BT GROUP PLC (QUALIFIED) EMPLOYEE STOCK PURCHASE PLAN

The purpose of the BT Group plc (Qualified) Employee Stock Purchase Plan (the “ Plan ”) is to provide employees of the Participating Companies (as defined below) with an opportunity to purchase American Depositary Shares (“ ADSs ”) of BT Group plc (the “ Parent ”). It is the intention of the Parent to have the Plan qualify as an “ Employee Stock Purchase Plan ” under Section 423 of the U.S. Internal Revenue Code of 1986, as amended (the “ Code ”). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. Participation in the Plan will provide eligible employees of the Participating Companies who wish to acquire an interest in the Parent with a method of doing so which is both convenient and on a basis more favorable than would otherwise be available. It is believed that employee participation in ownership of the Parent on this basis will be to the mutual benefit of the employees, the Parent and the Participating Companies.

For purposes of the Plan, “ Participating Company ” means each corporation (i) as to which the Parent, directly or indirectly through an unbroken chain of corporations, owns more than fifty per cent of the total combined voting power of all classes of stock issued by such corporation and (ii) which is designated by the Parent as a Participating Company for purposes of the Plan. The Parent may establish further schemes or plans based on the Plan but modified to take account of local tax, exchange control or securities laws in territories other than the United States of America, provided that:

(a)     any shares or ADSs made available under such further schemes or plans are treated as counting against any limits on individual or overall participation in the Plan; and

(b)     any such scheme or plan is not inconsistent with the requirements of Section 423 of the Code.

Any employee who is employed by any Participating Company that adopts the Plan with the consent of the Parent (an “ Employing Corporation ”), is eligible to participate in the Plan. An eligible employee shall commence participation under the Plan on the first trading day of the calendar quarter next following the date on which he provides his payroll deduction authorisation form in accordance with Rule 5 or, if he does so on the first trading day of a calendar quarter, on that day. Upon re-employment of a former participant whose employment with a Participating Company is terminated, the former participant will become eligible to participate in the Plan as if such former participant were employed by a Participating Company for the first time. The term “ employee ” shall not include a non-employee member of the board of directors of an Employing Corporation.

Compensation eligible for payroll deductions shall be base salary and commissions (if any) paid in each payroll period. Eligible compensation does not include overtime, bonuses, severance pay, incentive pay, shift premium differentials, pay in lieu of vacation, imputed income for income tax purposes, patent and award fees, awards and prizes, back pay awards, reimbursement of expenses and living allowances, educational allowances, expense allowances, disability benefits under any insurance program, fringe benefits, deferred compensation, compensation under the Parent’s stock plans, amounts paid for services as an independent contractor, or any other compensation excluded in the discretion of the Parent. The Parent may designate the Board of Directors (the “ Board ”) as responsible for the administration of the Plan, or a committee of the Board consisting of one or more individuals, or one or more designated individuals, to whom the Board has delegated its authority to administer the Plan in accordance with the Parent’s Articles of Association and, in addition, may, in its sole discretion, make different designations for different purposes. Compensation shall be determined before giving effect to any salary reduction agreement pursuant to a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code or to any similar reduction agreement pursuant to any cafeteria plan (within the meaning of Section 125 of the Code).

The Parent may make one or more offers (an “ Offer ” or “ Offers ”) under the Plan, on any date within 42 days after the date on which the Parent releases to the public its quarterly, semi-annual or annual results for any financial period or on any other date, if the Parent determines that exceptional circumstances exist which justify doing so. If the Parent cannot make offers because of restrictions imposed by statute, order, regulation or government directive, or by any code adopted by the Parent based on the London Stock Exchange’s model code for securities transactions by directors of listed companies, the Parent may make Offers within 42 days after the lifting of such restrictions. No option granted pursuant to an Offer shall have a term of more than 27 months.

