November 8, 2006
The Report combines original Ofcom research, data provided to Ofcom by the
companies it regulates and publicly-available material. It provides a
comprehensive overview of one of the UK’s most dynamic sectors, representing
4.1% of UK GDP and with retail revenues which in 2005 exceeded the £50 billion
threshold for the first time.
Key points include:
GREATER VALUE FOR MONEY
Household usage and adoption of communications services continues to accelerate.
The number of households with broadband connections increased by 63% between 2004
and 2005, to a total of 9 million and the number of households with digital
television also increased by 18% between March 2005 and March 2006, to a total
of 18.3 million.
Mobile phone usage increased, accounting for 31% of all call minutes (up from
28% in 2004 and 20% in 2001), and the number of households using their broadband
connections to make low-cost or free Voice over Internet phone calls had risen
to 1.8 million by the end of 2005.
In many sectors, increased usage or signing up for new or more advanced services
would inevitably lead to increased costs to the consumer. However, in the
communications sector, a combination of new technology, intense competition
between providers and regulatory intervention, where required, has led to
significant reductions in retail prices.
Between 2004 and 2005 typical household telecoms costs fell by 5% (from
£80/month to £76/month); the cost of a broadband connection faster than 1
Mbit/s fell by 60% (from around £41/month to around £16/month). Without
continuing downward pressure on retail prices, typical household costs for
telecoms services, based on 2001 prices, would have been more than 50% higher
in 2005 than actually was the case.
RADICAL SHIFT IN MEDIA CONSUMPTION
The Report reveals striking evidence that a new ‘networked generation’ is
turning away from television, radio and newspapers in favour of online
services, including downloadable content – used on multiple devices such as
iPods and mobile phones – and participation in online communities.
Television is of declining interest to many 16-24 year olds; on average they
watch television for one hour less per day than the average television viewer.
Of the television they do watch, an even smaller proportion of their time is
spent viewing public service broadcasting channels, down from 74% of total
viewing among this age group in 2001 to 58% today. Instead, the Internet
plays a central role in daily life; more than 70% of 16-24 year old internet
users use social networking websites (compared to 41% of all UK internet users)
and 37% of 18-24 year olds have contributed to a blog or website message board
(compared to 14% of all UK internet users).
The same group also uses mobile phones extensively, on average making seven
more calls and sending 42 more texts per week than the wider UK population.
Extensive use of the internet has also influenced 15-24 year olds’ consumption
of other media. Their radio listening is lower, by an average of 15 minutes a
day compared to the wider population; additionally, 27% of those surveyed said
they read newspapers less as a consequence of their online usage.
The gap between BBC and commercial radio audience share widened even further
in 2005. By March 2006 the BBC led the commercial sector by a margin of 30%,
up from 24% a year previously. When compared to 2001, when the margin was 13%
in the BBC’s favour, the gap has more than doubled.
Total radio industry funding (including the BBC Licence Fee) fell by 2.2%
during the year to £1.15 billion; the BBC’s expenditure on its radio services
now accounts for around 55% of total UK radio funding.
DAB digital radio continues to grow in importance. For the first time, sales
of DAB portable radios outstripped sales of analogue portable radios in 2005
(accounting for 54% of sales, up from 45% in 2004). Overall digital listening
(including radio channels via digital television) accounted for 11% of all
listening hours in 2005, compared to 6% in 2004.
In an important change in habits, viewers in Freeview households now spend
more time watching digital-only channels than any one of the five main public
service broadcasting channels BBC1, BBC2, ITV1, Channel 4 and five. However,
the public service broadcasters’ own digital-only channels (such as BBC3, ITV2
and More4) continue to grow their audience share, gaining nearly 6 percentage
points of total viewing between 2001 and 2005.
Subscription revenue remains the largest source of funding for commercial
television, with 2005 revenues up by 8.5% to £3.9 billion for all pay TV
services, £343 million more than total net television advertising revenues
for the same period. Overall, television industry revenues increased by 4%
year on year to more than £10.6 billion.
Online advertising continues to grow in importance as a mass marketing medium,
attracting significant revenues away from other media. Total online advertising
revenues have increased almost eight-fold in real terms between 2001 and 2005
(from £0.17 billion to £1.3 billion per year). Online advertising revenue is
now almost three times greater than radio advertising revenue (at around £0.5
billion, unchanged since 2001 in real terms) and over one-third that of
television advertising revenue (£3.8 billion in 2005, up from £3.5 billion in 2001).
Broadband continues to demonstrate significant growth. Of the 11.1 million
UK homes and small businesses with broadband connections, more than three
million were cable and eight million were DSL – the latter up from five
million in 2004. Industry revenues from broadband access were up 70% year
on year to £1.9 billion.
These trends are likely to continue as new technology and new products expand
choice and availability. Unbundled local loop services – where competing
providers take responsibility for the customer’s line to provide telephone,
broadband, voice and television over the internet and video on demand
services – are now available to 44% of the population, up from to 34% in
2005. The number of Wi-Fi hotspots across the UK also almost doubled over the
year to June 2006, up from 8,500 to 14,600.
Mobile phones play an increasingly important role in consumers’ daily lives.
As many UK households now have a mobile phone as have a landline phone; and
for the first time, the proportion of households relying on mobile phones
exclusively (10%) is the same as the proportion who only use landline phones.
Mobiles are becoming the preferred means of making calls in many households,
including those with both mobile and landline phones. Some 31% of consumers
surveyed now consider their mobile to be their main telephone, up from 21%
in 2004. For the first time, none of those surveyed said they relied on public
payphones for their main means of making and receiving calls, compared to 2%
of consumers surveyed in 2004.
Mobile industry revenues grew by 9.7% year on year to £13.1 billion, while
traditional landline revenue fell by 7.5% to £10.1 billion.
Consumers are increasingly willing to switch phone companies; nearly 34% of
consumers now use a phone company other than BT for some or all of their
landline services. As of March 2006 6.1 million lines used a carrier
pre-selection provider for their calls (up from 4.9 million in March 2005).
Of these, 2.9 million were Wholesale Line Rental customers (up from 1 million
in March 2005) who no longer have a billing relationship with BT but instead
pay an alternative provider for both line rental and calls. Additionally 4.5
million consumers use cable networks for their phone services.
Ofcom Chief Operating Officer Ed Richards stated recently: “Our research reveals
dramatic and accelerating changes across all communications industries. The
sector is being transformed by greater competition, falling prices and the
erosion of traditional revenues and audiences. A new generation of consumers
is emerging for whom online is the lead medium and convergence is instinctive.”
Read the complete Communications Market 2006 report at: