Issue: 32/08

Ofcom Market Study 2008

August 20, 2008

The Communications Market 2008 – Ofcom Research Report
Ofcom’s annual market report provides interesting indicators:

o Household spend is down – consumers are paying less for more
o Broadband speeds are increasing
o Rural areas are being connected
o Services provided over Unbundled Local Loops grew
o Mobile broadband grew
o Digital Television and Digital Radio uptake is growing

Key market trends

o Communications industry revenue increased by 4.0% in 2007, to £51.2bn in 2007, with telecoms industry revenue the fastest growing component, up 4.1% on the year.

o Real monthly household spend on communications services fell for the third year to £93.48, down 1.8% on 2006, driven by a 6% drop in fixed telecoms spend and a 4% drop in broadband spend. Prices have fallen by 4.4% since 2004, reflecting cheaper prices, which have fallen despite growing take-up and use of many services during this period.

o The availability of key communications services extended further into rural areas during 2007.

o A number of developments suggest that faster broadband speeds are becoming more widely available:

• BT continued to roll out 8 Mbit/s services across its network;
• the number of premises with access to an unbundled local exchange rose from 66.6% to 82.6% in Q1 2008; and
• by June 2008 almost half of all unbundled exchanges had four or more providers in them.

o These factors drove up the average blended headline speed across the UK from 3.6 Mbit/s in December 2006 to 5.9 Mbit/s at the end of Q1 2008.

o The proportion of homes taking broadband services grew to 58% by Q1 2008, a rise of six percentage points on a year earlier. However, the rate of growth is slowing, following increases of 11% and 10% in the previous two years. Take-up of products offered by local loop unbundlers (LLU) increased from 9% to 19% of lines in areas where LLU services are available.

o Digital television penetration rose by 7.5 percentage points over the year to Q1 2008 to reach 87.1%, and is now as prevalent in UK households as fixed telephone connections.

o Two and a half million DAB digital radio sets were sold in the year to June 2008, taking total cumulative sales to 8.3 million. DAB sets accounted for a fifth of all sets sold in the year to April 2008 and around 27% of adults now have access to a DAB set in the home.

o Mobile telephony (including an estimate for messaging) accounted for 40% of the total time spent using telecoms services, compared to 25% in 2002. However, much of this growth has come about as a result of an increase in the overall number of voice call minutes (from 217 in 2002 to 247 in 2007) rather than because of substitution with fixed voice, which still accounted for 148 billion minutes last year, down only 10% from 165 minutes in 2002.

o Satisfaction levels for communications services remained high in 2007 at 88% or above. Satisfaction with fixed-line telephony declined from 92% to 88%, while mobile telephony satisfaction rose slightly to 94% and satisfaction with digital TV was unchanged at 90%.

Communications services and the environment

o Although nearly three-quarters of consumers (72%) say that they care about the environment and take it into account in their personal lives, only 39% say that they compare environmentally-friendly aspects when purchasing communications devices.

Use of communications services by older consumers

o Take-up of fixed-line telephony services among people over 65 was 99% in Q1 2008 (up marginally from 98% in Q2 2005), higher than the Q1 UK average of 88% (down from 91%).

o Those with an internet connection spent 30 minutes longer (50%) online per day than the UK average, although they accounted for just 6% of total UK internet usage because take-up was lower among this group.

o However, older people remain much lower users of mobile phones than the general population; only 7% of users aged over 65 make a mobile call every day (50% for all adults), 5% send a text daily (compared to 48%) and nearly nine in ten of these users have a pre-pay phone.

Advertising – a changing market

o The UK’s advertising market grew by 6.3% to £14.9bn in 2007, the largest growth rate for three years and the first year in which growth has outstripped inflation since 2005.

o However, the majority of this growth came from internet advertising, which has risen by an average of 70.2% in each of the last five years to reach £2.8bn. For the first time in 2007 the internet attracted more advertising spend than the combined net advertising revenues of ITV1, Channel 4, S4C and Five (£2.4bn) , and as much as all outdoor and magazine advertising spend combined. However, newspapers still attract more advertising than any other medium, at £4.7bn in 2007.

Key points: converging markets

o Consumer take-up of devices with converged functionality rose significantly in 2007. Homes with a digital television decoder connected to their main set rose from 80% to 87%; people with access to a digital video recorder increased by 8 percentage points or 53%, to 23% of homes; MP3 player ownership stood at 45% of individuals (up five percentage points) while consumers with access to a DAB digital radio nearly doubled to 27%.

o Mobile broadband emerged in 2008 as an increasingly popular means of accessing the internet. Seventy-five per cent of those with access to mobile broadband use it at home, 18% do so at work and 27% while elsewhere/on the move.

o Four in ten households took a bundled communications service in 2007 (the same proportion as in 2006), but Ofcom’s research suggests that more complex bundles are becoming increasingly popular, with a shift during 2007 in favour of the triple-play of fixed/broadband/TV.

Key points: telecoms

o Operator-reported telecoms service revenue rose by 4% in 2007 to £38.8bn, driven by a 9% increase in mobile retail revenue, which for the first time exceeded the combined revenue from fixed telephony, internet and corporate data services.

o The amount of time spent making phone calls continues to grow; UK consumers spent 6% longer on phone calls in 2007 than in 2006. This was due to a 21% rise in outbound mobile minutes. Ninety-nine billion minutes of outbound calls were made from the UK’s 74 million active mobile connections in 2007 – a rise of 91% in the number of minutes and 48% in the number of connections since 2002.

o However, fixed-line voice has remained resilient, with overall outbound minutes falling by just 2% to 148 billion minutes in 2007. Sixty per cent of voice minutes originated on fixed lines in 2007, and in Q1 2008 just 12% of households had no fixed line (with 11% of households being mobile-only).

o Although still increasing, the rate of broadband growth is slowing; by the end of 2007, 58% of UK households had a broadband connection, up from 52% a year previously and from 41% two years ago. The majority of this increase (4%) was due to households migrating from narrowband (dial-up) access, while the remaining 2% was as a result of households connecting to the internet for the first time.

o The number of 3G connections (including mobile broadband connections) in the UK increased by 60% during 2007 to reach 12.5 million by the end of the year, amounting to 17% of all mobile connections.

o More adults in the UK use text messaging than use the internet: 59 billion SMS messages were sent in 2007, an average of 68 a month sent from each mobile connection (up 28% on 2006).

o The proportion of premises connected to an unbundled local exchange increased by 14 percentage points to 80% during 2007, while the number of unbundled local loop (LLU) broadband connections almost trebled to 3.7 million.

o The UK is moving towards the wide availability of super-fast broadband networks; BT and Virgin have announced investment in fibre-based next-generation access networks which could offer speeds in excess of 30 Mbit/s.

o Nine in ten fixed-voice, mobile and broadband users are satisfied with the service they receive. However, one in five said that the speed of their broadband was slower than they expected.