BT Group PLC
LSE:BT.A
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
102.3
156.15
|
| Price Target |
|
We'll email you a reminder when the closing price reaches GBX.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
BT Group PLC
You don't have any saved screeners yet
Hello, ladies and gentlemen, and welcome to BT's Q1 2020/'21 trading statement conference call for the first quarter ended 30th of June 2020. My name is Adrian, and I am your coordinator for today. [Operator Instructions] I'd like to advise all party, this conference is being recorded today, and I will hand you over to Mark.
Thank you, Adrian, and welcome, everyone. My name is Mark Lidiard from the BT Investor Relations team. Presenting on today's call is Philip Jansen, Chief Executive; also on the call for Q&A is Simon Lowth, Chief Financial Officer; and members of our Executive Committee. Before we start, I'd like to draw your attention to the usual forward-looking statements on Slide 2 and our latest annual report for examples of the factors that could cause actual results to differ from any forward-looking statements we may make. Both the slide and the annual report can be found on our website. With that, I'll hand you over to Philip.
Thanks, Mark. Good morning, everyone, and thanks for joining this morning's call. As is normal for quarter 1, I'll be making some prepared comments before taking questions. As Mark has said, I've got Simon, our CFO, but also the whole of my exec team on the line. So hopefully, we'll be able to answer any of the questions that you might have. Before getting to the actual results, you have no doubt seen this morning that we announced an important change within my leadership team. Gerry McQuade, who has been in the leadership role for EE and BT for more than 12 years, most recently as CEO of Enterprise, has announced his retirement from BT. Gerry has given great service to the telecoms industry over many years and been a key part of my leadership team since I joined 18 months ago. And I'd like to thank Gerry for the contribution he has made to BT, and I and the BT team wish him all the very best for the future. Replacing Gerry will be Rob Shuter, currently Group President and CEO of MTN; and prior to this, CEO of Vodafone's European Cluster. Rob has a wealth of international telecoms experience and a great track record of driving innovation in both business and consumer markets. His experience makes him ideally suited to take our Enterprise business forward, and we look forward to welcoming Rob to BT later in this financial year. So now moving to Slide 4. Clearly, we are all in the well-known uncharted territory with COVID-19 still looming large over everything we do. But before we cover the quarter 1 highlights and talk about how we plan to navigate the rest of the year, I thought it worth starting by setting a bit of context. First, by saying, yes, of course, the business has been impacted by COVID-19. But BT has performed well given the circumstances and delivered a strong operating performance and now has more visibility looking forward. Second, I wanted to reaffirm our strategy because, a, it hasn't changed; and b, I believe the current circumstances actually underline that we're on the right track. As I said, the underlying strategy remains the same. But you'll see from this slide that we used at the AGM, we have changed some of the terminology and refined our purpose, resulting in a heightened focus on connectivity. I think we can all agree that aspiring to connect for good is pretty timely and relevant, given both COVID-19 and as the number of devices and machines continues to increase, requiring ever more reliable and faster connectivity. In terms of the strategy itself, we want to be well positioned for the next wave of growth that will come post-COVID-19. Building the strongest foundations means making the investments in our leading 5G and FTTP networks that customers will need for decades to come and transforming the company to make it leaner and more competitive. Creating standout customer experiences keeps the customer at the center of everything we do and builds value using the power of those networks. And leading the way to a bright and sustainable future links together social value and investor value and enables us to build our business through smart partnerships, such as with the NHS, to put BT at the center of the future economy. Successful execution of this strategy will position us well for the future. Looking now at quarter 1, let me start on Slide 5 with the progress we've made since the start of the financial year. In a quarter which obviously saw the world largely under lockdown, BT continued to stand by its customers, colleagues and country and deliver reliable and secure connectivity to support the continued functioning of the economy. As I said, in many respects, the business has performed really well during lockdown, and our unique ability to play such a systemically important role was clearly evident. We've also delivered a relatively resilient set of financial results, despite the difficult circumstances. Revenue was negatively impacted by COVID-19, but we were quick to implement a wide range of mitigating actions to reduce costs on top of our existing transformation plans. Whilst these weren't enough to fully offset the decline in revenue, we've essentially operated as normal, had no need to furlough any employees and maintained our significant investments in our leading networks and modernization programs. Although uncertainties remain, the business is well positioned, and we feel better placed to provide an outlook for this financial year. Beyond this year and based on current expectations, we expect to return the business through sustainable adjusted EBITDA growth, driven in part by the recovery from COVID-19. In May, we provided clarity to the market on our FTTP commitments by announcing a new target, plus 20 million premises by the mid- to late 2020s. Although Openreach's build rate was impacted during quarter 1, we exited the quarter at a rate of 31,000 per week. Clive and his team are firmly on track to pass 2 million additional premises this year, having already passed the 3 million milestone early this month. Take-up of FTTP during lockdown was also impacted, but has now accelerated, taking 10,000 orders in a single week in June with demand primarily from BT Consumer. We also made positive progress on a number of the key enablers. First, Ofcom has issued a consultation proposing to extend indexation to Area 3, following our commitment to build to 3.2 million premises in this area. It's included in the final regulation, and that would see CPI indexation on Openreach legacy services across the whole of the U.K. Openreach has also made good progress in its discussions with its CP customers to understand how best to drive take-up of FTTP. We are pleased that the offers we have in the market today are laying the groundwork for larger-scale pricing structures that potentially includes long-term contracts. It is clear to us that there will be good demand for FTTP going forward, particularly given the potential for increased working from home. Our existing offers, such as our expanded fiber-only offer, has been well received with a number of major CPs already intending to sign up. Under this special 12-month offer, shaft connection and rental discounts are available to CPs on FTTP in fiber cities and commercial rural areas. In return, a CP commits to achieve a very high target of FTTP new provides versus total new provides in the footprint. This offer will deliver good take-up on our existing FTTP footprint and get CPs used to provisioning, selling and servicing this new technology. Staying with networks. Early this month, we saw the government revise its guidance on the use of Huawei equipment in our networks. Despite the logistical and cost implications, we believe the proposed 2027 end date provides sufficient scope to make these changes without impacting the resilience of our networks or the pace and scale of deployment. We estimate the additional costs can be absorbed within the GBP 500 million envelope we announced in January. Our ability to deliver value propositions with differentiated experiences continues to resonate with our customers. Looking at Consumer more specifically, we outlined in May last year that we're investing across 6 actions to improve our competitive position. As a result of this investment in the BT brand, we've seen a more stable broadband base, with Consumer growing in spades in quarter 1 for the first time in just over 2 years. We've achieved our 16th successive quarter of improvements in group NPS. And within this, the BT brand NPS was positive this quarter for the first time ever. In addition, complaints to Ofcom about BT broadband fell by 44% year-on-year to an all-time low, remaining below the industry average for 3 consecutive quarters. Our networks also continue to receive industry recognition with EE winning all 7 U.K. RootMetrics awards for the first half of this calendar year, including 6 outright wins. I'm very pleased with how we have operated through the current crisis and the way that we are positively transforming the business. Moving to Slide 6. I now want to highlight some of the ways we've gone even further in our response to the crisis and share how well our networks have coped with the change in demand. Starting with how we are supporting the nation and our communities. We continue to work innovatively with the University Hospitals Birmingham, this time on a remote diagnostic station. Using a range of medical devices together with our converged and 5G networks, we can virtually bring specialists together with the patient, enabling real-time diagnosis. At this time, reducing the need for doctors at patients' bedside and supporting social distancing has obviously got huge benefits. We created a new initiative with the Department for Education, offering free WiFi to more than 10,000 families to ensure disadvantaged children can continue to learn through lockdown and into the autumn term. Our Skills For Tomorrow program has released more than 70 new games, activities and resources to support home-schooling. And we're working with Jobcentre Plus nationally to run webinars to help job seekers. We also have a very clear focus on our costs, given the impact on revenue. Early on in the crisis, we launched a process to partner with our major suppliers to identify opportunities for significant and sustainable cost reductions. Having had discussions with many of these partners, I'm really encouraged by the response we've received and see the potential for significant benefits through further collaboration. Our modernization programs are on track, despite the disruption COVID-19 has caused. We'll provide more of an update on the progress we've made at our first half results in October. However, given COVID-19, we've also taken on a number of mitigating actions to reduce costs, including tighter recruitment controls across the whole of the group, which has led to a reduction in our directly employed workforce of around 2,000 people since the year-end. We've done this while sticking to our commitment of no job losses occurring in the first quarter as a direct result of COVID-19. As you know, we were forced to close all our retail stores at the end of March, meaning around 5,000 of our colleagues couldn't work. Rather than utilize the furlough scheme, we saw this as an opportunity to retrain our colleagues with the added benefit of ensuring peace of mind in these uncertain times. COVID-19 continues to have far-reaching effects on all of our people. We work closely with public health authorities and engage with a broad network of organizations to ensure we can learn and adopt the best practice for personal well-being. We have contributed to the development and refinement of recent BIS guidance for managing the crisis in the workplace. And I'm pleased to say that BT benchmarks very well and is often leading the way in terms of well-being support for our colleagues. At the heart of BT is its people and its networks. And I would really like to take this opportunity to reiterate my thanks and acknowledge