SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act 1934

Report on Form 6-K dated May 27, 2011

BT Group plc

BT Centre
81 Newgate Street
London EC1A 7AJ
England

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F þ            Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o            No þ

Enclosure: BT Group plc — Annual Report & Form 20-F 2011 as sent to shareholders

 

 

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 27, 2011

Group results

2011

2010

Change

Revenue

adjusteda

£20,076m

£20,911m

â4

%

reported

£20,076m

£20,859m

â4

%

EBITDAb,c

adjusteda

£5,886m

£5,639m

á4

%

reported

£5,557m

£5,162m

á8

%

Profit before taxation

adjusteda

£2,083m

£1,735m

á20

%

reported

£1,717m

£1,007m

á71

%

Earnings per share

adjusteda

21.0p

17.3p

á21

%

reported

19.4p

13.3p

á46

%

Proposed full year dividend

7.4p

6.9p

á7

%

Free cash flowc,e

adjusteda

£2,223m

£2,106m

á£117

m

reported

£2,011m

£1,933m

á£78

m

Net debtc

£8,816m

£9,283m

â£467

m

How we performed in 2011

		Outlook
		May 2010		Result
Revenue		c.£20bn		£20.1bn					ü
Operating costd savings		c.£900m		£1.1bn					ü
Adjusted EBITDAa,c		in line with 2010f		£5.9bn					ü
Adjusted free cash flowc,e		c.£1.8bnf		£2.2bn					ü
Net debtc		<£9bn		£8.8bn					ü

Outlook

We expect

•		Underlying revenueg excluding transit to be in the range of down 2% to flat in 2012 and to grow by up to 2% in 2013
•		Adjusted EBITDA to grow in 2012 and to be above £6.0bn in 2013
•		Adjusted free cash flow to be above the 2011 level in both 2012 and 2013

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     3

Our main activities

BT is one of the world’s leading communications services companies, serving the needs of customers in the UK and in more than 170 countries worldwide. Our main activities are the provision of fixed telephony lines and calls, broadband, mobile and TV products and services as well as managed networked IT services.

In the UK we are a leading communications services provider, selling products and services to consumers, small and medium-sized enterprises and the public sector. We also sell wholesale products and services to communications providers in the UK and around the world. Globally, we supply managed networked IT services to multinational corporations, domestic businesses and national and local government organisations.

2011 external revenue and adjusted EBITDA by line of business

Where we operate

Sustainability

We aim to carry out our business in a responsible and sustainable way. Increasingly, our customers, shareholders, suppliers and our people expect this from BT. The innovative solutions we develop will benefit both society and our long-term development.

> More on page 36

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     5

OVERVIEW

Our aim

Our aim is to drive shareholder value by making BT a better business with a better future.

	•		Driving broadband-based consumer services
	•		Being the ‘Brand for Business’ for UK SMEs
	•		BT Global Services – a global leader
	•		The wholesaler of choice
	•		The best network provider
	•		A responsible and sustainable business leader

Our strategy starts with customer service. Our goal is to deliver excellent customer service as it is vital for our customers and reduces our costs when we get things ‘right first time’. > More on page 10		Improved customer service and reduced cost of failure along with other efficiency measures drive lower costs across our business. > More on page 11		Cost transformation frees up financial and other resources to allow us to invest in our networks, systems, and products and services to drive growth. > More on page 11

Key performance indicators

We measure our overall progress by three key performance indicators:

Adjusted earnings per share		Reported free cash flow		Customer service improvement
This is a measure of the overall profitability of our business. >More on page 49		This is a measure of the cash generated by our business that is available to invest in the business, reduce net debt, support the pension fund and pay dividends. > More on page 50		This is a measure of the level of improvement in how we are serving our customers. > More on page 10

a	Adjusted earnings per share is stated before specific items. See page 57 for further details.
b	Reported free cash flow is a non-GAAP measure. See page 58 for further details.
c	Cumulative improvement from 1 April 2007.

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     7

BUSINESS REVIEW

INTRODUCTION FROM THE CHIEF EXECUTIVE

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     9

Who we are

BT is one of the world’s leading communications services companies, serving the needs of customers in the UK and in more than 170 countries worldwide.

What we do

Our main activities are the provision of fixed telephony lines and calls, broadband, mobile and TV products and services as well as networked IT services.

In the UK we are a leading communications services provider. We sell products and services to consumers, small and medium-sized enterprises (SMEs) and the public sector. We also sell wholesale products and services to communications providers (CPs) in the UK and around the world. Globally, we supply managed networked IT services to multinational corporations, domestic businesses and national and local government organisations.

Our aim

Our aim is to drive shareholder value by making BT a better business with a better future. Last year we set out a three-year plan to achieve this aim. Our strategy focuses on three key areas – customer service delivery, cost transformation and investing for the future. These three areas are the building blocks for making BT a better business. The better we serve our customers, the less time and money we spend on fixing faults and by transforming our costs we create new opportunities for investment in our future. By investing in our strategic priorities we expect to deliver growth in 2013.

Customer service delivery

Our strategy starts with customer service and we continually work to improve the level of customer experience. In practice this means keeping our promises, being easy to contact and straightforward to deal with; it means keeping our customers informed and taking prompt action to put things right if they have cause to complain; above all it means trying to do things ‘right first time’.

‘Right first time’ is our key measure for customer service. It measures how often we get things right the first time for our customers: this is important as failure increases our costs. In 2011 we achieved a 3% improvement in this measure which compares with a 10.5% improvement in 2010. This shows that we made further progress this year but the scale was less than in previous years due to a number of issues, particularly a large increase in provision volumes requiring engineer visits. These were up over 25% in the year. In addition, the very poor winter weather both increased repair demand and reduced our ability to deploy engineers effectively. In order to meet these challenges we recruited additional engineers and have now brought repair work in hand to the equivalent of a day and a half’s work. Provision lead times improved to an average of 10 days at the end of March 2011. We will learn from what went wrong and will work more closely with our CP customers to ensure that together we provide better volume forecasts and we have a more flexible resource that can meet peaks of demand more effectively.

We did make progress in a number of other areas. Call handling times for consumer sales improved by 19 seconds due to the introduction of Agent.com, a new system that allows our sales agents to process orders faster and more effectively. With the roll-out of a desktop help system, broadband consumer customers can now solve many problems without the need to call our service centres. Within BT Retail, our ‘one contact resolution’ aims to deal with customer queries in one call. We saw the number of queries dealt with in one contact increase by 15% in BT Consumer and 9% in BT Business. Within BT Global Services’ ‘right first time’ programme, we reduced customer faults by 11%.

We believe the changes we have made, and will make in the next financial year, will deliver significantly improved service levels for our customers.

