Good afternoon, everybody. Yeah, and the Webex is now screaming good afternoon, but the room here is not responding, so your audio still works a little bit. Thank you very much for coming, and welcome to everybody here in the room. Welcome to everybody on the Webex that has decided to join us today. And thank you very much for the overwhelming interest in what we're gonna say today. I've seen that you, in anticipation of this meeting today, you've already propped up the share price this morning, so we're gonna hope that's gonna be worth it. Okay, that was a joke, but it didn't really work.
Anyway, welcome to BT Business, a part, the B2B part of BT Group, and the first time we're gonna share our thoughts around, you know, what we do as that important part of BT Group. And I'll give you an overview of the strategy, and Kerry Small is going to talk about the outline of our transformation plans, the market, and our portfolio. Then we have Chris Sims, Ashish Gupta, and Joris van Oers that will talk about the layout of our go-to-market strategy, particularly Small and Medium Business , Corporate and Public Sector , Wholesale, as well as global. Chris is gonna cover SMB and Wholesale both, because Alex Tempest, who leads our Wholesale business, unfortunately can't be here today due to illness.
So on very short notice, Chris is going to do that part on her behalf. And then finally, we have Martin Smith, who will talk about the CFO perspective of our plans and our prospects. The presentation will last about 75 minutes, I expect, and then we have 45 minutes for Q&A after that. Good. Now, let me just take a step back for a second before we go into the strategy. Back in December 2022, we announced our intention to create one business unit dedicated to just B2B operations. And on April 1st, 2023, we brought together the two B2B teams and started the integration process with three objectives in mind. First of all, to leverage the full-scale capabilities of BT Group to develop market-leading products and services for all B2B customers.
Secondly, to create a single interface for all our corporate customers, public institutions, and removing any duplications that we have. And thirdly, of course, to do some additional cost savings of at least GBP 100 million before full year 2025, mainly through the consolidation of management teams, support functions, product portfolios, and systems. Now, I'm very pleased to report that we have achieved the first two, and we are well on track to hit the third one as well. Now, today, we are going to share what we see as the opportunity ahead, and also how we intend to seize that opportunity. Now, before doing that, I just wanna say a couple of things, which are also on the next slide.
I wanna acknowledge that the past for this B2B unit has not been straightforward, and that previous promises on growth have not all materialized. And in bringing together enterprise and global, we've examined the historical challenges that we've faced and determined how we would fix them for the future. In the past, we were slow to migrate away from legacy products. We can also say we had too many bespoke solutions, and that increased our costs, our complexity, and our inefficiencies. And also, something we didn't anticipate is the cost increases, and we are unable to offset those cost increases towards our customers. Now, this led to a scenario where our profitability and market share were declining and a scenario that called for a radical modernization of our business.
You know, at that time, we underestimated the size and the complexity of this task, and I can say that with all the analysis that we've done and the plan that you're gonna hear about today, we are now in a position to see this through in full. Now, we plan to accelerate the move to next-generation products and services to streamline, standardize, and scale our portfolio, you know, to drastically reduce our cost base, and, you know, we are reviewing our pricing strategy at the same time. This will give us a simpler, more standardized next-generation portfolio with increased profitability, as well as increased return on capital employed and an increased share in the markets that we choose to win in.
Now, in short, we are ripping off the plaster, and I'm convinced that the short-term pain of radical modernization will lead to long-term benefits for our customers, our partners, our people, and ultimately, the shareholders of BT. Now, there's a few takeaways I would like you to remember, when you leave, and these are the following ones. First of all, customers. You know, we know what customers need, and what they need is a rock-solid foundation on which they can build their digital future. Now, we, better than anybody else in the market, are able to deliver that rock-solid foundation. Now, if you talk about value, we see an opportunity for long-term value generation in the B2B market. Through modernizing and focus, you know, we will deliver outcomes for customers, and this will deliver value customers will recognize and will pay for.
And then growth, we will build on our assets and simplify our portfolio and predominantly scale our platforms at pace to reach long-term goal of sustained financial growth. Now, our aim today is to share an open, forthright view of the challenges ahead, recognizing that the obstacles that we have faced in the past to present a realistic picture of our prospects. Now, let's move to our customers. Our business starts with customers, of course, and we address these customers through the following channels, as you can see here. Starting from left to right, Small and Medium Business , which is, or we also call it, SMB, which is made up of over just 1 million enterprises, and these are all companies under 250 employees.
You know, this segment resulted from the merging of the SME segment, small and medium enterprises, as well as the SoHo segment, which is small office, home office segment we presented before. It generates around GBP 1.5 billion in revenue, and we have between 20% and 30% of the market. Next, you have the Corporate and Public Sector, which covers the larger organizations in the public and private sector, ranging from high street brands to government departments, as well as the NHS. And as part of the merger of Global and Enterprise, we have integrated our top U.K.-headquartered multinationals from Global into CPS. Now, and therefore, CPS now has about 12,000 customers in this segment, generating roughly GBP 2.4 billion, making up 20%-30% of the market.
Now, in the middle, you see our Wholesale segment. That's made up out of 1,000 customers, generating a revenue of around GBP 1.2 billion, and these customers include other telecommunication companies, mobile virtual operators, resellers in the U.K., and our market share there is roughly 20%-30% as well. Now, next is Global, serving predominantly multinational corporations and international government bodies. This segment revenue, after moving the customers into CPS, currently is now at, sits at GBP 2.4 billion, and it represents roughly 5%-10% of the addressable market globally. Now, and finally, you see portfolio businesses. This consists of end-to-end businesses which do not easily integrate into the, operating model that we have designed, but, which consume our core assets and operate successfully on a standalone basis, which we will optimize for value going forward.
These include businesses like Radianz, Trading and Command, Redcare, and one of the businesses mentioned here is actually Media and Broadcast. And for those of you that saw the message we sent out yesterday, we've just announced a partnership with Telstra in that particular area. The portfolio business is roughly GBP 700 million revenue. We won't present on this particular segment in any detail in the presentation, but obviously more than happy to answer any questions at the end. Now, put this all together, you have a business revenue around GBP 8.3 billion, representing 40% of group revenue, 25% of group EBITDA, and 33% of the cash generated in the trading units of BT Group.
Therefore, it's a significant factor in the future of BT Group, which is why the planned modernization is so critical and is so urgent. Now, if we then look at customer needs, I would like to, before we are actually gonna talk about customer needs, I would like to describe the relevant changes that we have observed in the business environments. Basically, the environments the customers you saw on the previous slide actually sit in every single day, whether you're a small company or a large company. Can we go one slide back? So just think, the world that these customers live in, you know, 5-10 years ago, this was the time when many organizations held most of their data and applications on-site.
You know, either on a standalone computer or on a server, in the case of a Small and Medium Business , or in a data center, in the case of a corporate or a large government department. Today, the growth of software-as-a-service, cloud-based application offers an efficient way and a convenient way of running the operations differently. Now, whether you're a flower shop in Bristol, which is obviously an SME, or you're a multinational in Berlin, it just makes more sense to run your company out of the cloud. You know, whether it's your website, your accounting software, your HR tools, it just makes more sense to do that out of the cloud. But the downside of this is that your data is distributed across multiple clouds, multiple locations, and across the entire world.
You know, to access that data in a secure, reliable way, you know, it may not be guaranteed, and customers recognize that it also may be at risk. Now, because customers are aware of this risk, that is why it's so important for them to have a rock-solid foundation on which they can build their digital future, and that rock-solid foundation is where our unique assets play such an important role. Now, we're gonna talk about that a little bit more later on. Now, moving to the next slide. The uniting factor that all of our customers have, large and small, is that they want secure, always-on connectivity. You know, you may recall the group's ambition is to be the world's most trusted connector of people, devices, and machines. Nowhere is that ambition so pronounced, pronounced as in the unit business.
Now, the data we gather from our networks, the conversations we have with our customers, and the insights we get from the market paints a very, very clear picture. And the picture says, The picture about where the demand is coming from. And that is an increase, a tremendous increase in compute power, predominantly driven by the expansion of AI-driven application. You know, the massive increase in data generated by more and more connected devices and the continued digitization of businesses and accompanying traffic to, from, and between clouds. At the same time, the demand is driven by the expansion of cyber risk and geopolitical risk, combined with an increased requirement from governments and related agencies to comply with new data sovereignty regulation, as well as ESG targets.
An example of how we are addressing these issues is the rollout of our new network as a service, which we call Global Fabric. Now, Joris and Kerry will touch on that in a second as well. Now, when we ask our customers what keeps them awake at night, our customers basically say all of the above. You know, along with the concern that they simply do not have the skills internally to do what needs to be done to enhance their own competitive advantage using digital technology. So in short, they need a partner that can help them fulfill their own ambitions. So we've translated those market trends into outcomes that we need to deliver for customers. So these are five S's. These are five outcomes. These are not technologies we sell.
This is what our customer expects us to deliver, and if we do, they have told us they see value. Now, this is stability in the form of the most reliable, secure, and resilient connectivity. It is skills in the form of deep technical, network, and digital expertise. It is security, cybersecurity, in the form of best-in-class protection from the ever-increasing threat of cybercrime. And it's sustainability in the form of practical tools to help them reduce their energy consumption and carbon footprint, as well as sovereignty in the form of strategic support in complying to local and international regulation on data and data sovereignty. Now, let's now have a look at our markets and our solutions. We are addressing all of these markets that I just talked about through a clear, defined, what we call product powerhouse, which is this side of the screen.
Kerry will describe this in more detail in a second. But reading from the bottom up, you can see that our... You know, we start with our assets, and it's all about asset utilization you will hear today. That is our rock-solid foundation I spoke about a second ago, which is made up of our fixed mobile voice networks in the U.K., our global networks, as well as our rich data resources, which all of these assets generate. The three portfolio categories on top of the foundation drive our customer benefits while prioritizing the consumption of our core assets. And these three areas are digital infrastructure, which is voice and digital collaboration. Oh, sorry, which is our converged mobile and fixed networks.
Digital work is our voice and digital collaboration products, and digital services is our managed services, as well as our fast-growing cybersecurity solutions. Now, as you look at this chart, I'd like you to imagine that it's segmented to reflect two key financial drivers, which Martin will come back to. I'll introduce right now. One is our volume business, which comprises of our product-centric mobile, voice, and broadband business in the U.K. And then our value business, which is centered around the U.K. and global managed services. Now, the volume business in the U.K. represents roughly 40% of our revenue base, covering the majority of SMB and Wholesale, along with roughly 1/3 of the CPS revenue.
