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Hello, ladies and gentlemen, and welcome to BT's Q3 2018 to '19 trading statement conference call for the third quarter ended 31st of December 2018. My name is Deborah, and I'm your coordinator for today. [Operator Instructions] I would like to advise all parties this conference is being recorded today, and now I'll hand over to Mark. Thank you, Mark. Please go ahead.
Thank you, Deborah, and welcome, everyone. My name is Mark Lidiard from the BT Investor Relations team. And presenting on today's call is Gavin Patterson, Chief Executive. Also on the call for Q&A are Simon Lowth, Chief Financial Officer, and members of our Executive Committee. Philip Jansen, who takes over as Chief Executive from tomorrow, is also with us today.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 example, 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 now hand over to Gavin.
Good morning, and thank you for joining us for today's call. As you know, this is my last day as Chief Executive and I am pleased to say that I am handing over the business to Philip with good momentum behind our ongoing transformation as we continue to deliver positive progress against our strategic pillars. As just mentioned, Philip is with us today. He won't be answering any questions, having been in the business just over a month. However, he will be saying a few words at the end of today's Q&A. Before covering how we are performing operationally, I'd like to start by giving you some key financial headlines for the quarter on Slide 4. Overall, we continue to deliver in line with our expectations and are confirming no change to our outlook for the full year, although we do expect to be around the upper end of our EBITDA guidance. This is despite market and regulatory pressures, particularly here in the U.K. There is also no change to the medium-term outlook that we discussed last May with the impact of regulation, market dynamics, cost inflation and some legacy product declines in the short term being offset by improved trading and cost transformation by our 2021 financial year. Revenue for the quarter was GBP 6 billion. This was down 1% on last year as continued growth in consumer was offset by regulated price reductions, decisions in our enterprise units to move away from lower-margin business, legacy product declines and a one-off accounting benefit in Openreach last year. Adjusted EBITDA was down 3% to just under GBP 1.9 billion. This was primarily due to a one-off benefit in Openreach, partially offset by EBITDA increases in consumer and, to a lesser extent, Global Services. CapEx of GBP 977 million was up 11% on last year as we ramp up fixed network investment, which was GBP 318 million, an increase of 20% on last year. Normalized free cash flow of GBP 763 million was up 9% due to the phasing of tax payments and a decrease in working capital. Net debt was GBP 11.1 billion at the end of the quarter, GBP 800 million lower than at the end of September with the decrease driven by higher free cash inflows. Our IAS 19 pension deficit rose to GBP 5 billion, net of tax, a deterioration of GBP 500 million during the quarter. The increase was mostly the result of a fall in the real discount rate and a fall in asset values. Moving forward, we expect to disclose our IAS 19 pension deficit at the half and full year results only. In December, the Court of Appeal ruled that we would -- it would uphold the High Court's decision that stated it was not possible to change indexation for Section C members of the BT Pension Scheme. And in November, the High Court ruled against BT in our claim for a judicial review of the Treasury's decision on public sector pension increases. We are obviously disappointed with these outcomes and are seeking permission to appeal in both cases. With respect to the High Court's decision on Lloyd's Bank Group -- Lloyd's Banking Group pension scheme on GMP equalization for men and women, we estimated Q2, that the impact could be in the hundreds of millions of pounds. We have refined our assumptions and currently estimate the impact to be around GBP 100 million increase in liabilities. We aim to conclude on the financial impact in Q4. And finally, on the ongoing uncertainty in relation to Brexit, we have plans in place covering a number of outcomes. Our primary focus is to ensure uninterrupted service to our customers, which includes increasing inventory to protect against potential import delays. A disorderly exit could damage consumer and business confidence, although it is too early to estimate the size of any potential impact. I would now like to update you on progress against the 3 pillars of our strategy to deliver differentiated customer experiences, to invest in integrated network leadership and to transform our operating model. Looking first at customer experience on Slide 6. We continue to make positive progress. We have now had 10 successive quarters of improvement in group Net Promoter Score, which was up 5.3 points in Q3, and our Right First Time metric was up 3.2% in the same period. Openreach continues to perform well and remains ahead on all 42 copper and fiber minimum service levels. We had the fewest-ever missed appointments in Q3, and we had the best-ever Ethernet provisioning performance. Ofcom consumer complaints were impacted last quarter due to the price rise on the BT brand. However, the data still shows improvement across all brands for lines and broadband were measured on a year-on-year basis with the EE mobile flat but better than the industry average. BT Sport has increased viewing across all platforms, and we saw increased downloads of our EE, BT, Plusnet and business apps. As announced earlier this month, connectivity products on the BT brand will be moving to an annual CPI price increase from March 2020, meaning that there will be no price rises for BT Mobile, broadband or voice customers in 2019. We think that more predictable pricing will improve the customer experience and make sense as we increase our converged product offerings. This will result in a small negative impact next financial year, but we expect this to be offset over time by lower churn, higher NPS and other internal efficiencies. On the product side, sales of BT Plus continue to be good, and during the quarter, Consumer launched the next version of BT Plus, which includes complete WiFi for the home. The take-up since launch has been encouraging. Following the strategic partnership with Cisco, Enterprise is the first provider in the U.K. to combine business-grade connectivity with Cisco Meraki equipment, bringing a host of fully integrated security features and -- to our market-leading BTnet high-speed Internet service. And finally, Global Services launched Cloud Connect for Google, which provides simple, direct and fast access to the Google Cloud Platform. We now provide access to all the major global cloud platforms. Moving now to our second pillar around integrated network leadership. The Openreach FTTP deployment rate has remained at around 13,000 premises per week this quarter as the focus has been on a catch-up and commissioning head-ends. We're now building in 14 locations and have identified the next 11 build areas under our Fibre First program. We remain on track to reach our target of 3 million FTTP by the end of March 2021. Current deployment costs remain at the lower end of expectations. We also announced 81 new G.fast locations during the period, adding to more than 250 locations where the technology has already been deployed. At the end of Q3, a total of 2.6 million premises were capable of taking ultrafast products, 1.7 million G.fast and 900,000 FTTP. The Openreach volume discount deal continues to deliver strong upgrade volumes with around 680,000 fiber broadband net adds during the quarter. This deal will stimulate the superfast and ultrafast markets and increase average broadband speeds across the country. On the mobile side, we added more than 350 new masts in calendar 2018 for 4G coverage. And following our 5G trials in London, we're preparing for the rollout of 5G later this year where we have already announced the first 16 cities for deployment. EE is planning to launch with a number of smartphone partners and a 5G home router. EE continues to gain external recognition, and during the period, was once again ranked the U.K.'s best mobile network by both RootMetrics and P3. Looking at the final pillar, transforming our operating model on Slide 8. Our 3-year transformation program is progressing well. And while we have talked previously about some of the big initiatives, for