BUSINESS REVIEW     OUR BUSINESS AND STRATEGY

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     11

BUSINESS REVIEW     OUR BUSINESS AND STRATEGY

Our future plans for becoming the ‘Brand for Business’ for UK SMEs include:

•		increasing the number of SME customers buying our services
•		selling more IT services and mobility to our existing SME customers
•		offering bundles which combine fixed and mobile communication and IT services.

BT Global Services – a global leader

BT Global Services is already a global leader in the provision of managed networked IT services. Over the past year we have focused on improving the performance of the business by simplifying the portfolio, rationalising systems and networks, industrialising the process of bid management and exploiting standardisation and automation. We adopted an industry sector-based structure to help focus on customer needs in four global sectors: Banking & Financial Markets; Commerce; Consumer Packaged Goods; and Government & Health. We also invested in growth areas such as multi-protocol label switching (MPLS), Ethernet, unified communications, security, customer relationship management, mobility and cloud services. Last year we identified the Asia Pacific region as a target for investment and we are strengthening our ability to support new and existing customers in this growing market.

During 2011 we made the following progress:

•		we delivered operating cash flow of £119m, a year ahead of target
•		order intake was £7.3bn
•		we invested to grow our presence in the Asia Pacific region
•		we have been recognised as a leader, winning the award for ‘Best Global Operator’ at the World Communication Awards 2010.

Our future plans include:

•		building on our strong market position in managed networked IT services
•		expanding further to serve our customers in fast-growing economies
•		developing our relationships with our target customers, and improving their customer experience
•		building and enhancing industry based solutions in key sectors
•		making our operations more efficient
•		generating around £200m of operating cash flow in 2012.

The wholesaler of choice

BT is committed to supplying CPs in the UK and overseas with vital communications infrastructure and services. While we are already the largest wholesaler in Europe, there are significant opportunities for us to win new business. We aim to be the ‘wholesaler of choice’ in the UK, where we already have more than 1,000 CP customers, provide fixed-line services to the five key mobile operators and are the established partner for carriers. We also operate an international wholesale business, where we serve customers in over 170 countries.

During 2011 we made the following progress:

•		our managed network services (MNS) revenue grew by 8%
•		40% of BT Wholesale’s external revenue is now underpinned by long-term contracts
•		our second generation copper broadband service is available to over 65% of UK premises
•		we received the ‘Best Wholesale Carrier’ award at the World Communication Awards 2010.

Our future plans for becoming the wholesaler of choice include:

•		increasing the proportion of revenue under long-term contract by selling new MNS contracts
•		making investments in Wholesale Broadband Connect, our second generation broadband service, which we plan to extend to cover around 80% of UK premises by December 2011
•		launching IP services that enable our CP customers to enter and exploit new and emerging markets
•		increasing capacity on our IP platforms to meet growing customer demand
•		continuing to evolve our next generation product portfolio for the global wholesale market.

The best network provider

BT is the largest provider of fixed telephony lines in the UK and through Openreach we manage the ‘last mile’ of the UK access network. We offer access to this network to other CPs on an open and equal basis.

It is our aim to improve network reliability, extend our Ethernet footprint, continue our super-fast broadband roll-out and put in place systems improvements and transformation programmes to enhance our proposition, reduce our cost base and make it easier for CPs to do business with us.

During 2011 we made the following progress:

•		we rolled out our super-fast fibre-based broadband network to reach over 4m UK premises
•		we contributed to the growth of the broadband market in the UK by the provision of 7.6m external unbundled lines, up 15%
•		we extended our footprint to over 1,000 fibre Ethernet nodes, providing the largest Ethernet network in the UK
•		we commenced testing a 1Gbps service over fibre-to-the-premises.

Our £2.5bn investment in super-fast fibre-based broadband will make the UK one of the best connected countries in the world.

Our super-fast fibre roll-out plans are ambitious and we are working to pass two thirds of UK premises by the end of 2015. To deliver this we are installing 30,000 cabinets, connecting 200,000 distribution points, enabling over 1,000 exchanges and laying over 50,000km of fibre. We have developed and refined our systems and processes to enable us to deliver fibre faster and we are upgrading more than 250 cabinets and enabling on average around 80,000 premises each week to access fibre.

We also aim to bring fibre to homes and businesses in the ‘final third’ of the UK, given the right investment and regulatory conditions and access to Government funds.

BUSINESS REVIEW     OUR BUSINESS AND STRATEGY

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     13

We compete in a number of markets including the consumer and SME markets in the UK and delivering managed networked IT services globally. We also offer a range of wholesale and access products and services to CPs, both in the UK and internationally.

In the UK, regulation and the open, commercial marketplace have created one of the most competitive telecoms markets in the world. Some of the products and services we offer in the UK are regulated because of our significant market power in some sectors. See Regulation on page 17 for more information. We also offer access services on an open and equal basis to all CPs.

UK consumers

The consumer fixed-line telecoms market in the UK is highly competitive, with more than 160 companies offering broadband and/or voice services. Although total UK residential fixed-line call minutes have declined 18% over the past three years, the total number of UK residential lines is up 2% over this period according to Ofcom data. The decline in fixed-line call minutes can be attributed to factors such as consumers increasingly using mobile phones rather than fixed-line phones, while the continued growth in fixed-line broadband has helped slow the decline in the number of residential lines.

BT is the leading provider of fixed-line voice and broadband services in the UK consumer market. We provide consumers with a range of services including fixed-line voice, broadband and TV products and services. We also provide directory services – both in print and via directory enquiries – and sell telephones and computer equipment through our online retail presences.

BT’s share of the fixed-line market has declined from 69% to 51% over the past three years, reflecting the competitive nature of the market and continued growth in local loop unbundling (LLU). The share of the fixed-line market provided by cable has remained flat at 18% over the same period.

An important change in the consumer market occurred when regulation was modified to allow us to sell our products and services in bundles to customers for one price. This has allowed us to compete with other providers in offering attractive bundles: 40% of UK consumers currently buy triple-play services of broadband, pay TV and fixed-line telephony.

We sell our services to consumers online – directly and via selected affiliates – and through our call centres. We also advertise across a range of media including TV and social media, such as Facebook. More information about our products and services for UK consumers can be found in BT Retail on page 26.

The UK broadband market is highly competitive. Following a period of industry consolidation, our main competitors are Virgin Media, TalkTalk Group and Sky. Between us we account for 87% of the broadband market.

BUSINESS REVIEW     OUR MARKETS AND CUSTOMERS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     15

BUSINESS REVIEW     OUR MARKETS AND CUSTOMERS

Demand for network based IT services continues to evolve with customers increasingly seeking to unify their communications (where an organisation’s infrastructure, mobility, desktop and applications work together more effectively). They are also looking to virtualise their infrastructure (virtualisation or cloud services where customers’ business applications can be provided across BT’s network rather than from their own premises, for example virtual data or contact centre solutions). They continue to want their networked IT services delivered securely, efficiently and globally.

