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Good day, and welcome to BT's Trading Statement for the Third Quarter Ended 31st December 2021. My name is Sandra Patrick, and I'm your host today. [Operator Instructions] I would like to advise all parties that this conference is being recorded for replay purposes. And now I'd like to hand over to Mark Lidiard. Please go ahead.
Sandra, many thanks, and welcome, everyone. My name is Mark Lidiard from the BT Investor Relations team. Presenting on today's call is Philip Jansen, Chief Executive; and he'll be joined for Q&A by Simon Lowth, Chief Financial Officer. 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 now hand over to Philip.
Thanks, Mark. Good morning, everyone, and thanks for joining today's call. As usual, for our third quarter results presentation, I will make some prepared comments. As Mark said, Simon is with me, so we can both take your questions later on. So I'll briefly talk through the highlights for the quarter, our business unit results and our progress against strategy. Starting with the highlights on Slide 4. Overall, the business performed well in quarter 3. We saw a softer market with revenue impacted by some deferral of activity caused by COVID-19 and some supply chain issues. But if you take a step back, you can see that we are firmly delivering against our strategy and accelerating the pace of execution. For example, on build, Openreach saw record FTTP build in the quarter, taking its FTTP footprint to over 6.5 million premises. On take-up, Openreach FTTP net adds in the quarter were up 37% quarter-on-quarter and are now at 20,000 a week. On customer experience, group NPS is at an all-time high, while churn and complaints continue to run at extremely low levels. On our strategic products, Consumer saw record FTTP adds in the quarter and now has over 1 million FTTP connections and 6.4 million 5G-ready customers. And we had a solid cost performance as demonstrated by the stronger EBITDA.These examples demonstrate the positive operational and commercial momentum in the business and show that we're delivering well in the areas in our control. At this time, whilst we are seeing several positive lead indicators across the group, including low churn, record high group NPS and encouraging market share signs in Enterprise and Global, we don't expect a major pickup in activity from large corporate customers until after quarter 4. As a result, we are amending our full year 2022 revenue outlook from broadly flat to down circa 2%. But importantly, we're also reconfirming the remaining items of our outlook for this year with the lower revenue being offset by strong cost control. The lifting of most COVID-19 restrictions across the U.K., coupled with the accelerating pace of delivery against our strategic priorities, gives us the utmost confidence in our previously stated objectives, including consistent and predictable growth in revenue and EBITDA from fiscal year '23. As I'm sure you all remember, I said in November that at least GBP 7.9 billion of EBITDA guidance for fiscal year '23 was deliverable under any imaginable scenario. And with the positive underlying momentum and strong lead indicators we are seeing across the business, I reiterate that commitment today. In addition to our results this morning, I'm really pleased to make 2 strategically important but separate announcements in relation to content. First, we've reached a new agreement in principle with Sky on our reciprocal content-sharing agreement to beyond 2030. Separately, we've announced that we're now in exclusive discussions with Discovery to create a joint venture with BT Sport and Eurosport UK, more on these later. Before outlining progress against our strategic priorities, let me quickly touch on the financial performance for quarter 3, starting on Slide 5. Revenue for the quarter was down 2% to GBP 5.4 billion as declined primarily in Enterprise and Global were only partially offset by Openreach. EBITDA of GBP 2 billion was up 4%, driven by growth in Consumer and Openreach and strong cost control across the group. An acceleration of fiber build in Openreach and investment in our mobile network drove an increase in CapEx. Excluding Spectrum, this was GBP 1.2 billion, up 14%. Normalized free cash flow was an inflow of just over GBP 500 million, an increase of 27%, driven by lower cash tax, increased EBITDA and improved working capital movements, partly offset by the increased CapEx. Turning to Slide 6 on our unit performance. Starting with Consumer. The quarter benefited from continued growth in the BT broadband base, sequential broadband ARPU improvement and a record direct channel handset mix, but was offset by lower postpaid mobile revenue, driven by an increasing SIM-only base, coupled with reduced market activity, which led to a 1% decline in revenue. The significant increase in EBITDA was driven by lower indirect commissions, tight cost management and a number of small one-off items. Moving to Enterprise. Declines in legacy products and contracts, coupled with the ongoing migration of an MVNO customer in wholesale, continued to impact the business. Despite the benefits of our cost transformation program, EBITDA decreased year-on-year, driven by the reduction in revenue and the timing of profit recognition in some of our larger contracts. While the 12-month rolling order book continues to be impacted by extensions in quarter 4 fiscal year '20, the year-to-date order book for Enterprise is encouraging, up over 8%. We also see encouraging signs in terms of our market share, particularly in mobile. Global continues to see near-record high NPS, high win rates for new business and renewals and is broadly maintaining market share. But the impact of COVID-19 has meant continued reduced market activity and lower project-based spend. This offset the benefit of revenue from relationship-driven, lower-margin equipment sales. In addition, revenue this quarter reflected the impact of prior year divestments and a negative foreign exchange movement. Excluding divestments and foreign exchange revenue, foreign exchange revenue was up 2%. EBITDA for the quarter reflected a lower revenue, partly offset by lower operating costs from ongoing transformation and rigorous cost control. Excluding divestments, one-offs and foreign exchange, EBITDA was down 17%. In Openreach, revenue growth was driven by continued higher rental bases in fiber network products and Ethernet. EBITDA growth reflects the increase in revenue and ongoing efficiency programs, partly offset by higher fiber provisioning costs, reflecting further positive momentum in the take-up of our market-leading networks. Costs were also impacted as we continue to invest in our people to deliver ever-improving customer service and network build. Moving on to Slide 7. In May, I outlined our plans for a future that is about consistent, predictable and sustainable growth. In November, I outlined how progress against a number of strategic priorities would underpin this growth. I now want to update you on some recent progress. Starting with FTTP. Openreach continues to build like fury and delivered another record quarterly build. The build rate in the quarter was over 50,000 premises per week, up from 43,000 in quarter 1. Putting that another way, we're making FTTP available to a home or business every 12 seconds. Our FTTP footprint now stands at 6.5 million premises, which means we're already over 1/4 of the way through our 25 million premises target. 