Operating and Financial Review
Operating Review
Wireless infrastructure
- Background information
- Mobile infrastructure
- Broadcast infrastructure
- Gridcom US
- Safety
- Financial performance
- Investment in the networks
Background information
In August 2004, we completed the purchase of the UK operations of Crown Castle International Corp. for £1.1 billion. The process of integrating this business with Gridcom UK to establish a single business, known as Crown Castle UK, is on track. This will allow us to realise £18 million of cash savings per annum through the rationalisation of staffing, office buildings and systems.
Crown Castle UK is the leading independent provider of network infrastructure to mobile telephone operators and one of two providers of transmission networks for analogue and digital television and radio broadcasters in the UK.
Following the integration, the business has around 5,000 active sites used for mobile communications and provides services to over 14,500 tenants. Crown Castle UK also owns some 750 purpose-built broadcast towers and associated transmission equipment used for radio and television broadcasting.
As the leading independent provider of network infrastructure to mobile operators, with an expanded portfolio of undeveloped sites, the business is well positioned to benefit from continued strong demand for mobile infrastructure, not least the roll-out of 3G networks. Crown Castle UK is similarly well placed to provide the additional network infrastructure that will be required for the planned switchover from analogue to digital television.
Recognising our significant investment in this business, we have created a new reporting segment, Wireless infrastructure, which also includes our Gridcom US business.
Mobile infrastructure
Our mobile infrastructure business provides sites on long-term contracts to blue chip companies. In addition, sites are also used by other customers such as the emergency services and taxi companies. We also offer other services such as site design, antenna installation and project management.
The current roll-out of 3G networks continues to provide demand for additional infrastructure to ensure coverage of the new services across the UK. Crown Castle UK is well placed to benefit from this demand having around 13,000 marketable sites, which includes the right to lease space on up to 4,000 BT exchange sites that are close to densely populated areas and have direct access to the BT network, making them highly attractive sites.
Broadcast infrastructure
Our broadcast transmission business is a network of transmission towers and broadcast equipment with long-term contracts to transmit analogue and digital radio and television signals for reception by the public from content providers, such as the BBC, BSkyB, MTV, Virgin Radio and talkSPORT.
Crown Castle UK also owns the licences for two of six digital multiplexes. Each multiplex has the capacity to transmit at least four digital television channels. Due to improvements in multiplexing technology, further channel capacity is expected to be available in 2005/06.
We are currently working closely with the broadcast industry on the planning of the analogue to digital switchover. The digital terrestrial television switchover programme for the UK is expected to take place on a region by region basis between 2008 and 2012. We will be bidding for new contracts for the roll-out of infrastructure required for the switchover from analogue to digital television, as well as the continuation of services such as analogue and digital radio, not least of these being the contract with the BBC which is due to expire in 2007.
Ofcom has published its determination on the regulation that will apply at the site access level, which is similar to that prevailing since the BBC Home Transmission Service was privatised in 1997. The regulation of the managed transmission services layer is still the subject of consultation by Ofcom.
Gridcom US
Gridcom US provides communications infrastructure and related network services to wireless and fixed network operators in the northeastern US. Lines of business include communication towers, wireless pylon attachments, distributed antenna system networks and related network services and a dark fibre network.
Safety
The major operational risks in our business arise from working at height and driving. During 2004/05, Wireless infrastructure had five employee LTIs compared with five in 2003/04.
Financial performance
The results of the Wireless infrastructure segment for the years ended 31 March 2005, 2004 and 2003 were as follows.
Years ended 31 March Wireless infrastructure | 2005 £m | 2004 (restated) £m | 2003 (restated) £m |
|---|---|---|---|
| Turnover | 208 | 72 | 61 |
| Operating costs excluding exceptional items and goodwill amortisation | (162) | (66) | (84) |
| Adjusted operating profit/(loss) | 46 | 6 | (23) |
| Exceptional items | (13) | (8) | (27) |
| Goodwill amortisation | (23) | (4) | – |
| Operating profit/(loss) | 10 | (6) | (50) |
The £136 million increase in Wireless infrastructure turnover, £96 million increase in operating costs and £40 million increase in adjusted operating profit comparing 2004/05 with 2003/04 primarily reflect the seven months reported results for the UK operations of Crown Castle International Corp. acquired in August 2004.
As at 31 March 2005, we had achieved over half our targeted cash savings of £18 million on an annualised basis, the majority being realised in headcount savings.
In 2003/04, adjusted operating profit significantly improved from a loss of £23 million reported in 2002/03 to a profit of £6 million, due to reducing the cost base of the UK business.
Exceptional items and goodwill amortisation, which explain the difference between adjusted operating profit and operating profit, primarily related to the acquisition and integration of the UK operations of Crown Castle International Corp. in 2004/05.
Exceptional items of £8 million and £27 million in 2003/04 and 2002/03 respectively were due to restructuring costs.
