1. Opportunity, Threat or Totally Irrelevant London, 18/09/03 Carrier Pre-Select and Wholesale Line Rental © 2003 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

2. Today’s presentation 1: The Context 2: What’s Happening in CPS and Indirect Access 3: Benefits of CPS over Indirect Access 4: Wholesale Line Rental (WLR) - Why is it Needed? 5: Why hasn’t WLR Taken-Off? 6: CPS & WLR - Winners and Losers 7: Conclusions 8: Questions

3. The Context 50.5 International Calls 62National Calls 69Local Calls Summary of BT’s Revenue Market Shares (Percentage) Q1 2003 66.8Other Calls 60.5Calls to Mobiles 70.5Call & Exchange Line Revenues 63.1All Calls Despite years of competition from Cable and Indirect Access: Real competition is still in business markets for national and international calls BT still controls 84% of business lines BT controls 99% of ISDN 2 lines Source: Oftel and Frost & Sullivan Analysis

4. What’s Happening in CPS and Indirect Access CPS and indirect access account for 12% of call volumes CPS lines now stand at 1.6 million Q2 ‘03 Cumulative Total CPS Lines 0 500,000 1,000,000 1,500,000 Sep 02Dec 02Mar 03 Monthly Uptake of CPS lines 200,000 400,000 0 Sep 02Dec 02Mar 03 Carrier Pre-select has taken-off since Q1 2003. Source: Oftel and Frost & Sullivan Analysis

5. Benefits of CPS over Indirect Access Increased margins for alternative network operators (altnets) Lower install costs No programming of PBX or need for software upgrade Less disruption & faster install leads to happier customers Allows the dealer channel to offer its own-branded voice service...are these CPS customers new customers, or migrating from indirect access?

6. WLR - Why is it Needed? More elegant for the altnet customer - one bill for calls and access Allows real competition in the local loop Altnets can lock in customer to a 12 month contract Call tariffs keep falling but line rental charges have remained static Allows innovative tariffing & competition with bundled services (BT Together) Line rental revenue worth £4Bn in 2001/2 - revenue unavailable to altnets

7. What’s Happening in Residential Tariffing? BT Together accounts for 50% of BT’s residential customers * PSTN = exchange lines and calls 47% 48% 49% 50% Q4 01/02Q4 02/03 Proportion of PSTN turnover that is rental packages * Source: BT

8. Why hasn’t WLR taken off? Poor product specification - WLR V.2 doesn’t include ISDN2 No major altnets seen present in this market (Wholesale Access) Delayed implementation of WLR V2 (now March 2004) Clunky manual order inputs and high penalties for order rejects Low margins Customer may not retain value added services –Call Minder, Ring back,1471, etc Percentage of CPS Orders Rejected by BT 0% 10% 20% 30% Sep 02Dec 02Mar 03 Improvements in order processing has been a key enabler of CPS take- up Source: Oftel and Frost & Sullivan Analysis

9. CPS & WLR - Winners Altnets should see improved margin as lower cost of sale than IDA Opportunity for new (major brand) entrants, such as Tesco & Carphone Warehouse to attack residential market Migration from metered to bundled service packaging for voice (Mobile model) Dealer Chain can move up the value chain and gain higher margin BT will still gain wholesale revenues from Wholesale Line Rental BT have shown ability to hold on to market share over last 2 years (73% Residential customers)

10. CPS & WLR - Losers BT defending market share against yet more competition and currently losing market share in business segment Low entry barriers to WLR increases credit risk for BT & other wholesalers Call revenues static and falling in some areas Altnets lose sight of customers as channel moves into wholesale With WLR altnets still rely on BT for fault repairs & new line installs Customers apathetic to increasing complexity of tariffs and products Lower tariffs weaken business case for VoIP & IPVPN

11. Conclusions UK voice still the biggest generator of revenues (£13.1 billion 03/03) CPS is intuitively a more elegant solution than indirect access Impact on BT still quite marginal - mostly on business revenues IDA and CPS only account for 12% of volumes Real opportunity may be in the residential market, but low ARPU and high customer acquisition costs are still a barrier Lesson from CPS so far show regulator plays a key role in enabling process Wholesale ISDN 2 is needed to allow SMEs an alternative for line access Indications from Korea & Japan show that VoDSL & VoIP could yet be the biggest threat to PSTN revenues

12. Thank you for your time - any questions? Contact us: +44 (0)20 7343 8383 enquiries@frost.com www.frost.com Or contact John: John Younghusband +44 (0)20 73438325 john.younghusband@frost.com