Good day, and welcome to BT's Trading Statement for the Q1 ending the 30th of June 2021. My name is Shandor Mogdus, and I'm your host today. During the presentation, your lines will remain listen only. If you require assistance, please put a message in the chat box. I would like to advise all parties, this conference is being recorded for replay purposes. Now I would like to hand over to Mark Lidiard. Please go ahead. Thanks, Shandor. Welcome everyone. As just said, my name's Mark Lidiard from the BT Investor Relations team. Presenting on today's call, we have Philip Jansen, Chief Executive of BT. He'll be joined for Q&A by Simon Lowth, Chief Financial Officer. Before we start, I'd just like to draw your attention to the usual forward-looking statements on slide 2 and our latest annual report, for example, to 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. Thanks for joining today's call. As usual for our Q1 results presentation, I'll make some prepared comments before Simon and I take your questions. I'll talk through the highlights of the quarter, our business unit results, and a little update on our progress against our strategy. Moving to the highlights on slide 4. The business is performing well, and overall, we've delivered results in line with our expectations. Revenue of GBP 5.1 billion was down 3%. Increased revenue in Consumer, including higher BT Sport on handset sales and in Openreach, with growing numbers of end customers taking fiber and Ethernet, was more than offset by ongoing legacy product declines in Enterprise, prior year divestments, and more challenging than expected market conditions impacting our Global unit. EBITDA of GBP 1.9 billion was up 3%, driven by growth in Consumer, Enterprise, and Openreach. We delivered strong cost control across the group, which more than offset the revenue decline in Enterprise, only partly offset the weaker market conditions in Global. Reported profit after tax was just GBP 2 million. This was due to a one-off non-cash tax change to reflect the remeasurement of deferred tax balances following the increase in the corporation tax rate to 25% from April 2023. This resulted in a GBP 439 million increase in the tax charge for this quarter. Reported CapEx, excluding spectrum, was GBP 1 billion, up 9%, driven by continued higher spend on our industry-leading full fiber and mobile networks, as well as the non-network infrastructure. Normalized free cash flow was an outflow of GBP 43 million, reflecting the usual Q1 pressure on working capital, CapEx creditors, and the payment of the annual bonus. This is slightly ahead of Q1 from last year, as higher EBITDA and the expected lower cash tax were partly offset by higher cash CapEx. As highlighted at our Q 4 presentation, we expect our full year cash flow of between GBP 1.1 billion and GBP 1.3 billion to be heavily weighted towards the second half of the year, in line with last year. Earlier today, we announced the strengthening of our strategic partnership with Microsoft to accelerate innovation across a range of products and services, including Enterprise Voice and Cybersecurity. We expect this partnership to underpin over GBP 1 billion of revenue across our enterprise units over the next seven years, as we capitalize on our superior networks and security credentials supporting our overall revenue growth. During the quarter, we started to see a COVID-19 bounce back in the U.K., and while some uncertainty remains around the near-term impact of the withdrawal of the government support schemes, the overall picture is one which is largely in line with our expectations. Beyond the U.K., we are seeing variable rates of recovery, which are creating challenging conditions in many of global markets. Strong operational delivery across most of the business, coupled with a more favorable economic environment, leaves us firmly on track to deliver our outlook for this year and beyond, including an inflection in revenue before the end of this financial year. Turning to slide 5 and our operating performance. Overall, the trends impacting our business units remain largely unchanged in the quarter. Consumer revenue is up 1%, driven by higher BT Sport revenue and direct mobile handset sales as lockdowns eased. Sales were supported by the industry-leading service we provide through our recently reopened retail estate, although both footfall and sales remain lower than pre-pandemic levels. We continue to see lower fixed and mobile service revenue, driven by changes to improve fairness for customers, a greater proportion of direct handset sales, and the ongoing trend towards SIM-only in the mobile market. EBITDA increased as a result of higher revenue and marginally lower operating costs, driven by reduced indirect commissions and tight cost management. Lower costs were partly offset by the sports rights rebates we received in Q1 last year, although the substantial majority of these rebates benefited the Q2. Consumer is well positioned for growth as churn remains low and with further year-on-year increases in the BT and EE Net Promoter S cores. In June, we launched BT Home Essentials, which widened the reach of our social tariff to 4.6 million low-income families across the U.K. As we strive to ensure decent broadband connectivity reaches every last corner of the country, we have signed a memorandum of understanding with OneWeb to explore satellite broadband provision for the hardest to reach parts of the U.K. Moving to enterprise, the smaller business end of the market held firm, with flat revenue from SMEs, which is an improved performance versus last year. Nonetheless, a slow recovery amongst larger corporates, coupled with declines in our wholesale division impacted revenue. EBITDA increased year-on-year as the reduction in revenue was more than offset by lower costs, including savings delivered through our transformation programs and a one-off asset disposal within our wholesale division. In June, we implemented a new operating model within Enterprise, with a sharper segment and commercial focus. This includes the creation of a new business unit dedicated to serving the millions of small office, home office firms in the U.K. that are either small by design or just starting out. At the same time, we launched the country's first unbreakable Wi-Fi for these businesses, delivering guaranteed workplace coverage, full fiber speeds of almost a 1 Gbps, and free tech expert support to capitalize on the high growth potential of this market and to help these firms kickstart the U.K.'s economic recovery. This follows our best ever NPS results for our BT and EE brands as voted by SMEs. As I said earlier, global was impacted by more challenging conditions than we expected due to COVID-19. Customer business activity has reduced, resulting in delayed project-based spend and equipment sales, for example, for office-based connectivity. The impact among multinational customers is particularly pronounced as they are entering different phases of the pandemic across the globe. This contrasts with the prior year, when we saw some short-term positive impacts from COVID-19, including high margin conferencing minutes as customers went into lockdown for the first time. In addition, revenue this quarter reflected the impact of prior year non-core divestments and a negative foreign exchange movement. Excluding these, revenue was still down 12%. EBITDA for the quarter reflected the 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 19%. Looking ahead, we remain confident in global strategy and plan and anticipate that markets will show some recovery in the second half of this financial year. Over the last three years, global's