the efforts of all BT employees who continue to work tirelessly throughout this critical time to keep our customers connected. Thank you. Moving finally to network performance. As part of the lockdown, we saw significantly less mobility, resulting in more data traffic moving to fixed and WiFi. Combined with a lack of streamed sporting events, we saw a 10% reduction in overall data volumes on the mobile network. Compared to prelockdown, with the large-scale shift of people working from home, we saw significantly higher demand during the normal working day on our fixed network, although it is still less than the peaks we are seeing in evenings. Excluding one-off events such as game downloads, the typical current evening demand is about 20% higher than prelockdown. As BT's networks are dimensioned to support peak evening traffic, we have been more than able to cope with the changes in usage. As shown in the chart on the slide, you can see that despite the significant increase in network usage, the Openreach access network maintained or improved performance, cementing Openreach reputation as a trusted national infrastructure provider. Turning now to Slide 7 and our quarter 1 financial performance in more detail. Revenue fell 7% due primarily to the impact of COVID-19 on BT Sport revenue and slower business activity in our enterprise units, particularly within SME and Wholesale and ongoing legacy product declines. These impacts were only partially offset by higher rental bases of fiber and Ethernet in Openreach. EBITDA was also down 7% from the fall in revenue, the continued investment in customer experience and higher operating costs in Openreach, partly offset by COVID-19 mitigating actions and reduced costs from our restructuring and transformation programs. CapEx was broadly flat. Within this, network investment increased circa 2%, lower than previous quarters as Openreach build rate was limited whilst the U.K. remained under lockdown. The increased network investment was offset by lower customer and non-network infrastructure spend. Normalized free cash flow was an outflow of GBP 49 million in the quarter. The negative quarter 1 cash flow reflects the COVID-19 pressures on EBITDA combined with the usual quarter 1 pressures on working capital due to the timing of public sector collections, CapEx creditors and the payment of management bonus. Year-on-year cash flow is down GBP 372 million driven by COVID-19 impacts on EBITDA and extended customer payment terms as well as some one-off items, which benefit full year -- benefited full year '20 not repeating, including the Cellnex deal. I should add that at this time, we see no need to amend the provision we took in May for COVID-19. Looking at the CFUs now and starting with Consumer on Slide 8. Revenue fell 7% primarily driven by the decline in BT Sport revenue given the limited live sport available to show. In addition, trading was impacted by the closure of our retail stores, although increased digital transactions and improved churn did provide some mitigation. EBITDA fell 15% due to the lower revenue and continued investment in copper-to-superfast upgrades, partially offset by sports rights rebates, lower recruitment and a reduction in sales-related costs. Looking forward, COVID-19 will continue to impact Consumer, mainly through lower roaming and pay-as-you-go, lower sport revenue from pubs and clubs and customers being more price-conscious. There are also continued headwinds from lower-end contract price increases and investment in copper-to-superfast upgrades. Operationally, churn improved quarter-on-quarter, benefiting from low market activity during lockdown. BT Halo, our premium converged plan, continues to make good progress, and it now has over 2 million customers. Consumer also has around 0.5 million customers taking their broadband through FTTP. The service we were able to offer our customers during lockdown was robust, benefiting from the U.K.-based customer service, the conversion of 160 stores to mini call centers and excellent network performance. You'll note from your own experiences over the last few months that the crisis has underlined the need for reliable connectivity. At BT, we've launched propositions like Halo to meet these changes in demand. And with the unique capabilities of our core network, we're able to provide significantly differentiated experiences. So while you may be able to buy cheaper, you can't buy better. Moving to Enterprise on Slide 9. Revenue fell 9%, primarily due to sharply reduced business activity as a result of COVID-19, in particular, in our SME segment, which saw lower core volumes and fewer sales and upgrades across both fixed and mobile. Unlike Consumer, Enterprise didn't benefit from lower churn due to ceases within SME. Our Wholesale business has been similarly affected. The EBITDA decline of 13% was largely driven by the decline in revenue, which partly offset by lower cost from our transformation program. Excluding the impact of the Fleet and Tikit divestments in Enterprise, revenue was down 6% and EBITDA was down 12%. Operationally, the Wholesale order intake in the quarter was impacted by contract delays, leading to a 15% decline on a 12-month rolling basis. By contrast, the Retail order intake was up 14% at GBP 3.4 billion, following a strong fourth quarter. We do expect to see a further impact from the weaker U.K. economy in future quarters as a result of increased business insolvency, slower decision-making by our larger customers and continued lower usage across our SME and wholesale business. However, the mitigating actions we have in place to reduce costs on top of our existing transformation program will help reduce the negative impact. Operationally, to support the U.K.'s 5.8 million small businesses get better positioned for growth, Enterprise has today launched a major new scheme consisting of 10 key initiatives, including BT Halo for business to help boost connectivity, cash flow and confidence over the coming months. Elsewhere, Enterprise has been working with Worcester Bosch and the Worcestershire 5G Consortia (sic) [ Worcestershire 5G Consortium ] to make smart manufacturing a reality through the U.K.'s first live 5G factory installation. By accelerating the digital transformation of manufacturing processes, we can help reboot the sector and drive regeneration across the U.K. Moving to Global on Slide 10. The 9% revenue decline includes the impact of COVID-19, although it did not materially impact EBITDA, which was actually up 1%. Excluding the impact of our divested domestic Spanish business, revenue was down 7% and EBITDA was up 4%. Looking at the revenue decline in more detail, we saw lower noncontracted business and milestone slippages being partly offset by higher conferencing volumes. Further revenue declines were driven by our strategic decisions on lower-margin business and legacy portfolio declines, partly offset by GBP 6 million positive impact from foreign exchange movements. As I mentioned, EBITDA was up as lower revenue and the impact of our divestments was more than offset by lower operating costs, reflecting our ongoing transformation programs, one-off items, COVID-19 mitigation actions and a GBP 3 million positive impact from foreign exchange movements. Following completion of the consultation process with works councils, we've now agreed the sale of our domestic operations in France. The transaction is expected to complete before the end of 2020. Global saw a strong order intake in the quarter of around GBP 800 million, up 57%, driven by a number of renewals, including Bristol-Myers Squibb. Included within this, we saw an 18% increase in security orders. This was largely driven by the shift towards remote working, a necessity during lockdown but part of the new normal, clearly providing further opportunities for BT going forward. Looking forward, we are seeing a reduction in spending and a more cautious approach from our multinational customers, resulting in cancellations and delays to purchasing cycles, which will, of course, negatively impact revenue and EBITDA in the short term. Finally, looking at Openreach on Slide 11. The 1% revenue growth was driven by higher fiber and Ethernet volumes, partly offset by declines in legacy products and price reductions, reflecting Openreach volume-related discounts. The business was impacted in the quarter by lockdown, driving lower churn in the market, which reduced provisioning and upgrade activity, offset by reduced ceases across all products. EBITDA was up 2% compared to last year, with the revenue growth being partially offset by higher operating costs. The increase in operating costs was primarily driven by investment in people to deliver better service, partially offset by ongoing efficiency programs. In the quarter, Openreach mitigated some of the COVID-19 impact by implementing short-term reductions in discretionary spend, overtime payments and the rephasing of recruitment. Openreach did achieve 41 out of Ofcom's 42 quality of service measures on voice and broadband despite the service being heavily impacted by lockdown and the associated restrictions related to social distancing and isolation. MBORC was invoked for much of the quarter. As well as the progress we've made on the enablers, Openreach also announced in June that from June 2021, they're planning to stop selling new legacy copper services in more than 100 locations across the U.K. Instead, the focus will be providing the 1.2 million associated premises with FTTP as they will all have then reached the 75% FTTP build threshold in the specific exchange areas. As we accelerate the rollout of FTTP, we will also see an acceleration of these stop-sell notices. Before concluding, let me just set up our outlook for the year. While we've seen an increase in business activity postlockdown, it's clear that COVID-19 will continue to impact us for some time to come. As a result, we expect revenue to be down between 5% and 6% compared to last year and EBITDA to outturn in the range of GBP 7.2 billion to GBP 7.5 billion. CapEx will increase given our investment in FTTP and 5G and will outturn in the range of GBP 4 billion to GBP 4.3 billion, resulting in normalized free cash flow between GBP 1.2 billion and GBP 1.5 billion. Beyond this year and based on current expectations, we expect to return the business to sustainable adjusted EBITDA growth, driven in part by the recovery from COVID-19. This recovery will be enhanced by the existing drivers of near-term growth in our business, with sales of our converged and growth products and savings from our modernization program starting to offset regulatory headwinds and legacy product declines. So to summarize on Slide 13, we have continued to support our customers, colleagues and country as the world navigates the uncertainty this crisis has presented. Our business has performed well, and we're seizing the opportunities that are emerging as this will enable us to support our customers even more than we already are. We have delivered a relatively resilient set of financial results despite the circumstances and now have the confidence to provide an outlook for this year. While COVID-19 will continue to impact our business, based on current expectations, we expect to return the business to sustainable adjusted EBITDA growth. We've made progress on the last few enablers, specifically on proposed regulation in Area 3 and on contracts with CPs and are on track to pass a further 2 million premises this financial year with FTTP. Our investments in value propositions with a differentiated customer experience are bearing fruit. And with our strong network performance, we're increasingly being seen as a trusted national provider. I continue to be really excited about the long-term prospects for this great company. So thank you again for engaging with us today, and we look forward to answering your questions. We'll now open up to the question-and-answer session, and I'd like to cover as many as possible. So if you wouldn't mind limiting your questions to one each so Simon, myself and the team can answer them. We'll do our best to answer them as succinctly as possible. So operator, please, could we open the lines?