Then the value business represents roughly 60%, and it's covering all of global and the portfolio segment and roughly 2/3 of CPS and the rest of Wholesale and SMB. And like I said, Martin will explain in a second what the financial drivers are that play out between those two drivers. Now, let's finish with our strategy. So, knowing all of this, knowing how our customers are organized, knowing what they expect from us in an outcome, knowing what we really do well, we have said, "Look, our strategy is all about a focus strategy." And we have called it Better on BT.
You will hear the segment leads talk about this in the same context, but in brief, it's the Better on BT strategy aims to build a company where customers are eventually gonna say, "Look, my organization, my company, just works better on BT." And for the companies that we decide to partner with and decide to partner with us, that they can say, "Look, our technology just works better on BT." Now, this strategy consists of three components. Better focus means prioritizing decisions that radically simplify our business, allowing us to grow to go faster and to scale. Better outcomes, as we covered, it defines how we deliver value for our customers through modern, scalable platforms. And better tomorrow sees us investing in skills and technologies that deliver long-term benefits.
You know, the measures that are captured in this chart, I'll leave up for a second, so you can consider how this works in the case of radical modernization. Because Better on BT is all about focus and execution, deciding where to build, deciding where to partner, and deciding where to stop doing stuff. The case for change is compelling and urgent. We will move off legacy products, speed up our modernization of our IT systems, and to radically simplify our processes so that we emerge as an efficient, streamlined, and future-focused business. Like I said, we will rip off the plaster quickly, knowing that the long-term benefits will outweigh the short-term pain. Martin will explain what this means in terms of our growth trajectory, as you'll all appreciate, timing is everything, and as we approach this in a realistic way.
Now, in short and in summary, we understand customers' needs today. We can help them navigate their future challenges, and I'm incredibly confident that we can do this better than anyone else if we execute on our modernization right now. We are confident in the opportunity for long-term value generation in the B2B market, and we have organized ourselves to maximize that opportunity. As we believe that our Better On BT strategy will help us achieve our long-term goals of sustained financial growth, at the same time, we have no illusions. It is complex. It will take time. It requires bold decisions and relentless focus on execution.
Now, to describe our approach to modernization and the future of our portfolio, I'd like to hand over now to our most recent member of our team, Kerry Small. Come on up.
Thank you, Bas. Warm welcome to everybody. I joined BT back in April. My welcome indeed was very warm. I think perhaps knowing anticipation of the task ahead may have been to do with that warmth. But, like, seven months in, my main reflection really is that the company has got some good assets. Yeah, we've got great people, we've got great networks, and we've got some really amazing customers. My role is to help convert those assets into a viable, future-focused product powerhouse, but while recognizing the considerable external pressures to transform, to respond to new competitive forces, and to accommodate the shifts in customer expectations that we see every day. So in the next 10 minutes, I'd like to cover two specific areas that will guide this process. One, the transformation plan to modernize our business, and then secondly, our product portfolio.
So first up, Bas spoke about our need to transform. We'll need to do this through radical simplification of our products, our operating processes, and our technology. We're running a multi-year complex transformation with a view to both protect the base while building for the future growth. The transformation plan itself relies on three core levers. So number one, simplification. So we've got structural simplification through the merging of the former B2B businesses, our enterprise and global. This allows us to remove duplication, also allows us to optimize the P&L, and we can actively address the cost structure. The second lever, rationalization, this is really key to our product portfolio. So going forward, we will build new products on common platforms, move from building products for each channel to products that can be configured to meet the needs of each of those customers.
By adopting the approach of build once, deploy to many, we will be able to significantly improve our capital returns, our unit economics, and our scale benefits. The third lever is digitization. So we're building a modern, modular IT stack that reuses components across products. It's future-proof to exploit AI and data mining, and we've got an ecosystem set up where our partners can plug and play. This is really critical 'cause it decouples our digital layer from the complexity we know is below that, so the telco's operating and business systems. What this will give us is those zero-touch journeys that our customers crave and a marketplace capability to build our new revenues for the future.
By pulling each of these levers, we'll create a modern business that is fast to market, has digitally engaged customer base for the future, and at the right cost point for sustainable growth. We're not starting now, though, so we've already kicked off our transformation plan. It does touch on all aspects of the organization. What's really key is that we continue to optimize the current state while carrying out the longer-term changes, and I'll share up here a couple of the examples of where we are on our journey. So when we talk about our sales transformation first, this is really focused on increasing our sales order volume, moving to solution selling, and critically driving up productivity through things like digital sales. We're already on track here to deliver a 40% year-on-year increase in our digital channel sales in SMB, critical for a scaled channel.
In our service transformation, we've deployed ServiceNow, cloud-based workflow automation platform. We've already put 240 of our most complex customers onto that platform. We've migrated 2,500 by the end of the year, and then we will be scaling across thousands of customers as we push this migration across all of our customers. This will drive significant cost savings, but also a much-needed uplift in customer experience. On the third lever, digitization, we're not at the beginning of the story here either. So we signed a partnership with Tata Consultancy Services, TCS, to focus on simplifying the BT Group legacy estate. This was announced earlier on in the year, and it allows us to focus on delivering the new tech we need to meet our customers' needs and drive growth for the future.
We've already migrated around 500 of our legacy apps, and we're on track to deliver group-wide savings of GBP 145 million by FY 2027. Now, as I said, the portfolio is a key part of those levers that we need to modernize our business and how we transform that portfolio. So let me start by just talking a little bit about our product strategy first, and then I'll go into the portfolio. So our product strategy is key to have a reduced number of products. We'll be moving from 312 to 150 products. The products will be secure, cloud-centric, built on that new IT in a modular, componentized way. This is critical because it meets the needs of our customers' ever-increasing need for secure, always-on connectivity. On top of this, we can then layer the digital services.
Now, let me talk, I'll just start by talking through the three portfolio areas. So first off, starting from the bottom, we've got our digital infrastructure. This is where you'll find our converged mobile and fixed networks, providing the stable connectivity all of our businesses need to run effectively and efficiently. Here, we've got unmatched core infrastructure of 27, sorry, 27 terabits of core traffic. We've also been consistently the leader in mobile network for 10 years, and we've been the global leader for 20 years in our global network services. That's our rock-solid base. Digital work, the next part of our portfolio. So this is where you'll find we help all of teams and individuals work seamlessly. Online meetings, collaboration, communication tools, and our customer contact centers.
And you'll see here many of the major partners that you'll recognize that we work with, Microsoft Teams, Cisco Webex, Zoom, RingCentral. We use all of these partnerships to both build, innovate, and integrate into the solutions that we provide for our customers. And then the final set is our digital services portfolio. This is where you'll find our end-to-end solutions, such as cybersecurity that Bas mentioned earlier. We've got Eagle-i in there. We've also got our industry-specific solutions, so our industry verticals there. As an example, healthcare. Within our government vertical, you'll find our defense vertical, and also our managed services. Just focusing on security for a minute, security is the number one concern for all businesses, driven by the increased number of threats and the continued move to the cloud. We expect this to continue to increase.
Right now, we've got an established market-leading security proposition, which grew 14% year-on-year in H1. We're differentiated, and we believe the reason for this is because we've got our own 14 cyber operation centers and 3,000 experts that are all accredited with vendor and industry accreditations. This is also a really good example of where we will take our existing global proposition and scale it down to our SMB segment. Build once, deploy to many. Now, we're seeing this as one of our major places where we'll see that capital investment start to change in shape as we build out our security portfolio for all of our customers. When you take a look at the entire portfolio, our ambition is to embed sustainability by design. It's already there, but already transition our networks to be more efficient.
So when you look at our fiber networks, 5G, our global networks, all of these are contributing towards our sustainability goals. Not only does it lower our own carbon emissions and contribute to our Net Zero ambition, in the supply chain of our customers, it also helps the customers to reduce their carbon footprint. Again, some examples. We're not at the start of this journey. Our global voice network already reducing carbon footprint by 81%. Moving from 3G to 5G, it's up to 90% more efficient. And when you think about our mobile, digital eSIM reduces the carbon footprint by 99% versus traditional SIM card. So that's today's portfolio, and hopefully, you'll agree it's a pretty strong portfolio. But the market's ever-moving.
So we're seeing migrations today from copper to fiber, 3G to 5G, voice to IP, and we need to pivot that portfolio to capture the value shift that's happening in the market today. I'm pleased to say we're already on this journey, but we need to go faster. We need to take leadership in that next-generation connectivity, so the virtualized networks that are coming, Global Fabric, which you've heard about already, fiber, cyber, 5G, and IP voice. To do this, it needs a programmatic orchestration of customer migrations in huge volumes. You heard Bas talk a little bit about we've been slow in this space. To do this is not easy. It includes everything from sales, training, and incentivization, building new products for customers to migrate to, regulatory compliance, IT development, and we've set up a factory approach to be able to move these huge volumes of customers across.
So a couple of examples on here, which I'm pleased to share with you where we are. So on voice, we're 50% of the way there and due to complete by 2025. For those customers that adopted collaborative ways of working, often driven by COVID, that first cohort moved really quickly. We've got a second cohort where we're putting more actions in place now to move them on that migration journey. Three of the key things we're doing, making, making the migrations themselves much more seamless to the customer, so smooth that path. We're making the commercials attractive by billing on activation, and we're also doing targeted campaigns with services wrapped around to help customers make that move.
If you then have a look at the move across on our fixed sides, we look to the end of 2025, we expect all of our broadband customers will either be on an FTTP or a single order access solution, i.e., broadband without the traditional phone line. We're currently circa 75% of the way, so we know we've got a long way to go on the other side. But on FTTP specifically, business has got a really good take-up where it's available with the vast majority of orders are for business broadband. So as coverage increases, our take-up of FTTP will increase. And we're really confident about the future of FTTP looking forward, because we've got a great set of products for our customers to migrate to. However, the future doesn't stop there. As we said, the world's an ever-changing place.
The connectivity doesn't remain standalone. The future is convergence, and what we're seeing now and what we're working on is the likelihood of security, networking, converging already. We're also gonna see the convergence of 5G with voice, and we're planning for that move now as we take our customers on this journey. So in summary, to transform to a modern business, we've got three things that we need to do. Simplify the integrated businesses, rationalize the portfolio of products from 312 to 150, and pivot to take that next generation connectivity leadership. And thirdly, we need to digitize the business to enable those zero-touch journeys to make our customer experience the right experience and build a marketplace capability for our new future revenues. Now, this level of transformation can only work with a deep focus on our customers being front and center.
What I want us to do now is let you hear more from our segment leaders to talk about how this is actually happening in each of the areas. I'd like to hand over to Chris Sims, who's gonna talk through our small, medium business customers. Chris?
