 34Mbit link per km distribution                 £/km               473.78                                                                                               473.78
PC rental 140Mbit link per km distribution                £/km               498.33                                                                                                                                                                                                                                                                                     498.33
PC rental 34Mbit link local end                           £/le             4,608.61                                                                                                                                                              4,608.61
PC rental 140Mbit link local end                          £/le            13,492.47                                                                                                                                                                                                                                                                                                                                                      13,492.47
PC rental 2Mbit link per km trunk                         £/km                 32.39                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 32.39
PC rental 34Mbit link per km trunk                        £/km               363.45                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      363.45
PC rental 140Mbit link per km trunk                       £/km               311.85                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              311.85
PC rental 622Mbit link per km trunk                       £/km             1,505.86                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        1,505.86
Wholesale & LAN extension services electronics            £/conn           4,332.83                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 4,332.83 4,506.14 16,291.44                                                                                                                                   5,329.38
Wholesale & LAN extension services fibre etc              £/line           4,983.24                                                                                                                                                                                                                                                                                                                                                                                                                      4,983.24 4,983.24 4,983.24                                                                                                                                                        4,983.24
Wholesale & LAN extension services BNS                    £/conn           8,686.63                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        8,686.63
Backhaul extension services electronics                   £/conn           1,562.05                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        1,562.05 5,670.26 2,171.26
Backhaul extension services fibre etc                     £/line           5,234.92                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        5,234.92 5,234.92 5,234.92
Sales product management (q)                              %                    £30m                                         38.46                                                   5.78                                                           28.77                                                       227.27                                                    17.59                                                             194.84                                                          31.75                                                    114.21                                                     267.02                                                          79.41                                                  92.47                                                          72.27                                        157.40                                                                                                     67.90                                            173.91                                             105.45                                                      56.63                                                96.04                                                 94.02
SG & A private circuits (q)                               %                    £46m                                          9.14                                                   1.12                                                          101.43                                                       105.93                                                     6.82                                                             493.98                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     1.91                                                28.55                                                   18.08
SG & A partial private circuits (q)                       %                    £40m                                         61.65                                                   0.66                                                          208.32                                                       116.30                                                     1.07                                                             459.84                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     1.04                                                10.86                                                    1.65



Fully Allocated Costs (£)                                                                                                 2,183.02                                                481.34 4,947.13 4,811.72                                                                                                                                                              523.81 14,641.13 5,014.99 5,097.45 5,250.26 13,749.28                                                                                                                                                                                                                                                                                                                       4,425.30 4,578.41 16,448.84                                                                                                                                   5,329.38 5,302.82 5,408.83 5,340.37 1,618.68 5,766.30 2,265.28                                                                                                                                                                                                                                                                                                                                     35.34                                               402.86                                                  331.58                                                    1,505.86


                                                                                                                                                  etres; £/trans = £ per transaction; £/cct = £ per circuit;
(p) ppm = pence per minute; £/64K cct = £ per 64Kbit/s circuit; £/2Mbit cct = £ per 2 Mbit/s circuit; £/km = £ per kilometre; £/100m = £ per 100 me
     £/ hostel rental = £ per hostel rental; % = % utilisation; £/line = £ per line; £/room = £ per room; £/cable = £ per cable; £/lk = £ per link; £/64K port = £ per 64Kbit/s port; £/eq = £ per equipment units;
    £/le = £ per local end; £/conn = £ per connection; £/chann = £ per channel.
(q) This is the total cost not unit cost for this component.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 87
Section 6 - Other information
Section 6.4 - BT Network Services Reconciliation
Section 6.4.1 - BT Network Services Reconciliation 2008 (Annex 17)
                                                                                       ting obligations)
Consolidation Statement (a summary of all wholesale markets where there are cost account
                                                                                                                                               Traditional interface                                   Non cost
                                                                 Wholesale residential      Wholesale business      Wholesale business        symmetric broadband                                     accounting,
                                                    Total (from analogue exchange line    analogue exchange line   ISDN2 exchange line        origination (up to and                                roundings and
Fully Allocated Cost (£m)                            annex 15)         services                  services               services                including 8Mbit/s)         Wholesale local access       residual