[Operator Instructions] Your first question is from Adam Fox-Rumley of HSBC.
I had a question on Enterprise, please. Your fourth quarter is an important one for that division. But I suppose there's a greater risk of budget constraints as the year progresses in light of the current operating environment. So I guess I'm curious to know what you factored into your guidance there, if that is a risk and how early you'd expect to be able to see it coming through in the division.
Yes, Adam, good question. I'll get Gerry to chip in on this, and from sort of my perspective, I think we've been -- obviously, over the last quarter, analyzing and looking at very carefully what's happening across the whole business. And specifically, obviously Gerry doing that with his team in Enterprise. I guess you can sense from what we said, we've got some bits that are very encouraging. So you'll have noticed that some of the order book in Retail are public sector and certain areas where we have to deliver things on secure connectivity for distributors to work and all those kind of -- that's goodness. The SME side is worrying for all the obvious reasons and obviously with the furlough scheme and other support functions sort of activities coming out over the next few months, that's a bit of a worry for us. But all that's been factored in. The other thing that you sort of refer to in your question is right, there are inevitably budget constraints and milestone slippages from our customers. So -- but not everywhere. So overall, there's pressure, of course. So we have customers in different sectors, particularly leisure and hospitality, who are obviously struggling for the reasons that are clear to everybody, but there are also places where people are thinking of how do I make the most of this. So let me ask Gerry to give his perspective on that. But it -- the short answer is in giving our guidance for revenue and EBITDA, we've taken into account a set of assumptions on what will happen over the future. And you expect us to do that. Gerry?
Yes, let me try and give you a little bit of flavor of what's happened and how it's moving and therefore, how we're extrapolating that. So certainly, what we saw was in trading, we saw a massive downshift to about 30% of normal trading for the first couple of months. That started to come back quite significantly. We're probably running about 85% of the activity we were. And we're certainly seeing that bubbling on. Q1, in terms of the order book, was much diminished as people were either just not ready to make decisions or wanted to stall. But the Q2 order book is actually fine, apart from that little bit in Wholesale and a little bit in SME. Actually, the order book came back to where we budgeted, and we think we're getting to see some traction there. So the question is about how we will look at that going forward. We definitely don't want to assume that it's going to be an immediate sort of kick back to normality. So what we've done is over the quarters, we've assumed that, that trading element comes back over time. For each of the segments, we have taken a view on insolvency, which we haven't seen come through yet because of the government grants. So we haven't really seen anything significant in solvency, but we have seen increase in bad debt. So again, as Philip said, what we've done there is we'll try to, for each group, take assumptions on what we think insolvency could be, run that through in the numbers. And also then the last thing I'd say is that not every sector, as Philip said, is the same. We probably have about 20% of our base, whether that's SME or corporate, which are in high-risk sectors at the moment. And so again, we'd have taken assumptions on that. Public sector is very buoyant. And you'll see that in some of the volume metrics, which you'll see in the numbers as it's coming through more on public sector than private. So yes, we are trying to take a view that actually, we see, over the year, an assumption of businesses coming back. And we're already seeing the trading environment pick up quite significantly. The area which I think is probably the area that we are focusing most on is -- trading is not the biggest issue, it's usage going forward. So you see that -- you'll see this in other people's numbers. A bundle on mobile, roaming on mobile, usage on [ voice ]. The speed in which people go back to office is actually going to be a determining factor. So that's the last thing that we're looking at in terms of just how does that play through going forward. It's not going to happen immediately, but how it will happen over the next year and then beyond.
Thanks, Gerry. Thanks, Adam. Thanks for your question.
The next question is from Jerry Dellis of Jefferies.
I had a question about guidance and why you structured the outlook statement the way you did. The EBITDA and free cash flow ranges that you're suggesting are quite wide and might suggest it's rather low visibility. But your revenue range is quite tight. So the question is really why you structured it the way you did and how this is sort of intended to express confidence in landing on a particular outcome given the width of the range.
Yes, Jerry, let me give you a quick perspective, then I'll let Simon give his thoughts. I mean I guess what we're saying here is 3 months ago, there was so much uncertainty, very, very difficult to make a set of assumptions that you could lay down with a high degree of certainty. I think the world has changed a lot in those 3 months, and therefore, we've learned a lot, and we can see much more visibility of how things might play out in the future. However, Jerry, there's still a lot of uncertainty. And therefore, a range of GBP 300 million on EBITDA, I think, is more than appropriate. And what I'd say to you is when I look at it, I think with everything that I know, looking at all the different possibilities, I have to say, I think we feel very strongly we will land somewhere in that zone. But there's a lot to play for this, 9 months of a 12-month period, one of the most volatile times we've seen for a generation. So trying to tighten that range, I think, is a fool's errand. So that's sort of the principle we did on that. But let me let Simon give his perspective on the revenue versus the EBITDA. And obviously, the cash flow is a function of a flow-through on the CapEx. Simon, do you want to add your perspective? Simon, you may have gone on to mute, possibly.
Yes. Thanks, Jerry. Yes, so firstly, on the revenue range, I mean, we round it to a single decimal place. If you take the bands expressed by 5 to 6, it creates a somewhat larger range in absolute millions of pounds at the revenue line than at the EBITDA line. And the -- there are a set of considerations in creating a GBP 300 million range at the EBITDA and cash flow for the year, and it essentially reflects -- and it is a wider range than we normally provide, and it is for 9 months, but I think that is simply a manifestation of the range of uncertainty for the year ahead. But related to COVID, both physical -- the shape and nature of the easing of physical restrictions and what that does to consumer and enterprise behavior; the shape, pace, nature of the economic recovery; government policy in terms of the speed and nature with which business support is removed; and essentially, we built a range of outcomes into our GBP 300 million guidance. We've modeled what would happen to the business in those different scenarios, and that underpins the range. As Philip said, we're confident we will deliver within that. And of course, we've also got good progress on our cost-mitigation programs, which help us as well to mitigate some of the more extreme scenarios. Thanks anyway.
Jerry, any comeback on that? Are you happy to answer or not?
I mean typically, in telecoms, I think we find that companies are more comfortable guiding on perhaps EBITDA and cash flow than on revenues, precisely because of the cost mitigation that Simon just suggested. 100, maybe 100 percentage-basis-point-plus revenue range is GBP 200 million to GBP 250 million. The range in today's EBITDA is GBP 300 million. I don't quite understand why it's that way around. I would expect EBITDA range to be tighter.
But to be clear, the range on revenue, if you take rounding, is actually 200 basis points. It's about twice what you've said.
Sorry, Jerry, I think -- look, Jerry, I think it's -- we think it's slightly different to what you said. But I think hopefully -- look, we may have a slightly different perspective, but the -- we've given the reasons why we've got the range of EBITDA. And actually just to think that there is a -- there's still a lot to play for and there's still quite a bit of uncertainty that I think I would look at it another way. It's reassuring that the executive team of BT, under any imaginable scenario, and there are a few that we haven't thought of, we are telling you we'll be in the GBP 7.2 billion to GBP 7.5 billion range and with a high degree of confidence. And of course, within that, there are some things that will change, but we've done a load of scenario planning. And even if things go against us in certain ways, we've got the ability, we think, to mitigate that to make sure that we land somewhere in that range. Thanks, Jerry.
Next question is from James Ratzer of New Street Research.
I'd be particularly interested in just understanding the impact you've seen this quarter on the sports business. And I'm particularly trying to quantify what impact that had on Consumer revenues. I mean it strikes me, sports is quite a material part of that business, certainly at the top line. Can you help give us a steer on just how much cancellation there was of that sports revenue during the quarter and now, how much of that you are seeing coming back? You've said you're seeing obviously some weakness still from pubs and clubs, presumably where they're not open. But are you now seeing all the consumers now re-signing back up to sports?
Yes, why don't -- I mean obviously, as you say, we have been impacted by what's happened over the last few months. Things are getting back to normal in one regard, but not in others. I'll let Marc Allera -- Marc, do you want to give your thoughts on this?