Increasingly, our customers are asking us to help them capture the opportunities in a recovering economy, as well as reducing costs and improving efficiency in their businesses. In addition to helping customers reduce their capital expenditure, virtualised services, such as virtual data centres also provide energy savings.

We are a global leader in the networked IT services market with around 7,000 large corporate and public sector customers.

We supply networked IT services to national and local government organisations and other public sector bodies around the world. We are one of the largest suppliers of networked IT services for the UK Government. The UK Government, collectively, is BT’s largest customer, but the provision of services to any one of its departments or agencies does not comprise a material proportion of our revenue. Except as described in Our relationship with HM Government on page 18, the commercial relationship between BT as a supplier and the UK Government as a customer is on a normal customer and supplier basis.

 We are also seeing customers maintaining a focus on energy efficiency, ethical supply chain and other components of responsible and sustainable business practices. Through BT Conferencing we are a leading supplier of videoconferencing services globally and we have seen growing demand for videoconferencing, a service which helps both to drive business efficiency and limit emissions by reducing travel.

Wholesale

BT operates in wholesale markets in the UK through BT Wholesale and Openreach, and outside of the UK primarily through the wholesale arm of BT Global Services. BT’s wholesale customers are fixed and mobile operators, internet service providers (ISPs), broadcasters and other CPs. We have over 1,000 such customers in the UK and many more around the world.

Source: Ovum

The landscape for wholesale communications remains competitive following the significant market consolidation of recent years. Competition continues to increase as a result of wholesale carriers rolling out their own IP network infrastructure and the switch from legacy to next generation products. Our competitors in the UK include Cable & Wireless Worldwide, TalkTalk Group, Virgin Media and COLT, as well as a range of equipment vendors. Many of these competitors are also customers. Internationally, we compete with the wholesale divisions of local incumbents and alternative network operators as well as global wholesale players.

The wholesale market is beginning to adopt next generation communications services like IP voice, higher speed broadband over copper and fibre and Ethernet for data connectivity. We have seen continued bandwidth growth with capacity more than trebling on our network over the past five years. To support the rapid growth of high bandwidth services such as video over fixed lines and mobile networks, a number of service providers are buying wholesale managed services to meet this demand quickly rather than building their own infrastructure.

Bandwidth consumed measured in gigabits and rebased to April 2006 = 100

We expect the sale of wholesale managed network services to continue to grow in line with developments in services like fixed and mobile broadband and internet-based TV.

In the UK, Ofcom regulates some of our wholesale broadband products based on geographic markets: in Market Three, which contains the most competitive exchanges (mainly urban areas) our wholesale broadband products are not regulated; in Market Two where there is some competition (mainly suburban areas), and in Market One where there is very little or no competition (mainly rural areas), our products are regulated.

Access

In the UK, we manage the ‘last mile’ of the access network – the copper wires and fibre connecting homes and businesses to their local telephone exchange – through Openreach. We offer wholesale access products and services on an open and equal basis to CPs so that they can offer voice and broadband services to their own end customers.

The competitive challenge we face in the UK access market varies according to geography. We face direct competition in urban and metropolitan areas with some competition in rural areas. We also face competition from cable and mobile across our footprint.

We supply a range of access products directly to large and small CPs. This includes products such as LLU (which enables CPs to lease the local loop infrastructure from Openreach to offer voice and broadband to their own customers), Wholesale Line Rental (WLR) and Ethernet products. Under new obligations, we will also be offering products which give greater access to our underlying network infrastructure such as access to ducts and poles.

BUSINESS REVIEW     OUR MARKETS AND CUSTOMERS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     17

BUSINESS REVIEW     OUR MARKETS AND CUSTOMERS

Ofcom is currently consulting on charge controls for WBA Market One, LLU, WLR and ISDN30 Wholesale products.

Ofcom has imposed SMP charge control regulation on the mobile call termination market with effect from April 2011. Termination rates charged by mobile network operators will fall to 0.69 pence per minute by April 2014. This will enable us to lower the cost of calling mobiles from fixed lines.

Regulatory decisions by Ofcom are subject to appeal.

In response to Ofcom’s 2005 strategic review of telecommunications, we proposed a number of legally-binding Undertakings under the Enterprise Act 2002 (Enterprise Act). These Undertakings, which included the creation of Openreach, were accepted by Ofcom and came into force in September 2005. The Undertakings are intended to deliver clarity and certainty to the UK telecommunications industry about the way BT will provide ‘upstream’ regulated products to support effective and fair competition in related ‘downstream’ markets. Ofcom acknowledges that BT’s delivery of the Undertakings has enabled deregulation in more competitive downstream markets. The vast majority of the commitments in the Undertakings have been delivered.

The European Commission formally investigated the way the UK Government set the rates payable on BT’s infrastructure and those paid by KCOM, and whether or not the UK Government complied with EU rules on state aid. The Commission’s decision in October 2006 that no state aid had been granted was appealed. In January 2011, the appeal was rejected as inadmissible.

We can be required by law to do certain things and provide certain services for the UK Government. For example, under the Communications Act, we (and others) can be required to make and implement plans for the provision or restoration of services in connection with disasters. Additionally, under the Civil Contingencies Act 2004, the UK Government can impose obligations on us (and others) at times of emergency and in connection with civil contingency planning. Also, the Secretary of State can require us to take certain actions in the interest of national security and international relations.

Regulation outside the UK

BT must comply with the regulatory regimes in the countries in which we operate and this can have a material impact on our business.

Communications regulation in each EU country is conducted within the regulatory framework determined by EU directives, regulations and recommendations. The manner and speed with which the existing directives have been implemented vary from country to country. National regulators are working together in the Body of European Regulators for Electronic Communications to introduce greater harmonisation in their approach to the assessment of SMP and the imposition of appropriate remedies.

The vast majority of the communications markets in which we operate around the world are subject to regulation. The degree to which these markets are liberalised varies widely, and our ability to compete is constrained, to a greater or lesser degree, in many countries. We continue to press incumbent operators and their national regulatory authorities around the world (including in the EU) for cost-related non discriminatory wholesale access to their networks, where appropriate, and for advance notice of any changes to their network design or technology which would have an impact on our ability to serve our customers.

In addition to communications industry-specific regulation, BT is subject to the Competition Act 1998 in the UK and to EU competition law.

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     19

BUSINESS REVIEW     OUR RESOURCES

We continue to support an inclusive working environment where people can develop their careers and expect to be treated fairly, regardless of their race, sex, religion/beliefs, disability, marital or civil partnership status, age, sexual orientation, gender or caring responsibilities. We also work with specialist recruitment agencies to enable the recruitment of people with disabilities and we run a retention service to ensure that people can stay with us even if their capabilities change.