2 million premises of our existing build is in rural areas. The larger scale and broader skill set of our in-house engineers is a particular advantage given current supply chain challenges, enabling us to build at an ever-increasing pace, higher quality and lower cost than anyone else. Our costs remain in the GBP 250 to GBP 350 per premises range. We continue to drive volumes off copper and onto our full fiber network using both commercial deals such as Equinox as well as exchange and product-based stop sales. Demand for FTTP is very strong. Net adds in the quarter were up 37% quarter-on-quarter and are now 20,000 a week. We now have over 1.5 million customers connected to our FTTP network and are driving even faster take-up of our ultrafast speeds. With just under half of all FTTP orders now coming from external CP customers, it is clear that the Openreach Equinox offer is working. We also continue to make positive progress with our mobile network. This includes renewed commitments to boost rural connectivity by upgrading 4G in more than 2,000 areas by June 2024. And our 5G rollout continues at pace, operating in more places than any other network. We were delighted to see RootMetrics recognize EE once again having the U.K.'s best 4G and best 5G networks. Alongside investment in our next-generation networks, we continue to invest to create standout customer experiences. Clearly, these are resonating well with our customers as evidenced by the positive momentum we're seeing in our key leading indicators. We've seen consumer churn and complaint levels remaining low for both broadband and mobile. And we achieved our highest ever NPS result for BT Group, supported by record NPS levels for BT and EE brands across both Consumer and SME. Openreach end customer sentiment is also at an all-time high. I'm also delighted we maintained our position as a market leader in IDC's European managed security vendor assessment. As we've said many times before, we have a strong position in the fast-growing security market, and we see security as a key growth opportunity for BT going forward. This also supports the acceleration and take-up of our strategic products. Our Consumer FTTP base is now over 1 million, with quarter 3 setting another record quarterly increase. This has driven additional volumes onto our converged product, Halo, our highest NPS, highest ARPU Consumer product. And our 5G ready base continues to increase and is now over 6.4 million. For our larger multinational customers, our partnership with Rackspace Technology will transform our hybrid cloud services. Our customers will benefit from the integration of their cloud management expertise, automation, analytics and AI tools with our world-leading network and security capabilities. We've also added next-generation conferencing capability to the existing Microsoft Operator Connect voice service. We signed contracts with BAI Communications across Consumer and Enterprise to support their role in delivering connectivity solutions across the London underground. BE will be delivering 4G and 5G connectivity throughout the network while BT Wholesale will be providing premium data center space. We also signed a major contract with DHL.In December, we launched our manifesto to accelerate responsible, inclusive and sustainable growth over the next decade, setting the agenda for all future BT initiatives and leading the way to a brighter and more sustainable future for our customers, colleagues and country. And finally, we continuously look to optimize the group's portfolio and capital allocation to maximize value. With this in mind, we're delighted to announce today a new agreement in principle with Sky on reciprocal content sharing. This will strengthen our strategic relationship with Sky and allows us to continue providing our customers with access to Now and for Sky to provide their customers with access to BT Sport. Ultimately, this will lead to more choice and more flexibility for our customers. We hope to conclude these discussions by the end of next month. Separately, the joint venture with Discovery will be a great home for our sports business and further enhances our content proposition. We would remain committed to retaining our existing major sports broadcast rights. And customers will get access to Discovery content, including Eurosport UK and the Discovery+ app. The joint venture agreement will be subject to regulatory approvals, and we are aiming to conclude these negotiations during quarter 1 fiscal year '23. So to conclude on Slide 8. We saw good overall performance in quarter 3 despite the softer market. We're seeing really positive momentum in operational performance with many leading indicators across the business reflecting the progress we've made in offering value propositions to our customers with consumer churn levels at near all-time lows, low customer service complaints and group NPS at an all-time high. We're accelerating progress against our strategic priorities, which is strengthening and simplifying the organization. We're building a better, stronger BT for the future founded on our leading next-generation networks, including FTTP and 5G. And I'm delighted with the 2 separate announcements regarding content that we've made today. We are firmly on track to achieve our outlook for EBITDA and cash this year, having amended our revenue outlook to reflect the ongoing impact of COVID-19. As we gather momentum through quarter 4, despite ongoing cost pressures, we remain committed to revenue and EBITDA growth next year and beyond, supported by inflation-linked pricing on around 2/3 of our revenues and our ongoing modernization agenda. And on a longer-term view, we remain confident in the delivery of significant normalized free cash flow growth with an expansion of at least GBP 1.5 billion compared to fiscal year '22 by the end of the decade, before any benefits from increased revenue and before further transformation efficiencies. Putting this all together, underpins our confidence in at least GBP 7.9 billion of EBITDA next year and our commitment to our progressive dividend policy. We've got around 45 minutes for Q&A now. [Operator Instructions] So with that, I'd please ask the operator to open up the lines.