asset-light strategy has reduced risk and increased focus on its core capabilities, driving NPS results up almost 40 points to an all-time high this quarter, and we have held market share even in these very difficult economic conditions. We will maintain a tight grip on the costs to mitigate the impact of lower revenue, albeit we do plan to hold some costs in expectation of the market recovery. We will continue to drive uptake of our future-proof growth product portfolio, which in the quarter represented just over half of total orders won, compared with a third in the prior year. In June, we completed the sale of business units serving customers in the public administration and SME sectors in Italy. Early this month, we made a strategic investment in Safe Security, a leader in cyber risk quantification. Safe Security provides services which enable organizations to measure their susceptibility to various forms of cyberattack. Our investment reflects our increasing focus on security as a key growth area for BT. In Openreach, revenue growth was driven by higher rental bases in fiber-enabled products and Ethernet and increased provisioning activity when compared to that during lockdowns due to COVID-19 in the Q1 last year. EBITDA growth reflects the increase in revenue, partly offset by higher repair and provisioning costs and investment in people to deliver ever-improving customer service and network build. During the quarter, our colleagues in Openreach worked hard to clear the backlog of full fiber provisioning orders, which accumulated during the last lockdown, and the work stack is now back at more normal levels. We continue to drive volumes off copper and onto our full fiber network using both commercial deals, which I'll talk to on the next slide, and exchange-based stop sales. As of last month, Openreach's customers can no longer sign up to buy legacy services in 14 exchange areas, and by April next year, this will have expanded to almost 300 exchange areas covering around 3 million premises. In summary, despite some ongoing impact from the pandemic, we continue to deliver against our expectations, and BT is emerging as a more resilient and competitive organization. Moving on to slide 6. In May, I outlined our plans for a future that is about consistent and predictable growth with prospects. Our path to growth is underpinned by our ability to deliver against our targets today while also investing for tomorrow. This will generate sustainable EBITDA growth from this year and consistent and predictable revenue growth from next year, firmly underpinning the reintroduction of our progressive dividend. Post 2026, after the peak network build, reducing CapEx will deliver an uplift of more than GBP 1 billion per annum to normalize free cash flow. Looking at our full fiber rollout, we continue to mobilize our workforce towards building to 4 million premises per annum as quickly as possible. During this quarter or the last quarter, we passed 555,000 premises with the highest quality, lowest cost FTTP in the U.K. We increased our commercial rural build target to 6.2 million premises as part of our plan to reach 25 million premises by December 2026. More than 1 million homes and businesses are now connected to Openreach's ultra-fast, ultra-reliable, full fiber broadband network, including an increasing proportion from external communication providers. Appetite for faster connections is accelerating, and during the quarter, over 50% of FTTP orders were for ultra-fast speeds. In July, we published a new FTTP offer providing long-term competitive wholesale pricing certainty in return for rapid adoption of FTTP where it's available. This compelling offer is designed to reinforce Openreach's long-term relationships with its major customers, enabling even faster take-up in the future, whilst also providing a fair return on our investment. In parallel, we continue to investigate whether we can deliver even more value to shareholders by funding our build to 5 of the 25 million premises through a joint venture between BT and one or more external parties. We'll update you on progress at our first half results. Moving to mobile, our class-leading network was this month ranked as the U.K.'s number 1 for the eighth year running by RootMetrics. We recently announced plans to drive 4G connectivity deeper into rural areas with over 4,500 sq mi of new coverage by 2025. In parallel, we will grow our 5G network to cover half of the U.K. population by early 2023, four years ahead of the U.K.'s government's ambition. By 2028, the geographic reach of our 5G network will pass that of 4G to become the U.K.'s largest digital network, providing signal to over 90% of U.K. landmass. To enable this, new 700 MHz 5G spectrum will be deployed across the majority of our mobile sites, offering stronger indoor and wider rural coverage. We'll launch a new 5G core network control system by 2023, built upon BT's distributed network cloud infrastructure, bringing together all of our digital networks. All of this will be delivered within our previously announced CapEx plans of up to GBP 5 billion a year at the peak. In the near term, we're already seeing the benefits from the success of our converged products, with over 47% of Consumer's BT broadband base on Halo. With the recent launch of new converged products by our Enterprise division, we're ensuring we leverage our industry-leading networks across all of our markets. In the long term, our plans will deliver a unique smart network infrastructure. This will be a platform for revolutionary new services for customers, as well as converged technology opportunities for businesses, ensuring we maintain our network leadership and deliver fair returns on our investments. As we implement our plans to build a better BT for the future, how we get there is every bit as important as meeting our targets. We're a leader in the responsible use of technology, in May, we launched our Hope United campaign using the power of football to tackle online hate. Diversity and inclusion are also central to our vision for the future, and during the quarter, we published our first diversity and inclusion report, setting out our D&I strategy and our workforce and leadership targets. In addition, earlier this month, we reached a partnership agreement with our largest union, the CWU. This agreement recognizes the need for change and ensures our colleagues continue to be treated fairly and with respect as we progress on track with our modernization plans. To conclude on slide 7, we started the year overall in line with our expectations with EBITDA growth in Consumer, Enterprise, and Openreach. Many leading indicators across the business reflect the positive progress we've made. For example, consumers' churn levels stayed at near all-time lows as we came out of lockdown, and group NPS remains positive. In addition, we now have inflation-linked pricing across around two-thirds of our revenues, and we continue to deliver our transformation and cost savings plan. We are firmly on track to achieve our outlook for this year, and will gather momentum through the latter half of the year, including some recovery in Global's markets. This places us on a trajectory to deliver EBITDA of at least GBP 7.9 billion and revenue growth in full year 2023. Lastly, we're making solid progress against our strategic agenda, which will deliver enduring success for all BT stakeholders. That concludes my remarks. We've got about 45 minutes, I believe, for Q&A. Could I ask you, please, limit your questions to one per person to allow as many people as possible to ask questions within the time we have. With that, I'd like to ask the operator