Diversity of the BT workforce

Target 2012		2011		2010		2009
BT will maintain a top 10 position in four of five major diversity benchmarks; four UK based, and one global

We look to improve customers’ experiences of BT by giving our people the up-to-date skills, tools and experience needed to do their jobs. This starts with our nationally-recognised apprentice schemes, which recruited nearly 500 engineers during 2011, and continues with opportunities to learn and develop throughout an employee’s career. In BT Retail, we ran two programmes to provide apprentice qualifications in job-related skills: customer service and business administration for our advisors and leadership for our managers. During the year 8,100 people successfully completed these qualifications.

In order to help deliver super-fast broadband, Openreach has recruited 200 ex-armed forces personnel, who will become part of a mobile engineering workforce. They will be bringing their experience of complex engineering tasks, their skills and technical expertise to bear on one of the UK’s largest infrastructure projects.

BT people are also encouraged to participate in their local communities. We run a formal volunteering programme to help them do this. In 2011 BT people volunteered over 49,000 days, the value of which we estimate at £13.8m. The community benefits from this involvement and the business gains from the opportunity given to our people to enhance their existing skills or acquire new ones.

People engagement and communication

Keeping our people informed of what is happening in BT is important. We use a range of communications channels including a daily online news service, a quarterly magazine, podcasts and web chats. We have a record of stable industrial relations and constructive relationships with the recognised unions in the UK and works councils elsewhere in Europe. In the UK we recognise two main trade unions – the Communication Workers Union (CWU), which represents the engineering, administrative and clerical population and Prospect, which represents managerial and professional employees. We also operate a pan-European works council, the BT European Consultation Committee.

We measure how engaged BT people are through a quarterly survey and we ask 50,000 people each time to tell us how they feel about their job, their team, their manager, senior leaders and BT. Last year, despite challenging economic conditions, we held engagement steady. This year we have seen improvements in how motivated people feel to do their best work. We use this regular and extensive feedback to let line managers know more about their teams, how engaged they feel and what makes BT people feel proud about what they do.

Reward and recognition

Because we value our people, we ensure that the reward they receive is fair for the job done against external market comparisons. We conduct a market review of salaries every year. In 2010 we agreed with the CWU a three-year pay deal which provides considerable stability for both employees and the business. Discussions with Prospect reached an agreement for 2011 and more recent discussions have concluded a further two-year pay deal, also providing stability through to 2013. The same principles of fair pay for the work done are similarly applied in all other countries in which we operate.

Our managers are rewarded with bonuses linked to the success of the business and their personal contribution to it. Our most senior managers are also eligible for long-term incentives, but again, payment is related to business success measured by BT’s corporate performance over a three-year period. For more information see the Report on directors’ remuneration on page 69. Different arrangements apply to the most senior managers in Openreach but remain entirely related to business performance.

We also provide savings-related share option plans in 25 countries. Under the BT employee share investment plan we enable employees in the UK to participate in a tax and national insurance-efficient share purchase scheme. We are pleased that more than 50% of BT people participate in one or more of these share plans.

Pensions

Key parts of the reward package are the pension and retirement benefits for our people. In addition to statutory retirement arrangements, BT provides retirement plans for staff in over 50 countries. The largest of these plans is the BT Pension Scheme (BTPS), a defined benefit plan in the UK. The BTPS has around 51,000 contributing members, 188,000 pensioners and 88,500 deferred members. The BTPS was closed to new members on 31 March 2001. Benefits are based on pensionable salary and service.

We also offer the BT Retirement Saving Scheme (BTRSS), a defined contribution plan for eligible UK employees, which has around 17,500 active members. It is a contract based, defined contribution arrangement provided by Standard Life, a leading UK insurance company. The scheme members receive benefits at retirement linked to contributions paid, the performance of each individual’s chosen investments and the annuity rates at retirement.

BUSINESS REVIEW     OUR RESOURCES

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     21

BUSINESS REVIEW     OUR RESOURCES

Suppliers

BT works with around 16,700 suppliers across the world, spending approximately £11.3bn per annum with them, with the top 100 suppliers accounting for more than 65% of this spend.

We source products and services from across the world and have procurement professionals located in 25 countries.

We operate a strategic sourcing process for the vast majority of spend to derive maximum value and to meet BT’s cost transformation goals. We ensure that appropriate suppliers are engaged, underpinned by a set of purchasing principles which ensure we act in an ethically and commercially responsible way in our business dealings with our global supply base.

We work with our suppliers to ensure the goods and services we procure are made, delivered and disposed of in a socially and environmentally-responsible manner. Sustainability factors such as energy usage, environmental impact, and labour standards are embedded in our sourcing and adjudication process, and influence supplier and product selection.

Supplier relationships – a measure of the overall success of BT’s relationship with suppliers, based on our annual supplier survey

Non financial performance
Target 2012		2011				2010				2009
To achieve a rating of 80% or more based on a response of ‘excellent’ or ‘good’ to the question: ‘How would you describe the quality of your company’s relationship with BT?’			86%				86%				85%
Financial performance
Total spend with external supply base			£11.3bn				£12.0bn				£13.0bn

Ethical trading – a measure of the application of BT’s supply chain human rights standard

Non financial performance
Target 2012		2011		2010		2009
To achieve 100% follow up within three months for all suppliers identified as high or medium risk, through our ethical standard questionnaires		70 risk assessments with 100% follow up		180 risk assessments with 100% follow up		78 risk assessments with 100% follow up
Financial performance
Value of spend where our suppliers agree that BT ensures its purchase are made, delivered, used and disposed of in a socially and environmentally responsible manner (extrapolated from supplier survey responses)		86% of supplier spend		86% of supplier spend		83% of supplier spend

Payment of suppliers

In normal circumstances, BT’s payment terms for contracted suppliers will be to pay each due, valid and undisputed invoice between 60 and 73 days from date of receipt from the supplier. There are variations to this policy. For example interconnect payments to other telecommunications operators, low value spend, various customer-specified requirements and rates are paid in shorter timescales. In 2011 the average number of days between the invoice date and the date of the payment run for the invoice was 64.

In the UK, BT provides access to a supplier financing scheme which offers contracted suppliers the opportunity to obtain payments in advance of the agreed terms of between 60 and 73 days from receipt of a valid and undisputed invoice. In addition, BT subscribes to the Better Payment Practice Code, details of which can be found at www.payontime.co.uk

Property portfolio

At 31 March 2011 we occupied around 6,500 properties in the UK, and around 1,850 properties in the rest of the world. The majority of the UK properties are owned by – and leased from –Telereal Trillium, which is part of the William Pears Group.