[Operator Instructions] And we have our first question coming from Akhil Dattani from JPMorgan.
Could I maybe start on your revenue outlook both for this year and, I guess, the broader comments you've made beyond this year? I guess, firstly, it would just be great to understand where the deltas are that have led you to revise down the revenue guidance? Obviously, you're highlighting Enterprise and COVID. But if you can maybe just flesh out what you're seeing and why you're so sure it's COVID related. And then I guess the bigger picture question, which I guess is more important is, what happens beyond here? Because implicitly, your guidance implies a flattish performance into Q4, but you're being quite explicit and you're still confident in returning to growth and sustained growth into next year. So maybe if you could just talk us to why you're confident, what the main moving parts are, and yes, why we're so confident around that.
Yes. Akhil, it's obviously a key question. Let me try and answer it. Firstly, to start with the EBITDA, I think you look at this year and next year EBITDA, you can hear the confidence in what we're describing on EBITDA, and those were the reasons that we've outlined today. And you can see the momentum on cost and transformation over the last couple of years. So I think that's going to continue. And also, the core fundamentals of how our customers are seeing the business, complaints, churn, NPS, that just means it's stable, and therefore, we're very confident in delivering those numbers. Of course, the revenue is more uncertain, yes? It's less in our control in lots of ways. And again, you sort of answered your question the way you sort of asked it, it is -- it's all about Enterprise. I mean you can see Openreach is already growing, and you know it's linked into inflation and CPI. We're going to sure talk about price increases at some stage in our Consumer and SME business. So that makes us feel good about that part of revenue. So the real challenge is in Enterprise and particularly large corporate. And when I say Enterprise, I mean, Global and our U.K. Enterprise business. So again, and is it all COVID on supply chain issues? Who knows is the truth of that. Because what we do know is the market is much slower. We're not losing market share. Our market share metrics, where we have them are all where we'd like them to be. So the question is, will project-based work come back in the time frame we want for large corporate customers, particularly in Global but also in Enterprise? And will there be this sort a bit of rebound in that customer segment that we want to see? And we need to continue to sell the newer products that we've got and move away from the legacy in the way we described before. So yes, it's challenging, no question, within the Enterprise space. But 2/3 of the revenue is index linked basically. I don't know, Simon, do you want to add anything to that?
No.
Akhil, is that okay?
Yes, it is. And I guess just a very quick follow-up, just to, I guess, hopefully not leave the point. But given the indexation that we're seeing you've put through, and I guess that applies to Openreach and Consumer, I guess, is it something that you can be confident enough to say that revenue will return to growth pretty early through the year as a function of that, irrespective license or Enterprise? Or is it a bit more complicated than that?
Well, I think it's too early to start calling individual quarters for the reason we just talked about it before because the big swing item is the Enterprise large corporate market. I mean the rest of it, frankly, is mathematical, which I'm sure we'll get into maybe later on and delivery of our performance in a competitive market. So I don't know how it will work out exactly, but the prices do go up from quarter 1.
Our next question is coming from Nick Delfas from Redburn.
A quick question on the new sports channel. Obviously, currently, it's quite tightly integrated into your offers, how you sell BT Sports. So as you move to a joint venture, are you going to lose that integration? And what effects do you think that might have on your customer retention within BT Broadband?
Yes. Nice one, Nick. Short answer is no problem at all. I mean this -- the move with Discovery is a situation where the whole venture of BT Sport combined with Eurosport is stronger by definition. Clearly, the financial move of that is attractive because there'll be synergies on the cost line. And by definition, the revenues will also be higher than they would have otherwise been because we're going to be offering more choice and more flexibility to our customers. So we see upside as a result of this joint venture and no downsides.
And in terms of bidding for sports rights, how is that going to be managed? Because there's obviously a very big ticket outcomes. I mean is that is going to be separately capitalized. What kind of rules are going to be in place between the 2 partners?
Yes. As you'll understand, I'm not going to get drawn into the commercial details of the joint venture. All I'd say to you is we've spent almost a year negotiating what's the best route forward for our BT Sport business. We always said there were 3 things. We might keep it, we might sell it, we might do a joint venture. We spent an enormous amount of time considering all the options and working through the details of all the options. Let me reassure you, as we go down this particular path, we've got to sign it, obviously. We're very, very happy as are our partners with the nature of the commercial details within that joint venture.
Our next question is coming from Carl Murdock-Smith from Berenberg.