example, creating Consumer and Enterprise and role reductions, there are several hundred smaller initiatives which collectively will make a significant contribution to the bottom line. For example, in GS, we've recently launched 5 scalable digital solutions to deliver an enhanced service model for customers, improve customer experience and provide greater commercial flexibility. In Openreach, we are changing how our engineers work to get a customer back in service following a fault. Trials in Manchester are delivering 20% to 30% lower repeat fault performance than the national average. In Consumer, we've introduced better tools, more training and clearer processes to improve our employee's ability to resolve compensation claims. This has resulted in fewer claims going to the ombudsman and lower cost for compensation. In Enterprise, we are using small cells, as shown in the picture here, to provide MNOs with scalable capacity and coverage, leading the market in product innovation. And in technology, we are deploying high-efficiency rectifier technology to reduce energy consumption across the exchange estate.During the period of our group restructuring -- during the period, our group restructuring delivered almost 800 role reductions, primarily in Global Services and Technology. This brings the total to around 2,800 since the beginning of this financial year. Cost savings remain on track. Moving on now to the performance of our customer-facing units. Looking at Consumer on Slide 9. Revenue was up 4% from last year to just under GBP 2.8 billion, driven by last September's price increases and continued increases in handset costs for customers, partially offset by lower Solus voice revenues. Fixed ARPU for the period was up 5%, driven by the price increases. And postpaid ARPU -- mobile ARPU was down 1%, driven by an increase in the SIM-only base. Churn was down to 1.4% across fixed broadband and 1.3% for postpaid mobile. EBITDA was GBP 643 million, was up 15% on last year, helped by the price increases and a one-off accounting downside last year. Despite these strong results, we're seeing a number of ongoing headwinds to the business. While our market share is broadly flat, as you can see from the chart, high-end smartphone device volumes are down year-on-year as customers hold onto devices for longer, and this is a trend we expect to continue. In addition, we're seeing aggressive broadband price competition. And moving to CPI pricing, auto compensation, increases in annual license fees, international call regulation and mobile spending caps will all impact us through next year. Given these headwinds, it's even more important that we focus on customer experience and our strategy to up-sell and cross-sell through our convergence products. In December, Ofcom launched a review of broadband pricing and a consultation on alerting customers to the best tariff at the end of the contract period. These initiatives were announced just before the CMA published its own conclusions on the Citizens Advise super-complaint to look at issues around customer engagement. On the end-of-contract notification, we agree that customers should receive information on their options at the end of their minimum contract period, and we are now doing this for all EE and BT broadband customers. Our aim is to have a positive engagement with customers, to reduce churn and to increase customer loyalty. And we are engaged with Ofcom on these reviews, but at this time, it is too early to comment on any potential financial impact to our business. Looking at Enterprise on Slide 10. This is the first time that we're reporting Business and Public Sector and Wholesale and Ventures together. Revenue was down 6% to GBP 1.56 billion, driven by an increased reduction in traditional voice calling as the market moves to mobile and IP. Other legacy product declines, lower equipment sales and the sale of our cables business. We're also seeing similar challenges for Enterprise -- for the Enterprise smartphone market that we are seeing in Consumer. This was partly offset by continued growth in IP, networking and good growth in messaging volumes. EBITDA of GBP 501 million was down 2% as the flow-through from our legacy decline was only partially offset by lower operating costs. Encouragingly, Public Sector continues to perform well and there are some good contract wins in the quarter, including a 5-year contract to supply cyber security solutions for the Police ICT Company, a 2-year deal to provide mobile services to HMRC and another 3-year mobile services contract for Police Scotland. In terms of upcoming events, Enterprise will be our next business briefing to be held in March. Turning to Global Services on Slide 11. Global Services revenues were down 5% to GBP 1.2 billion, once again primarily driven by our decision to move away from low-margin business. The decline in revenue was more than offset by a cost performance, which is ahead of expectations, leading to EBITDA of GBP 147 million for the quarter, up 4% on last year. Global Services is making steady progress against its revised strategy. We continue to receive strong industry ratings for our services. Specifically, this quarter, our Unified Communications and Managed Security services received positive ratings. Our service offering will also be improved as we are the first international provider to receive domestic telecoms licenses in China. These licenses will enable us to improve our service offering to multinationals operating in China and Chinese MNCs operating internationally. On to Openreach on Slide 12. Revenue was down 9% on last year to GBP 1.26 billion, driven by regulated price reductions on our FTTC and Ethernet products, a volume-related discount offer, a decline in our physical line base and a one-off accounting benefit in Q3 last year. This was partially offset by growth in FTTC and ethernet volumes. EBITDA of GBP 603 million was down 19%, primarily due to the revenue decline and pay inflation, partially offset by efficiency savings. Our superfast network has now passed more than 27.3 million premises. The Openreach pricing discounts for volume commitments, coupled with Ofcom's Boost Your Broadband campaign, should accelerate fiber take-up and drive the adoption of higher broadband speeds, a key requirement to driving acceptable returns for our investments. Openreach is currently engaged with Ofcom on a number of regulatory reviews, some of which will be key to realizing a fair return on our FTTP investment. We are encouraged by the discussions held-to-date and hope to get further clarity on some of the key enablers over the next couple of quarters. So in summary, we continue to deliver consistently against our 3 strategic pillars. This has resulted in another quarter of sound operational and financial performance, although I should note we are also seeing increased market and regulatory challenges. There is no change to our overall outlook for this year, albeit we now see EBITDA coming in around the top of our guidance range. In terms of our medium-term outlook, we still expect regulation, market dynamics, cost inflation and some legacy product declines to offset trading and cost transformation benefits this year and next. But by 2021, we expect this to reverse. So there is no change to our overall medium-term outlook. This is my last results call and I would like to thank everyone that have supported me through the 15 years I've been at BT. There've been some ups and downs, no doubt, but I think the business is now more resilient and better placed overall, and I'm pleased to be handing over to Philip with good momentum behind our ongoing transformation. So thank you. We'll now open up for questions. And as a reminder, Philip won't be taking questions and will say a few words at the end of the call.
[Operator Instructions] But the first question we do have is from Carl Murdock-Smith from Berenberg.
Gavin, first of all, I just want to say that it's been a pleasure working with you over the years and wish you all the best for the future. On your last day, I thought I'd ask 2 big picture questions. The first about top line growth. How important do you think it is for the value of BT that it grows its top line in the medium term? I'm asking largely due to Philip's comments around growth in his joining statement, which is obviously in contrast to the current trajectory. And how do you see that being achieved, particularly given Consumer about slowdown given the pricing strategy? And then secondly, looking back over your time as CEO, what one thing would you have done differently in hindsight?