to open up the lines, please. Our first question is coming from Akhil Dattani from JP Morgan. Akhil, you are now live in the call. Hi, morning, Philip. Hi, Akhil. How are you? I'm good, thank you. Good. I've got a question, I guess, less on the results, but more on the strategic side of things. I'm sure you've seen this morning, Virgin Media has made an announcement about a full fiber build where they're talking about overbuilding their cable network with fiber. I guess, just keen to get your thoughts on, was this something you were expecting? What are your thoughts on the market and competitive impacts of that? It's really that. If I can ask a really small follow-up on one of the points you made as well, which is, you talked about the GBP 1 billion of revenues from the Microsoft contract, over seven years. If there's any comment you can give on phasing and EBITDA and cash flow as well, obviously that'd be great as well. It's really the Virgin one which is a big one. Let me just do the Microsoft. Can't really give you specifics. What we're saying there is it's a big deal. That's the minimum I'd expect from it, and it opens up loads of opportunities. We're just deepening the relationship with Microsoft. You can see we're doing more in cyber. They're doing more in cyber too. We're bringing that together. We're doing lots of integrated voice activity around Teams, as more and more people use that product by definition. It's a really collaborative, deep relationship with Microsoft, and in terms of contribution, it's going to be very positive. I hope it's more than that, by the way, but that's the minimum it will be. I can't give you details on EBITDA margin, but it's a very positive financial picture. We've worked on it for a long time, by the way. It's complicated and multi-dimensional, which is good, not bad. Look, Akhil, obviously, it's really important news today. Firstly, your question, was I expecting it? Absolutely, by the way. I have to say, it's the right thing to do. It makes sense. It's what I would do. If you had a choice of HFC DOCSIS versus FTTP and the cost was not too dissimilar, and there is a bit of difference, you have to do FTTP. Firstly, I think it's what I expected. I knew it was going to happen, to be honest. It doesn't surprise me at all. I guess is the question, what are the implications for us? Is that what you think? Yeah. Well, look, the way I think about it is, does it change BT's plans? No, absolutely not. It just endorses exactly what we've been saying, which is FTTP is the winning technology and the good news is we're going to 25 million by 2026. I think the second question is, does it change the Altnets plans? The answer to that is, yes, it should. I think then the third big one is, what are the implications for wholesale? Because I think that's something that could change the dynamics of our industry. All I'd say on that is, we're the incumbent or the market leader. We can never be complacent, and we're absolutely not at BT, but let's be honest, we're gonna have almost double the footprint in almost half the time. We've got decades of experience, one clean network. We've got fantastic service, the prices we're offering, particularly right now, are very attractive, and we're giving long-term sustainability and visibility to people for 10 years. We're gonna keep investing, we're gonna keep innovating. This stuff is more complicated than people realize. I think you know that, but it's more complicated than meets the eye. Remember, we've got 30,000 people on the road building and maintaining the quality networks. We announced today, for example, moving to electric vehicles. All these operational changes are massive. They're not easy to do. I think whatever happens, BT Openreach is gonna have millions of FTTP connections from all CPs. No one's gonna do an exclusive deal with Virgin, even if they decide to wholesale. Any wholesale changes, if they were to happen, would have a significant migration question and technical challenges, right? Therefore, we're gonna have those customers. The way I sort of think about it, to finish off the answer is, if you accelerate to 2030, Akhil, we're not gonna stop at 25 million. Let's say we're roughly 30 million, they're roughly 15 million. The question is, how big is the Altnets? If they're in the 10 range, I think the market will operate very effectively because it can take two big operators competing like fury, big fiber footprints. It's the question is how much of their extra bill that creates irrational behavior. That's the only thing that I'd be concerned about. Philip, can I just ask one super quick follow-up, which is obviously, as you rightly said, wholesale is the big question. Were they to sign wholesale contracts, do you think there were then regulatory implications as well? Do you think that's fully captured in the WFTMR framework? I think there'll be questions on regulation as soon as that wholesaling starts. Again, remember, whatever happens, it's not clear-cut, and it's a question for them. You're gonna have to get a lot of wholesale customers to offset losses that you'd get on your retail side. I think what we've seen today is it's a 15 million footprint, which I think quite rightly, they can't afford not to upgrade to a technology that is similar to ours. I think the wholesaling question is a big question. Of course, by definition, it opens up the opportunity. We'll have to wait and see. I feel comfortable that with what we're offering, both in terms of the product but also the pricing, I always say this, Akhil, you look at our prices. If you look at what we're offering people for FTTP today, the retail pricing is actually very competitive. If you compare a 1 Gbps price compared to a Virgin retail price, they could be up to 50% or more expensive than that. That's a tricky equation to solve if you're going to wholesale because you're going to bring that retail price tumbling down. Makes sense. We would be in with the regulator, of course. Virgin know this. We would be talking to the regulator to make sure that there was a level playing field, because many people would argue it's not a level playing field today. Great. Thank you. Thank you, Akhil. You are now muted. Please lower your hand. Next question is coming from John Karidis from Numis Securities. Hi, John. Thank you. Good morning. Good morning, Philip. Given that Akhil sort of blew out of the water the instructions you gave us, I'll just ask two very quick ones. The first one is, do you still expect a bubble of insolvencies, in Simon's words, when the scheme runs out at the end of September? Secondly, you had 1.1 million FTTP lines at the end of the quarter. How many of these were actually used to provide speeds above that achievable by FTTC? Roughly what proportion of those were used for faster speeds, ultra-fast speeds? Yeah. John, I'll let Simon answer both those. He'll give his view on insolvencies, and then we'll give you the rough percentage on the 1.1 million FTTP lines. Simon? John, Hi. Thanks for the question. Yes, we do continue to expect that as business support of various forms is removed, we will see an increase in the rate of insolvencies amongst smaller businesses in more impacted sectors. John, we continue to hold provisions that we took as we went into COVID against that. I think on the offset, John, actually we've seen, and I think you'll have noted, a pretty high rate of business formation as we've exited from lockdown and seen sort of the economy start to rebound in the U.K. That will be a counterforce. Exactly how that plays out over the rest of this year, hard to predict, but that sort of range of outcomes is built into our outlook