You dangled the carrot of getting mathematical, so I'll bite. So I was just wondering, if you can expand a bit on the inflation repricing. So you're talking about 2/3 overall. So the price within Consumer, when you first announced the CPI plus 3.9% price increases, I think you said that you wanted about 3/4 of the -- or you thought about 3/4 of the base would be on that type of tariff by this March. So I was just wondering, if you could kind of confirm that. And also, I suppose you've got various people on Home Essentials and BT Basic, et cetera. So kind of what proportion of the Consumer division revenues overall will see the CPI plus 3.9% price increase. And then I suppose in Openreach, can you also just kind of confirm what percentage of revenues overall that will also see inflationary price increases as we come around into April?
Yes. Carl, of course, if everyone wouldn't mind just indulging me for a minute on just let me talk through the rationale for the price increase, so we're clear. And you'll hear some of the way we'll articulate to our customers by definitely. And I'm going to ask Simon to try and reconcile for all of you guys. I realize this is a very important topic for all the obvious reasons. Obviously, it's a positive dynamic for all of us. But it is important that everyone gets it right, and there are some uncertainties by definition. So let me -- if you give me 2 minutes to wrap through the thinking, and Simon will try and reconcile as best he possibly can how you can think about your modeling. Is that all right?
That's correct.
Okay. First, I think just in terms of why are we doing this. And I think it is -- we're going to be putting the price up. It's contractual. All our customers know about it. When they sign the contracts, it's completely explicit. It's completely transparent. And so -- and that's a much better way of doing things. Nevertheless, we're in the teeth of an inflationary storm, and builds are going up everywhere for everybody and in certain places, massively, particularly energy. So we recognize that. And so we need to be very careful about why we -- how we explain how we do this. So let me give this to you. So for example, firstly, when we look at the data usage, data increase on our broadband network, up 90% since 2018. And on mobile, it's 79% since 2019. So you've got huge data usage on our networks increasing dramatically over just the last couple of years. And our customers are relying more than ever on that core connectivity, whether it's mobile or fixed, whether it's working from home, online education, growth of TV, streaming, gaming, all the things you know well. So we think that's a very important first point. The second point is we're investing really heavily, right? So you can hear some of that stuff in the GBP 15 billion of spending on building like we're in FTTP, the leading investment in 5G network, funding the Huawei swap-out, all the things we like to do on sustainability. There are slight premiums on renewable energy, for example. We think it's the right thing to do, and our customers support us on that. But ultimately, it has costs associated with it. So we're a 100% renewable energy in BT. So I think so in terms of the -- there's usage in the connectivity part and then there's investment as well. And obviously, we're suffering in our own like getting costs up in our own business. I think what I'd just say is you can get -- in terms of value for money, the average British household gets brilliant connectivity at speeds of more than 70 megabits per second at GBP 1 a day. So I think you just got to stop and think about it. So that is a big anchor point. So 70 megabits per second for just GBP 1 a day. Yes, the price is going up, and that we think is exceptional value. And if you compare that to other places, the U.K. is 40% cheaper than the U.S. and around 30% cheaper than Germany and Spain. And again, just in terms of kind of the final points for you to think about. I mentioned our customer service. I'm always banging on about NPS and delivery for our customers. And we have had, throughout the last 2 years, through difficult times, through COVID, we've delivered very, very good customer service. We're the only network to answer 100% of our customer calls in the U.K. All these things are, of course, slightly more expensive than the cost driven exercise of outsourcing. So we think the service is really good as well for our customers. Final point to make is you sort of mentioned it, Carl, we are thoughtful about how we think about this price increase for everybody, and then we've got a significant chunk of customers who are either vulnerable or in low income, and they come under the banner of our Home Essentials package. And that Home Essentials package will not go up in price. So that's sort of the rationale and the thinking why the prices will be going up by the way that I described. But I would address to you the uncertainty is we need to maintain our business as it stands and make sure that our customers get great value for many compared to other people. And that is the unknown when it looks at the delivery in April, May time. Simon, do you want to help a little bit in terms of how we think about it from a revenue point of view for the people on the call?
Yes, sure. So let's start, Carl. Let's start with Consumer. We absolutely said that as we rolled customers onto the new contracts, that something like 75%, Carl, of our sort of contracted connectivity customers would be on the new CPI plus contracts as at the 1st of April. That remains the case. What we're also clear on is that there are some elements of our revenue that are not sort of subscription-based connectivity contracts. So good examples of that would be our wholesale store, advertising, pubs and clubs. You also do need to strip out things like roaming interconnect revenues. And in addition, we made clear that we'll protect certain vulnerable customers. If you add that lot up, Carl, it's probably a good proxy. And if there is -- but it's probably about 20% of the revenue is not sort of within the overall scope of subscription contracts. So the remainder, 75%, that will be eligible from the 1st of April. So that's on the Consumer side. If we go to the Openreach side, probably a good proxy, Carl, take the total revenue. There are certain ancillary services, some of the Ethernet portfolio, not on the direct index linked. So the residual is probably about 80% of the Openreach revenue base. So it's those 2 that get you to the sort of 2/3 of the group. And then, of course, there's the volume end in the Enterprise segment as well. It's about, yes, 15%, something like 15%, I think.