Yes. Thanks, Philip. It's -- obviously, it's been a significant impact for us this quarter, the sports business on, as you've rightly said there, the Consumer side, where we've given credits to customers. We have seen a small decline in the sports base as well and looking at other broadcasters with sports rights as well as, the sort of drop in the customer bases look relatively consistent. So not significant, but a small drop in the subscriber base. The pubs and clubs impact is significant. We've said before, sort of in the GBP 8 million to GBP 10 million per month range is a good estimate of the impact of that for us. And it's very unlikely I think we'll see those kind of revenues coming through. I mean we've given a discount to our pubs and clubs customers of around 50% for those that are broadcasting the events until the end of the year, and we'll have to see what the health of that hospitality business is going into next year. So that headwind is certainly going to continue. The positive news, I guess, for us is obviously the sports' back on. The credits now aren't being given out the way they were in the quarter we've just been through. And we do have a very packed August, which is very different for us in -- that's normally a month with no sport. And with the European football we have, there's gains on pretty much every single day right through the month of August and the season starting pretty quickly after that. So that's encouraging for us, and we've seen some level of demand from customers on that as well.
Great. Thanks, Marc.
Would it be fair then, I mean, given the scale of the impact, I mean, if it weren't for sports, would Consumer top line trends actually have got better in Q1 versus Q4?
Well...
If we didn't have all of those impacts, then we certainly would have a better quarter, but the reality is we did. We have got some rebates in there as well in terms of the agreements we've reached, which are confidential. I won't be able to break those out. But those results have been improved by some rebates and rights holders as well.
Thanks, James. Thanks for your question.
Next question is from Akhil Dattani of JPMorgan.
I just had a question on the announcement yesterday that you made on the extension of your fiber plans, where you've committed to build an extra 3 million homes in the hardest-to-reach areas. Philip, you've mentioned in the past the kind of broad view that you think CapEx midterm could rise to sort of GBP 4.5 billion to GBP 4.6 billion. So I just wondered whether that is captured within that sort of broad number or whether we should think about this as potentially being incremental. And I guess you've talked today and reaffirmed the point that you think EBITDAs trough this year and grows from here. Do you think the same place to cash flow? Do you think cash flow is also trough this year and can grow? Or do you think the fact that CapEx will still tweak up from here means that, that's not the case?
Okay. I'll do the FTTP and the CapEx question, and I'll ask Simon to talk on cash flow. Maybe I'll get to Clive to just give his perspective on some of the FTTP while we're on it. So I mean firstly, simple answer is no extra CapEx from that announcement of 3.2 million. That's part of the 20 million households. But it's quite big news. What I mean by that is Ofcom extending the enablers to the whole of the country such that we get CPI indexation across the whole of the country is very significant. And Clive has done a -- and his team done a fantastic job on getting the costing to the right place such that we can feel comfortable that we will deliver that 20 million homes, and within that, that 3.2 million in the Area 3, the rural areas, without changing the CapEx that we've discussed before. So there's no extra CapEx whatsoever but I think it's further examples of this FTTP plan is beginning to get real traction. And obviously, we want the regulatory enablers to be confirmed in April 2021 along these lines. It's looking very encouraging, as you can see from the consultation documents that are coming out and the sort of noises and the statements from Ofcom. So it's not done until it's done. The assumptions are that we will build this 20 million very, very fast, 3.2 million are in there, in exactly the way we described and the outline of the capital expenditure we discussed before. And we just need the regulator and the government to deliver on their part of it, which I have to say, I've got every confidence they will, based on what I understand today. And the key thing that still -- yet to be clear on is fair bet obviously. But I think we're heading the right direction. So Simon, do you want to just do the other question? Then, Clive, maybe make a comment on the 3.2 million and how you going to do it?
Yes, certainly. So in terms of the drivers into next year, on the EBITDA line, we -- I mean, underlying will continue to have the pressure of the reductions in legacy voice, so that's been a long-term trend for us. But on -- moving to the sort of positive. Clearly, as we move into FY '22, we can anticipate recovery from COVID-19. The pace of that recovery is one that we'll have to sort of monitor carefully as we go through this year. But certainly, some recovery, potential catch-up in terms of the economic recovery.We've got reduced regulatory headwinds that have buffeted us for the last several years, and we've made pretty clear in the past, as we move into FY '22, most of those are behind us. And in indeed, we ceased to have the step-up that we've been facing every year in cumulative -- business rates. And then we can anticipate forward progress from our strategic product portfolio, our convergence product portfolio on the back of the significant investments we're making in maintaining network leadership, both fixed and mobile. And of course, our second phase of our transformation program starts to deliver and the cost action we're taking this year will maintain a low cost base as we travel into next year. So those are the EBITDA dynamics which underpins our confidence in growth into next year and for the sustainable growth from here. In terms of the cash flow, I would see CapEx clearly start to ramp up as we move from FY '21 into FY '22 and beyond. And it will take 2, 3 years to get to peak CapEx just given the pace of build and the pace of provisioning. But certainly, if we're on track and moving a pace with our FTTP program, we can anticipate that much of the upside as we grow our EBITDA will get reinvested in this accelerated investment in our FTTP footprint. But over to you, Clive.
Thanks, Simon. Look, Akhil, we're very excited actually about the commercial rural build for 3.2 million. Quietly in the background, we've been developing new build techniques for rural environments. We've done that over 3 quarters now. So we are very confident on the build costs in the 3.2 million. That is not a high-risk factor in my mind. I would also say, in addition to the point that Philip made about CPI applying, also the 75% rule will be applied by Ofcom. So when we get to 75% FTTP in those rural exchanges, we will be permitted to stop sell on copper, and that will drive adoption. And I also observed, even at this early stage, that take-up in the commercial rural FTTP footprint is pretty strong. And I guess it's -- it is explainable in those areas that tend to have longer copper lines and they deliver slower speeds, either over VDSL or ADSL. So there's a natural improved take-up in those commercial rural areas for the new FTTP service as compared with urban and suburban areas. So all in all, very excited by it. And we do confirm, this 3.2 million is part of the 20 million. This is not additional to, it is a part of the 20 million plan. I hope that answers your question.
Akhil, okay with that?
Yes, that's perfect.
The next question is from Maurice Patrick of Barclays.
Yes, just a kind of a follow-on regulatory question, if I may. I mean it seems the Ofcom relationship is improving, evidenced by the press releases from both of you yesterday on the rural fiber. You talked about that on the call so far. At the recent regulatory session you held, you did indicate there were quite a few areas you were still working on that were holding back things like a long-term volume discount offer. I know you talked about the special offers inside Openreach to drive CPs. I just wonder how far away we are from getting that long-term deal announced with associated volume discounts to get the CPs on board on a nationwide basis.
Yes, Maurice, it's a good question. I think as you can probably sense from what we're saying, that there's a lot of momentum building on every front here on FTTP. So it's the build 31,000 a week, 2 million this year. If the connection is 10,000 peak in a week in June, that's a good sign. All the regulatory noise and commentary is, I think, very encouraging to investment for the industry and obviously for BT and Openreach. So -- and actually, the response from our CPs is very encouraging. So I think we've got a -- we are pleased with the offers that are out there now are going to drive take-up. I think the truth of it is it is very challenging to sign long-term contracts that links basically significant volume commitments. I mean that is proving more challenging than we would like. But we're working really, really, really carefully with our CPs to try and sort of thread the needle, as it were. So what's the right way of approaching that, that works for everybody and sits comfortably with competition law?So I guess there isn't a -- there's no bad news. We just cut -- we are in a strong position with our CPs and I think we're making a lot of good progress, but we haven't nailed the volume part of that, which is very challenging. So let me ask Cathryn to give her perspective on the regulatory agenda and the framework that's developing and how she feels about it. Cathryn?
Thanks, Philip. Morris, yes, I mean, as you say, I mean, things are going in the right direction, as Philip said, there's a lot of momentum. And I think the great thing is that I think BT and Ofcom are very much on the same page in terms of what we're trying to achieve. So that's always a good start. In terms of long-term contracts, as Philip has said, I mean the difficulty isn't so much the length of the contract as such, it's the extent to which a long-term contract then gives us certainty and predictability over volumes. Because obviously, if you want that certainty and predictability, then what you're trying to do is to try to tie those volumes in. I have to say that -- I mean, we have looked at these kinds of things before. I mean these are not new issues to us. And if you remember the Wholesale offer that Openreach puts into the market, I think it was about a year ago, 18 months ago now, we had to deal with the same kind of issues there. So it is possible to get through them, but it isn't trivial, and as Philip said, ongoing discussions there. There are other things, and I think you alluded to these, Maurice, that we're still obviously talking to Ofcom about. The consultation that we saw from the -- most recently on Area 3 is going in the right direction, as was the one earlier last -- earlier this year. But there is a particular ongoing conversation with them about the fair bets because obviously the long-term contracts part of things is about how we can operate commercially in the market, how we can respond to competition and how we can share risk with CPs. But obviously, if competition isn't the biting constraint, then regulation will kick in. And we are still looking for Ofcom to provide us with a little bit more certainty about how that will apply. And in particular, to tell us a little bit more about how they see that principle of keeping upside in play in order to compensate us for taking the downside risk associated with the investment, how they see that principal panning out in practice. But it's a good conversation, and it's ongoing.