for the year. Hope that helps, John. Philip, back to you. Thanks. Thank you. Could I ask for that proportion, please? It's about 50%, John. More than 50%. I said it in my speech, are ultra-fast. Forgive me. In your speech, you talked about the additions during the quarter. I was talking about the 1.1 million that you have in aggregate. Yeah. Greater than 50% are ultra-fast. Okay. Thank you. Yeah. Sorry, Philip. It's probably worth adding, John, I think you know this, but obviously some of the initial FTTP build, quite a chunk of it was in the BDUK, which obviously was replacing lower speed circuits. Obviously, as we ramped up the FTTP beyond the BDUK footprint, a much, much larger proportion, far more than that majority is going into ultra-fast speeds. Yeah. That's John. Thank you both. Thank you, John. You are now muted. Please lower your hand. The next question is coming from Polo Tang from UBS. Please go ahead. Hi. Thanks for taking the question. My question is actually on BT Sport. You currently have a reciprocal content agreement with Sky, where Sky gets access to BT Sport and you get access to Now and Sky Sports. If you bring in a partner for BT Sport or sell BT Sport, does the agreement still stand? How important is content in terms of supporting your broadband business? Are you making a return on BT Sport currently? Maybe just a super quick follow-up in terms of, is there any update in terms of the appointment of a new chairman? Thanks. Sure, Polo. Firstly, on the last one, no update. As soon as we're ready, of course we'll make an announcement. There is a process being led by our senior independent director, and as soon as that concludes, clearly we're going to announce it immediately. There's no update on that one. It's a great question, Polo. You're right, we have a very strong partnership with Sky across multiple levels. Clearly they're a big supplier or customer of Openreach. Also from the BT Sport point of view, there are multiple angles here. Including, they sort of sell our BT Sport advertising, right? It's a multidimensional relationship. As we look at what we might do with BT Sport, which sort of talks to your how important content is and how's the business doing, as we look at what we're going to do next as a result of the strategic review, the Sky relationship is fundamental. For the reasons you say, because there's reciprocity, which in any future, we need to maintain the strong partnership we've got with them today, and where we access their stuff and they access ours. Any form of agreement has to make sure that the Sky dynamic is as good as, if not improved. The same would be true of other providers or other customers of BT Sport. It's a very important question, and that's why we're taking our time to work through all the details, to make sure whatever we do on BT Sport is in the best interest of all stakeholders, and we're taking our time to look at all the options. Just a final point on how important it is. It's a great product, doing really well. I've always said to you, we don't see ourselves piling more and more money into the rights within BT Sport. We've got some fantastic rights. It works well now. It's growing. We see some growth prospects in the future. Some of the partners we're talking about have ideas about how they could help fuel that growth, and that's what we're looking at. Thanks, Polo. Thank you, Polo. The next question is coming from Andrew Lee from Goldman Sachs. Please go ahead. Good morning, everyone. I had a question just following up on your comments, Philip, on the technical challenges, related to taking up Virgin Media's fiber from a wholesale customer perspective. Just apart from your ability to offer a more nationwide network coverage for wholesale customers, and apart from pricing, what are the other key technical differences that a wholesale customer will have to take into account, when choosing between your fiber and Virgin Media's fiber? Just as the quick follow-up, just any update on wholesale negotiations following that wholesale FTTP offer prices you set out a month ago. Is there any sign of anyone taking an early sign-up there? Thank you. Yeah, sure. Again, really important questions. I think the answer to that first question is multiple levels again. The whole engineering in itself is a significant challenge, right? There's a technical engineering challenge to whenever you're going into mass upgrades, builds, and these are challenging things, right? From an engineering point of view, you've actually got to To our point, we're building 4 million a year, and I think Virgin are going to be trying to upgrade, I don't know, probably to half a million a year, whatever the number is. Sorry, they'll probably try and do 2 million upgrades a year, I guess, is their run rate. That in itself is not insignificant to get that done. The technologies have to work, and you need the IT platforms to all integrate. Remember, it's a live system, right? It needs to be maintained, it needs to be monitored, and it needs to deliver consistent service. With all technologies, things happen. There's this technology IT platform integration, customer service all wrapped in together. When I say there's significant challenges in building, connecting, and managing a network and delivering great systems and service for customers, it's not straightforward. I think, remember, setting up a system for wholesale isn't that easy either, right? You can see what's happening in some of the alternative providers who have been working it for many, many years. That's the first part. On the wholesale, I think we've had Not to be complacent, but we've been in discussion with our CPs for a long period of time. I'm very encouraged by the conversations that Clive and his team have had in keeping updates. I think we're making good progress and that the response has been very, very good. Thank you. Thank you. Our next question is coming from Sam McHugh from Exane. Please go ahead. Good morning, guys. A quick question about debt for Simon. I think it was net debt came in about 1 billion higher than consensus, up 900 million quarter-on-quarter. Broadly flat free cash flow, a spectrum refund of GBP 220 million or something. You had about GBP 1.1 billion below the line cash out. I think some of it is spectrum. I wonder if you could, I'm sorry, not spectrum, pension payments. I wonder if you could talk about the rest. I guess how much of it is specific items. You talked about GBP 900 million of specific items for your three-year restructuring plan, having already spent GBP 450 million. I wonder whether we should now be factoring in slightly higher restructuring charges versus what we were expecting before. Thank you. Simon? Sam, thanks for the question. The bridge really, as you say, normalized cash flow is sort of broadly a wash. The increase in debt in Q1, big components were the payments into the pension scheme, which went in in the Q1. That's a combination of the recovery plan and the ABF, and that's a size GBP 600. We did also undertake some share repurchases we always do to cover employee share schemes. Yes, specific items also amounted to just under GBP 300, and that's a combination of some sort of investment activity, also some restructuring that was something like sort of GBP 90 or so. We're firmly on track with the restructuring plan. We've not changed our view on the total cost at this stage. There's the outflows, pension, restructuring, some investment activity and share repurchase. To bring us back to the GBP 800 up by, as you say, the spectrum refund. That's a Q1 movement. Obviously, we don't expect that sort of movement in Q2 through the year. Expect to see that sort of