Okay. Carl, how that works, Carl, one final, just to finish off. But hopefully, this is for everybody. So 3 things. The prices are going up. Yes, it's significant, but we still think we provide good value for money. Secondly, we're going to look after our vulnerable customers and low-income customers. There's no price increase for the people on those social tariffs. And thirdly, if the market does become irrational, we will always ensure we remain competitive and maintain our customer market share. Carl, does that help?
That's brilliant.
Next up, we have a written question that was submitted by Jakob Bluestone at Credit Suisse. And the question is, over what sort of time frame do you see Global and Enterprise turning around? And when do you think these segments can stabilize EBITDA or return to growth?
I mean thanks, Jakob. And again, as we said or referred to earlier, that is the key unknown for us is when does the Enterprise business come back to growth. And again, as we look forward, we're confident that the business will grow next year from a revenue top line point of view. And the key challenge is can we -- when does the Enterprise growth trajectory appear? And we just, it's too uncertain to call right now. But overall, we feel confident in the revenue growth. What I would say, just to put some dimension on it, the public sector is good, and the SME and service sector is good. So we feel comfortable about that. It really is for Global, the international large corporate customers. And for Enterprise, it's that sort of wholesale and large corporate customers that we need to get some trajectory on.
Our next question is coming from David Wright from Bank of America.
Two questions. We've talked about the revenue inflation, I guess, on to the cost inflation. And you guys have these sensitive, I guess, discussions on wage rises, especially after the wage freeze recently. So I was just wondering, if you could give us any light on this, especially compared with the kind of prices you're pulling through in the retail environment. And whether there's any kind of ballpark you could give also how we could expect wages to inflate within the '23 EBITDA guidance, that would be very useful to get some color on. And just as an addition to that, we got Vodafone yesterday commenting on the impact of energy price rises. Some telcos like Telefonica are getting hit already. Some guiding to a 12-month delay because of hedging. If you could maybe give us an indication as to what is your exposure to absolute energy spot price rises, and when we could expect that to hit the numbers as the hedging rolls off, that would be very useful.
Sure. Thanks for those questions. I mean Simon can do the energy answer in a minute, and let me try and handle the pay question. Again, completely understand where you're coming from, David. A very important topic for a whole host of reasons. A, from our people's point of view, hugely sensitive. They're under the same pressures I referred to earlier in terms of inflation and the squeeze on disposable income. So -- but also for all of us and you guys are looking at our business in terms of the financial impact of payer water when the salary bill is sort of GBP 6 billion, GBP 6 billion is obviously important. So again, I can't give you a specific answer. Of course, I can't because we haven't decided yet, and we need to think about it and discuss with our union partners and many other stakeholders. I think the way I would try and give you a little bit of color to it is, we are going to make a pay increase. We are going to make a pay increase, and we've announced that already. So you're right to point out that we haven't had pay increases for -- managers for the last couple of years and last year, no one had a pay increase. So there's a backdrop of that environment that we need to consider. The key question is, of course, when we're still waiting for the revenue growth to come through, it's all about affordability. And so we are investing so heavily in the business, depressed cash flows versus previous years, and the revenue line is still not growing. It's about what can we afford. And so what I can say is we will do our very best for our people to deliver the best pay award that we possibly can, given the circumstances. But of course, we've got to be very mindful that the company is still not firing on all cylinders. And as soon as it does, then we'll feel more positive about it. But that's the best I can describe to you. Is that all right, David?
Yes, super. And on the energy as well, perhaps the timing?
I'm going to let Simon do the energy.
Yes. David, we've guided previously that if you look in our KPIs, the cost, you'll see property and energy about GBP 1 billion. We've said previously that something like half of that is energy. We further said that about half of the energy is the commodity. And that we do run a rolling hedge program, which typically hedges a year ahead. We have not completed all of our hedging for FY '23 prior to the volatility we've seen in the power markets. So there will be some impact relative to FY '22, but not material in the scheme of BT. But clearly, beyond that into FY '24, we do not hedge that far forward, other than we do have some power purchase agreements, which fix our price over multiple years. But we will have some exposure in FY '24 to higher energy prices and obviously examine now what options we've got to mitigate that issue for FY '24 and beyond.
So Simon, if you wouldn't mind me doing the back of the kind of back of the envelope, it's GBP 1 billion, 50% [ farm ] reduce energy, 50% again, GBP 250 million is commodity. So on a pro forma basis, if energy prices have doubled in the wholesale markets, could that be a kind of incremental sort of GBP 250 million we need to think about in fiscal '24 versus, say, fiscal '22?
No, because the -- I mean there are 2 issues. One is we have protection from our purchase agreements. We are ever improving our energy efficiency. And you've taken today's spot price and which is obviously extremely volatile. So no, that is not the sort of impact. I mean it's an important cost that has to get managed tight within the business. We do that. It is not a material item for the totality of BT.
Our next question is coming from Nick Lyle from SocGen.