Approximately 89% of the UK portfolio consists of operational telephone exchanges which contain exchange equipment and are needed as part of our continuing activities. Other general purpose properties consist chiefly of offices, depots and computer centres. Approximately 87% of the properties in the rest of the world are operational sites.

In recent years, our strategic focus on cost transformation has led to significant reductions in our total labour resource. This has resulted in vacant space and under-utilisation of buildings within our UK property estate. Accordingly, in 2010 we initiated a property rationalisation programme to consolidate office space within the estate which has continued in 2011. See page 57 of the Financial review for further details.

Our group property team has instigated a number of initiatives to reduce waste to landfill, including changing contracts on its general waste to a recycling-led company and implementing new recycling schemes at many sites.

Waste to landfill and recycling – a measure of BT’s use of resources

Non financial performance

UK only

Target 2012

2011

2010

2009

BT Group will reduce the tonnage of waste sent to landfill by 20% from 2011 levels

69%

15

%

17

%

reduction

reduction

reduction

in waste to

in waste to

in waste to

landfill from

landfill from

landfill from

2010

2009

2008

Financial performance

Net benefit to the business of the waste programme

£2.03m

£2.86ma

£3.79ma

a 2010 and 2009 figures are restated following a review of expenditure categorisation.

BUSINESS REVIEW

OUR LINES OF BUSINESS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     23

BUSINESS REVIEW     OUR LINES OF BUSINESS

Mobility

We provide a range of value-added services to help customers exploit the benefits of mobile computing, from flexible working solutions through to services to enable customers to improve the efficiency of both their supply chains and workforces.

Operating review

Last year our focus was on improving the business through better financial and operational execution and the implementation of a strengthened controls environment. In 2011 we have reshaped and refocused our business to serve our customers better and established a significantly more competitive cost base.

We have continued to improve the efficiency of our operations, and reduce costs, helping to deliver a 7% reduction in net operating costs. We achieved this through:

•		improving service levels to take out cost of failure
•		working with our external suppliers to improve contract terms
•		reviewing our network and changing our network topography
•		rationalising our network assets and our operations
•		improving the service we get from suppliers around the world.

We have made changes to our global delivery model to improve contract execution. We improved our bid management processes and created three global bid management centres to standardise processes and share best practice. We have continued improving the start-up of major contracts, including standardised and accelerated start-up processes to improve contracts in the early stage of delivery.

During 2011, as part of our commitment to global customers in key industry sectors, we created four global strategic sector teams to sit alongside our four regions: Banking & Financial Markets; Commerce – comprising manufacturing, logistics and pharmaceuticals; Consumer Packaged Goods; and Government & Health. Customers in these sectors will benefit from a range of industry focused products, solution design and infrastructure, as well as sector specific customer management and service teams.

GLOBAL		GLOBAL COMMERCE		GLOBAL		GLOBAL
BANKING &		(MANUFACTURING,		CONSUMER		GOVERNMENT
FINANCIAL		LOGISTICS &		PACKAGED		& HEALTH
MARKETS		PHARMACEUTICALS)		GOODS
UK
EMEA & LATIN AMERICA
UNITED STATES & CANADA
ASIA PACIFIC

During the year we signed contracts with a total order value of £7.3bn, up 10% over £6.6bn last year. The market environment continues to be challenging with fewer very large deals, longer lead times and pricing pressure all having an impact.

Notable contracts signed in the year include:

Customer		Contract
Unilever		A four-year extension to our existing contract to supply managed services in over 100 countries.
UBS		A new five-year contract for the provision of global voice and data network services, including a videoconferencing network and audio conferencing services.
Network Rail		A two-year extension of our networked IT services contract.
Defence Fixed Telecommunications Service (DFTS)		A three-year extension to our DFTS agreement with the UK Ministry of Defence.
Southwest One (working in partnership with Somerset County Council, Taunton Deane Borough Council, Avon and Somerset Police and IBM)		Provision of a high-speed network to 269 schools and educational establishments in Somerset, UK.
Ministerio de Defensa de España, Spain		Provision of internet access, security platform, and on-site professional services to the Spanish government.
DigitPA (Agency for the Digital Public Administration), Italy		A seven-year contract to connect 340 offices in 125 countries, providing communication services and managing a global network.

During the year we continued to execute on our larger customer contracts, for example working with other London 2012 Olympic and Paralympic Games technology partners, under the direction of the London 2012 Organising Committee, BT is building the communications infrastructure that will support the communications needs of the event. The project is on track.

We have made good progress on our large NHS contracts. Our work delivering clinical information systems at 80 NHS organisations across London and the South of England is now enabling around 170,000 healthcare professionals to provide better, safer patient care. N3, the secure national broadband network built and managed by BT for the NHS, now serves over a million NHS users. The Spine, the secure database and messaging service delivered by BT, continues to support the increased use of key transformational services, such as Choose and Book, the electronic appointment booking system, which saw the number of appointments booked electronically recently exceed 25m.

During the year the UK Government announced a review of all public sector spending and BT entered into discussions with the Government on new arrangements designed to deliver efficiencies. In October 2010 BT announced the signature of a Memorandum of Understanding with the UK Government under which all of BT’s central Government contracts remained in place.

During 2011 we launched new products and service enhancements, such as virtual data centre offerings, and a series of enhancements to our OneVoice collaboration and communications tools. New industry specific products and services were also launched, such as the collaboration suite for financial markets which includes a next generation range of trader voice and collaboration services.

BUSINESS REVIEW     OUR LINES OF BUSINESS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     25

Business overview

BT Retail serves UK and Republic of Ireland consumers and SMEs through four customer-facing divisions: BT Consumer, BT Business, BT Enterprises and BT Ireland. BT Enterprises also serves global customers.

BT Consumer

BT is the leading provider of fixed-line voice and broadband services in the UK market. We offer our customers a range of innovative and value-for-money calls, lines, broadband and TV packages.

We provide call services to over 10m of our fixed-line customers, offering value-added services like call minder, and value-for-money unlimited call plans which include free access to 0800 and 0845 numbers.

Broadband

We serve the consumer broadband market with the BT and Plusnet brands. BT Total Broadband provides value-added services such as online storage, security and free access to the largest network of wi-fi hotspots in the UK, while Plusnet focuses on simple broadband packages for price-conscious customers. BT Infinity is our super-fast broadband product, delivering download speeds of up to 40Mbps using FTTC technology.

TV

BT Vision – our television service – has over 8,000 items of video on-demand content available and offers BBC iPlayer plus TV replay services from ITV and Channel 4. BT Vision also now offers Sky Sports channels on flexible contract terms and HD and 3D movies available for download.