change in net debt. Hope that helps, Sam. Thanks. Yep, great. I'll leave it at one as well. Thanks, guys. Thanks, Sam. Thank you, Sam. Thank you, Sam. Our next question is coming from Robert Grindle from Deutsche Bank. Robert, the floor is yours. Thank you. Good morning. I'd like to ask about the physical line losses in Q1, which are running about eight times the last year's quarterly run rate level. What% of these are to the alt nets, please? I think some of the line losses, voice lines associated with FTTP, which fall off when customers move to voice-over IP. How many more of these dual lines are there? Presumably, you're not charging twice for some of these, at least to BT Retail. What do you think the backlog of voice lines is for customers who've already moved on to the Alt nets who might move on to voice-over IP there and leave you guys? Thanks. Hi, Robert. Simon, we had relatively low line losses in Q1 in Openreach. Do you want to comment, Simon? Yeah, Philip. Okay. Sorry. Maybe Robert, go on mute. Robert, could you go on mute? We're getting an echo here, sorry. Thanks. Yes, the line losses for this quarter, we did see a pickup. Saw physical line losses decline about 159,000, that is rather higher than we have seen in recent quarters. If you strip out, the underlying line loss was actually about half of this, much, much closer actually to the last quarter's, you know Q1 loss. That reduction was due to the fact that BT's downstream units have been removing the WLR lines that we were using temporarily to support voice on some of our FTTP connections. Clearly, that reduction in line isn't really economically impacting for the group. About half of the line losses you saw due to that. Going forward, yes, we do continue to see some continued underlying losses as Alt nets expand their footprints. I think as Philip's reinforced, we're rolling out FTTP at speed. We know we deliver a very strong proposition to customers. We'll be defending our line losses strongly, our line base very strongly. Thanks. Yeah, Robert, just to add to that, talking to Clive, without giving the specifics, we're not losing loads of lines to Alt nets. Okay, next question. Thank you, Robert. You are now muted. Please lower your hand. The next question is coming from Nick Lyall from Societe Generale. Nick, you are live in the call. Morning, guys. It was just one, please. Firstly, on the fiber numbers in Openreach, please, Philip. There was no acceleration this quarter. I'd sort of expected to see Clive start to put his foot down a little bit on the rollout. Was there anything, because the backlog was being cleared, that interfered with that or anything? No, Nick. Well noticed. Look, at the 544,000, good number. You're right, we didn't accelerate much. Actually, again, you are right. It's down to a number of factors. Nothing to worry about, but we did have a big backlog of various things, particularly around provisioning, and therefore, Clive has put a decent quarter in, but I see significant ramping coming up, at some stage. Again, the other thing I'd say is it's a bigger proportion in this quarter were rural lines, which are a little tougher to deliver. So it's a mixture of those things is the backlog plus the rural build. Don't worry, we'll be accelerating. Might be worth adding, Philip, that quite a lot of the work in the quarter is putting in the spine networks in some of the new areas. We're doing a lot of builds that then allows us to then drop the final builds much, much faster. There's quite a lot of network architect build going on, which is also therefore not showing up in the premise number for this quarter. Probably a point to make, Philip. Yeah and I agree. Thanks, Nick. Sorry, mate. Sorry, I'm afraid I got cut off there, so I missed a lot of it. Apologies, but thank you. The next question is coming from Maurice Patrick from Barclays. Maurice, please go ahead. Yeah, morning, guys. Maurice here. Just want to ask one question, please. If I can ask a bit about competitive intensity in the U.K. market, please, on the retail side. When you're looking at your reported trends, broadband internet has looked pretty solid, 50,000. The ARPU's improving but still firmly negative. You've called out Carphone Warehouse having an impact, but can you help us just build some of those bridges around what was the impact of the changes of accounting around Carphone Warehouse on service revenues? How much of the ARPU decline is sort of loyalty related? That'd be super helpful. Thank you. Yeah. Sure. Maurice, let me give you a little overview on competitive intensity, and then maybe Simon can pick up some of the accounting, Carphone Warehouse, ARPU trends, and what that actually means. The market continues to be very competitive, of course. The U.K. market is one like that. Having said that, I think there's no question that the consumer values connectivity more than they did 18 months ago. We can see that in everything. That's encouraging. People are taking faster speeds, and they're paying more. As I said in my sort of script, our churn is absolutely excellent. What we've got here is we've got people valuing what we do. We're launching more converged products, for example, and we're bundling in more and more things together as we possibly can. You know the numbers on Halo. We've got customer satisfaction rising, our pricing's about to rise, as everybody knows, right? We're going CPI plus 3.9 on a base that is very stable, with very low churn and high satisfaction. I think that we're encouraged by that. Of course, there are a few other bits in there. We are still addressing the fairness and loyalty gap, which drives a bit of the ARPU pressure. That's us correcting the base to make sure we've got a really strong foundation to grow revenue in the future. We've still got a bit of that to do, but the base is growing, the churn is low, satisfaction is high, and it's a competitive market. Actually, in the consumer division, the sort of underlying indicators are really encouraging. Again, no complacency, because you're right, there are certain parts where it's a bit brutal, right? The SIM-only trend continues, and the mobile market is challenging, right? Inevitably, it's very competitive. Simon Lowth, do you want to say anything else on Carphone or ARPU dynamics or on the accounting to help Maurice? Please go ahead. No, sure. I think in a nutshell, broadband base stabilizing, very low churn, and we're holding our share in a smaller acquisition market. There are some upward pressures from ARPU. Obviously, CPI indexation is flowing through to the first wave of the contract base, and we've also got upgrades. There's lots of people moving to FTTP. That's a bit offset by the continued implementation of the fairness agenda, which we think puts us in a very strong competitive position. In this quarter, had a net pressure on ARPU, but as you can see, a significantly reducing net downward pressure. If you move to mobile, again, base stable. It's a very low churn, again, holding our share in a reduced acquisition market. ARPU, a few trends. 