Philip, just a quick one. Coming back to the price rises on Carl's question, please. Can I just understand the mechanics on this given it's now contractual. I mean what if you do start to see the NPS fall and disquiet amongst customers? I mean how much flexibility do you actually have on adjusting pricing? Is it individual conversations with customers now? Or could you come out with a sort of marketing strategy on lower rise? And how would you approach that? And secondly, have you seen any of the competitors breaking ranks yet? It doesn't seem so. But anybody coming out with any announcements that concern you that somebody is going to break ranks and try and sort of gain share?
Yes. Nick, look, good follow-up -- look, again, it's my personal view that the sort of core connectivity pricing in the U.K. is mispriced, right? So if you look at broadband particularly, but also mobile, I think it is exceptionally good value for money. And I gave that stat of on average, 70 megabits per second for less than GBP 1 a day. If you just stop and pause for a minute and think of what most of us are doing, if you've got families who're living together, students, what you're actually doing on your computer, device, gaming machine, telephone, for less than GBP 1. So that's my first point. And it's not surprising that the returns in our sector have been below what people would have liked. So this sort of correction needs to happen. So at the moment, we are seeing, from what we can gather, a more rational think -- thought stream on investment versus returns and what things -- how pricing should be thought about across the business. So that is encouraging. To answer your specific question, so, so far, so good. So answer to your specific question, who knows how the market might play out? It's very, very competitive, quite rightly. And as I said, it's led to great outcomes for customers, and they continue to get those great outcomes. But we need to make sure that the investments are going now pay back as you end up not getting the investment that you really want in the rural areas, both in mobile and in fixed. And that's the core of it. So how would we do it? It depends. At this moment in time, we have spent a lot of time and effort thinking through how we communicate with our customers and explain the rationale, which I sort of rattle through for you as to why the prices are going up and underlying the sheer value for money that they're having. In all our testing and all our modeling, that conversation has gone extremely well. if, of course, the market changes and people suddenly amend their behavior, then we will respond to that to make sure our customers don't have some disparity on the value for money metric. It's that simple. And I think when we look at how things are panning out at this moment in time, I think there's an understanding that with the investment going in, the value for money equation we've currently got, prices, unfortunately, need to go up significantly, particularly given the other cost pressures that we're all under.
Next up, we have Polo Tang from UBS.
One question in terms of Sky. Well, actually one question in 2 parts. How confident are you that Openreach will remain the sole wholesale broadband provider to Sky longer term? Also, have the terms of your content swap agreement with Sky changed from the original agreement?
Yes. I mean look, that's a question you have to ask Sky. I'm very hopeful that they will stay on the Openreach platform. I mean and again, but they are, as you probably know, exclusively buying FTTP from Openreach. And again, I would underline the numbers we've articulated today, the GBP 6.5 billion build, 1.5 million connected, more than half, not through BT Retail of the connection. So really encouraging, and you can work out from that the bigger CPs are really accelerating their volume and Sky is obviously one of the very biggest. So we're encouraged by that. We think we've got the pricing right on Equinox. And we're always looking for opportunities to make sure we do everything we possibly can for our CPs to get what they need. That's both in quality and speed of build, but also the pricing and the overall proposition to make sure they get the right return. So that is the Openreach way of doing business. I think the other thing to say on Sky relationship is, if you just step back, it's multidimensional, right? So we've announced something today, which is really important. You referred it in to your question. This content sharing deal, this new 10-year partnership is very, very important to us. But we have other elements of the Sky relationship, which I mentioned again on the FTTP take-up. But also, I think we've announced this previously, we're doing coprovisioning. So Sky are now doing -- using their people to provision FTTP. And they're obviously the only people who do that on the Openreach network because they've got their own engineers. So again, the relationship with Sky is very positive. Clearly, we compete fiercely with them at the retail level. But there are many places where we have partnership elements. And again, we just continue to drive those as hard as we possibly can. They're one of our biggest, most important partners.
Our next question is coming from Andrew Lee from Goldman Sachs.
I had a question around your Openreach opportunity and basically your fiber digital infrastructure monetization. Last time, we heard from you on results, we just heard about the [indiscernible] fiber upgrade and plans for wholesaling. And at the time, you said you weren't really surprised by that. And then we had the Openreach day where you presented some scenarios in terms of overbuild risk or wholesale market share loss. I just wondered, it's been a few months since we [indiscernible]. So I was just wondering if you could give us an update since then, from what you've learned [indiscernible] has gone versus what you saw at the end of last summer? And then just also on that front, from a Consumer demand perspective, the higher speed at a higher price, do you think that demand level has gone up or down?
Andrew, thanks for that. Unfortunately, we lost a bit of that question through the connection. I suppose you're not using an e-mobile or one of the BT landlines.
I can't be.
What's that?
I can't be.
Exactly. Andrew, do me a favor, can you repeat the question, please?
Sorry, the second half of it.
Yes. The question was just asking I was just asking about the -- do you see, since last summer, do you -- from what you can see, is the risk of wholesale network competition gone up or down in your eyes or the degree of risk to your market share there? And then same question just for consumer demand for paying higher prices for higher speeds. Has that demand level gone up? Or your understanding of the demand level going forward gone up or down since the last summer to just given overall scope to monetize your network.