Thank you, Kerry. Good afternoon, everyone. As Bas said earlier, the SMB businesses, services, organizations with less than 250 employees, and of course, you'll know that is actually the majority of businesses in the U.K. It's a pretty broad segment with a range of needs, both in terms of the products they require, the level of service they want, but also how they choose to engage with us. But make no mistake, these businesses really understand what technology can do for them, but sometimes just need a little bit of a hand getting there. And they know that with growth, they need technology to keep up with the competition. But at the same time, they remain very value-conscious and very considered. Critically, they are super time poor.
They don't often use professional buyers, and that makes them just a little bit more emotive in their decision-making, putting more emphasis on brand and marketing, which, of course, plays really nicely into our two-brand strategy. For this segment, we primarily sell mobile connectivity and voice solutions, and increasingly, we're selling solutions that help businesses operate more efficiently, things such as collaboration tools, payments, messaging. Now, we believe the market as a whole will grow by about 4% CAGR up to 2028. But today, it's clear that the current environment is not massively favorable to small businesses. In 2022, we saw the total number of businesses shrink, and over the last month, you'll have seen in the news a big rise in reported insolvencies. But we do see evidence of confidence improving, and I'm always massively impressed by how resilient this sector is.
What's clear is that if we look at our base, over the next year, we'll see a few winners and a few losers, and our growth comes in part from businesses embracing digital technology to make sure that they are one of the winners. Let's turn a little bit to the market now. So you'll see we have a really good core market share, so we're clearly overindexing in mobile, in connectivity, and traditional lines. And the great news is actually, we've got a great opportunity to gain share in IP Voice and security. But if you peel underneath that a little bit, you'll see the picture actually is not completely homogeneous. We definitely have a higher share in micro and small than we do in medium, and that gives us an opportunity to grow further.
Additionally, there's still opportunity in cross-sell, and our push into security and other digital services is absolutely crucial to that. Last year, we grew 4% year-on-year. We actually grew a lot more than that in H1, and this is partially due to index-linked pricing, but also due to strong trading. And we believe we actually beat the market in most of our products. In no small part, this has been helped by our market-leading reach. For smaller businesses, we operate through telesales, we've got access to the EE high street retail stores, and we have a growing digital channel. And for larger customers, we continue to invest in our Local Business channels. So this is this network of 28 independent businesses selling BT products and services within their geography. And that is coupled with a growing direct field and desk team.
And as a result of all that, we've seen growth. We've increased our mobile market share year-on-year, increasing our average deal size as well, and our insight data has shown that BT has comfortably outperformed the market during this time, taking 14% of all mobile transactions. IP Voice has also grown faster than market, and we're finally starting to see traction with larger customers. But it is also clear that for smaller customers, some of the market has moved a little bit away from voice, and here, our unbundled, standalone broadband proposition has been absolutely key in retaining these customers without unduly diluting ARPU. We also see early signs that FTTP is driving lower churn and higher ARPUs, and our net adds position on Ethernet has grown 6% year-on-year. So we're really happy with the trading over the last period.
So before I share the plan for SMB, I just wanna highlight three major trends that are actually touching our market at the moment. So the first of those is the growth of mobile-first businesses, remote working, cloud servicing, which are all helping drive that transition from traditional voice to IP voice. And this, of course, is having a positive impact on the U.K. economy. IP services are more affordable, and actually help businesses improve their productivity. The good news for BT as a supplier is that actually for our smaller customers, we are a little bit insulated from the dilution, because voice is always gonna be bundled with broadband. And for our larger customers, propositions such as Teams Phone Mobile, which we're doing in partnership with Microsoft, really help us directly monetize that trend.
Importantly, for both, we're providing a range of tools that support digitization, from payments, website builders, collaboration tools such as Microsoft 365, and all of these are just helping build back that value for BT. The second trend there is that SMBs are really at high risk of attack, of cyberattacks, things such as phishing, malware, ransomware, data breaches, and it's clear that SMBs, rightly, are worried about this. But the security expertise that Kerry outlined earlier means customers are confident that BT is the right partner for them. We have a range of solutions that support businesses regardless of their size, scale, and needs. Over the next period, we're gonna continue to build out security as standard across the portfolio.
A really good example of this is our BTnet proposition, which has a really powerful security add-on offers, firewall, content filtering, anti-malware protection, intrusion detection, and it's done very, very simply. It's truly a one-stop shop for our customers. And the final trend there is actually customers continuing to face uncertainty, of course, driven by global instability. And as a result of this, the need for flexibility and tailored levels of support has never been greater, and BT's scale means that we're really well positioned to respond to this. Firstly, our index link pricing allows us to continue to invest for the longer term, obviously focusing on the stability of our network and our service levels. But secondly, and shortly, our scale is gonna allow us to launch new mobile and broadband propositions with significantly more favorable commercial terms.
So addressing these trends, we have a really clear plan to transform SMB. So firstly, we're gonna modernize our sales engine, and that really means shifting customers online to reduce costs, and actually, it also provides greater opportunities to cross-sell, driving our RGUs. It also frees up capacity for us to invest in our channels servicing larger businesses, and there is a big opportunity to gain market share with larger customers, and this increased investment in people and sales tools will drive this. Related, we're also gonna be massively simplifying our business, radically reducing the number of products we sell, simplifying things for our customers and colleagues, and you heard a little bit about that from Kerry earlier.
The good news is we've actually seen from closing Plusnet Business and BT Mobile, which we've done over the last period, that we can move customers to strategic propositions with acceptable churn levels and acceptable ARPU outcomes, which is great news and gives us a lot of confidence in the simplification plan for the future. Secondly, and probably most excitingly for me, is the work we're gonna do to amplify customer value, showing customers that they really are truly better on BT. Today, we believe we have the best customer propositions, blending the power of fixed and mobile, innovative service models, great add-ons such as free roaming, exclusive Apple One content, and of course, all on the best network. We also have security embedded with options to pay more if customers want enhanced coverage, which, of course, many now choose to do.
Over the next year, we're gonna work really hard to enhance those propositions, making them richer, but actually, more importantly, making them much, much easier to use. And this is gonna include providing a range of tools that make it easier for customers to run their business, all of which, of course, work better on BT. As part of this, improving early life journeys is absolutely key, and we've got several initiatives which will do just that, significantly reducing our breakage. And all of this combined will really enable us to become a much more trusted partner for our customers from start-up to scale-up, and it's hugely exciting both for us and our customers. But finally, we'll continue to focus on driving a broader impact, supporting businesses to become more sustainable and digitally skilled, as we've done so far on our hugely successful Skills for Tomorrow program.
So in summary, we've made a really great start getting SMB back to growth, and we've got a lot of headroom to go further to offset any headwinds. We're very well placed to modernize our sales channels, amplify customer value, and simplify our business, and I'm really excited about what the next year will bring for us and our customers.
And with that, I'm gonna hand over to Ashish.
Thank you, Chris. So to give you a brief overview, the CPS customer base is compromised of large enterprises across the U.K. That includes, public sector as well as private companies, and roughly equals about 12,000 customers. And of these 12,000 customers, BT has well-established relationships with about 50%, so obviously, 50% creates an opportunity for us to grow.
The public sector base covers all areas of U.K. government, all public services, the devolved authorities of, of Scotland, Wales, and Northern Ireland, all local councils, police forces, and NHS trusts. BT is by far the largest telco in the public sector, and actually is one of the biggest provider of technology solutions to government as we stand today. Our corporate base covers all U.K. headquartered businesses, including U.K. MNCs, with over 250 employees across all industry segments, and we fundamentally power the digital operations of a sizable number of the most well-known U.K. companies. Now, across all of these sectors, public and private, our customers are increasingly seeking enhanced business outcomes through transformational investments in digital capabilities, and we are supporting them by providing end-to-end infrastructure managed services, which cover networking, mobility, collaboration, and security.
I guess the slight difference to recognize is, unlike Chris' customers, most of my customers have well-established, procurement, CIO, and infrastructure divisions, so they're quite knowledgeable buyers of the services that they, they're out in the market to, to provide. And actually, the CPS segment is quite led by not selling just off a catalog, but making sure that we're selling tailored solutions that help our customers with their outcomes. So the CPS business has been under fairly significant financial pressure. In fact, quite a lot of the declines that we've seen in revenues over the last, I don't know, five-seven years, have been driven by revenue declines in this segment. As we migrate our customers from high-margin legacy revenues to next-generation services, and also as we've run down some large legacy contracts.
Public sector pricing has also been particularly challenging, given significant competition, as well as the structure of general public procurement, especially for mobile services. And also, given the nature of the services that we offer in the segment, we compete not just with telcos in the U.K., but with also a number of systems integrators, the likes of the Capita, Atos, Capgemini, et cetera. Having said all of that, we are seeing a significantly increased demand for our digital infrastructure and digital work offerings that Kerry talked about, especially as our customers look to upgrade to secure converged networks as they move to their journey to the cloud, and where flexibility, simplicity, security, and sovereignty, that Bas talked about, are fundamentally key requirements for this base of customers.
And also, alongside that, customers are really looking for partners who can help manage all of this infrastructure, especially as they don't necessarily wanna hire these skills in-house, and they also wanna make sure that they're mitigating any skill gaps, and they're also making sure that they have a trusted partner to help them achieve their business outcomes. So whilst we face a number of headwinds in this sector, we continue to maintain a very unique position to meet our customers' growing and changing demands. With the broadest base of assets that Bas and Kerry talked about, we have a very well-established ecosystem. We are probably the number one partner for pretty much every telco equipment manufacturer that is out there, and we also have unrivaled skills in our managed services business.
So as a consequence of all of that, we already have a leading position in all of our core markets. We have a very, very strong base of large managed service contracts across all sectors, to name a few, defense, banking, retail, transport, logistics. We're, we're a clear market leader in connectivity. We have overall 39% market share, and we continue to win customers back to BT. So, for example, we won the Scottish Public Sector Network, which has been with Capita for 10 years. They're back with BT. We just did an amazing deal with National Air Traffic Services, a long-term Vodafone customer, back with BT. We also won a huge deal with ScottishPower in Scotland, another Vodafone customer, back with BT. We already have a fairly strong mobile market share at about 30%.
When it comes to security, in a fairly heavily fragmented market, where a lot of customers also do a lot of DIY, we have a very decent market share, and actually, we're growing very strongly. Kerry mentioned 14%. I think in CPS, we're growing a bit faster than that. So I guess that sort of paints hopefully a good picture as to what we do and the customers we serve and what they're looking for. In terms of where is the future value for CPS? So the fundamental value for CPS comes from the following areas. First, our mobile penetration, the 30% share, is quite heavily focused in public sector, especially central government. So this gives us quite a big opportunity to grow our mobile base in the corporate services.