Cathryn, thanks. And Maurice, just to pick up on that. This more certainty on fair bet is probably the last remaining that we would need to just get a bit more further progress on because the nature of the investment by definition is long term. And therefore, we want to make sure there's a long-term view of this financial profile for all this heavy investment, the GBP 12 billion of CapEx going into a 20-million footprint. We need to -- given the risk profile, we need to make sure that we will, for our shareholders, make a fair return. So again, as Cathryn said, really constructive conversations, just trying to find the right way of articulating that and landing in the right zone. So I'm very optimistic about that as well, but it's not done until it's done. Is that all right, Maurice?
Perfect.
Next question is from Carl Murdock-Smith of Berenberg.
Firstly, my question is not for him, but Gerry, I just want to say thank you for being wonderful over the years, and I hope you enjoy your post-BT time. My question is probably for Clive and Marc. I just want to reconcile the Consumer slide with the Openreach KPIs. On the Consumer slide, you say that Consumer has 0.5 million FTTP customers. And in the KPIs, you have 554,000 Openreach FTTP customers. So that implies that Consumer is around 90% of Openreach's FTTP customers today. Firstly, just is that correct? And then kind of secondly, what do you think is driving the difference between Openreach's internal and external CP customers and their approach to FTTP? And you've got various special offers existing today to try and drive uptake of FTTP, but are the external CPs basically sitting on their hands until you have this kind of price volume deal in place?
Carl, good. Firstly, good spot. I'll ask Clive to go first and talk about general uptake and external CPs, other CPs, not being the reason, and how you feel about that, Clive, and the stop-sell stuff, you can do all that. And then we'll go to Marc, and he give his perspective on how he's selling FTTP and what he thinks the opportunity is.
Okay. Carl, so good spot on the numbers, and you've read them correctly. So the numbers are led by Consumer and have been for a number of years. So you will remember that really FTTP started in the BDUK contract some years ago in small numbers. BT Consumer built their interfaces to consume those products, developed their processes to consume their products. So they've been in a lead position because they're -- all of their IT and their processes were well developed. I think things are moving apace, though. As Philip has indicated, we are absolutely working on a long-term deal that will attract all of the CPs, particularly the bigger CPs onto FTTP. Those discussions were put on pause during the pandemic. But the fact is today, Carl, that our largest CPs have mostly finished their IT systems integration with Openreach, and they've been preparing, improving their IP voice switches. So they've done all the groundwork. So what we've announced this week is what I would term an interim offer on FTTP in order to support scale launch by a range of CPs and ensure that they benefit -- everybody benefits from discounted pricing right across the FTTP estate, so including all of the build up to 31st of March 2021, so basically, the whole 4.5 million footprint. And the big 3 CPs have indicated that they will be taking up the offer. So this is very positive for the future of FTTP. And so my expectation is that we will continue to see strong volumes on FTTP. And increasingly, it will be from a community of CPs. Although I am extremely grateful to the volumes that are coming from Consumer. Marc, please?
Thank you, Clive. Yes, I mean, for us, we're -- on all brands and all technologies, network technologies we have, I think we've got a proud history of going first, trailblazing, leading the way, whether it's with 4G and 5G and recently here on full fiber. And we believe that these new network technologies do improve customers' experiences. They are also really important platforms for how we think about the future in terms of convergence as well. So for us, full fiber is not just about fiber. It's about how we can think about the future of TV, how we think about the future of mobile convergence, how we think about smart home and what it can do. So it's a very, very important network technology that will enable lots more services coming into the home. So we're very excited about it. That's why we've been pushing it hard. We're delighted that the rollout is continuing at a pace. And it is a real opportunity for us to use it to drive market share in areas where we have low market share and maintain the customer base we have in the areas we already have them. So it's a top priority for us on the broadband side, definitely.
Great. Thanks, Marc. And Carl, I just wanted to -- I think -- I'm sure you just worked it out. But now as we've all been saying, we're getting real momentum, and the build is beginning to really pick up and the connections are going to pick up. I think all of CPs are very positive about this new technology. And hopefully, you're going to see more momentum building as time goes by in the way that Clive described. Carl, are you okay with that?
That's great.
Next question is from Nick Lyall of SocGen.
Philip, just a quick one on the EBITDA guidance, please. I mean the guidance itself suggests no improvement in the EBITDA trend for the next 3 quarters, so it's still about minus 7%. If Consumer's getting better, Enterprise is already at minus 14%, what's getting worse here to counterbalance it? Could you give us a bit of an idea on the broad assumptions, please?
Yes, nick, fair question. Simon, do you want to just give your view on that?
Yes, certainly. I mean I think in the -- if we start with the lower end of the guidance, I mean that is essentially assuming a world in which we have a very weak economic picture remaining through the rest of this year and combined with withdrawal of business support for businesses and then punctuated by either localized or indeed some repeated broad lockdown. And in that case, we could see continued impacts on usage. We could see -- including sort of roaming, but also Enterprise, of course, usage, we could see the sales and trading performance remaining at their subdued levels. We could also start to see an increase in levels of ceases and essentially business insolvency in the Enterprise space. So that's an amplification certainly of what we've seen and could be an amplification of what we've seen in the first quarter, where we've been using deferred payment plans to support businesses. But clearly, as you moved into the scenario I painted, we could see a deterioration there. And we can also see -- could also see in that scenario delayed milestones, delayed volumes, delayed project take-up in our larger Enterprise customers. So that would be a continuation, but we wouldn't be getting the offset that we had of high levels of activity as people adjusted in the first quarter to the sort of home-working environment. So the upsides that we've experienced from setting up the home would not be there, but an amplification of some of the economic impacts. So that is at the lower end of the guidance range. Clearly, at the upper end, we're seeing the inverse of that. We're seeing a scenario of accelerating economic recovery and easing of physical restrictions. Hope that gives you a sense of what's in the thinking. But I guess the main deterioration would likely lie in and around the Enterprise sector. That's probably the main area where we could see getting worse.
Is that all right, Nick?
Yes.
The next question is from Polo Tang of UBS.
Just have one question. Can you maybe just talk through the competitive environment in terms of both Consumer and Enterprise? And has there been much change in terms of competitive dynamics as you've moved into June, July compared with earlier in the year? And also specifically, in terms of Consumer, Virgin Media is not putting through -- or appears to be not putting through any price rises for existing customers later this year. So does this make things more challenging from a competitor perspective in terms of Consumer?
Thanks, Polo. Straight to Marc and Gerry, in that order, please.
Yes. I mean there's a lot going on in the competitive environment right now. We've got significant channel mix shifts going on that -- we're seeing some rebalancing into retail, away from digital, and the digital channel's certainly been a much more price-led channel and as retail starts returning, we're trading now at around 60% of the levels that we were through our retail stores during the pre-COVID period and the conversion rates are actually higher. So that sort of shows me that customers are coming to stores with more intent to purchase than they did before. So that's certainly helping. I think the competitive environment, we're not seeing any major shifts in approaches from our competitors from where they were pre-COVID. It remains a very competitive environment. We haven't seen any, I would say, significant change in strategy from all of the brands, multiple brands across fixed and mobile that we compete with. As I say, I think the channel mix shift in the last few months has probably been the biggest change in how we've seen pricing and strategies deployed by competitors, particularly those that either haven't had stores or U.K.-based operations, and they've had to certainly adapt their selling practices and the types of prices they've had to put in the marketplace. So for us, we're building back in a steady way. The sales momentum every week gets more encouraging. I think from a momentum point of view, the channels that were out of action are now certainly back in action. We paused a lot of our marketing activity, and our sales teams were -- effectively stopped selling to help the service teams out in a very busy period. So the sales teams are now back selling again. But it remains a very volatile environment and even on the devices side. Obviously, we saw the announcement the other day from Apple on delays to handset launches, even if it's a few weeks, these have big impacts in terms of how we think about the trading period, Christmas period, Black Friday and so on and so forth. So it remains very competitive. However, the momentum over the last few weeks on the trading side has been encouraging and looks to continue for us.
Gerry?
Marc, thanks for that. Yes, thanks, Marc. It's a lot of similar dynamics. So I think in terms of the competitive dynamic, I think, I'd agree with Marc. Actually, in the Retail side, it's -- I don't think we're seeing a significant change in behavior. What we saw through the first few months of COVID was the markets are stalled completely. So you -- we weren't selling, but also we weren't seeing competitor churn. What we did see, especially around SME, but also in some of the larger bases, as people furloughed staff, they took their mobile phone contract off the market. So we actually saw -- it wasn't competitive churn. We definitely saw some behavioral activity around mainly SME. So when we -- so we do have a slightly less -- a bigger impact on churn over that period than we saw in terms of just the competitor decline. So it's like the offset there was negative to us. As it's come back into trading, the dynamic in the Retail side has been relatively similar to what it's been before. We're definitely seeing, in mobile, a move towards SIM-only more. People -- and they're looking for a bit more data. I don't think we're seeing anything materially different there than what we've seen before. Competitively, I'd say, Wholesale is the one place where we're seeing a bit of a shift. And it's actually -- it's not actually in the long tail of partners that we use. It's -- so there's a little bit, and you'll see it in the broadband numbers in the Wholesale, there's a bit of a vying for buying the base. So there's some quite aggressive pricing going on to buy bits of basic, which we're a little bit worried about long term because we would -- we may have to respond to that if we have to. But there's a little bit of a dynamic there in both broadband and the Ethernet pricing, which is the only place we're really seeing any major shift. But we're watching that pretty closely about how we deal with it. And as Marc said, there's a lot of shift in terms of the mode, but retail being closed, going to digital, go third-party channels, but I think it will be coming back to a more normal spread of that from where we were pre-COVID.