Got it. Okay. Well, let me do the second one first. I mean -- and then maybe I'll get Simon to give -- I'll give you a perspective. Simon can give us perspective on the risk of wholesale. I mean the good news is, and I sort of referred to earlier on, there is no question there is an opportunity for our sector that all our customers, whether it's consumers, households, businesses understand and value connectivity more than they did 2 years ago. So that is brilliant, that our services is more highly valued by everybody. So therefore, when it comes to the specifics of your question, our consumers and households more interested in higher speeds and, therefore, by definition, they're spending more. The answer is yes. And you can see that in the broadband ARPU. And you can see in our net adds. And you can see our NPS. So I sure answer that question as yes. And we've got to make the most of it. We've got to make sure that our customers get what they want and it's delivered in a way that is exceptional service. So yes. On the risk to wholesale, I think, look, that is it's clearly a mega question in terms of how will that play out over time. The way I think about it is there is only one national network, and that is Openreach. It's going to be build 25 million homes by December '26. And then it's going to keep going and build that national network. Nobody else can get anywhere near it in anywhere near that time frame. So I'm not complacent at all because I know my customers at Openreach have choices and have alternatives. Our job is to make sure that the alternative that they might have doesn't look any more attractive and working with us. And the cookie we build, the more that we connect, the better we give them value for money at a CP level, and they can see an opportunity to make fair returns. And we're delivering fantastic products for them, the better off we're going to be. I will give you one specific. I mean Sky, we talk about Sky a lot because that's such an important customer. Everyone knows it's got 6 million connections into Openreach. They just launched Sky Glass and IPTV. What do you need to make that product work? You need brilliant connectivity delivered by FTTP, generally. I mean you can do with FTC, of course. But FTTP is what you're going to need. So that's why, we just got to make sure we built that. The market is going to IPTV. We've got designs on that, too. So that's in our control. I hope, I really hope and I believe that we will not suffer huge downgrades from overbuild and wholesaling. If other people wholesale successfully and we lose customers, we will still make a decent return on our Openreach investment. What I'm gunning for is a return at the higher level that we talked about over the last 18 months or so. And that's what I think given the pace of investment, the scale of investment, GBP 15 billion and the nature of what we're doing, I think Openreach deserves that. Simon, do you want to make a comment on the wholesale risk and how you think about it?
I mean I think you've covered it, Philip. Openreach provides a very compelling proposition for CPs and thereby, for end customers. You talked about the cover in pace build, the cost of build, et cetera. And clearly, we're really focused on delivering on that proposition for CPs. But we recognize that CPs have choice. And indeed, we covered this at our business briefing in Openreach. We made clear that if a CP did elect to move volumes, firstly, that is going to take time to do that. Secondly -- and there are costs associated with it. Secondly, of course, we are seeing new broadband customers coming to the market. And therefore, we described that whilst our overall share of the broadband market might decline, our overall base is fairly resilient. And moreover, with the increased ARPUs coming through from FTTP, we were pretty clear that under really most conceivable scenarios, we could see resilient revenue in Openreach driving that return that Philip described.
Yes. So Andrew, let me add one other thing because as I think about it, again, just to try and to share with you the way we look at the sort of the way the market could play out. And you're on to something which is obviously very, very important. So let's just -- if -- you mentioned Virgin. If Virgin did build out even more than they've currently got planned, it's as Simon said, that's going to take a long time, right? I mean whichever way you look at it, it's going to take a long time. So this is a decision that would be 10 years in the making. But if they did do that and a big customer, let's just exaggerate, Sky and TalkTalk, who are biggest other CPs outside of BT Retail decided to move some of their volume, they could never move all their volume because by definition, there's only 1 national network, which is us. But if they did, and of course, we'd react. Of course, we would be absolutely focused on maintaining our interest, especially possibly could. And that would depress pricing. So make no mistake, we are very happy with our current plans. We think they make total sense for the industry, for ourselves, for our stakeholders and our CPs. If you take the, call it, the Armageddon scenario where a big other builder takes a load of customers off us, then what we're going to end up with this loads of competition all in the cities and some of the more rural areas will get neglected. I don't think that will happen. It's a small risk, and we're trying to do everything to make sure that doesn't happen.
Okay. We've got a few minutes left. Sandra, try and rattle through. I think we've got a few more questions left. So let's go to the next question. Thank you.
Our next question, we have a written one Jeremy Dellis from Jeffries. And the question is how much of next year's guided EBITDA growth to above GBP 7.9 billion is reliant on the 9.3% Consumer price increase landing well? Looking beyond March 2023, what would be the drivers that keep EBITDA growing if you're not able to implement such a large Consumer price increase again?
I mean I think Simon sort of cover that. Simon, do you want to add anything on that? I think you've covered the first half. Do you want to make anything else in the second half?
I mean no, I mean, I think the question was what's driving the revenue growth -- sorry, the EBITDA growth. I think we've been pretty clear. Yes, indexation of our prices is an important contributor. But in addition to that, we're investing in next-generation networks, products and services. We're seeing good take-up of those. And therefore, we do see increasingly strong growth of our next-generation products. And as the pool of legacy products [ progressively ] declines, that starts to be a forward momentum for us. And then, of course, we're delivering very significant cost transformation and margin enhancement through the business. So those are the big drivers. And if you get to beyond FY '23, Jerry, all 3 drivers will still be at play, albeit the scale of the indexation is unlikely to be quite the scale we're seeing in the current year.