Of course, as we can attach more value-added services, this gives us an opportunity to drive ARPU improvement, especially in markets where our margins are under pressure from pricing. We have quite a significant traditional voice base, and we're looking at migrating them directly to our digital workplace solutions. This limits some of the ARPU dilution we would have seen by moving them onto lower-priced, lower-ARPU, on-premise, SIP-enabled services. And then, of course, we are uniquely positioned also to attach contact center services, which represents a huge opportunity for us to grow not just our base, but also our ARPUs. Then lastly, our very strong connectivity market share is really helping us to drive adjacent network services, so specifically, cloud connectivity, security, and network managed services.
And alongside all of that, we are also very uniquely positioned to help our customers through the well-established partnerships we have with the hyperscalers, with services, systems integrators, as well as a whole bunch of other vendors, to deliver not just infrastructure, but also outcome-based services. So in a fragmented and competitive market, BT is and continue to win by being the partner of choice for our customers, offering a comprehensive range of services which are better on BT than they are with any other market participant. So lastly, while there's still a lot to do, obviously, to get this segment back to growth, but we have three key areas of the plan, which will help us turn this business around and get it back to growth. The first is a rigorous focus on the growth of our core portfolio.
Now, this has been a shift for this segment, 'cause historically, we've been heavily focused on some of the larger deals and transactions in the market. But over the last year, we've dialed up the approach to managing, you know, volume product sales. And we've made lots of good strides, and we're seeing a number of benefits with more to come. We're seeing strong growth across networking and security, and we hope to be able to demonstrate in the coming weeks and months, material growth in other portfolio areas, the likes of IP Voice, as well as collaboration.
Now, this is really important to the CPS business because it will help us consolidate market shares, but it'll also help us drive up our margins and, and be able to manage that more sustainably in the future, because we're not as heavily dependent on just some large contracts and large deals. The second big area of focus is, in order to support the growth, we have to continue to drive improvements in customer experience. We've had a really good uptick in our Net Promoter Score over the last 12-18 months, but we also understand that our customers expect always on, completely secure services from BT, and we have some work to do in order to get us there.
Very specifically, service delivery and the quality of our billing inquiries and resolutions come up as some of the biggest areas of detractors from our customer perspective, so lots of work to do there. The second bit that comes up quite a lot is, given the nature of our customers, they want quite a lot of focus from us in terms of digitally integrating our service models into their back-end investments in robotics and other capabilities, so that they can drive a more seamless end-to-end solution across their applications and their infrastructure. So again, we're making investments in that space, and of course, this is also an opportunity for us to embed AIOps and other capabilities, along with our partners, to make that even more efficient.
So look, lastly, I guess it says the service that we provide our customers is absolutely critical to create an efficient, functioning operation for them. We're continuing to drive improvements, and we're absolutely committed to make sure that we are the best in the market in the services that we offer. Last but not least, we want to be the national champion, and we want to partner to deliver infrastructure-enabled vertical solutions. Just to sort of build on that a little bit, our customers want us to leverage technology to drive transformational outcomes. I said that earlier. These tend to be quite unique to their respective verticals. You know, if you speak to the train companies, they want to deliver a great experience to people on the journeys. If you speak to the banks, they want to deliver great financial services.
But in the nature of our assets and the skills that we've got, we are uniquely placed to be that partner of choice, to use our infrastructure to create these solutions on their behalf. We've already made a lot of good progress in developing a number of solutions, where we've created outcome-based solutions for our customers. For example, in health services, we're helping remote diagnostics. In logistics companies, we're helping the user with the user Wi-Fi to deliver a whole bunch of services on trains. You know, and I can talk about what we're doing with ports and others at another time.
Of course, in defense, we're doing a huge amount of work with the MOD in terms of creating smart bases in the future of how, you know, the soldiers that battle for us are best trained and best able to use our technology to do the best they can. So I guess, you know, that's the focus on that. And then, last but not least, we are absolutely committed to being the partner of choice in public sector. We've been verticalized in this area for a number of years, and this has allowed us to make some very targeted investments and also evolve our service model, because obviously, in government, you need a whole bunch of clearances, and we have a very well-established business which deals with clearances of all levels, so we can deliver services that others struggle to.
And we hope to continue to partner with government in the delivery of next-generation infrastructure programs such as ESN. So I guess, in conclusion, while the CPS market is fragmented and challenging, we and we still have quite a lot of legacy revenue to manage, we have the scale and the breadth to be able to evolve ourselves to being the infrastructure solution partner of choice and return the segment back to growth.
Thank you, and I'm going to hand back to Alex-- sorry, Chris, to talk about Wholesale.
Thank you. Good afternoon, everyone, again. Yeah, so it's been a busy morning. Alex is ill, so I'm covering for her. She does send to you her apologies. I can only assume to me, she's gonna be sending a massive case of wine, Alex, if you're watching. So Wholesale, our legal advice is, I just need to remind the audience, I have no operational influence on the Wholesale team. We run them as separate businesses. Of course, I'm on the leadership team, so I'm a very keen observer of the excellent work that Alex is doing.
One of my observations, actually, is that Wholesale continues to be one of the least understood parts of BT Business, which is a little bit ironic, really, because they are really integral to the success of us as an organization, because what they do is address a really sizable part of the U.K. telco market that buys and sells through indirect channels, and that market is worth, you know, getting on for GBP 4.5 billion. So what I'm gonna do today is just try and demystify the area a little bit. So starting from the beginning, then. What we do in Wholesale is provide communication providers, so our customers, with a variety of solutions that are both sell to and sell through. And fundamentally, what these do is enable BT to incrementally monetize the fixed and mobile access assets we have today.
That drives better unit economics and maximizes the market value we get for BT as a whole. We're actually often asked how BT Wholesale differs from Openreach, and the reality is that Openreach provides the basic building blocks of the service, and we take those and build them into an end-to-end solution that's ready for our customers, those communication providers, to onward sell and brand to their customers. Wholesale is primarily a volume business. 81% of the revenues come from selling standard products like broadband, voice, and mobile, same as SMB. We are really strong in this market. We've got over 1,000 customers, as Bas said earlier, but importantly, we operate in three segments, and it's worth just understanding the three segments to help get a little bit of transparency into the business.
So the first of those segments is Wholesale partners, and that's predominantly where we sell broadband, Ethernet, optical, and hosted, which is IP telephony. And we do this through some of the U.K.'s largest resellers. So these are people like Gamma, Daisy, Claranet, et cetera, and we do that alongside sales through national and global network operators such as TalkTalk, Colt, and Verizon. The second segment is mobile and digital infrastructure, and that's where we work with some of the U.K.'s mobile operators, such as VMO2, Three, and Vodafone, to bring this brilliant BT connectivity to help them run their business. And within this segment, there's this new and super exciting world of edge and colocation, where we're actually forming partnerships with cloud providers such as AWS to run network edge services from our exchanges.
The third segment is, it's a bit of a mouthful, mobile virtual network operators . We just call them MVNOs. And here we partner with businesses to provide access to the EE mobile network, to allow them to sell to their own customers under their own brands. And this segment continues to grow in the consumer MVNO market, for us, with brands such as Utility Warehouse, or UW, and Lyca. But we're also now starting to see growth in the enterprise and IoT MVNO market with partners such as plan.com and Wireless Logic. So let's turn to the market. As you can see, we're a leader in traditional broadband and small cells. We're around 30% market share, and we do about a fifth of Openreach's Ethernet market.
Importantly, we're aiming to grow our market share in that fast-growing hosted, so the IP Voice space, and following the exit of Virgin from our MVNO business a couple of years ago, we have seen good recovery and strong year-over-year growth in MVNO, driven by existing partners, but actually also from new partners such as Lycamobile . However, the Wholesale market is increasingly challenging. We see competition compounded by reseller consolidation. We do see some ARPU erosion, and actually, in the Wholesale space, we do see costly demands for higher bandwidths. But whereas there's tension in that traditional Wholesale market, we do see new opportunities to grow in these newer markets, and this is what gives us confidence about the future. And crucially, we are actively investing in these new opportunities, and that is what is gonna set us up for growth in years to come.
In today's environment, we place a premium on the ability of communication partners to collaborate, and the partnerships we have allow us to play in these new areas, especially in relation to digital infrastructure. It's allowing us to combine the benefits of hyperscalers, such as AWS, Microsoft Azure, Google Cloud, and combine those with the power of BT Wholesale to bring new solutions to market quickly. A really good example of that is a joint project we've got on the go at the moment with AWS to provide mobile edge compute services in the UK, starting with the delivery of the Manchester Wavelength Zone . It's a really great example of a value of bringing two partners together and BT leveraging its existing assets to deliver new services to customers. A further opportunity, of course, is the migration from PSTN to IP Voice.
We, in Wholesale, are choosing to get ahead of the competition by offering stability in this ever-changing market, rather than waiting until 2025 for the switch off, and this is in stark contrast to some of our competitors. We're doing this by running campaigns that help our partners identify, understand, and execute their migrations with white label collateral and benefiting from our professional services and support to ensure that these customers really are better on BT. Just to highlight a little bit the scale of the opportunity, the broadband market is around 2 million business lines that need migrating, and we've got the capacity and capability to service these through a range of different technologies. Finally, another area that's super exciting is Complete Mobile, which recognizes our customers' need for a Wholesale mobile solution, and we've recently launched that into the market.
Let's look at our execution. We've got three priorities to really build on this market leadership, and loosely, they're broken down into our propositions, our customer experience, and our people. Firstly, let's focus on what we're gonna be doing to develop market-leading propositions, both in that traditional telco space, but of course, in those new future-proof products. In the telco space, we're really focusing on helping those communication providers move to IP products through that expert support provided by our professional services. In those exciting new opportunities, we see opportunities in security, edge, asset commercialization, and IoT. And earlier, in the SMB section, I was talking around their concern for cybersecurity, but it's also great news that we are perfectly positioned to offer cyber solutions as a wholesaler through the same partnerships we have with leading vendors.
Secondly, there, we have an uncompromising focus on customer experience. Fundamentally, we're gonna work super hard to ensure that our customers find us as easy as possible to do business with. In order to do this, we need to absolutely make sure we're prioritizing our spend on modernizing our IT platforms, which you heard from Kerry earlier. It's not just about IT. As you heard me mention earlier, partnerships lies very much at the heart of our success, and we're working hand in hand with customers to make sure we're really focusing on creating value-driven partnerships that demonstrate that customers are better on BT. Lycamobile is actually a really great example of this. Recently, Lycamobile migrated their customer base to BT Wholesale. That's given them 4x average faster data speeds and significantly broader coverage than they've previously experienced.
That, of course, is thanks to the power of the EE network. Finally, looking towards a better tomorrow, we recognize that one of our key differentiators is the caliber of our people, and they stand out not just as experts in their field, but also as trusted advisors in this really fast-moving, ever-changing world of technology. That's why we're continually investing in the training of these teams, acknowledging that actually, within the telco space, 42% of employees report a significant digital and IT skills gap. Again, another reason why customers are better with us, are better on BT. Before I go, I just want to reiterate some of the key messages.