Okay. I agree with Philip's comment that over the medium term, for the company to continue to flourish, we need profitable revenue growth to return to the business. Over the next couple of years, I don't see that that's absolutely critical and the reason for that is I think the headwinds around particularly the voice market as consumers move away from traditional voice products and move towards voice over IP, that's a pretty big headwind to overcome. I think we can compensate for that through cost transformation. And we got off to a really fast start on that on the first 3 quarters of the plan. And having spoken to Philip a lot over the last month, I'm confident that he's going to build on that going forward. But beyond that, I think to drive that top line, we've got a -- not just rely on the Consumer business, which has been an engine for growth for the last few quarters, but we'll see and we need to see growth coming through in Enterprise and Global Services, in particular. But I think behind a convergent strategy, a focus on new revenue streams such as security, driving converged products and services in Enterprise, I think the scope to grow exists within the business. And I certainly feel confident, as I hand over to Philip, that the potential and ideas are there. In terms of regrets, where would I pick, I would probably say on a transformation program, if we just started that a few months earlier, maybe a year earlier, we've got, I think, even further along the path. I've been really pleased with the -- what -- how the businesses has taken hold and run with this. It is a bottom-up program. It is being driven out of the business. There's some fantastically innovative ideas coming out from people across the business. And it gives me great confidence that there's an awful lot of value both in terms of making ourselves a more modern efficient agile organization, but also in creating new products and services that take advantage of the investments in the network and the positional convergence we have. So if we'd have started it a year earlier, I think we'd be further along that path and we'd have more oxygen to invest and I think the business would be in an even better place. But we're not in a bad place as it is and I'm leaving something for Philip to do.
So the next question now is Michael Bishop from Goldman Sachs.
Also echo the sentiment, thanks, Gavin. It's been a pleasure working with you. I just wanted to pick up on the cautious language around FY '20 and essentially whether you could talk to whether this is -- a lot of it is existing caution, which was baked into your existing multiyear guidance and the reason for the transformation plan, or is part of it real sizable incremental caution? And as a follow-up, just to get a sense of whether you're happy with the consensus for FY '20 EBITDA, which is, I think, around the 1% decline based on the top end of FY '19 guidance.
Thanks for the question. I'll say a few comments and I may ask Simon to add a wee bit of color. I think what we're saying today is a couple of things. The transformation plan is performing very well. It's delivering, I think, marginally ahead of our expectations. We see a really good pipeline ahead of us and have a great deal of confidence in it. With respect to the markets that we're operating in, I think much of what we've talked about today, regulatory headwinds, for example, are things that we've talked about in the past. We're rightly being, I think, prudent and cautious looking forwards. And I think what is -- might be a little different is in the mobile market. Like everybody else in the U.K., we've seen the demand for smartphones, particularly high-end smartphones, begin to soften. We're well placed. We're holding market share. So I'm confident we'll see our way through. But we're not immune to that and you could see it in Apple's results. You could see it in Samsung's results. I think what we're saying is, look, with all the, I guess, the headwinds we see in the business, and we feel confident that we can hold our outlook across the medium term and I think that's a -- I think it's a very positive statement that we're controlling our own destiny, and we feel we've got the levers to pull within the business to be able to navigate our way through it. So I think it is from a position of strength that we're able to make that statement. Simon, is there anything you want to add?
No. I mean, Gavin, you said it all. I think we've again confirmed the mid-term outlook that we set out back in May 2018. I think, Gavin, you explained the drivers of that, of regulation market dynamics and legacy product, declining cost inflation in the short term. But then as we move out over the plan, trading growth in new and converged products and cost transformation offsetting that to give us growth in the 2021 financial year. I mean, I think as we set out that sort of outlook, we clearly looked ahead and thought it through a range of scenarios and the market and regulatory developments we're seeing within that range of scenarios, albeit I think as we said today, probably at the sort of more intense end of it. But equally, as you also said, the cost transformation is progressing well and acting to mitigate that. So we've confirmed the midterm outlook. I mean, I clearly, Michael, to your question if we weren't satisfied with the consensus, well, we'd say so. We've got an obligation to do so.
Right. Can I ask just a very quick follow-up on the cost cutting? I think you said you've done GBP 350 million in the first half, but you only updated the headcount reduction stage. Do you have a number for the transformation gross savings?
We'll do it at the half year and full year.
No, we'll do at the half and the full year, but we're firmly on track with the plans that we set out.
Yes.
And the next one now from John Karidis from Numis.
Gavin, good luck to you. I just wanted to ask a question, please, about the number of lines in service for Consumer and Openreach. So trying to understand what drove the good number at Openreach in the quarter and what the outlook is given your answer to this. And on Consumer, I'm trying to understand whether we should get used to high tens of thousands of line losses per quarter going forward.
On Openreach, I think the line loss performance was pretty good given the competitive situation and given the number of alt nets, at least talking about building and obviously Virgin building with Lightning. So I think the number is around 100,000 from memory, and that's about the same as it was last year. I think it also demonstrates that the early stages of the Openreach discounts for volume commitments offer, that catchy title, is performing well. So we had a record quarter of net adds on fiber. We're seeing good momentum there. And encouragingly, and importantly, that not just sets out the future for superfast, it begins to move more customers up the tiers to ultrafast products. So we're encouraged by that. On the consumer side of things, well, do you want to...
No, we don't reveal the line detail, but what we're focusing on is churn. And we're encouraged that our churn came down quarter-on-quarter. I think I said last quarter we were not happy with the levels of higher churn due to the intensity of competition and the price rise activity that was hitting us there and we've returned our churn to 1.4%, which represents a much more normal level of churn for us. But we are certainly looking to build on that as we focus more on customers and increasing their loyalty with us.
Sorry, if I may. You actually increased your number of lines in service at Openreach over the quarter. So I'm trying to understand where that came from. And as for Consumer, working backwards from ARPU and revenue, you've lost more than 100,000 lines. So is it possible to try one more time answering this question, please?
Clive? Join us and answer.
Line, we lost copper lines consistent with the performance of a year ago. Gavin gave the number of around about 100,000, that's correct. We increased our base of Ethernet services. So this is point-to-point fiber-based Ethernet services, had a strong quarter of delivery and also a strong quarter of demand. And we increased our net adds on superfast broadband by 680,000 in the quarter, which is the most we've ever done in a single quarter. Does that help?
John, just to -- I think just to clarify the figures. I think you're looking quarter-on-quarter, which is a small increase in lines, yes, and the number I was quoting was year-on-year. So I think that's probably -- and there is a seasonality in the market that we've -- it's basically the buildup to Christmas. There is -- there's more activity and that's what we're seeing. I mean, I think the overall comment is, actually, I think we're very competitive through our Openreach business and we're well placed. And I think we're seeing that the offer is delivering on that. In terms of the Consumer business, I'm not sure there's much more to add in a sense of we've been clear that value over volume is what we're focused on. We're seeing the trends on churn return back to normal -- the sort of normal rates that we expect. There's a slight seasonality in the consumer market as well, which is why 1.4 is higher than the sort of Q1 number. But we remain very, very confident that the strategy is working. The first 2 services that we've offered on convergence on that BT Plus proposition have really gone out the blocks really, really fast. I mean, we're not going to give you the number because we don't want to give even more KPIs, but I think we've told you that after 6 months on Plus, we had over 0.5 million. You can be sure that, that is continuing to grow at a similar sort of rate. And the first indications of the complete WiFi service, which is a subscription service, if I can get the words out, to give you guaranteed a WiFi connection in every room, which I am hoping many of you will take advantage of, is proving to be a real winner. So we're very excited about that. So you should take away from this we are confident the strategy is working and that focusing on value is the right thing to do for the business going forwards.