In order to participate in an Offer, an eligible employee must sign and forward to the Employing Corporation a duly completed payroll deduction authorization form authorizing regular payroll deductions, which may not exceed the maximum percentage of the employee’s eligible compensation per pay period, to be applied toward the acquisition of ADSs pursuant to the Offer. The “ maximum percentage ” means the per cent of eligible compensation available for payroll deductions which shall be specified by the Parent at the beginning of the term of each Offer, which shall not exceed 15%. Participants under the Plan can forward a new payroll deduction authorization form at any time in order to amend their percentage of eligible compensation, provided that the maximum percentage is not exceeded. Any such change will take effect from the next practicable payroll date.

Subject to the limitations set out in the Plan, on the effective date of an Offer, each then eligible employee will be granted an option to acquire, through payroll deductions, as many whole and fractional ADSs as he may acquire with up to the maximum percentage of eligible compensation to be received by him during the term of the Offer. However, every such eligible employee who does not complete a payroll deduction authorization form in accordance with Rule 5 during the initial enrolment period applicable to that Offer will be deemed not to have accepted his option, and his option will therefore lapse at the end of the initial enrolment period. On the first trading day of the calendar quarter following submission of his payroll deduction authorisation form in accordance with Rule 5, each Late Joiner will be granted an option to acquire, through payroll deductions, as many whole and fractional ADSs as he may acquire with up to the maximum percentage of eligible compensation to be received by him during the remainder of the term of the Offer. For purposes of the Plan:

a “trading day” is a day on which ADSs are traded on the New York Stock Exchange, the NASDAQ National Market System (“ NASDAQ ”) or the principal national securities exchange on which the ADSs are then listed or admitted to trading;

a "Late Joiner" is any employee who (i) though eligible, does not elect to participate within the period for initial enrollment determined by the Parent or (ii) elected to participate within the initial enrollment period, withdrew from participation, and has since elected to recommence participation or (iii) becomes eligible to participate in the Plan during the term of the Offer.

Each participant in an Offer shall agree to provide written notification to the Employing Corporation at its principal office of any disposition of ADSs acquired pursuant to the Plan prior to the expiration of the holding periods set forth in Section 423(a) of the Code. Each employee granted options under the Plan shall have the same rights and privileges under the Plan, except that the number of ADSs each participant may acquire will depend upon his compensation and the percentage payroll deduction he authorizes.

The maximum number of ADSs which an employee will be permitted to acquire pursuant to any one Offer will be that number of ADSs determined by multiplying (a) the amount of the employee’s monthly eligible compensation on the date he is first granted an option pursuant to that Offer by (b) the number of months from such date to the end of the term of the Offer and by dividing the product of such multiplication by an amount (the “ fair market value ”) equal to the closing price of an ADS on the New York Stock Exchange, NASDAQ or the principal national securities exchange on which the ADSs are then listed or admitted to trading on such date. If no reported sales take place on the applicable date, such fair market value will be determined based on the average of the high bid and low asked price of the ADSs on such date, or if no such quotation is made on such date, on the next preceding day on which there were quotations, provided that such quotations shall have been made within the ten (10) trading days preceding the applicable date of the ADSs on such date. When the foregoing participation limitation is reached, payroll deductions shall cease, and any amount of excess funds as of the date that the participation limitation has been reached shall be returned to the employee.

Notwithstanding anything herein to the contrary, no employee shall be permitted to acquire any ADSs under the Plan if the employee, immediately after the acquisition, owns or would own, ADSs or other shares (including all ADSs which may be acquired under outstanding options under the Plan) possessing 5% or more of the total combined voting power or value of all classes of shares of capital stock of the Employing Corporation or of its parent or subsidiary corporation (as such terms are defined in Section 424 of the Code). For purposes of the foregoing limitation, the rules of Section 424(d) (relating to attribution of stock ownership) of the Code shall apply in determining share ownership, and shares which the employee may acquire under outstanding options shall be treated as shares owned by such employee. Further, if pursuant to the terms of the Plan, an employee would be granted an option that violates Section 423(b)(8) of the Code, such option shall not be granted and in its place the employee shall be granted an option to acquire ADSs which permits his