Thanks, Marc. Thanks, Gerry. Okay, Polo?
Well, can you just clarify broadband pricing in terms of Consumer, in terms of what you're -- I mean is it bottoming out after end-of-contract notification and improving? Or how do you see that? If you could just clarify that in terms of what you're seeing at the moment.
Yes, I mean I gather Marc can do that, but that was just on point, that. But I think it's a really important question. I mean in terms of how the market behaves, given the obvious importance of connectivity and the heightened awareness of people about that, we're very considered in how we approached the marketplace and priced it. So I think -- I'll let Marc give you a perspective right now, but we're hoping that the value of our core services is recognized by peer. You can see our performance. We're hoping that anybody who's connecting on the Openreach platform for our CPs gets the benefit of a brilliant platform, the best in the land. And equally, if you're a BT Retail customer, the combination of what we offer is you can cheaper, but you can't buy better, it's really, really true. So we will be -- that's the path Marc is taking his business down. But obviously, we can't control what our competitors do, but I think we're hoping that they also see that there's great value in what we're providing to our overall customers. So hopefully, the market pricing will be reasonable because we've been very clear on our position that we're not going to see market share in any circumstances. So hopefully, our competitors understand that. So Marc, any comment to that?
Not much more to add, Philip. Really, I think it's hard to predict obviously how competitors are going to behave. The pricing seems to have stabilized certainly. We're hopeful that people won't do any uncommercial things just to chase some net adds that may have been lost over the last few months, and we're certainly priced more competitively, I would say, and we've certainly seen momentum improvement as a result. But it's not at the lower end because we're wrapping that with a fantastic level of service support from Retail to home tech to U.K.-based service, which is unrivaled in this country and fantastic converged services through mobile and TV as well. So yes, we're confident in our pricing. And it's very hard to predict what everyone else is going to do, but it does look like it's -- the market's stabilized in terms of pricing activity so far.
Yes. I'm sorry, last point. It's -- and we are encouraged by the operating performance that we put in, and you could see it in our metrics. The NPS number, although it will never be a straight line, there'll be ups and downs, there will be bumps, we have had 16 quarters of consecutive NPS growth. Look at -- the line is heading very firmly up. And that's a result of all the propositions that all our businesses are putting in place, Global included, by the way, Global, Enterprise, Openreach and BT. But in the Consumer part, which is what you're referring to, people are seeing the value in what we offer, and we're hoping that our pricing strategy reflects the value we provide. And we're hopeful that the whole market will see that. So yes. All right, Polo?
Yes, great.
Next question is from John Karidis of Numis Securities.
I just wanted to go back, please, to the Openreach price volume framework. Two questions. Number one, is there a chance that you will not sign such a framework? And then secondly, when it comes to nailing the volume part, can you sort of give us a little bit more color there? Is it the case that your big CPs simply want lower prices, but they don't want to commit to volumes? Or is it more Ofcom that doesn't want CPs to commit to volumes in order to allow alt nets a chance of survival?
Yes. John, I'll let --again, let's -- I'll let Cathryn -- I mean your last point, and it's really important, it's who's doing what, I mean, I'll just say one thing. Our large CPs are brilliant partners to Openreach. And Clive has already said that. We have millions and millions of customers connected through a whole range of CPs, right? So the collaboration and partnership with -- particularly the larger ones, and there's so half a dozen and maybe 3 or 4 that are particularly big is really, really strong. I think they would love to commit large amounts of volume if the pricing and the proposition was appropriate. The competition law doesn't really allow you to link the volume and the price in the way that we'd like. So I mean, Cathryn, do you want to add anything to that?
Yes. I can comment a bit on that. Yes. It's a bit like a sort of a 3-legged stool really. I mean what we need to do is find commercial deals that work for Openreach and BT, as Openreach's parent, that work for CP customers, but that also come within -- fall within the guidelines and the practices that we need to fall within to comply with competition laws. And as you would imagine, that is an iterative process. You don't just land in the middle of those 3 sort of circles instantly. You go around, then you try and -- you set -- get something that works for 2 and then you check in with the third one and you get something that works for another 2 and you check in with the third one. And that's really very much the process that we're going through. The issue is -- I mean, there are really two, which relates to the point that Philip was drawing out really. One is how much of the addressable market we can tie into Openreach in terms of demand. And of course, the competition authority concern is that we need to leave sufficient addressable market for Openreach's competitors to have a fair chance of sort of getting customers and also getting up to a reasonable scale. And then, of course, the other thing is, to the extent that we are offering discounted prices for those volumes. The question really is how low is, if you like, the marginal price that is implicit within those contracts? And is that a price that Openreach's competitors have a fair chance of meeting and possibly beating? And those things require some analysis. They require some detailed discussions, and they would require us to keep going around all those 3 elements of the 3-legged stool. Something that works for us, something that works for CPs and something that is okay in terms of competition board concerns, and that's the process that we're going through.
Right. So can I ask, is there a chance that you will not sign these contracts as a consequence?
I mean, John, there's -- in the whole program of fiber, there are risks, okay? And you'll understand them. Of course, it's possible that, that could happen. But we're working very hard to make sure we can sign up the contracts with our CPs in the way that we'd like.
Philip, can I add a couple of points, please?
Of course, you can.
Yes. Look, John, some things are changing, and they are changing in our favor. During the course of the COVID lockdown, I think more and more customers, aimed customers or they are CP retailers, have learned that great broadband is highly desirable and more than desirable, it's necessary in a world where we increasingly work from home, educate from home. So there's a natural rise, I think, in the end-customer pool for fantastic broadband. So that's one point. The second point is there are a number of mechanisms that will entice CPs to put customers onto FTTP. We shouldn't understate the importance of the forthcoming regulation, which indicates in its draft form that when we reach 75% coverage in an exchange area, there are 5,500 exchanges in the U.K., then Openreach can stop selling copper. And all transactions by CPs with Openreach can only be for the ordering of full fiber. So there are a set of other mechanisms in addition to the big volume deal, which I personally am still very confident about, that will create momentum on adoption of our full-fiber platform. So this isn't just about a volume deal. There are more dimensions to it that weighs more in our favor.
John, that point -- yes, that point about the 75% stop-sell copper is a crucial -- switchover assistance is crucial. Great point, man.
Yes. And John, we've already announced 1.2 million of footprint fall into that category from June. Every quarter, we'll announce another tranche.
I'm sorry to go on. But that basically means that even if you don't sign those contracts, you are unlikely to reduce your 20 million target as a consequence because of all the other points that Clive brought up just now?
Correct.
Your next question is from Robert Grindle of Deutsche Bank.
One question and one request actually. On the question, it's for Gerry, good luck to you. But please, could you say a few words about the 15% down in the Wholesale order book in the quarter? And the request is, I guess, to Simon. I know you don't produce pension information in Q1 and Q3, but June '20 is an important date for the actuarial deficit. A great teach-in a few weeks ago, but I really think it would be useful to have the June assets for the pension.
Okay. So we will -- let's do Gerry on the 15% down on the Wholesale question. And you give Simon a bit of time to reflect on your request.
All right. The Wholesale down is not that complicated. Actually, if you think about where -- how Wholesale does its business, most of its channel is actually SMEs. And through most of the quarter, most of the salespeople in those SMEs were on furlough. So essentially, the whole marketplace in Wholesale was, with a few exceptions, especially around the MNOs and so on. But -- and even the MNOs were focused on other things in that period. So there was really no opportunity. We did see slippage. But actually, the biggest item in there is actually simply there was no channel to do business with.
Thank you. And Robert, yes, on the pension, I understand the request. I'm afraid we're going to have to ask you to wait through our half year. And the development of the assets is -- requires work, requires auditing not least to roll forward some of the illiquid asset portfolio, which you'll have seen in our annual report and accounts, we have to take some different approaches to. So we will stick to our half yearly view on the pension, and you'll see it at the half year. Do bear in mind that the accounting pension deficit is only one indicator of the actuarial deficit. And I'm sure if you attended our July 7 day, all of that will have been very clear. And so assets, half 1.
Next question is from Charlotte Perfect of Arete Research.
I was just wondering, could we have an update on the GBP 5 billion FTTP public funding for the last 20%, please? Have they set out a process behind that? And what does that -- what's the construct of that? What does that look like?
Yes. Clive, why don't you give the good news on that?