And the next one now from Polo Tang from UBS.
First of all, Gavin, best wishes for the future. I've got 2 questions. The first one is how optimistic are you that your consumer fixed line revenues can grow going forward? For example, you saw 2% revenue growth in Q3. You had the benefit of a double price rise, which will lap out. You've also highlighted competitive pressures in the broadband market. And you're not putting through any price rises for the rest of 2019. So are there any offsets to think about that could stabilize consumer fixed line revenues? And in the context of that question, can you talk about what you're seeing in terms of Project Lightning impact from Virgin Media? And the second question, just very quickly, is Huawei. If there is a ban on Huawei, what are the implications in terms of your 5G rollout and implications for CapEx?
Polo, that's a sort of -- I think that's a 3-parter actually, isn't it? So maybe I'll just say a few words on the Consumer business, and then I'll ask Mark to give a bit more comment. Then, Lightning, Clive, I'll ask you to comment on given that probably impacts you, and then I'll cover the Huawei and -- question, and hopefully, we'll do that in less than 5 or 10 minutes. Look, we -- in the Consumer business, as you say, I think we shouldn't get overly excited about this 1 quarter. There are some -- a couple of pricing rises that have a positive impact in it. What we're sure of is that as part of a converged strategy, we can grow the Consumer business over the medium term. We have a very strong position in the market. This position based on fixed and wireless and coming together in services that customers are prepared to -- demonstrating they're prepared to pay a premium for is the right thing to do. And so sort of thinking about the sort of fixed business is separate from the wireless business, I think, going forward is not necessary the right way of doing it. We believe the right metrics to focus on are ARPU and the new KPI we've given you this quarter, which is RGU growth, which I think it's very important. So Mark, did you want to add a little bit of color?
Yes, just to build on that. I mean, we are reshaping the operating model for BT. We're focusing a lot more on existing customers and value growth. As Gavin says, we're building a fantastic service platform for our customers that I believe is going to be the best and biggest scale service platform for our customers to enjoy 100% U.K. call centers, nationwide High Street retail presence, great digital experiences. And that also includes reshaping our pricing model as well. And we've had a long look at this over the last few quarters and come to the belief that the previous model was not something that is sustainable over the long term. And we are building our business for the long term to focus on customers, customer satisfaction and convergence. And so we believe it's the right thing to do. Now that's -- I guess, moving to CPI price inflation, not putting a price rise through next year is a headwind to top line revenue growth, but that tailwinds are, and Gavin's pointed to a couple, convergent. BT Plus is performing really well, complete WiFi. We're only a few -- literally a few days into that. The advertising for it went live on Friday and that's a GBP 5 or a GBP 10 up-sell for our customers to buy that fantastic product and that WiFi guarantee. And the sales of that are encouraging as well. We've also got a large number still of our BT customer base who don't yet have mobile and with us looking to improve the convergence offerings and give customers more value when they bring mobile and broadband and TV together. We've also got more opportunities there to enhance the value of our customer offering.
Very good. Lightning, Clive?
Yes. So Virgin Media continue to build out their platform in the U.K. Our response, of course, is to encourage our customers onto our huge superfast broadband platform in the U.K., and we are now selling services on that platform at unprecedented rates. Our churn for customers on superfast broadband is lower, of course, than it is on traditional exchange-based broadband. So that's playing out nicely for us. And we have across this year very significantly accelerated our FTTP build. And we're selling a significant number of FTTP services each week. Those services, of course, are on a network that is superior to an HFC network. So I'm very content that in the face of the Lightning program. We are doing the right things to give a great experience for our customer base and keep them very happy on the Openreach platforms.
And the record quarter on superfast, I think, is an endorsement of that strategy. On Huawei, just to remind everyone, Huawei and the debate around Huawei is this isn't a BT issue. Specifically, it's something that affects all operators. That said, BT has a long-term relationship with Huawei but we've got also very clear architectural principles and very strong robust security controls. And these, we operate with close alignment with the NCSC to proactively manage how we use Huawei in our network. And to be absolutely clear, where we use it in the network? We do not have Huawei equipments in the core with the exception of some legacy EE component, which we announced in December that we are replacing, which was always going to be part of our plan. It wasn't new news as such. And then in the access networks, both on the fixed and mobile side, we use a number of suppliers, including Huawei, but including others as well. So as you know, I think the DCMS are doing a review on the telecom supply chain for all companies at the moment and we're not going to prejudge the outcome of that, but we have plans to manage both the financial and logistical implications of a range of scenarios coming out of it. So we are very active in the topic with DCMS, I can assure you. But it would be wrong to give us any more -- give you any more details at this point.
So the next one now is from Maurice Patrick from Barclays.
Good luck, Gavin, for the future. On the Consumer side, just your thoughts on the CMA super-complaint loyalty penalty and the impact on pricing going forward. I mean, do you think this will change the nature of fixed line competition in the U.K.? It's still a very promotional market overall. You keep talking about value over volume, but still all providers have highly promotional tariffs out there, creating the sort of back book, front book issue. You talked today about the voluntary move towards end-of-contract notification. That's something Ofcom also highlighted. Do you think that's enough? And do you think we will see a shift in how competition changes or just your value for volume is enough?
Well, I think we've been very proactive in this area. And indeed, I think there are a number of the things we've been doing anyway that we're just sort of drawing attention to. We've had a range of products and services unlike, I think, almost anybody else in the market around vulnerable customers for a while. As I mentioned in my speech earlier, we notified customers, both on the broadband side and the mobile side, of their options as they're coming to the end of the contract. And in vast majority of cases, customers act on that information and recontract. In the fixed side of things, over the years, for example, the ability to seamlessly switch has been improved. And as I mentioned again in the speech, moving to simpler pricing going forwards, the CPI structure, I think will help as well. But we will continue to work with Ofcom to ensure that customers, including vulnerable customers, are able to get great value. And if there are other things that we need to do and others need to do in the market, I'm sure we'll work with Ofcom on finding what those are. But Mark, do you want to add any color?
Well, just to build on that. I mean, we're very engaged with Ofcom in this review. We are very focused on ensuring transparency, trust and fairness in everything that we do with our customers. And in some of the communication and engagement that we have with our customers has been recognized as best in the market. And our proactive move on CPI pricing, I think, is a very positive signal for customers and a big indication of how we think about pricing and focus on customers going forward. So we're very engaged with Ofcom in this process and always looking for better ways to engage with our customers, communicate more effectively with them and seek to engage with them even more with our focus on loyalty.
Now we now have Akhil Dattani from JPMorgan.