1, continuation towards SIMO. We haven't seen anything like the sort of recovery back to pre-COVID levels on out-of-bundle and roaming, and that's weighing on ARPU. Then in addition to that, the move to direct obviously has an impact on service revenue. In an indirect channel, as you know, gets all flowed through service revenue. In the direct, you account for the handset through the equipment. That was a bit of a pressure on service ARPU. Those are the factors. Hope that helps. Sorry, can I just add one more thing, Maurice? It's a really important question. I think we sort of said that clearly there are challenges in the global market and the demand's just not there. Your point about competition is the key thing we're driving. The reason we feel confident about our growth profile is across divisions, we're getting more competitive. You can see it in all the underlying indicators, actually. Yeah? That's exactly what we're driving both in consumer and enterprise and Openreach, is to make sure we're fit to compete in a market which is, as you say, pretty intense. We are the market leader, and we've got good stuff going out the door that people are appreciating. We're going to do more of it. Thanks, Maurice. Thank you. Thank you, Maurice. You are now muted. Please lower your hand. Our next question is coming from Jakob Bluestone from Credit Suisse. Thanks for taking the question. I will keep it to one question as well. Just trying to understand a little bit more the weakness within Global Services. Your financial services revenues fell by about GBP 50 million quarter-on-quarter, it basically looked like that fully dropped through to EBITDA, which was also down by about GBP 50 million. Can you just help us understand a little bit more what happened in the quarter specifically? What was it that was so different from three months ago? How that sort of ties into the confidence you have in the turnaround in the second half. Thank you. Okay. Jakob, let me make a comment about the confidence we have in the second half, and then I'll let Simon sort of try and answer your question. The truth of it is, no one knows exactly when the bounce back is going to occur. I think we can see, for example, in public sector, both in the U.K. and elsewhere, that that pipeline is actually encouraging. For example, there is plenty of stuff that our customers and enterprise customers will need in the future that we can deliver for them. At the moment, they're just not buying, right. They're deferring and delaying and reconsidering contracts. We're not losing business, and our market share is stable in terms of the win rate. There's nothing underlying that says actually the business is actually fundamentally underperforming versus market, but the market's not there. What we expect is we do expect some gradual recovery at some stage. We just don't know when that's going to happen. What we've taken the decision is not to run around with our hair on fire, slashing everything. We have taken a very considered approach to cost, taken out anything that's not necessary. We are ready to have that ability to respond to when the customers do show their demand again. I think that's the key thing. What we've done, and I've personally talked to lots of customers, and Bas Burger, the CEO of Global, is out there with customers all the time, reassuring them that we're here for them when they're ready to decide to do things. You can just think of them. Yes, the banks, but think of IAG, a big customer of ours, British Airways owner. It's not the best time for them to think through we're going to commit to a load of very essential, by the way, they will have to do a significant amount of IT network connectivity upgrades over the next few years. They're a big customer of ours. That's an example. There are many of those that are just deferring things. We're hopeful, but we can't call it exactly because obviously the global pandemic is hitting different countries in different ways and different companies in different ways. Some of the cost pressures you'll see from Unilever, another huge customer of ours, Reckitt, you'll know that these guys are having their own pressures to deal with. That's what's actually happening in the marketplace, which is why we're not overly worried today, but we need to see the bounce back. Simon, do you want to talk about the specifics in the quarter? I'll just add a very brief point. Revenue was down GBP 200 million. If you strip out the impact of divestments, which is an FX, then the underlying movement was about GBP 100 million. That split roughly 15% of that, so about GBP 15 million or so, was due to an uptick in volume activity, things like conferencing in Q1 last year as our customers sort of went into lockdown. Then on the flip side of that, in Q1 this year, this is the remaining sort of 85% of the GBP 100 or so, we've just seen less business activity amongst our major customers, as Philip intimated. That means that we're getting a lower level of project-related spend with customers, bit exacerbated by customers not in offices, therefore not access to come in. A little bit of impact from chipset shortages on some kit. Those are the drivers. It's predominantly driven by the pandemic situation. You asked about the EBITDA impact. The project-related activity tends to be relatively higher margin, and that's why it's flown through in Q1. We look ahead for this year, yep, we expect to see some recovery into the second half. We expect to see sort of renewed project and volume activity, but also customers coming back and recontracting where our win rate remains good. Obviously, we'll be managing the cost base to maintain margins in Global, given the great work they've already done over recent years to improve margin. Hope that helps. That's very clear. Thank you very much. Thank you, Jakob. You are now on mute. Please lower your hand. The next question is coming from Carl Murdock-Smith from Berenberg. Carl, the floor is yours. Hi, guys. Carl. I'll be well-behaved and ask one as well. To follow up to Maurice's question, in terms of the mix within consumer, less so about the main lines of fixed and mobile and more on the kind of other lines of equipment and other. Other has bounced back really hard. Obviously, the year-on-year comp is impacted by BT Sport, and I know a lot of the BT Sport revenues flow through that line. I think it's also impacted by the revenues associated to the fact that you're now capitalizing set-top box and routers. The revenues from those is coming in through that line as well. You've actually bounced back to above where you were pre-pandemic. The question is basically, going forward, what's the outlook like for the other line in consumer and equipments? Because those have basically offset the weakness in the two main lines. Can we expect further beats and growth in those lines? Given the set-top box in kind of capitalization impact is now fully come in, or has it fully come in? Should we expect that to kind of stabilize more around the current levels? Thank you. Okay. Simon, do you want to give Carl the answer to that? Firstly, hi, Carl. Sorry. On equipment, yeah, we've seen some good performance on equipment, and this is, of course, in part reflects the easing of the lockdown and handset sales, and of course, that's somewhat further amplified by change in channel mix as we've gone direct. On the other, you are right, it includes probably two big contributors being the commercial BT Sport side, part of our revenue, and also advertising through that channel. In addition to that, you're right, essentially leasing come on kit associated with our connectivity products. That's what's in there. The fact that that's growing is a function of underlying growth in demand through our commercial channels for sport and obviously through the kit associated with connectivity. As we look forward, we would expect to see continued momentum there in the back half of the year as we continue to see economic recovery. The core here, Carl, is that the performance in our consumer business, it's driven by great propositions for customers and the converged connectivity we bring. Some of that gets accounted through the other line. Hope that helps, Carl. That's brilliant. Thank you. Cheers. Thank you. Carl, you're