Components

E side copper capital                                     121                        87                       26                      3                                1                        4               0
E side copper current                                     102                        70                       17                      3                                1                        5               6
D side copper capital                                   1,078                       773                      231                     28                                8                       35               3
D side copper current                                     333                       220                       61                     11                                2                       17              22
Local exchanges general frames capital                     83                        30                        9                      1                                0                       14              29
Local exchanges general frames current                     85                        30                       10                      1                                0                       14              30
PSTN line test equipment                                   24                        19                        4                      1                                                                         0
Dropwire capital & PSTN NTE                               628                       447                      142                     17                                0                       21               1
Business PSTN drop maintenance                             35                                                 35                                                                                                0
Residential PSTN drop maintenance                         126                       120                                                                                0                        6               0
PSTN line cards                                           232                       176                       56                                                                                                0
Pair gain                                                   3                         2                        1                                                                                                0
Routeing & records                                         56                        17                       18                      3                                0                       18               0
MDF Hardware jumpering                                    243                        43                       47                      5                                0                      149              (1)
Software jumpering                                         11                         1                        3                      0                                0                        4               3
Wholesale Access specific                                  36                         5                       30                      1                                                                         0
ISDN2 drop maintenance                                      7                                                                         7                                                                         0
ISDN2 line cards                                           33                                                                        33                                                                         0
ISDN2 NTE                                                  16                                                                        16                                                                         0
Directories                                                38                        29                        9                                                                                                0
Service assurance Retail                                   22                        20                        2                         0                                                                      0
Service assurance Global services                           2                                                  2                         0                                                                      0
Service Centres - Provision                                46                         3                       20                         3                             0                        6              14
Sales product management                                   31                        13                        5                         1                             2                        3               3
Service Centres - Assurance                                17                         5                        2                         0                             0                        1               9
External WLR SG & A                                         9                                                                            0                                                                      9
Internal WLR SG & A                                        25                         0                        1                         0                                                                     24
SG & A other access                                        32                                                                                                       0                                          32
64Kbit PC link connection cct provision                     6                                                                                                       6                                           0
64Kbit PC link connection cct rearrangements                4                                                                                                       4                                           0
PC rental 64Kbit link                                      54                                                                                                      53                                           1
PC rental 64Kbit link per km transmission                  39                                                                                                      38                                           1
PC rental 64Kbit link local end                            65                                                                                                      64                                           1
2Mbit and above PC link connection cct provision           38                                                                                                      37                                           0
PC rental 2Mbit link                                       30                                                                                                      30                                           0
PC rental 2Mbit link per km distribution                   79                                                                                                      80                                          (1)
PC rental 2Mbit link per km trunk                           (r)                                                                                                     5                                           (r)
PC rental 2Mbit local end copper                           31                                                                                                      31                                           0
PC rental 2Mbit local end fibre                           178                                                                                                     177                                           1
Broadband line testing systems                             55                                                                                                       0                          18              37
DSLAM capital/maintenance                                 283                                                                                                       0                                         283
SDSL connections                                            0                                                                                                       0                                           0
Local Loop Unbundling room build                            0                                                                                                                                   0               0
Local Loop Unbundling hostel rentals                       18                                                                                                                                  18               0
Local Loop Unbundling hostel rentals power & vent          11                                                                                                                                  12              (1)
Local Loop Unbundling tie cables                           16                                                                                                                                  17              (1)
Local Loop Unbundling systems development                  13                                                                                                                                  14              (1)
SG & A private circuits                                    45                                                                                                      32                                           0
SG & A partial private circuits                            76                                                                                                      66                                           0
Combi Card voice                                           52                        39                       12                                                                                                1
Combi Card broadband                                       20                                                                                                       0                                          20
Access Cards (other services)                              15                                                                            1                          1                                           0
MSAN-Metro connectivity (dense)                           111                                                                                                      24                                           8
MSAN-Metro connectivity (non dense)                         0                                                                                                       0                                           0




                                                                                                                                         88
Section 6 - Other information
Section 6.4.1 - Network Services Reconciliation 2008 (Annex 17) (continued)
Consolidation Statement (a summary of all wholesale markets where there are cost accounting obligations)

                                                                                                    Local-tandem                                                                                                 Non cost
                                                                   Call origination on fixed   conveyance and transit   Single transit on fixed                                                                accounting,
                                                     Total (from    public narrowband              on fixed public       public narrowband                Technical areas                                     roundings and
Fully Allocated Cost (£m)                             annex 15)            networks             narrowband networks           networks                (Interconnect Circuits)    Fixed call termination          residual

Components

National OA non chargeable                                    2                            2                                                                                                                               0
Emergency OA (999) non chargeable                           10                            11                                                                                                                             (1)
Local exchange concentrator                                131                            68                                                                                                          61                   2
Local exchange processor                                   138                            71                        2                             0                                                   64                   1
Remote - local transmission link                            62                            32                                                                                                          29                   1
Remote - local transmission length (c)                      70                            37                                                                                                          33                   0
Product management policy & planning                        25                            24                                                                                                                               1
Main exchange switching                                     29                                                     15                             4                                                                      10
Local - tandem transmission link                            33                                                     33                                                                                                      0
Local - tandem transmission length (c)                      20                                                     20                                                                                                      0
Interconnect local end rental 2Mbit                           5                                                                                                              5                                             0
Customer Sited Interconnect cct (CSI) 2Mbit link              5                                                                                                              5                                             0
Customer Sited Interconnect cct (CSI) 2Mbit per km            4                                                                                                              3                                             1
Interconnect 2Mbit connection                               10                                                                                                              10                                             0
Intra Building Circuit (IBC) rental                           8                                                                                                              8                                             0
Intra Building Circuit (IBC) connection                     18                                                                                                              18                                             0
Interconnect extension circuits (IEC) 2Mbit link              6                                                                                                              6                                             0
Interconnect extension circuits (IEC) 2Mbit per km            5                                                                                                              4                                             1
In Span Interconnect circuits (ISI) transmission              3                                                                                                              3                                             0
Nominated In Span I/Connect cct (ISI) transmission            2                                                                                                              2                                             0
Core/Metro (voice)                                          43                            20                        0                             3                                                   18                   2
Border gateway & signalling firewall                          0                            0                        0                             0                                                    0                   0
MSAN - POSI (dense) link voice                                9                            5                                                                                                           4                   0
MSAN - POSI (non dense) link voice                            6                            3                                                                                                           3                   0
MSAN-Metro connectivity (dense)                              (x)                                                                                                             6                                            (x)
MSAN-Metro connectivity (non dense)                          (x)                                                                                                             0                                            (x)
Core/Metro connectivity                                     38