Two questions, please, if I may. Firstly, on mobile. If we look at the revenue trend this quarter, you've been growing historically around 4%. There's a bit of a slowdown to just sub-1% in this quarter. So I guess just a bit of color around what's driven that slowdown. I see that it's the other mobile that's gone negative. I don't how much of that's competitive along the lines of things you've talked about and if there's any sort of IFRS 15 distortion in that number. That's the first I've been keen to understand.And then the second one, you've talked quite a bit about fixed line pricing, and obviously, the decision not to raise price in 2019. I guess, I'm just keen to understand how we might want to think about that. And I guess what I'm trying to understand is that if we look at revenue growth recently in fixed line, it's been around 0.5%. So it's been relatively nominal. So it's not as if the price increases you put through have been driving your overall fixed performance in a meaningful way. So I guess I'm trying to understand, as we look forward and look at a year where we won't have an incremental price increase, how do you think about the way in which that plays into the dynamics of your performance and what that might mean for 2019?
Mark, do you want to just comment on mobile?
Yes. Okay. Yes. So I'll take the last one first and I'll talk to mobile and see if Simon wants to chip in. But I think if you look at the dynamics, and you can see this is the good thing about the KPIs, it looks very transparent in terms of the behavior we see in our customer base with the old pricing model where we do get a temporary -- what I would describe as a temporary blip in revenue growth as we put the price rise in. We also get higher churn and you can see that in the churn KPIs as well. And that's the phenomenon of effectively a large number of customers being out of contract and churning at greater rates, and that's been visible on our KPIs for all of the quarters that we've issued. And so our belief is that moving to a much more sustainable model where it is recognized and written in customers' terms and conditions and now they consciously are either joining us or regrading with us in a knowledge that on a predictable basis, once a year, the price will move in line with inflation at whatever rate that's going to be, will smoothen out, I think, the churn. I believe over the long term, it will reduce churn and that is one of the most important objectives I think we have with the largest customer base. We should have best-in-class churn and highest loyalty in our customer base. And that should then in turn lead to revenue growth from the existing customers we have as they stay with us longer and more predisposed and happier through their NPS, more satisfaction to buy more products and services from us in the form of convergence, which leads to a much more sustainable long-term model for us. So that's how I think about fixed broadband and the changes that we've made and how you should be thinking about it as well.
What was it, comments on other mobile being down. Was that right, Akhil?
Well, just the dynamics of -- on mobile is there's lots of dynamics here. Some of it, as you say, is IFRS 15 and some of that -- we've got some very significant dynamics happening. You've got channel mix. So the more we do through our direct channels does impact through IFRS 15. The price of the high-end smartphones, even though the volumes, as we pointed to, are lower year-on-year and that's consistent with the global trend. If we're doing higher-priced devices going through our direct channels, you see that flowing through in IFRS 15. But you've also got a growing number of customers moving to SIM-only. So the SIM-only base, when you look at the mobile revenues as an average, that brings the average price down as we're seeing less and less customers, as we said, buying and upgrading to smartphones. So that's how to think about the dynamics going on in the mobile.
Yes. I think, Mark, you've captured it. I mean, the main effects are that if you look at Q3 this year versus Q3 last year, the quarter-to-quarter growth is somewhat lower. I think you've really captured the 2 main effects, which is we talked about it already. We had a lower in terms of performance of the higher-end smartphones this quarter relative to the Q3 last year. And in addition to that, we've seen a continuation, perhaps somewhat of an acceleration and movement to SIM only. And it's those 2 factors which probably show the Q2 to Q3 being lower, about 1% versus 3.5% or so previously.
Very good. Thank you.
Can I just ask one very quick clarification? I mean, just one difference in your fixed line price increase this year, also a lot at back end of last year, was that you allowed customers to avoid the price increase if they voluntarily looked into a contract extension or up sold to BT Plus. Can you just give us any color around what you've seen, like how you've seen price increase versus people adopting that instead?
You got any detail you can share on that, Mark?
I think I've reviewed over the last year all of the activity that we've done and the new model that we've set out, I believe, is going to be the right one for the future to improve loyalty customer satisfaction and long-term performance in the business.
The next from Robert Grindle from Deutsche Bank.
Gavin, you have been straightforward, open and quite good humored with us. So I think that's much appreciated, and good luck to Philip. And a couple of question, actually following up on EE. Last quarter, EE benefited from supplier rebates, I believe. I assume that meant you have to take on more orders for handsets given the weak smartphone demand, which you flagged. Is that a -- have you got an inventory risk there or that would sort of unwind and we shouldn't worry about it? And then just secondly, quickly on China, which you called out in the presentation. Just practically speaking, what does that mean? There's a lot of politics going on with China at the moment. Does this mean that you can actually be the protagonist, winning contracts yourselves in China rather than being sort of a second party for the Chinese operators selling into Europe?
Very good. Well, on the first one, there's no stock issue that we're sitting on at the moment in the mobile business, so don't worry about that. Then, on the license in China, which has been, I think, a labor of love, well, certainly, the guys had started working on it before I became CEO, so it's several years. We're very happy to be, I think, the only Western service provider able to build directly in China. I think that will allow multinationals who are operating in China or expanding in China, I think it really helps them. I think we'll be able to offer better pricing, better value as part of that. And of course, the other way around is true as well. Chinese companies wanting to expand into Europe, I think that strengthens our overall proposition for them. So we're pleased to get it at last.
You got now Nick Delfas from Redburn.
Gavin, good luck for the future. Best wishes. Just a quick one on the slides. I mean, obviously, there's the famous missing year in the final slide of FY '20 and I know some of us have talked about it. But actually, if I listen to your commentary, you're talking about slightly less revenue from smartphones, which, I guess, we can all understand have a huge impact on profit and then some other pressures on the consumer market and some very good cost performance plus a good beat in Q3. So without wishing to put too many words into your mouth, on FY '20, is there any major change to the missing year over the last few months in terms of how you think about that?
No. The missing year, FY '20, we continue to feel that we've got the right outlook and we're not changing that. What we've been trying to talk about today is we can manage ups and downs in the market, and we can reiterate that we've got the right medium-term outlook. So cost transformation going very well. We see upsides there. Market dynamics, on the other hand, are a little tighter as more generic issues such as smartphone sales being down for the market as a whole mean that we've got to ease, we've got to take account of that going forwards. But the net-net is I think you should see this as a confidence statement that we can manage these nips and tucks within the plan and still deliver what we said we would.
Okay. And if I could just have one follow-up. Emergency Services Network, we don't speak about very much anymore. Is there any update on that in terms of whether additional revenues are going to be coming on stream during the next financial year or into '21?
It's on track and delivering as expected. And of course, as we go into the medium term, I think that we'll offer, I think, opportunities to both consumer and business because we will have market coverage for customers and we'll be able to sell increasingly on the back of that. So not much more color than that, but it is definitely a source of competitive advantage.
We now have David Wright from Bank of America.