Firstly, Wholesale is utilizing BT's existing assets to try and drive better value for the group as a whole. We partner with customers, bundling these components together to make sure we're giving really high-quality end-to-end solutions. The great news for us is these new technology changes are giving us plenty of opportunities in new markets to push for growth. So there, I hope you have a slightly better feel and understanding for the dynamics of the Wholesale business and are as excited as Alex and the team are in the passage forward over the next few years.
With that, I'm gonna hand over to Joris.
Thank you, Chris, and I think you did a amazing job. So thanks, everybody. I'm, I'm Joris, and I'm responsible for Global, and I think it's a great opportunity to provide you a little bit more insight into our business. As both mentioned earlier, in Global, we serve the largest multinational corporates and international governmental institutions in the world, and we're helping them to digitize their business. This means moving their operations into the cloud in an environment that is getting even more complex with multi-clouds, AI, data flows, and cyber threats. For our customers, this is a critical transformation that requires a shift to cloud connectivity. They need a stable, performing network where they can move their applications and data on and access them anytime, anywhere, securely.
We take them on this journey, thanks to our rock-solid foundations and secure multi-cloud offerings, which I will address shortly. Now, before that, let me call out a few examples of what we actually do. For instance, we optimize cloud data flows to allow financial services customers to meet data sovereignty and regulatory requirements. But we also keep, for instance, the European airspace safe by providing highly resilient networks to Eurocontrol. We connect and simplify mission-critical services for many of the ministries of foreign affairs of multiple countries. We also provide network and security services to leading manufacturing companies such as Michelin. Just a few examples of where our platforms and services help our customers to digitize their business.
Now, let me highlight a few relevant market trends. The cloud connectivity, collaboration, and cybersecurity market, where we are operating in, is growing at circa 5% per annum. And to drive the right returns on our investment, as was said earlier, our strategy is to double down where we excel and partner where we see opportunities. And this is even more relevant in a changing telco landscape, where we see more system integrators and hyperscalers being active. Global organizations are doubling down on their digitization journey, and there's still a significant amount of data and applications that they need to move to the cloud. They see complexity, cost, and security as their key challenges, and which our secure multi-cloud connectivity offerings are fully addressing. Hence, in our view, there's a huge growth opportunity out there, and we're well-positioned to capture this.
So let me briefly talk about our market position and capabilities on the next slide. Over the past four years, we have refocused our global business on a select set of customers, and we have really significantly divested non-core assets and portfolio. We're now a much smaller but more focused business, ready to double down on secure multi-cloud connectivity. Now, going through this change, we also need to recognize that we have underestimated the complexity of transforming and simplifying our portfolio on modern IT. This is now a key part of our modernization plan, as highlighted by Kerry. Together, all of this puts us in a strong position, making us one of the global leading providers in this market. Now, with regard to our go-to market, let me highlight three key elements.
First, we grow our business from our flagship customers to drive profitable growth. Last year, for example, we renewed 96% of our existing contracts, which gives us a solid foundation for cross and upsell. One of them is DHL, a relationship we have for over 12 years. They have renewed their contract, trusting us to transform their connectivity in 27 countries across Europe. Then the second thing is we expand our customer base with new contracts via our regional sales force. Last year, we won approximately 41% of the opportunities we went after. Good example in this space is Rio Tinto, where we'll be transforming their network, unified comms, and security environment. A new acquisition, carefully selected on the back of the credibility in the mining industry, supported by a long-standing customer, Anglo American. Another example in this space is the Global SD-WAN contract with Unilabs. We won that on the back of experience in the pharma industry.
Finally, we work more and more with our evolving ecosystem of partners, where we see opportunities to leverage their capabilities. Let me give you a couple of examples. With Microsoft, for instance, we combine products and services to drive voice volumes through Microsoft Teams, but we also have a joint go-to-market with CrowdStrike as part of our managed security service portfolio, as Kerry mentioned. We partner with system integrators such as Atos, Infosys, Wipro, to drive volume on our core platforms. Our leading position is well recognized by our customers and our partners, and our market-leading portfolio and capabilities, as explained by Kerry, gives us, in my view, the credibility to help our customers migrate from the old to the new. We see basically sort of three migrations.
Firstly, we migrate our customers into the cloud with digital infrastructure and our network as a service offering, including our new Global Fabric network that we recently announced. Currently being deployed globally, it marks a once-in-a-decade shift in technology to a high-performance, fully programmable, cloud-centric network. Now, it's a lot of words, right? To make it simple, for us, Global Fabric enables our customers to easily move data between clouds at lower cost and securely. The second migration we support our customers with is into cloud voice and contact center platforms with digital work. And finally, we secure their multi-cloud environments with digital services, our managed security portfolio, and Eagle-i . This is our winning value proposition, which covers the digital transformation agenda of our customers, making them better on BT.
Now, learning from the past, we need to control this migration better so we can put our legacy platforms end of life, giving us the opportunity to further remove complexity and reduce our cost base. Moving to the next slide, we wanna, I want to talk about Better on BT for Global, because it's all about the execution of our plan, our strategy, with a clear set of priorities. For us, better focus is not per se new. I mentioned it's the continuation of the strategic refocus we started in 2019. This has allowed us to reduce the number of customers that we serve by 54%, while at the same time increasing the share of wallet that we have with them of 64%. Almost today, 66% of our existing customers are already consuming our growth portfolio.
So although we didn't grow as we wanted, we have radically refocused our business and improved the predictability over the years. On the previous slide, I already covered sort of the who and the what of our go-to-market strategy. Now let me briefly cover sort of the where and the how. Our global reach will absolutely remain one of our key differentiators for our customers, so we continue to serve our customers in 180 countries. However, we will do our sales through our direct channels in more selected number of key and emerging markets outside of the U.K., and we will expand our distribution via partners everywhere else. With regard to the how, we have three clear priorities.
First, focus on cross and upsell of our core services with existing customers to improve profitable growth. Second, we use data analytics to identify targeted new logos where we have the higher chance to win. And third, we digitize our sales processes to drive the productivity of our workforce. Now, better outcomes for us means better outcomes for our customers and for BT. We deliver value for our customers by supporting their cloud strategies, and the key metric here for us is NPS. Over the last year, our global NPS improved by 21% year-over-year. For BT, we drive profitable growth by retaining our customers and with higher win rates on new business in key selected markets. And we transform global to a new scalable platform, delivering higher return on investments. But we're also looking ahead in everything we do today for a better tomorrow.
With the investment in Global Fabric, we create, in our view, a long-term value for existing and future customers, for leading technology partners, hyperscalers, and application providers. We also see our customers requesting sustainability commitments, and we are driving differentiation here with our Global Fabric offering, which drives approximately 80% reduction in carbon footprint. We're also shaping a better tomorrow for our people, for example, by upskilling them as accredited cybersecurity professionals. And by doing that, we address critical skills shortages and enhance customer experience. So in summary, Global is a very different business today. We are laser-focused on our target customers, and we have radically simplified our offerings, now focused on secure multi-cloud connectivity. We address the key needs of our customers, who all move to multiple clouds at pace, which results in a growing market opportunity.
Leveraging the credibility we have with our customers and our partners, and together with the investments in Global Fabric and security, we think we're well positioned to capture that growth. I thank you, and I'm gonna hand over to Martin now.
Thanks very much, Joris, and good afternoon, everybody. So I'm gonna start with a brief look back at our financial history and some reflections, both in terms of what's gone well, but also some of the challenges that we faced along the way. And this is since the last Global Enterprise Investor briefings back in 2020 and 2021. So at that point in time, both units were expecting revenue declines to continue in the near term, before pivoting to modest growth, with declines reflecting a combination of impacts, including divestments, COVID, market headwinds, legacy declines, and the loss of the Virgin Mobile MVNO.
Now, both units also highlighted at that point in time the critical importance of increasing investment in transformation and in driving efficiency to stem the EBITDA declines, and those declines being caused obviously by the ongoing changing revenue mix, with longer-term goal of ultimately reaching sustainable EBITDA and cash flow growth. Now, looking back at the combined results of both Enterprise and Global over the last three years, we have seen revenue declines on a steadily improving trajectory. As both units navigated through the short-term challenges, but also executed their divestment plans. Both units also executed the transformation plans and collectively delivered a cumulative gross transformation benefit of GBP 451 million by the end of last year. Over the same period, the combined headcount reduction was around 6,400 FTE, representing just over 20%.
Now, despite that improved revenue profile and the extensive transformation, EBITDA performance has absolutely been disappointing, with downward trends continuing at levels far worse than anticipated. This performance reflects various factors that Bas described in his opening remarks, translating into a greater-than-expected margin mix impact from legacy migration, and also managed contract declines, and more recently, importantly, the macroeconomic conditions, which have led to material inflation on our input costs. We are now negatively geared to inflation. Historically, around 20% of our revenues were index-linked. Moving on to half one of this year, our financial form, performance has showed broadly the same trends continuing. On revenue, we saw modest growth up 1%, and that was driven by continued trading momentum, enhanced by index-linked pricing in SMB. Also combined with strong performance in our security products, which were up 14%.
Now, we also saw an increase in our lower-margin sales, and that somewhat masked the ongoing impact of higher-margin legacy product and managed contract declines. Our EBITDA declined 11%, reflecting the impact of high inflation on our input costs. Despite ongoing efforts to increase coverage, we still only have just over a quarter of our revenues index linked, and so we remain negatively geared to inflation. In addition, the margin mix impact from legacy declines continues to have a material negative effect on gross margins, offsetting the trading momentum in SMB and in security. The prior year comparator also benefited from a number of one-offs and marginally favorable foreign exchange. Our transformation and tight cost control continues at scale, and we're now also starting to realize the benefits of synergy from the integration, which will continue to ramp up over the next 18 months.
However, with heightened inflation, these transformation and integration benefits only partly offset the higher input costs and the margin mix impacts. In the prior year, we saw an unusually large step-up in half two, EBITDA from half one, and that reflects a number of one-offs in the prior year, and, bonus provision releases, and also favorable exchange, foreign exchange, on the back of weak sterling at that point in time. And while we continue to expect some positive momentum this year, as we move into half two, the current year profile will be much flatter. That reflects the impact of September pay rises and also the attenuation of April's pay increase, price rises, as we move through the rest of the year.