YouView, the TV joint venture between the BBC, ITV, Channel 4, BT and others, will transform the UK TV market, combining free digital channels with free on-demand content from public service broadcasters delivered over broadband. The full commercial launch of YouView is planned for early in the 2012 calendar year.

BT Business

We supply and support business calls and lines, broadband, internet, mobiles and mobile applications, domains and web hosting, data and voice networks and IT services for SMEs. We sell to SME customers through our call centres, online, or via our desk and field-based account teams. We also serve the market via a network of 43 BT Local Businesses – regional franchises with their own sales staff and account management teams. Specialist business units within BT Business include:

•		BT iNet: a Cisco centre of excellence specialising in infrastructure, security and unified communications
•		BT Engage IT: a leading provider of business-to-business IT solutions and services
•		BT Business Direct: an online store providing IT, computing and networking equipment plus associated installation and support services for SMEs.

BUSINESS REVIEW     OUR LINES OF BUSINESS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     27

BUSINESS REVIEW     OUR LINES OF BUSINESS

Our television service, BT Vision, had 575,000 customers at 31 March 2011 (2010: 467,000). Following the Ofcom pay TV market investigation in March 2010, we launched Sky Sports 1 and Sky Sports 2 on BT Vision in time for the 2010-11 Premier League football season. We also launched the BBC iPlayer service on BT Vision and expanded our range of HD content, adding 3D movies for the first time and enhancing our HD download service to provide a better customer experience.

Our BT broadband customers benefit from free access to the largest wi-fi hotspot network in the UK. Comprising BT Openzone, BT Fon and Business Hubs, our customers can now get online at more than 2.8m locations. We have also launched the BT Fon application for smartphones and tablet computers which automatically connects to the BT wi-fi network and has been downloaded over half a million times.

In January 2011 we launched our new Home Hub 3, including Smart Wireless which looks for the best wireless channel to ensure the strongest possible connection at all times. It uses 39% less power and its smaller design typically uses 25% less plastic than previous models.

BT Business

BT Business has seen continued growth in IT services and mobility revenue up 17% and 14%, respectively, and an improvement in line losses with net line losses in the second half of 2011 being 35% lower than in the same period in 2010. During the year we launched a range of new business broadband propositions, offering a combination of competitive prices and tiered service levels as well as fibre-based broadband offers.

We have also built our capabilities in the IT services market through BT Engage IT and BT iNet. This year BT Engage IT announced it would offer ‘pay as you go’ information security from Symantec to offer value and flexibility to customers. BT iNet also now installs, integrates and maintains a virtual data centre hosting solution for SME customers. Our BT Business Direct online store provides IT, computing and networking equipment plus associated installation and support services for SMEs.

BT Enterprises

Note: BT Openzone revenues are currently recognised within other units.

BT Conferencing launched ‘Mobile Controller’ and ‘Desktop Controller’ products for audioconferencing services which allow customers to control their audioconferences from their mobile or desktop more easily. We also launched interoperability for our ‘telepresence’ videoconferencing services.

In 2011 BT Directories released the compact Phone Book, reducing its size by 15% to fit into letter boxes, saving 2,000 tonnes of paper each year. BT Directories also launched a free Android smartphone application to make The Phone Book available to mobile users.

BT Expedite delivered a new mobile-optimised web site for fashion clothing brand, Lyle & Scott and extended the multichannel capability for Pets at Home with the addition of “Click and Collect”.

The volume of traffic carried by the BT Openzone network more than doubled compared with the previous year to around 3bn minutes. In August 2010 BT signed a contract with Starbucks Coffee Company to provide wi-fi across some 140 Starbucks coffee shops in Germany, extending BT’s relationship with Starbucks in the UK and Ireland.

BT Ireland

While BT Ireland’s revenue was impacted by the challenging economic conditions, profits increased as a result of ongoing cost transformation programmes and the delivery of large retail and wholesale contracts.

During the year we rolled out super-fast fibre-based broadband services in Northern Ireland. This investment, in partnership with Northern Ireland’s Department of Enterprise, Trade and Investment (DETI), will result in 89% of lines being connected to a fibre broadband cabinet by March 2012.

In the Republic of Ireland, BT secured a number of significant contracts in the corporate, government and wholesale sectors including Danske Bank, Element Six and Pinebridge Investments.

Financial performance

		2011				2010		a		2009		a
		£m				£m				£m
Revenue			7,748				8,124				8,491
Net operating costs			5,964				6,347				6,906
EBITDA			1,784				1,777				1,585
Depreciation and amortisation			443				459				426
Operating profit			1,341				1,318				1,159
Capital expenditure			434				417				471
Operating cash flow			1,382				1,566				984

a	Restated. See page 106.

In 2011 revenue decreased by 5% (2010: 4%). Excluding a one-off benefit of £40m in 2010 relating to prior periods, the decrease was 4%. Revenue in the second half of 2011 was down 3%, an improvement on the 5% decline in the first half after excluding the one-off benefit in 2010.

BUSINESS REVIEW     OUR LINES OF BUSINESS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     29

Business overview

BT Wholesale provides a broad range of voice, broadband and data communications services, including managed network services (MNS) for fixed and mobile network operators (MNOs), ISPs and telecoms resellers in the UK.

Through our Media and Broadcast and agilemedia business units we also support the network needs of global broadcasting organisations, from connectivity and digital media management to production, post-production and interactive audience participation. Through close collaboration with Global Telecoms Markets – the wholesale arm of BT Global Services – the business also supports the needs of communications provider customers worldwide.

Over the last three years we have built a successful MNS business for fixed and mobile CPs with differing requirements, from fully managed network outsourcing for operators with significant network assets to white label managed services designed to help brand extenders with limited or no infrastructure.

We manage and support the network and services requirements of a number of national operators including KCOM Group, Virgin Media, Orange UK, Vodafone, O2 and MBNL. By making our networks and services available to other CPs, we provide them with an alternative to building their own network infrastructure.

We have long-term MNS contracts in place with all of the UK’s mobile network operators to help them manage the growth in mobile data and video content generated by 3G services with high speed data connections that link mobile base stations to their and BT’s core networks.

BUSINESS REVIEW     OUR LINES OF BUSINESS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     31

BUSINESS REVIEW     OUR LINES OF BUSINESS

In 2011 revenue declined by 8% (2010: 4% decline). After reflecting changes in the internal trading model in 2011, which impacted internal revenue by £204m in 2010, revenue declined by 4%. Excluding low-margin transit revenue, underlying revenue declined by 3%.

		2011				2010		a		2009		a
		£m				£m				£m
Products and services
Transit			895				976				1,134
Conveyance and interconnect			609				578				728
ICT and managed networks			771				715				518
Broadband and convergence			335				488				543
Calls and lines			282				316				398
Other products and services			338				293				251
External revenue			3,230				3,366				3,572
Internal revenue			980				1,226				1,228
Total			4,210				4,592				4,800

a		Restated. See page 108.