Congratulations, Gavin. I think anyone spending a series of years in this industry really goes to [ those that can afford it ]. Yes, just following up on the Consumer headwinds, obviously, a little bit of focus today. I guess, my question is that, if we think about the dynamics, the slower price rises, price rises obviously carry a fairly substantial margin. If we think about the EU regulation on international calling, that's surely a very high-margin revenue stream that's getting capped this year. And even the potential for some sort of churn on the back book into the front book with the Citizens Advice Bureau super-complaint, these all feels like sort of very high-margin revenue streams that are potentially slowing on a sort of 12- to 18-month view, and I guess, that's just bringing me a little more around to the consensus question. I think you suggested you were comfortable. But when I see consensus, Consumer EBITDA growing 2% to 3% per annum over the next couple of years, that feels slightly out of whack with a very high-margin revenue stream that's potentially slowing. Any granularity you could give us on that, please?
What? We don't guide unit by unit. What I would say is, just to reiterate, David, what I said in my speech and just -- and said right now. In any 3-year plan, you set out an outlook and we're reiterating that today. Things change as you go forward. But what you're hearing from me, and more importantly, the broader team is we can see the changes in the market. We can see changes in regulations, some are emerging a little stronger than we expected. But overall, within the range of scenarios that we imagined 12 months ago and we can navigate our way through them. And I think that is a sign of confidence and grip in the operation, confidence and grip in the investments we're making in fiber and wireless, delivering returns. And the early evidence of convergence in our products and services in Consumer and indeed, Enterprise, is really, really encouraging. And remember, those are margin-enhancing, value-enhancing propositions for customers that drive customer satisfaction and drive loyalty. And they're a source of competitive advantage for us. So I think we are better placed than anybody else in the market to be able to navigate through regulatory and market pressures because I think we've got the propositions that can offset those. So see this as a statement of confidence. Obviously, I'm not going to be here, but I can tell you I'm speaking on behalf of the ExCo and I know in speaking with Philip that he feels suitably confident as well.
And now Nick Lyall from SocGen.
Gavin, thanks again and all the best as well for the next few months. Just a couple, please, if that's okay. Just to get back to the churn point, Gavin. 1.4% stills seems very high, especially given it's struck on the fixed line base, not the broadband base. So could you kind of give us a rough idea of roughly where that stands on broadband and where could it get to with the CPI changes? I think Mark mentioned out-of-contract customers will take a different view on churn. But does it have any mechanical effect on in-contract, meaning you can't churn if it's in your contract? Any steer on where that might end up would be great. And then secondly, on pricing. Could you give us an idea on the effective price rise and ex mix? So the effective price rise over the last few years, just so we could measure it versus CPI, please.
Let me have a go at the first one. And who's better -- do you want to talk on the size of price rise or not?
Yes. We...
Let me just add a comment, first of all, on churn. The churn spiked in Q2 and we explained why, and Mark was very clear at the time. We didn't find it an acceptable number. It had gone from, I think, 1.2%, 1.3% to 1.6%, come down to 1.4% in Q3. The third quarter is always high. There's a seasonality in the churn profile. So 1.4% is actually a good trend and it's coming down from there. So I think what we were trying to explain is that a combination of the price change, coupled with Openreach launching their volume -- discounts for volume commitment offer in Q2 was a bit of a perfect storm downstream. The good news is I think we've responded to that and we're back on track. And I think looking at the sort of most recent data, we're very confident that the strategy is working for us. So don't think that the 1.4% is static, is the one thing I would say.
Yes. Just to build on that then, Gavin, it's Mark here. We've got 12 quarters of churn KPIs there. So you can see for the last 3 years, 1.4% is about average, but it's not something we're satisfied with and our whole approach is to improve loyalty and reduce churn within our customer base. So we'll continue to focus on that. You asked 2 questions on the price rise, how it looked before. On the slide, the Consumer slide, on average, the price increase was around 6% and that's the sort of historical norm for the last couple of years. So we put that in as a guide. And CPI, obviously, you can all see where that is. So that's a good indication of the comparison. The mechanic, just so everyone's clear, the mechanic for getting the CPI inflation on your bill is at the point of joining BT as a new customer or re-signing to a new contract as an existing customer. And we do many, many recontracts. And as customers move to BT Plus or want to join complete WiFi, that's a point of recontracting, which means we'll be building that customer base that are then eligible for the CPI increase in 2020.
Very good. Thanks, Mark.
And Paul Sidney from Crédit Suisse.
Again, Gavin, very best of luck for the future. Just a couple of questions for me, please. Your medium-term guidance remains unchanged. You're targeting full year '21 EBITDA high in full year '19. I was just wondering over the past 3 quarters, how your view of the divisional mix of full year '21 EBITDA changed. I'm not looking for specific guidance but just sort of more directionally. And what's -- just really trying to get to the bottom of what's really driving the FY '21 EBITDA growth versus FY '19. And secondly, on FTTP, hopefully, I've got these figures right but it looks like you passed, I think, 340,000 homes with FTTP in the financial year-to-date. I think the target was 600,000. Are you on target for the 600,000?
I'm going to ask Simon just to answer the first question, which is sort of mix of medium-term outlook and then Clive to update you on FTTP.
I think we set out that and confirmed our medium-term outlook, we've explained the drivers of that. To be really clear, we set this outlook out beyond the immediate year, and indeed within the year on the basis of the overall group. We don't provide specific guidance even for 1 year division by division and we certainly don't over a 3-year period. Because during that period, there are trading dynamics. There's movements in our cost transformation programs. There's moving in regulation. So of course, in any period, how we expect individual units do will move up, down and around. What we're saying is overall, we're confirming our midterm outlook for the group as a whole.
Clive?
Yes. On FTTP, Paul, fully confident that we'll do as we said we do, which is build the 600,000 of FTTP this year. Just in the detail of the numbers that you see, we're only declaring in these numbers fully ready for service sites. So our build is way ahead of the number that you're looking at. And we are doing light testing and commissioning on a very big base that's already been built in the distribution network. And you will recall on the Q2 results call, Gavin did point out that we had taken or begun taking delivery of the very latest head-end technology, which is not just compatible with today's FTTP, which is a technology called GPON. But we bought the latest version, which is compatible with the next generation of PON technology, XG-PON. That is why we waited for the state-of-the-art equipment, and that's why we are now catching up through light testing and commissioning on a backlog of builds.
Good answer. Thank you.
What's the difference -- sorry, what's the timing difference between build and fully ready approximately?
It's in the -- of the order of a quarter.
Very good. Guy?
Yes, Guy Peddy from Macquarie.
[indiscernible]
I can't hear you, Guy.
That is better?
Nope.
Can you hear me now?
That's better.