Now, before I move on to describe our financial goals, I will briefly cover the key financial drivers that Bas referred to earlier. These are most easily considered by segmenting the volume business, which comprises our product-centric mobile, voice, and broadband business in the U.K., from the value business, which is centered on our U.K. and global managed services. The volume business in the U.K. represents around 40% of our revenue base, and it covers the majority of SMB, along with Wholesale, and around about a third of CPS. This business can be modeled on a relatively simple price volume basis. The value business represents the remaining 60% of our revenue base, and it covers all of our global and portfolio segments, around two-thirds of CPS, and remaining small elements of Wholesale and SMB.
Now, for the volume business, the primary KPI is our revenue generating units, or RGUs. It's a metric that we is consistent with the published volume KPIs we have. Indexing pricing for the volume business is in place as standard across SMB. It's less common in CPS and Wholesale, where we tend to have much more bespoke pricing and fixed-rate card trading models in place. Overall, around half of the current volume revenue base has index-linked pricing in place. Now, the main future drivers of value in this business include, firstly, driving volume growth from the current 7.8 million RGUs up to our target to reach 11 million RGUs by the end of the decade, including, as Chris referred to, through cross-selling of our product portfolio. Secondly, driving unit revenues through index-linked pricing and also increasing value-added attachments.
And thirdly, addressing the margin mix impact as we transition from the higher margin legacy products through our modernization plans that Kerry took us through. Now, moving on to the value business. The primary KPI is our published managed services revenue metric. And of the GBP 5 billion value revenue, GBP 4.7 billion is reported as managed services, with a balancing GBP 300 million reflecting other trading categories, as you can note on the slide in very small writing. On average, around 80% of the value revenue base is contracted, with the remaining 20% representing additional in-year revenues that are generated through change controls, but also other trading above the contracted base. Now, with the value business, the main financial driver is Orders Won, and as reported in our KPIs.
Now, over the last 12 months, we've generated GBP 6.9 billion of Retail and Wholesale orders, around 80% of which relates to managed services. The current length of the average or sorry, the current average length of weighted by value of Orders Won in the last 12 months was around 2.5 years. Now, our value business faces the same margin pressures as the volume business through both input cost inflation and also margin mix as we transition from legacy. However, the impact on gross margins is much more pronounced, because historically, we've been able to pass on much of that cost inflation through our prices to our customers. And so we've had much more sort of bespoke pricing in place for a variety of reasons, including the competitive environment.
Now, since the start of last year, we have, where possible, built indexation into our contracts and in order to build future resilience. And currently, of the value base, around 15% has index-linked pricing in place. And of the orders that we've made, we've won in the last 12 months, around 25% of those contracts had indexing, indexation clauses included. So in addition to driving managed service revenue, both through managed service revenue growth and indexation, other main drivers of future value for this business are focused on optimizing the margins.
As we've touched on a little bit through the previous sections, key focus areas include executing the modernization plans, helps to refocus and simplify the portfolio, and importantly, improve the margins of the next-gen platforms as they scale, as well as driving the transformation required to improve the returns on our existing contracted base. Now, finally, moving on to our financial goals, which I'll consider in three time horizons, having already reflected on the historical dynamics and the financial outcomes to the end of FY 2024. In the near term, beyond FY 2024, we see extensive migration from legacy to our next-gen portfolio. But given the next-gen base, we expect revenue to be broadly stable. The margin mix impact of the legacy declines and the higher input costs, driven by ongoing inflationary pressures, will continue to impact our margins.
We'll continue with broadly the same level of investment in modernization, and we'll push hard to maximize transformation benefits, which we expect to keep delivering on the same scale as today. In addition, we're firmly on track to deliver gross annualized group synergies of GBP 100 million in relation to integration, with around one third to be delivered in the current financial year, and the remainder to be delivered by the end of FY 2025. As a result, we expect EBITDA to continue to decline, but at a reducing rate as inflationary pressures subside and the benefits of transformation and integration increasingly offset the legacy margin mix impact. In the midterm, we expect the growth in next-gen products to more than offset the legacy declines as we complete the majority of the transition from legacy, leading to increased RGUs and modest revenue growth.
In this period, we expect the margin pressure to continue with pivot, with the pivot to the next-gen portfolio, but also the delivery of our modernization plans. Combined with reduced inflationary pressure and lower dual running costs, we will lead to stabilized EBITDA and cash. Again, throughout this period, the investments we're making in modernization and the expected outcome from those investments in terms of transformational benefits will remain at today's levels. Finally, in the longer term, we expect sustainable revenue growth driven by the products, or growth in our products for the next, for the next generation, also gaining market share with the transition from legacy largely complete. Now, we expect sustainable EBITDA growth driven by the scaling of that next-gen portfolio, the finalization of the modernization plans, and also the decommissioning of our legacy products.
Conclusion of our modernization plans, combined with less capital-intensive next-gen products, will lead to material reductions in our CapEx, which together will drive sustainable growth in our free cash flows. Our return on capital employed for business at the end of last year was around 15%. Despite returns declining in the near term, we expect to remain well above the group average and the cost of capital throughout this period, with material expansion than expected in the longer term. In summary, we have a clear path to navigate through the near-term challenges, to transform, to stem the declines and to stabilize financial performance, and to create the strong foundations that we need to deliver long-term, sustainable financial growth.
Thank you. I'll now hand you back to Bas for closing remarks.
Thanks a lot, Martin. All right. I hope you've now spoken. You've now seen the team, and hopefully, you are, and you feel a little bit more knowledgeable about what we actually do in the B2B operations. Our aim has been to shine a light on a complex business, which we are striving to simplify, a promising business that we are looking to modernize and improve, and an important business that we believe contributes to long-term success of BT Group and through the execution of our strategy. So with this brand-new leadership team, a new strategy, and our new focus, we are ready, as I said, to rip off the plaster. And I'm convinced that short-term pain of the radical modernization will lead to long-term benefits for our customers, our partners, our own people, and ultimately, the shareholders of BT Group.
Now, as you can see, you know, customers need a rock-solid foundation, and we are better than anybody to deliver that. We see value in the long term, we see long-term value in the generation in the B2B market through modernization and a focus on scaling. And we grow, because we will build our assets, we will simplify, and we will, reach, scale and long-term growth, in sustained financial growth. Now, we do this. If we do this, our customers will see that their business, their individual business, simply works better on BT, and our partners will know that our technology just works better on BT.
Now, this brings me to the end of the presentation part of today. We're gonna go into Q&A. I will invite the speakers up on stage. We're gonna start with questions here in the room, and I'm gonna look at Hayley in a second for questions on the Webex. So I think we probably can put the chairs. Let's start on this side of the fence. Go ahead.
Can I go?
Maybe wait until the microphone's here.
Hi, Jakob Bluestone from BNP Paribas Exane. I had a question around the voice legacy declines. In particular, I think you generate around GBP 800 million of fixed voice revenues, shrinking about 10% a year, but I guess that's the bulk of the legacy revenues that are the high-margin legacy revenues that are gonna fall away. I guess the question is: How far along are you in the repricing? And specifically, you said that you expect to fully complete the IP voice migration by 2025. Should we expect an acceleration in the decline in fixed voice as a result of that?
Yes. I'll ask maybe Kerry to elaborate, but generically, our plan is to basically end our PSTN switched voice network by the end of 2025. Obviously, we will migrate to other voice solutions that we will still contract with customers. So that will mean that we still bill for the services, but the actual technology by which we deliver it will be over in 2025.
Just to be clear, does that mean you lose both the revenue?
No. No, it will be, it will be replaced by other revenue that is fulfilling the same outcome. Anything you want to add?
Yeah, I think I'd add, as we go across, we've obviously got—we'll migrate from the existing products today to the new. To your point, though, what we'd need to do is then add on the value-added service on top of that as well to bring it back up to the same level of revenue. As we go through that factory approach to look at how many customers do we successfully migrate, Chris talked a little bit about the experience in SMB. As you go through these, we're having to look at how many customers may churn in the process. We believe from the experience that we've seen before, and we'll see, we're gonna learn more as we go through the scale of migrations.
We think we can bring enough customers across that we maintain the revenue, but we have to put those value-added services on because we know there's a drop-off on ARPU if you take the like-for-like service of an old ADSL with one of our new, broadband lines.
That is a dynamic. You know, the margin dynamic is different than the revenue dynamic, particularly when you're still double running two platforms. Go ahead.
Thanks very much. Nick Delfas from Redburn Atlantic. So a general question, first of all, 'cause these businesses are notoriously hard to predict, but there are some that have turned around. So I don't know if when you look across Europe, you see, for example, KPN's business and say, oh, the reason why they're growing in business is X, Y, or Z. So just any reflections you have on BT's position in this business relative to the European comparables. And the second question was, really for Ashish on some of the wins. You mentioned traffic control, Scottish Government, Scottish Power. Can you talk a little bit more about why BT won those contracts? What was it that tipped the balance in your favor?
Sure. Yeah, just on the first one, I think you're right. I think there are, there are telcos in incumbent telcos in Europe that are a little bit further along than others. I think the example you mentioned around KPN, they have started transforming their SME business a little bit before we have, and I think that's, that's the area where you see them go. Obviously, they don't have the complexity of a global business or a large corporate business as we have. But yeah, I think, I think it's fair to say that we're a little bit behind the curve on some of these types of developments, but there's no reason that that we can't basically improve our business, modernize it in the same way, and then get to the same type of outcome or even better.
Yeah, and look, in terms of the deals, I mean, first of all, I'd say every one of these deals is very competitive. You know, we never have a customer that comes and says: "Well, dear BT, you can have this business." So obviously, we compete very hard. And I guess part of it is to do with economies of scale and scope. I mean, when we look at the range of services, everything from networks, on-premise resources, people in our NOCs and SOCs, we have fundamentally greater scale. So our unit economics are better, and frankly, the service that we can deliver for, especially for these critical national infrastructure type programs, like NATS, et cetera, is hugely important to them.
I mean, it's a very price-sensitive market, so, you know, we're not here trying to, you know, fundamentally make huge margins. But fundamentally, customers want value from a price perspective. They also want trusted partners who they can trust to keep the planes in the air. And fundamentally, as they go through the technology shift, which they know they have to, 'cause we're shutting down PSTN, the tendency to just stay with the incumbent is a bit less obvious. So where there is possibly the ability to just sweat the assets, sure, you might stay with the incumbent for longer.
But now that we're switching off the PSTN network, you have to change your technology, and at that point, you know, fundamentally, people think more about do they want to stay where they are or, you know, go with someone else.
All right, Nick, go ahead.
Thanks very much. Nick Lyle from SocGen. Can I just ask one on small and medium enterprise, please? So on, it looks like the majority of your customers and your revenues index linked. So does it mean the latest revenue numbers and the guidance are assuming a fall in volumes for SME? I think it's about 7%, latest number is 4% for the guidance. And on the second point, can you also give us the EBITDA number, please, for SMEs as well? 'Cause I'm assuming they're quite high margin.
Chris, can you answer the first one?
I don't provide the guidance, but I can say that we are assuming a reduction in inflation in our financial planning.
So what we want is the 4% market growth. You talked about, does that assume customer numbers falling, or does your confidence mean that customer numbers are--
The 4% was full year last year in what I talked about.
Oh, well, okay.
Yeah, full year last year. And we grew more than that in H1 this year.
In terms of segment EBITDA, we're not gonna disclose breakdown of EBITDA by segment today, unfortunately.
But should we assume, I mean, we should a ssume it's higher margin?
Yeah, absolutely. So in terms of margin, it is towards the top of the units in terms of average margins. Absolutely, yeah.
Okay. Thank you.
Yeah, go ahead.
Thanks. Robert Grindle from Deutsche Bank. Are you seeing any impact from the alt nets yet? I suppose that would be in the SMB unit. Is Virgin Media O2 a more competitive challenger since they merged with O2? And in the good old days, or the bad old days, maybe, global services revenues growth was very much tied to CapEx. When the growth went up, the capital intensity went up as well. What's changed? Is it just a new world and a more sort of CapEx-light model in that segment, please? And then finally, on also, I guess, global services or the global bit, data sovereignty, is that an obstacle to you winning business in the EU? Are they looking to sell to their own providers, or can you compete with the incumbents there? Thanks.
All right. Chris, you can take the first two.
Yeah, first two.
Joris, the second two.
So with VM O2, that has not caused us an issue. I think it's the black and white answer. On alt nets, of course, if you look particularly at the areas where alt nets exist, where Openreach doesn't have fiber, we do find the competition a little tougher. I think it's also clear that the breadth of our proposition doesn't just rely on speed. There's a whole lot of other stuff we provide, such as security, guest Wi-Fi, and the like, that customers value. So even in the area where there are alt nets and Openreach don't have FTTP, we're still able to do a pretty good job of retaining those customers.
Just before Joris adds, we do see both VMO2 and Vodafone compete very hard in the CPS markets for mobile services. I'm not sure it's necessarily down to the merger, but it certainly is on government frameworks, they're very competitive as are we. So yeah, I mean, I'm not sure it's down to the merger, but they are a very good strong competitor for us in the market. Sorry, Joris.
The first question was around our assets and CapEx, right? So I think the whole transformation, and what I highlighted, is the divestment of our non-core assets across many countries, is actually the driver to move to an asset-light business. And that has an immediate impact on the CapEx numbers that you were referring to. And the second one was around data sovereignty. I think you're spot on, both from what we sort of offer in the market. I mentioned Global Fabric, and I mentioned what we do, for instance, for financial services, customers controlling their data flow so that they are able to operate in line with regulation. Those are sort of baked into our propositions.
I think both the proposition as well as the customers we have, a lot of governmental institutions across Europe, are giving us the credibility to use that to differentiate and to expand our business.
Yeah. Maybe to add on the CapEx question, I think there's two areas of CapEx that we wanted to avoid when we did the divestments in Global. One was by divesting the domestic access networks, which are very capital intensive, and divesting the data centers, which are very capital intensive. So those we don't have anymore, so that makes it an asset light, not asset zero, but asset light type of business. The other component of CapEx is customer CapEx, which is basically equipment that is solely bought for one customer.
As Joris was talking about it, and Kerry as well, Global Fabric actually works on the trend that customers actually wanna keep a lot of their data movements in the public cloud, so they don't have to trombone traffic into the site, which means you don't have to have a lot of equipment and a lot of big pipes into buildings, if you can keep the data moving from Google to Amazon to your own data center and back. So that means that we can share a lot of that infrastructure, and that still means we have to pay CapEx to, you know, we spend CapEx to build it, but we can share the CapEx rather than in the past, where it's all around one customer.
I think that makes the future type of return on that particular capital employed a lot better. Carl?
Thank you. Carl Murdock-Smith from Berenberg. Three, please. Firstly, a slightly blunt one. Consensus EBITDA for this year is GBP 1,707 million. For next year, it's GBP 1,679 million. Is it a fair interpretation of your slides, Martin, that those numbers need to go down? Secondly, in terms of the portfolio reshaping that you're talking about, Bas, kind of, are we done, in particular? I mean, you've talked about global, but secondly, on the portfolio assets, you mentioned optimizing for value, and is BT the natural home for all of those going forward? And then the third question is on the portfolio businesses, they were actually the biggest absolute drag on year-on-year revenue in H1. So can you just talk about some of the--
Sorry, what was the drag on?
The portfolio divisions.
Okay.
So I don't know if it's a question for you or for Martin, just in terms of the drivers of what was driving the decline in the portfolio business this year after admittedly a very strong year last year. Thanks.
Okay.
So on in terms of consensus, we're in a bit of a middle ground at the moment. We're following the half one results, where Simon described the dynamics for business in the second half of the year, which I've reiterated here today; we have seen consensus come down. We've only had about a third of analysts updating their outlooks, though. So our expectation is that will continue to come down as we get the other analysts to remodel and to represent. So is it a fair reflection of where we are on this? Not as yet, but as it plays out, we're expecting it to move towards that.
In terms of the revenue, so portfolio revenue, last year-over-year, we've had some declines in some of the parts of the organization. We are putting through various types of deals that are coming through. So one part of that organization was The Phone Book , which is coming to an end this year. So that's one example of a part of that portfolio, which is coming to an end. There are other-- It's quite a mix of organizations in there. Italy is also part of it, which is on a decline as well. So there are some of the aspects, but that's also why we're sort of holding them separate, to make sure we're working through in terms of how best to optimize them.
Yeah, so, Carl, on the future of these businesses, let me start by saying, the reason we put them separate is because they don't really fit in the current model. So in order for us to speed up in the current model, like Kerry said, we're gonna halve the number of products, we're gonna simplify, and we're gonna make some really big bets on a few areas. These businesses are not naturally fit in that, so we basically put them aside. Some actually are very well operated, make really good cash flow, and utilize our assets really well. It's just dissecting them in the various parts makes it inefficient, and it basically distracts the main core business from operating fast. That's the main reason they're in there.
Now, obviously, there is a wide variety of businesses in there. Some we are already running down to, you know, as to the example of Martin. Some we are still managing for value, and we're addressing. You know, if we can find partnerships, like, for example, the one that we announced yesterday with Telstra in the media and broadcast area outside of the U.K., means that we have to invest less in the network, and we do this together with a partner, and we can service our customers even better with a lower expenditure. We will do that with regard to now. If there are other options for that particular, the future we'll see. Obviously, we can't really comment on it because we haven't taken any decisions on that yet.
Thank you.
All right, go ahead.
Thank you. It's Adam Fox-Rumley from HSBC. I had two, please. Firstly, I wondered if you could talk a little bit about the sales incentives that you have across the various different parts of the business we've spoken about today. Are you incenting your sales staff on revenue, gross margin, EBITDA, kind of, and how has that changed or planned to change? And then the second question was about the IT modernization. Obviously, it's a long-term plan, as you outlined towards the end. Is it all mapped out at this stage, or to what extent is it all mapped out, and where would you identify the biggest risks of that project, please?
Okay, maybe you can ask Ashish and Chris to talk about incentives and maybe Kerry on the IT.
Yeah, so our predominant incentive is on margin, not on revenue. And then we have some strategic enablers within that. So if we're accelerating IP, we might have an accelerator on the things we want to drive the sales organization to do. So it's a fairly structured, simple incentive plan. The driver is margin, not revenue, and the accelerators are typically strategic things we want to push into the market.
Yeah, and we're in a very similar position. I mean, we're in SMB. We sell through seven different channels of different complexities, but it always equates to something that is a proxy for margin.
Yeah. Kerry?
Sorry.
Sorry, go ahead.
Let me just follow up on that. Does the change in the product mix that you're selling make that more difficult and make your ability to know what the margin of a product that you're selling over the lifetime of the product is that any more difficult?
No, not really. I mean, the margins in some cases are lower, so you adjust the targets accordingly. But, you know, especially in CPS, you do a deal for anywhere between 3 and 5 years, and you know what you're pricing, and you know what your margins are at the point of pricing. If anything, as the transformation programs run through, some of the margins we think we make today might be a bit higher tomorrow, because we might have some structural inefficiencies removed out of the process. So, no, it doesn't. I mean, you just have to adjust the levels of margin, because you have to be aware of the fact that you might be going from a high, higher margin product to a lower margin product as you migrate customers.
The only thing I would add, of course, is as part of the product simplification, there'll be less stuff in the tool bag for our sales colleagues to sell as well, which makes it easier for us to control that value.
Okay, let's do the IT question, and then we'll.
Yeah. So we've got a very good bottom-up plan, that's a complex one for the first year, 18 months, 24 months. What we're doing now is really focused on making sure we've got a comp, you know, a complex plan that goes out over the five years. So that's the, it's the outer years that we're doing the work on at the moment. As you said, it's a big plan. It needs to be phased. It needs to be linked with the dependencies and risks. And most of the work is now on the outer years rather than on the early years.
George?
Thank you. It's George from Citi. Three questions from my side, please. The first one is on M&A, and I appreciate these different subsegments, but a lot of the markets are fragmented. Are there opportunities to consolidate, and/or do you need to make acquisitions to gain capabilities, particularly in managed services? A lot of the other business divisions in Europe have been doing active M&A on that front. The second one is around FTTH migration. In consumer, FTTH is worth more than a DSL line, perhaps, but the more you go into SME and corporate, you can replace more than one DSL line with an FTTH line. So could that be dilutive? And is that something that's gonna accelerate, given your plans to push more in that direction in the next two years? And then finally, around margins.
I'm less interested about intersegment revenues towards Openreach, because those are upside somewhere else. But on energy, you touched a bit on labor cost. Any other big moving parts on OpEx that you can maybe give us indications going into next year, just to understand the moving parts? Thank you.
Okay, I'll take the M&A question, if we can get between you guys the FTTP, and maybe you can answer the last one, Martin. On M&A, I-- to your question, do we need to do M&A to actually get scale in some of the areas we focus on? Generally, the answer is no. We are... We, we-- like we said, we, we have an enormous amount of activity that we do. We've picked a few areas that we think we are, have the scale, and we have the skills and capabilities, and it's more that we stop doing the rest rather than you know buy more from the areas where we're weaker.
So we've decided not to do that in that particular capability set, because we are confident we can build it ourselves and and/or we already have the capabilities in-house, particularly in the security space and in the managed services space. We are very confident and strong in those areas that we've picked. Now, of course, I cannot look into the future. It could very well be that we're accelerating our growth so fast in particular areas that we will partner with other companies and then decide to maybe scale that up ourselves, but in the short run, that is not in the plan. Do you wanna go further?