Transit revenue decreased by 8% (2010: 14% decrease) as a result of transit volume reductions and the price impact of regulatory mobile termination rate reductions.

Conveyance and interconnect revenue increased by 5% (2010: 21% decrease) driven by higher volumes.

Broadband and convergence revenue decreased by 31% (2010: 10% decrease) due to securing volumes under long-term MNS contracts and, to a lesser extent, the continuing trend of CPs switching to LLU provided by Openreach.

The declines have been partly offset by an increase of 8% in MNS revenue (2010: 38% increase). The rate of growth has slowed compared with 2010 as the focus on contracts has switched to delivery and achieving key milestones.

Calls and lines revenue decreased by 11% (2010: 21% decrease) reflecting lower circuit volumes as customers seek alternative products and services such as Ethernet.

Other products and services revenue increased by 15% (2010: 17% increase) partly driven by growth in IP-based Ethernet services.

Net operating costs decreased by 11% (2010: 6% decrease) or 5% after reflecting the impact of changes in the internal trading model. Excluding transit, the decrease was 3%. The decrease was partly due to the decline in revenue, but also due to the impact of our cost efficiency programmes principally through reductions in our total labour resource.

The above factors contributed to a 3% decrease in EBITDA (2010: broadly flat).

Depreciation and amortisation decreased by 9% to £619m (2010: 1% decrease).

Operating profit increased by 4% (2010: broadly flat) due to the decline in EBITDA being offset by lower depreciation and amortisation.

Capital expenditure increased by 1% (2010: 25% decrease), reflecting the increased investment in our Ethernet and Wholesale Broadband Connect footprints.

Operating cash flow decreased by 1% in 2011 (2010: 2% increase). After adjusting 2010 for the intra group VAT settlement with Openreach, operating cash flow decreased by 7%, primarily due to the timing of working capital payments and the increase in capital expenditure.

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     33

BUSINESS REVIEW     OUR LINES OF BUSINESS

The 11,000 net increase in the copper line base was the first growth since the formation of Openreach in 2006.

We also began to see an acceleration in the number of end-users on our fibre-based services.

Across other products we continued to grow our Ethernet base with connections up 62%.

Repair visits increased 21% year-on-year partly because of the extra activity in the network. The repair workstack reached its peak during January and this was due to increased provision volumes coupled with very poor winter weather conditions and a 134% increase in faults relating to cable theft and vandalism. These attacks accounted for 85,000 faults on the live network.

Our focus on engineer task times (average task times for repair/provision fell 19% and 10%, respectively) and short-term use of additional engineering resource helped to improve the workstack as we reached the end of the year. The repair workstack increase resulted in a slight fall in our mean time between faults, which stands at one fault every 14 years, but still compares favourably with our historical performance.

Openreach operates an engineering fleet of more than 21,000 vehicles and is committed to finding innovative ways to minimise its environmental impact. For example, over 18,500 of our vehicles are now equipped with satellite location technology that is designed to improve the efficiency of engineering visits, thereby reducing fuel usage. During the year we have reduced our total fleet by just under 500 vehicles and on a like-for-like basis, considering the increases in both provision and repair visits, we reduced our fuel usage per visit by 11%.

Financial performance

		2011				2010		a		2009		a
		£m				£m				£m
External revenue			1,459				1,241				1,042
Revenue from other BT lines of business			3,471				3,923				4,189
Revenue			4,930				5,164				5,231
Net operating costs			2,798				3,204				3,235
EBITDA			2,132				1,960				1,996
Depreciation and amortisation			877				856				778
Operating profit			1,255				1,104				1,218
Capital expenditure			1,087				907				951
Operating cash flow			1,078				1,167				1,079

a	Restated. See page 106.

In 2011 revenue decreased by 5% (2010: 1% decrease). After reflecting changes in the internal trading model in 2011, which impacted internal revenue by £204m in 2010, revenue was 1% lower. Higher LLU and Ethernet volumes and provisions activity were largely offset by price reductions and the continued migration from WLR to lower priced Metallic Path Facility (MPF).

External revenue was £1,459m in 2011, an increase of 18% (2010: 19% increase) and reflects the continuing migration of end customers to other CPs’ WLR and LLU products. External revenue represented 30% of our revenue in 2011 (2010: 24%).

Revenue from other BT lines of business decreased by 12% to £3,471m in 2011 (2010: 6% decrease). After reflecting changes in the internal trading model, revenue from other BT lines of business decreased by 7% reflecting the shift of WLR and LLU volumes from other BT lines of business to external CPs and the effect of lower Ethernet prices, partly offset by volume increases.

Net operating costs reduced by 13% (2010: 1% decrease). After reflecting the impact of changes in the internal trading model and excluding leaver costs, net operating costs reduced by 5% in 2011 achieved through process efficiencies in volume engineering activities.

EBITDA increased by 9% (2010: 2% decrease) as the cost efficiencies have offset the reduction in revenue.

Depreciation and amortisation increased by 2% (2010: 10% increase) reflecting investment in our next generation broadband, Ethernet and fibre services.

Operating profit increased by 14% in 2011 (2010: 9% decrease).

Capital expenditure increased by 20% (2010: 5% decrease) due to the investment in our super-fast fibre-based broadband network and the increase in CP’s infrastructure build and provision activities.

Operating cash flow decreased by 8% (2010: 8% increase). After adjusting 2010 for the intra group VAT settlement with BT Wholesale, operating cash flow decreased by 2% in 2011 as the higher capital expenditure was largely offset by the increased EBITDA.

BUSINESS REVIEW     OUR LINES OF BUSINESS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     35

Introduction

We have a long track record of acting responsibly and supporting the communities to whom we deliver services. Our support for Children in Need telethons dates back to 1980, and that for Comic Relief to 1988. Our environmental management system dates back to 1991. We have long-standing ethical supply chain management processes and policies on equal opportunities, fair pay and anti-bullying.

One way in which businesses strive to do better in terms of acting responsibly is to compete with others for awards. We enter these to help benchmark ourselves against the efforts of other like-minded organisations. In 2011 we were proud that we maintained gold sector status in the Dow Jones Sustainability Index and ‘Platinum Plus’ level in the Business in the Community Corporate Responsibility Index, as well as attaining a place in the FTSE4Good Index. We were in joint first place in the Carbon Disclosure Project’s Leadership Index, won the World Communication Award ‘Green Award’ and won the Edie Award for Environmental Excellence in the ‘Sustainable Transport’ category.

We are focused on a number of strategic priorities and in 2011 we added a new strategic priority – ‘to be a responsible and sustainable business leader’ – to leave no doubt about the importance we place on acting ethically and in the interests of the environment. This reflects an ongoing commitment to integrate the principles of sustainability into the way we do business.