Sorry about that. I'm not sure how you can tell [indiscernible]. I'm getting confused with the telephone. Good luck from my part as well, especially after last night's results. Two quick questions, if I may. One point of clarity on BT Consumer. I'm assuming that there's been no shift in any of the mobile revenues because of the convergence product into fixed and things like that. So can you explain what the possible EBITDA benefit was from the lower handset volumes and markets environment you are seeing? And on a secondary point on Openreach, it would appear as if we've been taking numbers down aggressively over the past few months because of the volume discounts. But it would suggest that actually the volumes that it's running at are actually bigger than expected. So should we continue to expect some recovery in possibly the Openreach EBITDA from a greater demand than we'd previously forecast?
Simon, do you want to take this one?
Yes. On, I think, the question around mobile and higher profit from lower handset growth, I think that isn't a dynamic in the quarter. What we said actually was that reduction in -- or the slowing demand for high-end handsets was a primary contributor to the slower revenue growth in mobile quarter -- well, year-on-year from Q3, compounded by the continuing trend towards SIM only. What we have seen though is that, notwithstanding that trend at the revenue level, as Mark indicated earlier, we have seen some movement in channels within that handset business and that's seen a little bit more going through direct channels, for example, and that has been somewhat supportive to EBITDA margins. So that was the other point that we made earlier.
Very good. I'm conscious that it is just past 10:00 and we've got a few more questions in the hopper. So I'm going to try and answer the next few quicker.
I think on volume discounts was the...
Oh, my apologies, sorry. Clive?
So I think the question was about what to expect in the Openreach numbers. What I would say is that the volume price deal is delivering absolutely as we had expected. We have a lot of service providers signed up: big ones, medium ones and a few small ones. And the service providers who have signed up are consistently delivering to the volumes that get them the discount and get me the volume of superfast and ultrafast products. So we are in line with our expectations. It's going well.
The only other thing for us and perhaps I just would absolutely reinforce this is that on announcement of the commercial deal, we then had sort of 7 months or so this year. Of course, the bulk of those discounts do hit the second half. We've had some in Q3, but we expect some further impact in Q4. But we also indicated that the discounting structure tend to be more loaded in the front year of the plan. And so as we get continued volume, that impact will somewhat attenuate as we move into the next couple of years.
Very good. Right. Thanks, Guy. A few more questions. I'm going to try and speed things up a little bit.
We've got Wilton Fry from Royal Bank of Canada.
Sorry, my question has actually been asked and I thought I'd cancel the question.
We have Sam McHugh from Exane. Gavin, shall I move on?
Yes, we'll move on. I'm sure Sam will rejoin.
So Jerry Dellis from Jefferies.
I'd like to echo thank you for being so straightforward with us over the years and best wishes going forward. I've got 2 questions, please. One is within the consumer fixed ARPU, 5% growth this quarter, is it possible to quantify in some way how much of that was a function of there being a second price increase in the comp? And when we look at the sort of underlying fixed broadband business, you're selling BT Plus evidently in quite strong volumes. So typically, the customer who reconnects to a new contract with BT nowadays, is it possible to give us some insight into whether they trade up or down? Does the price point go up or does it go down as a function of the recontracting, please? And then secondly, just a question on the Openreach volume discount from wholesale fiber. I suppose that is quite a powerful EBITDA tailwind for BT Consumer, not just in this quarter but for the next sort of few quarters. And I just wondered whether it's possible to highlight whether perhaps benefit was overweight this quarter or whether we should see a similar sort of EBITDA tailwind from the cheaper wholesale FTTC pricing within BT Consumer over the next 3 quarters.
Mark, first one, and then Simon.
Okay. I'll take the first one. No, we don't split out the impact of the 2 price rises, but I think we've given an indication of the level of increase, as I said, on the Consumer slide earlier on. The whole premise behind Plus and we launched new, what we call, chapters for customers every 6 to 12 months is where we put better products and services in there to deliver what we call more for more. The customers get more, they spend a little more with us. And we're very -- we're not splitting out those numbers, but we're very encouraged by the uptake of these services, which is in line with that principle of more for more. And complete WiFi, the latest chapter of BT Plus, is another example of that and that's off to a good start.
And Simon, on EBITDA tailwinds from the volume offer?
Yes. So I mean, I think we've covered the volume offer. We obviously remain convinced that that's the absolutely right strategic move. Clive's already touched on the success that the program is having in driving fiber take-up on the Openreach platform and making that a stronger platform, more value for its CPs and customers. It's also provided lower price broadband for CPs, including our own, and that has been a benefit. But we also have been really clear at the time of the launch that we knew this would have an impact on retail dynamics, and it is. And so the volume deal combined, obviously, with lower regulated WLA charges, there's also some sort of market entrants, all of that is having an impact on the retail dynamics, which we've again stressed today. So the retail business benefits from the lower wholesale prices, but most also contend with, as we've said today, a pretty intense set of market dynamics at the retail level.
We have James Ratzer from New Street Research.
Gavin, like to send my best wishes, too. Thank you for spending time with us on your last day in the office. So the question I had really was just around the kind of guidance you've given for this year, which is that you've upgraded in November but you've left unchanged at this stage despite kind of again beating where consensus was. I mean, it looks like, I mean, over the past 3 quarters, group EBITDA has been flat or even up year-on-year. And now the fourth quarter, you're guiding that it's kind of going to be about minus 9% or about a GBP 200 million decline. I've been trying to understand the bridge that drives that. Basically, maybe that we've got lapping on some of the consumer pricing, but that doesn't seem to make up that bridge on EBITDA. So have you saved a little gift for Philip in May that he can then say that he's beaten the guidance that we set out?
Hey, look, we're good friends, as you know, but not that good. Simon, do you want to sort of talk us through the bridge?
Yes, certainly. I mean, I think the various pieces of this we have covered before, but let me try and summarize it for you. I mean, we performed -- we feel well in Q3 and year-to-date. But it's important to draw out the primary contributors to this really have been Consumer where we've talked a lot about the price rises, Mark just touched on that, and indeed, the Openreach discounts. And -- but in addition, I think we stressed we've seen early delivery of the cost transformation plans across the company. But I would particularly acknowledge this has been a meaningful contributor in Global Services and I think it's also a contributor in the Enterprise business. So performed well, Q3 year-to-date, Consumer and cost transformation, in particular, contributing. Second point, we did stress at the half 1 results that we did expect to see a different seasonal pattern this year compared to some prior years. And you remember that what we said was that Openreach will face the majority of the impact to the fiber offer in the second half, and of course, that Openreach continue to recruit through this year in order to hit higher service levels and the build plans. And when you recruit, you've got training costs of getting the guys on the park. So as you ramp up the recruits, you've got a growing trading burden. So that was why we wanted to make it really clear that Openreach had a tough second half. And then on Global Services, we stressed that we saw a more evenly phasing of quarterly trading this year and that we expect it, and last year, they benefited in half 2 from one-offs but not this year. So seasonal pattern, Openreach GS continues into Q4. Third point, as we've said today, we have seen some intensifying sort of marketed competitive pressures in Consumer in the volume, and the Enterprise, we touched on those. And so those will impact Consumer and Enterprise in Q4. So the combination of that, the market dynamics but good transformation progress, we've nudged up the EBITDA guidance to the top end of our guidance range, but overall confirmed guidance for the year. So hope that covers it. I should probably add, of course, that if the performance does flow out as we said, the upper end of our guidance, that always tends to get reflected in how we look at overall bonus accruals, for example, in the final quarter.