unmuted. Please lower your hand. The next question is coming from David Wright from Bank of America. David, please go ahead. Hi, guys. Thank you for the call on this crazy day for results. My question is just pursuing global services a little. You're obviously looking for some H2 pickup. What I'm trying to understand is, to what extent is guidance perhaps exposed to this? If the H2 doesn't pick up, is it a business where you can hold back a little bit on the marketing or even ramp up the cost-cutting during a period of lower activity to just give you that little bit of buffer in the guidance? Is this a genuine kind of make a call at the first half results that it's not looking better, and you might have to sort of tweak towards the lower end? Is it that kind of materiality we're looking at? I think you said, Philip, you did say firmly on track. Maybe I'm just wrong on this. Thanks. Yeah. No, David, look, it's a good question. Look, of course, there is a level of uncertainty by definition in terms of when is that bounce back going to happen. I think everybody who works in the sector and dealing with these kind of global customers, we've obviously talked to a lot of different people and monitored it. Whether it's the AT&Ts or Verizons or UBS, I mean, anybody who's in this sector, we all see the same sort of picture. Look, at some stage that recovery is going to happen. I guess the way I think about it is, if you look at our overall guidance, I think we're saying we're going to be broadly flat. Yeah. That's up a little bit, down a little bit, who knows, right, on revenue. Broadly flat, I'm very comfortable with it. Even if Global still struggles through the end of the year, we can still deliver that. The key thing is on the EBITDA point, it's no problem for all the obvious reasons that you can calculate yourself. More importantly, when I look at it for the next year, given all our plans and the leading indicators that I've referred to, Global is a relatively small part of what we do. You can see it on that slide we showed you. If you actually just stare at it, and then look at the leading indicators underneath, and you get some growth back in Enterprise, some of it, the Group looks very different. No, I'm not concerned about our guidance at all. I want Global to come back on stream as quickly as possible. What we don't want to do is do something precipitous. That means we can't benefit from the bounce back when the lockdowns and everything else finishes. That's the balance we're trying to hold. The good news is we can afford to do that, and that's what we're doing. Simon, do you want to add anything to that? No, I think you've covered it, Philip. Okay. I mentioned, yeah. Is that okay, David? Super, Philip. Thank you. Thank you, David. You're now muted. Please lower your hand. The next question is coming from James Ratzer from New Street Research. James, please go ahead. Yes, good morning, Philip and Simon. Thank you for the call. I suppose no one's asked a question yet about Patrick Drahi, so I might try that, although I don't know how much you can say on this. Would just be interested to get any thoughts you've had on any kind of recent discussions with him as your largest shareholder or any discussions you're aware of that he might have been having with government that has been rumored in the press, and whether you were kind of slightly surprised that he didn't ask for a board seat at the AGM, given he has a larger shareholding than Deutsche Telekom. Are you aware of any intentions he might have to ask for a board seat in future? Thank you. Sure. Yeah, James, of course, important topic. Not surprised that he didn't ask for a board seat. I didn't expect that. Deutsche Telekom's board seat, by the way, is not to do with the percentage share. It's more about the combination of EE and BT, as you know, going back almost five years now, I guess. It's a different type of arrangement. No, the topic's not been raised at all, not been discussed. All I'd say is, sort of repeating a bit what I said before, we've now got two shareholders, both of whom understand industry at 12%-ish. I'm out a lot talking to shareholders and obviously having a block of two, 12% each, who understand industry, and very importantly, are fully supportive of the plan. That's the key point for me is, and the questions I've been asking all my shareholders as I've been going out, when I went out last time, and I'll do it again this time is, which of the elements of the strategy are you uncomfortable with? Actually, we've just talked about it today. We are building the best fixed network in the land, the best 5G network in the land. When you put those two together and do some of the things that I sort of inferred in my script about how you create a converged super network that can give capacity and capabilities for a whole host of new things for enterprises and for consumers and for homes. We're dealing with thinking about Edge, thinking about private networks for customers. We're thinking about all the services that might happen in the future. The beauty is I think all shareholders supporting direction of travel. No one is saying, "Oh, I'm not so sure. Should you be doing these things?" The question is, how's the market going to play out? I think actually, we've landed in pretty good place. If you look at all those questions that we used to have, Patrick and indeed Deutsche Telekom and other shareholders are really pleased with the resolution of regulation where we now can make a fair return. We're investing such high levels in our network, both fixed and mobile. Some of the questions around pension and sports rights that have all gone. The CWU now, that's also sorted out as well. It's now just execute well. Actually, to go back to the original point, which is what's going to happen in the fixed infrastructure build market, and we've now got two players announcing their plans. I think that's good. It's a land grab, right? In that land grab, all our shareholders are very supportive of us building it and filling up that network as quickly as possible, and that's what we're focused on doing, and building around it a converged, network performance which is unbeatable. We will definitely do that. The question is, what can we hook on the top of it to make the kind of revenue growth that we're looking for? That's great. Thanks, Philip. Thanks, James. Thank you, James. You are now muted. Please lower your hand. Our next question is coming from Jerry Dellis from Jefferies. Jerry, please go ahead. Good morning. Thank you for taking my question. Question is really to do with the Virgin announcement. You said it was something that you anticipated. I wondered what sort of discussions you've had with Ofcom in preparation for an announcement of this form. Specifically, what would represent an acceptable regulatory outcome, an acceptable framework for regulating Virgin's wholesale business if they decide to go in that direction. Thank you. Look, again, there are not advanced discussions on any of these topics in terms of the wholesaling activity because as you'd anticipate, we would be talking to all industry players around the ability to buy different services from different people. That includes Virgin, for example, right? I think nothing's happening on that front right now. Again, I think if indeed there is a move that changes the dynamics in the market significantly, then we will make sure that BT is operating on a absolute level playing field. I think that is something which we're very confident we can articulate to people if it ever happens. Thank you. Could I just understand what the downside risk is if Ofcom isn't forthcoming with a decision