Yeah, I'll go first. I mean, with the closure of any technology or replacement of new technology, of course, there's examples of some customers optimizing their portfolio with us, which, of course, causes a little bit of dilution. Of course, that new technology opens up opportunities for us to sell other stuff, and part of the reason we're ranging the digital products is to try and build back that value. And that's understood, and we've got that modeled out in our financial plan. What we're not seeing, though, is full-scale people substituting away from high-value Ethernet to FTTP. We're just not seeing that today. Customers value the additional protection, the additional quality of Ethernet, and that is holding up that market quite nicely for us.
Yeah, and I guess in the corporate market, it's a bit of a similar story. On a like-for-like basis, clearly, going from FTTX to FTTH is not output dilutive, because FTTP is a better product, it's higher revenues, and it's higher margins at an end-to-end level. So that's not an issue. Where there is a potential challenge is to the point that Chris made. We do see a little a level of substitution of point-to-point Ethernet circuits with a more contended FTTP-esque capability. But of course, you know, to some extent, over the medium term, that's a bit limited, given where FTTP is available in the B2B market versus consumer.
And at the moment, at least, we are seeing very high demand for point-to-point circuits, and actually, we're seeing an even higher demand for even higher bandwidth, a gig and above, uncontended, especially as people start running more applications in the cloud. And as you see the bigger companies want to do that, I guess the difference of a cost of a FTTP versus an Ethernet is not worth the hassle of having a contested access product.
In terms of operating costs, to give you a bit of a breakdown, so our labor cost is just over 20% of the cost base. Whilst it was majored on the slide in terms of transformation, that's because we measured it consistently with how the group measured transformation outcome, which is largely TR, TLC related or labor cost related. Beyond that, 50% of the cost base is actually third-party cost, and within that, obviously, we invest a lot of time working with our procurement colleagues to make sure that we're managing that as tightly as we can. Clearly, there's been a lot of inflationary pressure coming through there, but we've been able to offset a reasonable amount of that.
Beyond that, we have around 25% of the cost base, which is internal cost, which includes a not insignificant amount coming through from Openreach, and then we also have around 5%, which is then non-labor SG&A, and again, that's, that's something we look at as part of transformation. Hopefully, that helps.
We also get inflation from the equipment providers, but most of that we can pass through.
Yep. Yeah. But thank you for recognizing the internal recharges from Openreach in the beginning. Go ahead.
Thank you, sir. I'm Andrew Lee from Goldman Sachs. I just had one question. Just going back to your kind of ripping off the plaster, comment, and, you know, what you said at the outset, saying you're aiming for growth. Do you think you've fully ripped off the plaster? Do you actually think it's the best use of capital at BT for you to pursue growth there, in the business division? So if we just look at a few things and maybe recut. So that's the question.
Yeah.
But just maybe if we just recut things like some-- One of the ways investors look at this business is you've got a connectivity business that where you compete against people that have a low marginal cost, and you've got too much market share. As you go into the ICT space, you're facing so many other competitors that the barriers to entry are just so de minimis. And so the question is: Is there any real structural growth for BT within that? And are you destroying returns actually by pursuing that growth?
Yeah, good question. I think just a couple of things on this. I think where we say ripping off the plastic, where we said we should have done this earlier, has actually to do with, are we, do we think we are destroying value or are we, do we think we are accretive? And I think when we talk about growth, we're talking about value growth. And it is our firm opinion at the moment that the only way to create long-term growth is to now jump from old to new. If we don't do that, you know, you might have a few years of good returns on the old, but everybody else will take the new markets. And if we don't do that, there is no new market.
This is the same, you know, equivalent for why we moved from copper to fiber, why we built 5G and closed 3G and 2G, and it's the same thing for MPLS to Global Fabric. So we have made a few bets on that. So when we talk about growth, we're talking about value growth for the organization in the first instance. Secondly, of course, there is a market, and if you have a high market share, yeah, you need to make sure that you gain market share in order to grow, as such. But at the same time, you've heard all the segments talk about value-added services that basically our customers want to deliver out of the infrastructure.
When we speak to customers, where they today buy a service, they buy bandwidth, or they buy a particular line, they pay for technology. And when we talk about value in the presentation, we-- And this is what our customers tell us. They say: Look, if you can guarantee uptime, stability, you can guarantee I can report my data sovereignty, if you can guarantee this rock-solid base, and you're better at that than anybody else, and you can prove it, we'll pay more money for it. So the growth there sits in margin growth. If you can scale the underlying backbone, and you're more available than anything else, and you can price for value rather than cost plus, there is an ability to grow.
And there's also an ability to then make sure you utilize your existing assets better, because then you don't get a lot of questions from customers to say, "I want technology A, technology B, connected to, you know, this one technology from you and these three other technologies from somebody else." Now, they're gonna ask you for an outcome, and you can orchestrate, to Ashish's point earlier, your managed services in the best way possible to deliver that outcome. So that will again mean that we can scale our assets, we can, we can pick the technologies that we want to deliver to customers, but we do need to deliver that outcome, and that's where the value growth sits, according to us.
And can I just make one other point? I don't know how you see it, but our relative discretionary CapEx investment is not that high. So if you think about the GBP 8 billion of revenue, we've got to spend CapEx just to sustain that, forget about investing in huge, shiny new things. And the things we are predominantly investing in are the things we have to move our existing revenues onto. So if we didn't invest in IP Voice, we'd have GBP 800 million of revenues that have nowhere else to go. So, you know, I think, you know, the point that Bas made from a focus perspective, we're not off investing in stuff that is massively off of our adjacencies. We are predominantly investing in things that will take us from where we are to where we're going to.
And then, of course, obvious adjacencies next to that, based on what our customers are telling us. So I don't know how you guys think about our investments, but, A, it's not huge in the grand scheme of things from a group perspective, and, B, it's not, a lot of it isn't hugely discretionary.
Maybe just to scale that out a little bit. So we're talking about couple of million a year that's focused on modernization, both product and transformation. And the returns on that is actually incredibly high compared to many of the investments, including customer CapEx.
Yeah. Is it worth checking on the bridge? Just--
Yeah, who's monitoring the bridge? Hayley?
Yeah. So this question comes from Terence at Morgan Stanley. His question is: What is the plan for the international business, and could BT explore strategic options in this area?
Well, I think the plan for the international business is what we have done in the last five, six years, and that is what Joris explained earlier, is focus on purely multinational corporations to make sure that we are 100% in an asset-light environment, scaling our global networks, our global security, and our global voice backbone, which at the moment we are doing, and we are doing really well. We're, you know, one of the bigger ones of the global providers, if you exclude the home market. And, yeah, so for us, that's a really good business. It's a good business also because we do, you know, 90% of the top 100 banks, we do 80% of the insurance companies globally, we do the majority of the mining companies in the world.
So we have a base that scales in that sector, so it's a valuable asset to own. It also gives us the ability to scale some of the technology also for our U.K. customer base. It also allows us to buy and partner at scale globally with the global providers, which will also benefit the U.K. market as such. Now, obviously, when we start growing and we start implementing our Global Fabric, we will have to see how partnerships develop. But at this point in time, we absolutely see benefit of having an international business.
Another question, this one's from Polo Tang at UBS, on the PSTN shutdown in 2025. Is this not a source of downward pressure and churn, as you will have 2.1 million subscribers switching products?
Yeah, I mean, it definitely is. But it's that what, that's the painful thing of ripping off the plaster, Polo. It's, you know, it's something we have to do, and we've decided to do, and we will pursue it in the best way possible. But yeah, there is obviously pain that are associated with it, because pain with customers that don't want to migrate, that are not happy with that. You, you'll see that we obviously, with the migration, we will see that maybe some customers want to go to a different service. But we are managing this as well as possible. We've seen this coming for quite some time, but it is not something that we can back down off, because we think it might have a downward pressure in some of these areas.
I don't know, Kerry, if you have anything else or?
I don't think there's anything to add to what we've already said.
All right.
I think we've covered it quite well.
Okay, good.
Yeah, and one more online. This is from Maurice Patrick at Barclays. What do you think your medium-term market shares could be in voice over IP and Cloud PBX in the different segments?
Ooh, anybody for the different segments, potential?
I mean, look, I'll go first. If I pick CPS, I mean, our aggregate voice and collaboration market share today is in the high 30s. Obviously, our IP share is much smaller, at about 15%. So obviously, a little bit dependent on the success of us helping our customers migrate to IP. If we did that, you know, because the market is voice and collaboration, it's not PSTN and IP. If we were able to, you know, get majority of those customers across, even from our base, we have the ability to have market-leading market share.
And then, of course, we've got opportunities with some customers that have moved to IP quite a while ago as they go through their cycle, to perhaps, you know, reacquire some of those that have gone away from BT in the past, like we're doing in networking. So, you know, I, I think we would be certainly targeting to be in, in, you know, in the 25%-30% market shares. We have to execute, so I guess that would be the caveat. So that's what I'd say about CPS. I don't know about Chris.
I'm pretty confident we'll continue to beat the market in IP. We've obviously got a number in our plan, but it's not one I'm comfortable sharing.
Okay. I do want to be respectful of everyone's time, also on the people that have joined. Maybe one last question. Anybody? Oh, now nobody dares to. Carl, you had your turn, Carl.
You had four already.
Here we go.
You, you poked the bear. Carl from Berenberg, going in for seconds. How do you think about Wholesale pricing? So thinking about MVNOs, I mean, I acknowledge it's Black Friday this week, but I was looking. Lycamobile , you can get 100 gig for GBP 6.99 on a rolling contract. The equivalent at EE is 4x the cost. So when you're pricing a Wholesale MVNO contract, enabling a mobile competitor to other parts of BT, how do you think about that, kind of from a cross- cross-divisional perspective?
Okay.
I'll leave it there.
Yeah, let's do that, 'cause otherwise people are gonna start leaving, and then I'm still answering. Look, the reason we have a Wholesale business, as Alex, our stand-in, actually said, was to utilize our assets. So in the case of MVNO, we always make the decision, okay, is this a group of customers that we are gonna reach, that we otherwise do not reach, utilizing our own assets, and is it beneficial for us? And don't forget, when we MVNO a customer or a customer like Lycamobile , it's their brand. It's not the EE brand, and obviously, we don't sell the entire EE portfolio. We sell our mobile network. So they have to add their brand, and their value add on top of it. That will bring them to their cost, and EE does the same thing with the mobile network.
Obviously, we are very conscious of where we do this, and this choice we make, you know, together with BT Group, folks around those areas where we really think we can utilize our assets better, and we do not cannibalize the rest of the organization. And how we price that, obviously, we're not gonna share.
All right. Thank you very much, everyone, for joining me here in the room, and thank you very much for everyone joining me on Webex, and hope to see you next time. Bye-bye.