Okay. So the news, Philip, on that is that right now, there isn't a finalized framework established by DCMS, but we are in very close discussion with DCMS about what framework we think would be appropriate. So we've made our views on that very, very clear. And we are actually in almost-daily discussions with them on that. And we would hope to play a significant role in the delivery of rural full fiber broadband. You've already seen the 3.2 million commercial rural announcement. We just set our techniques now for the deployment of rural fiber that I think others will struggle to match. I'm very confident about our ability to build and very keen to play a part in the government program and to steer how that program is shaped in order that the country gets the most broadband for the least spend at the highest rate of deployment.
Yes, okay. And Charlotte, we just -- I was going out this week and making sure that the lots are made. They are consulting. We're working really closely, but we need to make sure that, that GBP 5 billion gets spent wisely and quickly and gets the build done as properly as possible in the way that Clive's outlined. And doing it in tiny, tiny lots is not going to make sense. So that's one example where we're involved in the conversation in a positive way. And Clive's leading that and his team.
Next question is from Sam McHugh of Exane.
I just wanted to ask about Enterprise, which is a bit of an Achilles' heel for the whole sector, frankly, and obviously a big concern of investors. Revenue's already declining 6%. We've seen Vodafone launch 6-month free broadband offers to SMEs about a month ago. You mentioned some aggressive wholesale and Ethernet pricing, you're going to lose the Virgin contract in a year's time. And I think you still have about 50% share of this market. And as you and others roll out FTTP to consumers, there is a big risk that it could cannibalize some of the Ethernet revenues. So I guess the simple question is do you think you can ever stabilize revenues here. And then what kind of remit have you given Rob on joining? Does he have the remit to change strategy? Will he be able to invest to stabilize these declines?
I mean I'll get -- I'll do the last part of the question and then let Gerry give his view, and Simon can chip in as well on the prospects on revenue and obviously general growth. Now I think, firstly, to say on Rob's arrival, and Rob will be here in very early -- early next year, January, I hope. By definition, Rob joining as a CEO, he'll have the opportunity to look at the business with a fresh set of eyes. Obviously, that's important. And of course, he can think through what he wants to do with that business. But the challenge is the same, right? And you set it out well. The Enterprise segment across the whole of the telecoms estate is -- has had some challenges for a fair period of time. So I think the strategy we've currently got, I think, makes a load of sense, right, which Gerry can just repeat to you very quickly if you want. Will we want to go faster in certain areas? Will we want to go harder in certain areas? Definitely. And Gerry and I have talked about that a lot over the last year or so anyway. The question is how do we do it? When do we do? Which things do we go and when? So expect -- when Rob arrives, expect more stuff in Enterprise, which is dealing with the fundamental challenge you've outlined. But in the short term, Gerry, do you want to give your view on it? And then maybe, Simon, you chip in as well.
Yes. I mean I think the challenge is, and we know that they've been there for a number of years, I think the pricing in the market is competitive. I think we're -- we've got a position where we've stabilized our broadband position in SME. I think there's a real opportunity to grow that. And I do think the strategy we have in terms of being much more aggressive around tackling legacy decline, so not trying to defend it, but attack it, the FTTP build, I think there's market segment areas there that we can go after and build share. And I think with the investment we have in future product, we also see that we can build share in the majors and corporate market and -- because whilst we have a very strong coverage of that market, there's definitely wallet share that we can go after. So I think the strategy that we have is the right strategy. I won't comment on by -- who takes out the batten. I'm sure they'll have their own fresh eyes on this. But -- and I definitely believe there's growth opportunity in the business. Even with the customer base we have, there's growth opportunity, but there's a lot of customer base we can go after as well.
Great, thanks, Gerry. Simon, do you want to add anything?
No. I mean I think the key point is we -- I think it's been covered, but we have pressure on our legacy voice and associated sort of old analog connections. That's clear. That continues to be a drag on our top line. We are in competitive markets, but we have a broader product portfolio and capability, a broader distribution, broader sales capability than the competition. And we still have relatively low market shares in the next generation of product, particularly IP voice, but also managed security cloud-based services. And there is a significant opportunity for us to bring that market share up to the share that we possess in some of the more established product portfolio. And that's the driver of growth for us, combined with, it remains a complex business in BT and a prime beneficiary of the simplified program that we have underway. So there's absolutely no doubt this is a business that can operate with a lower cost base over time.
Can I just -- just one little -- a sort of segue into something? Bas, can you just give your thoughts on this? Because I mean the Global business has actually been performing pretty well, as people can see. And you've got a customer set some of the times that's similar to some of those that -- certainly the dynamics in that business that Gerry has. Just give your perspective on the future, around the price and propositions and what we're delivering because Enterprise will be taking more and more of those kind of products over time. What's your view of the market, Bas?
Yes. Thanks, Philip. I think particularly now that we've had this COVID crisis, I think most of our multinational corporations have woken up to the fact that they need more innovative portfolio. And in that category, I would say, cloud collaboration services, contact centers in the cloud, more applications in virtual environments, et cetera, et cetera. So in the crisis, we've seen that some of our legacy products, like, for example, conferencing has picked up greatly, but that will fade away very quickly and will be replaced with more growth portfolio, innovative portfolio that is mostly around over-the-top collaboration services. And the demand our customers have, more than potentially we've seen before, is that it's not so much they ask the infrastructure to work, but they ask for the application to be up all the time in a secure environment. So they're willing to pay for uptime and they're willing to pay for stability in a secure environment, which I think is something that an organization like ours can deliver really well because we manage the infrastructure, the connectivity as well as the edge devices that can take care of that stability. And that is what we see also in the latter stages of the year turn out. Now that will mean that our legacy revenue will go down faster than we potentially expected because customers innovate quicker, but we're very well positioned to pick up on the other end to deliver the new portfolio as well.
Okay. Bas, that is really helpful. Thank you.
Next question is from David Wright of Bank of America.
I know the proper call is going on. So we were obviously all quite concerned, I suspect yourselves, too, about the end-of-contract regulation back in the first calendar quarter of this year, which I guess we all imagined would probably feed into your fiscal Q1. Obviously, COVID came along and probably distracted people from maybe trading, churning their broadband contracts. I guess my first point is, do you think that comes back? Or have you guys, dare I say it, dodged a bullet a little bit there? And just a wider, I guess, conflict you might consider, it might not be a conflict at all actually, but you've got Openreach looking to fill their network to maximize the return on capital on the fixed CapEx. And obviously, those volume discounts do feed to some of your competitors who are out there. Vodafone has just had a record quarter in broadband adds despite COVID with a very cheap connectivity product. So with those volume discounts, you're just kind of feeding this price competition. So there always seems to me to be a bit of conflict with what Openreach wants to do and maybe what Consumer would rather avoid. How do you manage that? So I guess there's a couple of parts in that.
Okay. Marc, do you want to do end-of-contract regulation?
Yes. End-of-contract notifications were switched off for a few weeks during the COVID period, and that was understood by all stakeholders as we were all wrestling with some big operational impacts, but they are back on now. And I think the principle of speaking to a customer at the end of their contract and discussing the right deal for them is a good one. I feel like the broadband industry does need to evolve its pricing mechanic and structures and these sort of what we previously have is ballooning out-of-contract increases, very large percentages for customers are not really the right thing for them. And that's why we've implemented a cap to give customers much more surety over what their end-of-contract price rise is. And since they have been implemented, I welcome them. I think it's an opportunity to discuss with the customer the right deal and tariff that they're on. We're not seeing significant dilution as a result. And I think it's the right thing, and it adopts a lot of the principles of fairness that we've really lent into in terms of getting the broadband pricing mechanic in a way that's much more consistent with customer loyalty and more akin to what we see in mobile.
Yes, good. Okay. Great, and David, look, it's a really good question. I mean trying to manage that balance you talk about between the sort of Wholesale access, Retail and dynamic for BT Group is important. I guess -- and you're right to point out there are, in every segment, sectors, both fixed, mobile, others, there are places where people are -- competitors are putting in prices and propositions, which are very, very low in terms of pricing, right? So of course, that has an impact. But I think if you look at the vast majority of where the scale volume is, I think, we think we're more in the appropriate time. So you're looking at the big, big players. I think they understand the full chain of economics, and they also recognize that we need to be able to generate the returns to -- not only to our shareholders at one level, but also to be able to invest back in the business to innovate and keep moving forward with propositions that our customers like. So there is a real challenge making sure we manage that balance. But again, hopefully, we've given you a sense of there is a way through this where Openreach, in this case, is the sort of access provider, the wholesaler is delivering a massive platform at scale at a very, very competitive price. Don't forget the prices that we are -- or the cost we're building at allow the prices to be offered to be very, very competitive under any benchmark across Europe and the world, in fact. So what we've got to make sure is that then the retailers, the CPs can also make an acceptable return in order for them to invest in their business and create quality businesses with quality services and quality propositions for our customers, not just low-end value-driven stuff, which is the race to the bottom, and that's what we've got to avoid. So thanks for your question, David.
Paul Sidney from Credit Suisse.
