1. Research Analysis of financial and economic information to support the 2004/05 pay claim at BT Bill Taylor – CWU ILO Turin August 11/12 2005

2. Areas to cover When deciding on the pay claim at BT we looked at:  Pay comparisons  The economy  Company performance and strategy  Regulation and market pressures  Staffing and productivity  Quality of Service and Employee attitudes Research

3. Pay  History of BT pay settlements For most years since 1984, pay has risen by more than the rate of inflation  Allowances Last year some allowances were not uprated  Pay for CWU grades compared with executives 1997-2000 CWU grades pay rose 24% whilst CEO pay rose 162%  Pay comparisons outside BT BT pay tends to be in the upper quartile of pay for comparable jobs Research

4. The Economy Research  The economic outlook Treasury expected GDP to grow 3% - 3.5% in 2005  Employment One of highest levels recorded (4.7% unemployed)  Current and forecast inflation 3.4% in Nov 04, expected to be 3.5% in March 05

5. The Economy  Recent pay settlements Whole economy median 3.0%, upper quartile 3.2%, lower quartile 2.5% Private sector median 3.0%, upper quartile 3.4%, lower quartile 2.5% Individual settlements: Manx Telecom 5.5%, HVD Engineering 4.5%  Movements in earnings Currently 4.1%, expected to rise 4.4% in 2005 (includes overtime, bonuses and incentive payments) Research

6. Company Performance  BT’s financial performance Turnover flat, pre-tax profit up 4%, net debt down 6%, share dividend up 22%, new wave turnover up 34%, offset 6% decline in traditional turnover  BT annual general meeting Chairman tells of strong financial performance at BT Intention to remain a good employer with good working practices Commitment to invest in UK based call centres  BT’s financial prospects Depends upon: market growth, competition, new wave strategy, regulation, debt management

7. Regulation and Market Pressures  Regulation Encouraging more competition Equal access to BT’s network Deregulating in some areas Regulatory certainty enables investment in 21CN  UK Market Growth Growth in Information Communications Technology (ICT), mobile, broadband Broadband growth rate 17% (50,000 a week)  BT Market Share Decreasing in fixed and broadband as competition increases Starting out in mobile Strong in ICT Research

8. Company Strategy  Defend traditional  Grow new wave  Reduce customer dissatisfaction  21st Century Network Huge investment required Will make demands of staff Will help cut costs Will help deliver new compelling services eg Broadband TV  International Operations Strategic acquisitions focus on ICT strategy (Albacom, Infonet) Research

9. Staffing and Productivity Research  Staffing Levels Reducing in a drive to cut costs – down from 215,366 in 1991 to 99,900 in 2004  Staff costs as a proportion of Operating costs Down from 45% in 1991 to 20% in 2002 Up again to 28% in 2004 due to further decrease in operating costs  Productivity Measures Compare productivity historically within BT – like for like comparison Turnover per employee decreased slightly, but still strong at £189,329m Pre-tax profit per employee decreased significantly, but still strong at £19,499

10. The Company  Quality of Service Overall customer satisfaction levels improved during the year  CARE Survey (survey of employees’ attitude) Only 36% of respondents agreed that ‘overall I am paid fairly compared with people in other companies doing similar jobs’ Research

11. Conclusion Research  Current and forecast inflation – 3.4% and 3.5%  Current and forecast pay settlements - median 3.0%, UQ 3.2%  Company Performance – pre-tax profit up 4%, new wave turnover up 34%, net debt reduced.  Need to motivate to deliver business transformation  Contribution to change and new wave growth  Achieving improvement in customer satisfaction  Submit pay claim for 6% in all pay rates and allowances

12.  Questions and discussion Research