And James Britton from HSBC.
Gavin, best wishes for the future. I've got one more in the super-complaint, please. So my question is whether BT has got a higher proportion of customers out of contract than your competitors given perhaps all the less-price sensitive nature of the BT customer base. I think Ofcom has been very helpful with the overall market numbers, also the revenue and profit at risk. So anything you can say about your relative exposure would be interesting. And then can I also just confirm or understand whether -- as part of this initiative to reshape the operating model, the pricing model, does it make sense to consider some changes to the out-of-contract price hikes, in the scale of them, to mitigate these risks?
Okay. Mark, do you want to take that one?
Yes. On the pricing, as I said, we are reshaping the end-to-end proposition service model for BT and the CPI price move is part of that. It's not the only part of it and we're considering all elements of our proposition, including the point that you raised there in terms of what that means for how we deal with the out-of-contract customers. We haven't -- we're not going to break down our out-of-contract base in number terms or how that compares to the competition. We're very engaged, as I said, with Ofcom on how we can improve engagement, transparency, trust, fairness with our customers. And our job is also to create great reasons for customers to want to join us and stay with us and regrade and move to new packages on BT Plus, and that's what we're doing.
And Andrew Beale from Arete Research.
I'm just wondering if you could comment on where we are on the copper switchover basis as a component of the GBP 10 million FTTP investment case. I guess, Openreach hasn't discussed this with the service providers. And there's obviously a series in the form of Ofcom consultations to come. And so where are we in these discussions? And are you confident there's a basis on which you can get aligned with the SPs? Or are the assets, the stranded [ ROU ] assets making this a fairly tricky conversation?
Well, I'd sort of -- I'd go back to something I said in my speech, Andrew, which is we've had good discussions and a number of good discussions with Ofcom on this matter. I think Clive has had a number of discussions with the CP community about managing the transition. And I'm encouraged, and generally, we're encouraged at the progress we're making. So we expect to hear more in the next couple of quarters. But it is undoubtedly, I think, moving in a direction that makes us feel the issue is fully understood and will ultimately go towards us being able to make a stronger plan on investment of FTTP going forward. So no specifics at this point, but definitely good progress and expect to hear more in the next couple of months.
And now Sam McHugh from Exane.
Gavin, best of luck in your next ventures is all I just want to say right now. Maybe 2 big picture questions for you. We've heard a lot about the slowing fixed line revenue outlook. Both yourselves and Virgin are both increasing CapEx into this declining growth outlook, which kind of implies that return on capital is getting worse. Now how does that fit with creating shareholder value, number one? And second thing, I think you mentioned talking about launching a new 5G-based home router. How should we think about 5G in CapEx and also about the threats from fixed mobile substitution, especially given that a lot of your competitors are big mobile-only guys with quite significant spectrum holdings?
Okay. The heart of our strategy is our network, both the fixed network and the wireless network. As you know, I think we have an unparalleled position in the market with market leadership in both. And increasingly, we're seeing how we can build the network in a way that is mutually supporting to fixed and wireless. The investments we're making in FTTP is relatively early days, but I think the early signs are encouraging. Clive is getting some -- the cost for homes passed is at the bottom of the range that we talked about. And he's getting the throughput through the organization that would allow us to scale this very quickly. And as sign of our confidence, I think you can see earlier this week where Clive announced another 11 cities, so I think we've got 25 cities that we've announced now and another 3,000 apprenticeships so that young people can be building this network for us. Well, not just young people, anybody who can qualify as an apprentice. You quickly backtrack. I'm not ageist, can't afford to be anymore. So look, we're confident, Sam, that the money we're putting into the network will deliver a return. We're living in a market, if you take a step back where data consumption, data usage, continues to grow at a -- at 40%, 50% a year, that is a high-quality problem to solve if you've got the capability to meet that demand. And I think both on the fixed side and the wireless side, I think we've got that. If the market moves to fixed -- more to fixed wireless access, I'm very confident we can mitigate that because we've got a foot in both camps and an ability to do that. And there are more spectrum auctions coming up and we're making sure we're well prepared for those in '19, '20. So look, I look at our position and I think I'd rather have it than anybody else's in the market, and I would think that many of our competitors are envious of that when it comes down to it. I think we're very well placed to take advantage of it. Very good, and that's all folks. So Philip, are you going to make some comments?
Yes. Thank you, Gavin, and thank you for inviting me to today's call. I want to take this opportunity to say a few words about what I've been doing since the beginning of January and what to expect over the next few months. Since joining, I've been working with Gavin and the team to get up to speed with the business and to understand some of the issues and opportunities facing BT. While I still have much more to do to get around all of BT, I would like to thank everyone for all the help they have given me to date. I've also been meeting external stakeholders, including the government and the regulator, to understand the world from their perspective and how we can work together in everyone's best interest. I formally step into the CEO role tomorrow and plan to take the next few months to review every aspect of our business, our strategy and our plans with particular emphasis on meeting colleagues and hearing direct from customers. I would expect to be in a position to update shareholders at our full year results in May and you shouldn't expect to hear much ahead of that time. However, I would like to make just a few -- a couple of observations. First, as I've said, I've met many BT colleagues since joining the company, and I'd like to say how pleased I have been to see how many quality people work at BT. Additionally, although I can see a fair bit of bureaucracy, it's also great to see how committed our colleagues are to BT and to delivering great things for our customers. Second, it's clear that we are in a period of sustained investment, which is required to transform BT's business. And finally, in terms of direction of travel, although it's early days, I thought it worth clarifying that in my view, differentiated customer experiences, integrated network leadership and transforming our operating model will endure as key pillars of any future strategy. I would like to conclude by saying how pleased I am to be joining BT at this time. Under Gavin's leadership, BT has achieved a great many things and is well positioned with a very exciting future ahead of us. I would like to take this opportunity on behalf of the BT board to thank Gavin for his commitment to BT over more than a decade at the company. Under his leadership, he has transformed the business through the acquisition of EE and our entrants into TV and sport. And he has shown passion and dedication through some pretty difficult market conditions. I would also like to personally thank you for the support you have given me in what has been an exceptionally smooth handover. Gavin, as you can hear, we all wish you all the very best for the future. Gavin?
Thanks, Philip. And that is the end of the call. So thank you very much, everyone. I don't know how many of these I've done over the years, but I think it was 23, somebody was telling me. But even after, I've actually enjoyed them. And so I wish you all the best for the future, and thank you for listening.
Gavin, thank you. All the speakers, everyone, that concludes your conference call for today. You may now disconnect. Thank you for joining, and have a good day.