We measure progress towards our corporate responsibility (CR) goals in accordance with the principles of the Connected Reporting Framework sponsored by HRH the Prince of Wales. Our sustainability report provides full details of our progress and can be found online at www.bt.com/betterfuture

We are focusing our activity on three areas to deliver our new strategic priority:

•	building stronger communities through the power of our technology and people
•	reducing carbon emissions and our impact on the environment through our operations and products
•	behaving responsibly towards our customers, people and suppliers.

The importance of CR is emphasised by the existence of a Board Committee dedicated to CR and chaired by the BT plc Group Chairman. We also receive advice from an external leadership panel of independent experts. See Report of the directors – Report of the Committee for Sustainable & Responsible Business on page 68 for more information.

Building stronger communities

We are using our technology and the skills and creativity of our people to make a positive difference to the communities in which we work.

Digital inclusion

The economic benefit of getting everyone online in the UK is estimated at £22 billion (the Economic Case for Digital Inclusion –PricewaterhouseCoopers LLP, October 2009). We help communities enjoy the benefits of technology through our commitment to improve digital inclusion. We aim to get at least 100,000 digitally excluded people online as part of our support for the UK’s Race Online 2012. We have underpinned this with our large investment in the UK’s digital infrastructure and programmes like our ‘Race to Infinity’ – an online vote which resulted in winning communities being prioritised as part of our fibre roll-out programme.

BUSINESS REVIEW     OUR CORPORATE RESPONSIBILITY

In 2007 we announced plans to develop our own onshore wind farms so that we can produce around 25% of our electricity from renewable resources by 2016. This has proved challenging in terms of securing planning permission. However, we have had one site agreed in North East England and others are in train.

Engaging with the UK Government

Through our actions and engagement with the UK Government, we are trying to encourage investment in low-carbon electricity generation. One way to help stimulate the creation of a clear market for renewable and low-carbon energy would be to introduce a colour-coded label on all electricity sold in the UK, enabling customers to easily assess the green credentials of the electricity they buy. Such a system has worked successfully in driving low-carbon purchasing decisions in other markets such as white goods and vehicles.

We believe this type of transparent carbon information, supported by tax incentives, would stimulate demand for green energy, and help the UK to move more quickly to a low-carbon energy market. It would also resolve the problem of ‘double-counting’ of green electricity and remove the confusion surrounding current ‘green tariffs’.

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     37

 

BUSINESS REVIEW     OUR CORPORATE RESPONSIBILITY

Engaging with vendors

In February 2011 we introduced a new procurement standard requiring all suppliers to measure and report their carbon and greenhouse gas emissions and set reduction targets. This is designed to encourage supplier innovation and to speed up development of low-carbon technologies. We ran workshops in partnership with the Carbon Trust this year to help 80 UK SMEs improve their understanding of climate change and develop action plans to reduce their impact.

Engaging with customers

Reports such as SMART2020 show that the ICT sector as a whole has the opportunity to help society reduce global carbon emissions by as much as 15% by 2020. We work with customers to help them to reduce their carbon emissions and energy consumption through the supply of energy-efficient products and solutions. We encourage business customers to replace travel with digital communications and in the UK we announced a smart metering consortium in partnership with Arquiva and Detica. These and other low-carbon opportunities are realised through our customer-facing lines of business and described in BT Global Services on page 23 and BT Retail on page 26.

Behaving responsibly

We strive to behave responsibly towards our customers, suppliers, employees and neighbours.

We expect everyone at BT to meet high ethical standards and we want to do business with suppliers and customers we can trust and who share our values.

We have a governance structure in place to monitor that our ethical policies reflect best practice and are routinely applied.

We are implementing an anti-corruption and bribery programme to build on our ethical culture. We have policies and procedures in place to mitigate the risk of any BT employee, or anyone acting on our behalf, breaching our ethical code of conduct.

Ethical performance measure – an index measured on a five point scale of the success of BT’s employee awareness and training.

Non financial performance

Target 2012

2011

2010

2009

Maintain or improve our 2011 index score

4.16

4.10

New in 2010

Financial performance

Revenue support Customer bids with a sustainability element

£2.1bn

£2.1bn

£1.5 bn

We take our responsibilities as an ISP seriously. Using Cleanfeed – our content filtering solution – BT continues to prevent inadvertent access to images of child sexual abuse as identified by the Internet Watch Foundation. We have shared, without charge, the technical solution with other carriers. To supplement this, in March 2011 BT launched a new range of printed and online safety advice to help parents keep children safe on the internet. At the same time we launched a major campaign to prompt BT broadband customers to consider BT’s free Family Protection parental-control software. The software is offered automatically as part of the install process.

BT is participating in research at the University of Cambridge, Massachusetts Institute of Technology and Tsinghua University, assessing how people react to technological change and how these changes affect the productivity and well-being of individuals and society as a whole.

BT’s approach to privacy and data protection includes both technological solutions and a focus on employee awareness and behaviour. In 2011 we established a number of regional governance committees which oversee our approach and monitor progress.

Disaster response and resilience

Resilience is incorporated into the design of our network, but disasters and emergencies can strike unexpectedly. BT has formal legislative civil contingency responsibilities as a UK Category Two responder. As the largest guardian of Britain’s telecommunications Critical National Infrastructure (CNI) we are responsible for maintaining communications for our customers, including other CPs, as well as national, regional and local government, emergency services and public sector bodies. We also aim to help shape and implement best practice.

We extend this core value of being a responsible business into our community investment focus through engagements with the Disaster Emergency Committee (DEC), the British Red Cross and the American Red Cross and via maintaining a dedicated emergency response team.

Our corporate responsibility risks

We quantify the most significant social, environmental and ethical risks to BT in our corporate responsibility risk register. This is updated twice a year and reviewed annually.

The current corporate responsibility risks which we monitor and report on are:

•	health and safety risks to employees and the public exposed to BT operations
•	breach of integrity or unintended release of private customer data leading to a loss of trust in BT
•	mitigating climate change impacts such as increased costs associated with changing legislation
•	adapting our business to reduce our exposure to the direct impacts of climate change, such as severe weather
•	ensuring that our activities and their outcomes meet legal or ethical standards for a diverse workforce
•	unacceptable supply chain working conditions.

Where appropriate, references are made within the Our risks section on page 39 to the aspects referred to above.

Further information

More detailed information about our CR and sustainability performance is available in our independently verified 2011 sustainability report at www.bt.com/betterfuture

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     39

BUSINESS REVIEW     OUR RISKS

Our risks

BUSINESS REVIEW     OUR RISKS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     41

BUSINESS REVIEW     OUR RISKS

BUSINESS REVIEW     OUR RISKS

BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011     43