or if they take their time? I suppose Virgin is in this position where it has a very dominant market share in the legacy cable footprint. I suppose that creates some incentive for them to price wholesale relatively high. I just wondered what the protection from the regulator could look like. Well, honestly, I'm not so sure we need protection. Again, if you just stand back, you say. The truth of it is, this move, the reason it didn't surprise us is it's what anyone would do. It's a defensive move to a certain degree from the number 2 player to keep up with the number 1 player. That makes total sense to me. I guess the key thing is, as they build out and we build out, there's gonna be a load of competition between the two organizations, which I think is absolutely what the country needs. It needs two big players going head to head on delivering great things for customers. I'm not so sure we need any protection. What you're, I think maybe driving at is, which I think you're right, is nothing's gonna move quickly here. What I was trying to say when I answered the first question at the very beginning is, any move on wholesale will leave significant millions of customers on Openreach platform, whatever happens. At best, Virgin can only offer 15 million by 2028. There's a whole migration and mixture of different platforms and technologies and customers. My argument would be, if you're a big CP, they understand the complexities involved in the technology of delivering as we described on one of the other questions in platforms and interfaces. It's not that straightforward. If you're getting a great product at great prices and great service from the major player who's delivering everything you want at very attractive pricing, allowing you to make a good return. If Virgin decide to wholesale, the only way it would make sense is if they really, really had aggressive low rates. Why would they do that? In order to move significant amounts of volume late in the day, it's going to have to be really, really financially attractive. Whenever that happens, you're going to decimate your retail base. I think that's why any decision around wholesaling, I think is very delicate and needs to be carefully considered. I'm sure that's what they will do. We'll participate in that process through the channels you'd expect. I think therefore, there's an open and transparent dialogue about it. Okay. Thank you very much. My pleasure. Good question. Thank you, Jerry. You are now muted. Please lower your hand. Our next question is coming from Nick Delfas from Redburn. Nick, please go ahead. Hi. Thank you. It's actually Mandeep from Redburn. Nick's on an alternative call, so I'm subbing for him. Apologies for that. Mandeep, can't believe Nick's gone to another call. How can he do that to us? We're just sharing the responsibilities around the team so next call exactly the same time. Okay. Look, I had two quick questions, hopefully. First, I just want a little bit more color, please, on the mobile, not declines, not just on the SIM-only, but on the sort of move to direct and separating handsets and revenues. Can you maybe help us quantify an easy COVID comp? Kind of just help us understand a little bit more about how the move to direct and IFRS 15 is maybe impacting the numbers. That's the first question. The second question is on the GBP 5 million JV, potentially off-balance sheet, maybe some color as to why it's taking so long. Why do we need to wait until the sort of November results? Presumably, there's a plethora of infrastructure money dying to invest in such a venture. Why is it taking so long? Is it possible that Mr. Drahi could play a role in that vehicle? Thank you. Yeah, sure. Shall I do the second question first and then Simon can talk about mobile and the move to direct and IFRS 15, et cetera. There's quite a lot of moving parts in that. Look, I think why is it taking so long? I don't see it as taking too long. We're taking our time. We don't need to rush at these things. The beauty here, Mandeep, is, remember I say, we don't need to do this. Again, if I'm really honest, when we first thought about it, we thought we might need to do it. As you all know, based on our results presentation in May, we sort of got a GBP 2 billion cash upside, if you like, from various tax changes, super deduction, plus the tax shield we got through the pension changes you know about. The great news is we don't need to do it if we don't want to do it or we shouldn't do it. Number 2, the criteria we're looking at, we can be a bit firmer on those in terms of our negotiations and say, look, we're only going to consider it if it really is very attractive to us. Remember, there are some costs, inverted commas, or implications to doing it because you've got to set up a separate entity. As per our earlier conversation, I'm most focused on building that 25 million, as is Clive, by December 2026, for the reasons that are blindingly obvious and underlined by the announcement today. I think that's my most important thing. The other thing I'll say, just to help you a little bit, is we're in no rush. We'll take as long as we need because there are certain criteria that would be very interesting to me and for example, should we have an industry partner, and by that I don't mean a Drahi or anyone like that. I mean somebody in the U.K. If there was a way of collaborating to build some premises that were harder to reach or would not otherwise be reached through our current plans, that would be very encouraging. I'm looking at, are there any industry players who would like to participate in that too? That, I think, is one of the things that would make it much more compelling if we could find a way of doing that. Does that make sense, Mandeep? Yes. Thank you very much. I hope you got the message on the last point. We're not rushing. We'll take our time, and we'll only do it if it's a blockbuster. It's quite complicated to achieve the things I'd like to do, but we'll see. Simon, do you want to talk about the mobile and move to direct and IFRS 15 and the sort of mobile dynamics? Yeah. The first point is that equipment revenues are up. The primary driver from that is that the volumes are up relative to the Q1 last year, because as we've come out of lockdown, we are seeing more activity, and that's driving more volume and that's driving the revenues up. If you look at Q1 versus Q4, what you'll see is there's not a huge growth versus the prior quarter. That's because, as Philip mentioned in his remarks, footfall in our retail stores, which is a primary handset channel, remains somewhat lower than pre-COVID. That's the primary driver. Yes, there has been some impact from the move from indirect through into wholly direct, because under accounting, IFRS 15 accounting, we're booking the direct into a service revenue and equipment revenue, whereas through the indirect it all goes through the service. That's the primary difference. If you want a briefing on that, go to our website. We explain exactly the accounting differential between an indirect and a direct when we transition to IFRS 15. That allowed it calculated, but it's not the main impact in the quarter. Hope that helps. Very much. Thanks, Mandeep. I think we've covered all our questions, I believe. Are there any left? Right now there are no more questions. Great. Well, listen, thank you, everybody, for dialing in as ever, and spending your time with us. I know some of you say, appreciate it's a really busy day with lots going on. Thanks for your interest in BT, and look forward to seeing you again soon. Thank you, everyone. That marks the end of your webinar. Thank you for joining, and have a nice day.