I just had a question on Consumer, please. You've given us the 2 million Halo customer number and the 0.5 million FTTP customer number. My question was just, can you give us an idea on how churn for these 2 products compares to the average? Just to try and give us an indication of the...
Yes, I mean, Paul, it's a short answer because -- it's a great question. Thank you. Appreciate it. I mean the short answer, churn's excellent. And even better, which is part of it, the NPS is excellent. So these 2 million Halo customers are our highest-priced, lowest churn. And I'm not -- it depends on -- lowest churn, one of the lowest churn, highest-priced, highest NPS. So really, really strong feedback.
Next question is from Michael Bishop, Goldman Sachs.
My question is just on infrastructure, and it's a fairly big-picture question because we've continued to see fixed infrastructure deals and further capitalization of overbuilders with another deal in the U.K. this week. And I think more broadly, this is being driven by more demand for long-duration assets across the market. So how do you think about this now as a management team, both in terms of a reasonable value for Openreach, which doesn't seem to be reflected in the current share price here, versus the potential risk of increased overbuild in the U.K. as they seem to be getting more and more -- or better capitalized as you see more and more transactions? Because to me at least, it feels like it's a bit of a double-edged sword in the sense that infrastructure values keep rising, but not as part of BT Group.
Yes, Michael, I mean, tell us about it. Yes. Look, I -- of course, you're right. The -- and firstly, the easy thing is Openreach, with its potential and its program to build 20 million homes with a regulated framework that has a fair bet that allows it to make 10% to 12% as we described in the last -- I mean that is a -- that has to be, under anyone's book, assuming we can get some take-up of that, obviously has to be a very valuable asset. And there is no question for lots of reasons that, that's not being seen in the BT Group. So that's one of the key challenges that you're right to push us on as a management team is we need to demonstrate and unlock that value somehow. I think that when we get to April next year, and the enablers, for example, the regulatory framework is clarified, I think that, that should help. But there are other things that we're really open-minded about what we need to do to do that. Because whatever happens, I think Openreach should be the biggest, the most valuable fiber build infrastructure play in the U.K., just no debate. So I think that's a -- I agree with you on that. It's a job -- work to be done for that, and that's in our -- that's very much in our hands. I think your more big-picture point about the market, yes, you're right. Of course, there's more infrastructure build. That's because that is what the policy and regulatory environment is trying to encourage. And again, what I'd say there is we welcome good competition. As long as you don't get the situation where you get masses of uneconomic overbuild. And again, on that point, I hope that the regulator will be doing things along the lines we just described, which is this extending indexation to the rural areas, for example, in Area 3 that we've talked about earlier on and the 3.2 million corresponding build we've got is a good example. There should be limited overbuild in those areas because we're all building now and therefore, sensible decisions should be made, rational decisions should be made, albeit, of course, there will be some overbuild, particularly in the urban areas, by definition. But again, my point would be Openreach is building at a price point which I don't think anyone else can match. So when there's competition, as long as it's fair competition, notwithstanding that Openreach is the best infrastructure builder for FTTP, we should do fine. What we don't want is that -- the pitch to be skewed against us that we can't compete properly. And I have every confidence that the regulator will put something in place that allows fair competition and success for all players who do a good job. But if you build a network that's very expensive and isn't that good, then you won't get a good return. Openreach will not be in that category. Thanks for your question, Michael. I appreciate it.
Please go ahead, Steve from Redburn.
One -- well, one and I've got a follow-up, if that's okay. Interested on the decision not to furlough the 5,000 staff, given the retail closures that you had. Was there -- was that -- and you mentioned that you were trying to retrain a bunch of those staff. So interested to hear the thoughts on the retraining. Is there a tactical element to that at all? Was there pressure from government not to take furlough money? And are you expecting some sort of quid pro quo in terms of government goodwill as you have all these related discussions on fiber and the like? And then just sort of related to that, I mean, I guess, we've all been doing a fair bit of navel-gazing in the last few months. I mean as you think about distribution generally in your store real estate and a shift to digital in the last few months, are you looking more comprehensively at the physical estate and how you shift your channel mix over time? Is that one area where you might move quicker on in terms of cost reduction through COVID? And on the navel-gazing point, coming back to sports, you mentioned the pubs and clubs would take a long time to come back. But now are you beginning to rethink the commitment to sports as viewing falls and your ability to monetize maybe becomes more challenging at a more difficult economic environment?
Okay. Steve, that's 4 questions there, I think, maybe 5. No problem. I think you're the last man, so that's okay. Don't worry. Look, I'm going to ask Alison in a minute to just talk a bit about our approach to our employees and our staff and our colleagues and sort of the whole commitment on jobs and what we've done for the pay and commitments on that and not taking up the furlough scheme. We'll come back to that as last, if that's okay. So Alison, if you want to just give your view on that. Just knock off a few here. On sport, no, it doesn't make us rethink that. We signed long-term deals with certain rights holders. Clearly, it's painful right now, pubs and clubs, to Marc's point, they're closed. It's -- we say it's GBP 8 million, GBP 10 million a month, whatever. That's -- there's no way around that. But I think we are already seeing that sport will have and it has got and will continue to have inherent correct demand. And therefore, we think we can get it into the financial arena that we previously planned. Therefore, it's more than acceptable. So no rethink on that front. On the distribution of stores, again, we're -- of course, we'll see how things play out. Who knows? As Marc said, we're only at 60% of volume, but the conversion rate is up. We're about to put a load more traffic in there on this SME activity that we've launched today. So the Small Business Support Scheme, if you're interested in that, you can go to one of our stores. So we plan to drive more traffic into our stores. We always did. So let's see how it -- but if footfall, overall traffic, in stores is down in a year's time by 45%, of course, we'll have to rethink how we're doing it. Can we offset that by driving more people? Will they come in, in more volume and transacting greater numbers or in greater value to make that formula continue to work? Of course, we'll be open-minded about that. On the government goodwill and the furlough scheme, and just to give you my -- the -- we just felt the furlough scheme wasn't designed for companies like BT. And therefore, because there are many, many parts of the economy and different parts of the industry and businesses that are -- their whole viability is being questioned, and they're struggling to make the whole thing to stay alive, so that was a decision taken by the exec team that we would not take the furlough and we would look after our staff and retrain them, and the response from them has been fantastic. So do we get any government goodwill? I mean who knows? That's not why we did it, by the way. We did it because we think it's the right thing to do. But I have to tell you, as I mentioned on the NPS scores, when you look at the feedback we've had from our customers, the NPS is driven primarily -- it is across the whole company, but there are NPS equivalent and sometimes exact NPS with large customers, including the government. And given what we did in health care, given what Openreach and Enterprise specifically and Consumer have done for vulnerable customers, the health care sector, the MOD, the police, the emergent services, without sort of getting complacent, so the last thing BT will ever do, the response has been phenomenon. And the thanks we've had, the number of e-mails and comments I've had from customers has been phenomenal. And again, I thank all our colleagues and employees who've delivered that service in difficult circumstances. Alison, do you want to just give Steve a perspective on the impacts of not taking the furlough scheme, but also how we've handled our employees?
Philip, it's Marc here. I think Alison's not on the bridge. I was just going to add on the Retail point. The Retail teams were supporting service. So whilst the stores were closed, those teams were in the large part, working. And we converted the stores to mini call centers to support them. So that's another reason why furlough wouldn't have been relevant for our retail teams, and we have put significant efforts into helping them learn new digital skills. And we've had really good uptake from that and actually started deploying some of our retail teams into our digital teams to start accelerating further the digital channel mix as well, which has been really pleasing to see.
Yes, that's a great point. And Marc, as you're implying, I think I sort of said that some of those people in the stores, I mean, the fact that they -- the fact that we, Steve, we said to all our colleagues, whatever happens, just going back now 3 months, we gave a commitment and no one would lose their role as a direct result of COVID-19. We would pay everybody under all circumstances even if they've got to self-isolate, quarantine, shield, look after loved ones. And it's like anything, if people respond to that with -- in the way you'd expect, was it -- they're so -- what's the word, they were so appreciative of the intent behind it, the response we had was extraordinary. So I think that, as Marc described, in the retail stores, many, many colleagues retrained but also wanted to participate and they went into stores in the backrooms and answered calls and did chat. So really, really good response. Now look, Alison is actually not on the bridge, but she just sent a message through. So we have done -- we have 4,000 people worldwide who were unable to work remotely at the peak. But as Marc has said, we did reduce that to about 1,000 by re-skilling and redeploying into other work over the weeks that followed. So again, I would just say to you, Steve, you're right for pushing it. We -- our staff of over 100,000 have all responded amazingly in the situation, and that's why our operating performance has been so strong. So if you're happy, Steve, we'll close the call there. Thank you, everybody, for your, as ever, brilliant questions and your interest in BT. We really appreciate it. I hope we've helped you understand some of the thoughts and perspectives and views that we have, and I look forward to engaging with you over the coming weeks. Many thanks, everybody.
Thank you, Philip. That does conclude the call for today. You may all now disconnect. Thank you for joining.