Next we have Robert Grindle from Deutsche Bank.
Just Openreach question from me, please. Ofcom, I think, said end of last summer about 1/10 of the Openreach ducts and poles had been ordered by users of DTA and about 10% of that delivered. Would it be possible to get an update on progress since then, please? I'm just looking for an inkling as to how quickly those competing wholesale propositions may arrive.
Yes. Rob, that is a good question. We do have the numbers. We're just going to try and look them up for you. It has increased, by the way. And we've look very encouraged to make sure that on the PIA product, it's working smoothly and is available to all the people who want it. And [indiscernible] this very significant numbers, I think, from memory, just bear with me with me. Where are we? Okay. So I'll read it to you. At quarter 2 fiscal year 2022, since our relaunch of PIA back in April 2019, we have received from our customers notice of intent orders to use 66,000 kilometers of ducts, over 496,000 poles, which is over 10% of the total poles in our U.K. network of 4.2 million poles. Of these, there has been a total build of [ 7,100 ] kilometers of ducts and [ 40,600 ] poles over the last 15 months. Does that gives you what you're looking for?
Yes. So that 5 months out of date, but that will do for now.
We've got Maurice Patrick from Barclays.
Just a very sort of mathematical one for me, please. Just in terms of the Consumer mobile ARPU, can you split out how much of the ARPU decline is due to a change in retail distribution, I guess, the exit of carton warehouse? And how much is SIM only will be helpful. And just related to that, have those moves driven much of that EBITDA growth in Consumer?
Okay. So I mean firstly, you are right that the mobile service ARPU is -- has been declining. But to be clear, overall, we're pleased with the mobile business performance churns at a record low. Base is actually nudging up and that includes B2B and the ARPUs are down due to a combination of trend towards SIM, but also the change in channel. I'm not going to split the differential out for you. But if you go back and look at sort of historic ARPU pressures, that's been amplified by the switch by channel. But of course, the channel switch depresses service revenues, but also gives us as we sell handsets uplift on equipment and also reduced costs, which drive EBITDA. So it is one contributor of the Consumer strength of EBITDA amongst a number of others.
Okay. Just maybe as a very quick follow-up. When will that wash through the impact on service revenues? Will that be the first quarter or end of the year?
Well, if you remember, I mean it was halfway. It was at the Q3 last year, so it will wash out sort of over the course of the coming year. Well, I mean, 1 year or 2 because there's a continuing base that's declining.
Your next question is from James Ratzer from Neste Research.
Philip and Simon, a question just going back to the maths around, in particular, the broadband ARPU, specifically and the impact on that from the inflationary price rise. I mean I think we can work out mathematically that the percentage of the base times the 9.3% increase even stripping out the protected customers would lead to ARPU being up around 6% year-on-year. But what I've been [indiscernible] on is how much drag though to that are you still seeing from things like end-of-contract notification, absolute best tariff notification potential churn around the front book pricing? So ARPU today on broadband is still down, running down around 1%, a bit over that year-on-year is just how much of an improvement we should see come through next year when we take into account some of those other factors.
Yes. So you are right that in the broadband market, we are continuing to get some drag on ARPU that is linked to the implementation of what we call more broadly the customer furnace agenda. That will remain a drag through FY '22 and then there's some further drag into FY '23. But clearly, substantially well more than offset by the indexation. So some attenuation of the growth as a constant lap but not a material impact.
So is that drag now diminishing? So is that going to be maybe only a kind of one point drag?
Yes. We set out the Consumer briefing, the phasing with which that fairness agenda is impacting the broadband base. We explained the pace with which we're working through that agenda, and there was still an impact in FY '23, but it's lower than in FY '22.
Great. I think we're running a little bit over. Let's take one more question, then I think we'll wrap it up. So Sandra, if you could go to the last question, please.
So last question is from Sam McHugh from BNP ParIbas Exane.
You're obviously very confident. But on one hand, we're hearing you tell us that the outlook in Global and Enterprise is usually uncertain. You don't have character on the wage increases. So just maybe any more color there? And specifically, just to confirm that your confidence on the guidance isn't related to any potential changes related to BT Sport JV? I don't know, if you could tell us a bit how you would think about accounting for a joint venture or whether the costs could fall below the EBITDA line.
Thank you. Simon, do you want to answer that question? You can't get too much detail in terms of the JV accounting so.
No, I mean we obviously, we're still in exclusive discussions. We're not able to until we've completed those. We're not going to comment on the accounting and financial impact. We'll do that once we've reached a completed.
But if you're driving that some sort of funny way of underpinning our EBITDA, no is the answer. Our confidence in the EBITDA of 7 9 is unflinching.
Great. Thank you very much, everyone, for joining the call. And Sandra, thank you very much for hosting, and we have to speak to you all soon. Thank you.
Thank you, everyone. That marks the end of your call. Thank you for joining, and have a great day.