2010 United Kingdom - Telecoms, IP Networks, Digital Media and Forecasts

UK’s regulated fibre sector shifts emphasis to FttH

BuddeComm’s annual publication, UK - Telecoms, IP Networks, Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecommunications and digital media markets in UK.

The UK’s telecom market has not been unscathed by the global economic downturn, which has pushed the economy into one of the deepest recessions experienced by any European country. Whereas GDP growth was above 5% throughout 2007 and the first three quarters of 2008, it has since plummeted to barely 0.5% in the six quarters to June 2010. Overall revenues in the telecom sector fell 2.3% year-on-year in 2009. Competition continued to drive down prices, but the effect on real monthly household spend on telecom services is negligible: according to the regulator, monthly spend on communications accounted for 4.4% of total household spend in 2009, compared to 4.5% in 2003.

Investment in the telecom sector has also been affected by the economic climate, as declining revenue for telcos combines with a liquidity market which is expected to remain problematic into 2011. This will dampened their ability to fund network investment during the next two years, leading them concentrating their efforts in core areas: upgrading cable and fibre networks, and widening software upgrades on mobile networks for LTE and HSPA+ technologies. In the face of diminishing mobile voice revenue, mobile network operators (MNOs) are united in promoting technologies to stimulate and support high-end mobile data use among consumers.

Fixed-line penetration is being buoyed by consumer adoption of VoIP services, generally offered as a bundle, while mobile penetration has increased to the extent that by mid-2010 about 18% of households relied on mobile-only access, compared with only 6% in 2001. Average residential broadband speeds exceeded 8Mb/s in 2010, though achieved speeds are commonly only 40% of advertised speeds. There remain numerous areas unserved by cable and where DSL is impractical due to the distance from exchanges. To this end the UK’s 2010 Digital Economy Act has set in train a number of policies and objectives to secure a minimum broadband service nationally by 2015.

The mobile market in mid-2010 underwent one of the more significant shifts in recent years with the merger of T-Mobile and Orange as the joint venture (JV) Everything Everywhere. Hitherto, four of the five MNOs enjoyed similar market shares while H3 has been rapidly catching up in terms of subscriber numbers. The new JV has created a single player holding 42% share of subscribers compared to 27% for its nearest rival O2 and 23% for Vodafone. Given Orange’s existing broadband and fixed-line services interests, the JV will thus be well placed in coming years to develop and promote quad-play services. It is anticipated to be a licensee of 2.6GHz and 800MHz spectrum, and so from early 2012 will be well placed to gear up its mobile broadband offerings based on LTE technology.

The digital TV market remains among the most competitive in Europe, with both free and pay satellite services competing against a range of platforms providing IPTV and VoD services. New developments such as Project Canvas have incorporated the talents and programming from the main broadcasters. By mid-2010, digital TV was adopted by 92% of households, while analogue switch-over (ASO) is on schedule for early 2012.

UK – Key telecom parameters – 2009 – 2011

(Source: BuddeComm based on industry data)

Market highlights:

• LLU on copper networks has continued to grown steadily, and by August 2010 there were 6.9 million unbundled lines. The need for scale among LLU operators has led to a number of mergers, leaving three operators commanding 75% of all broadband lines. The economics of scale will enable them to reduce access prices further in coming years as they face increasing competition from the mobile network operators. About 89% of all UK households are connected to an unbundled exchange, compared to 40% at the beginning of 2006. About 75% of exchanges will be equipped to provide ADSL2+ by early 2011. Competition in urban areas is intense, leading to some of the lowest broadband prices in Europe.
• The 2010 Digital Economy Act committed the government to provide a minimum 2Mb/s service nationally. Part funded by the public purse, it relies on mobile broadband using both sub-GHz and 2.6GHz spectrum to extend the reach to 10% of the population in rural areas. Regulation measures adopted in mid-2010 are geared towards sharing ducts and infrastructure such as electricity poles to lower build-cost and extend the reach of fibre more quickly.
• LTE trials have kept pace with developments elsewhere in Europe, led by O2 which envisages providing data at 140Mb/s, or ten times the speed currently available. The success of LTE will be much needed after 2012 when MNOs are granted new spectrum licences to help develop rural broadband access as well as provide a platform for them to develop their mobile data services.
• In the cable sector, Virgin Media has concentrated on boosting its broadband speeds, providing 50Mb/s during 2009 and 100Mb/s during 2010, with plans to extend the faster service across its network by mid-2011. The company has also trialled a 200Mb/s service and in mid-2010 began preparing for modems to handle 400Mb/s, though a potential commercial launch is dependent on consumer need for this level of bandwidth.

This report is essential reading for those needing high level strategic information and objective analysis on the telecom sector in the UK. It provides further information on:

• The digital media market where the UK has the highest level of digital TV penetration in Europe, with a substantial multichannel environment;
• Market liberalisation and regulatory issues;
• The impact of the global economic crisis;
• Telecoms operators – privatisation, acquisitions, new licences;
• Mobile data market developments in coming years in light of anticipated spectrum auctions and new license awards in 2012;
• 3G developments, regulatory issues and technologies including HSPA and LTE;
• Mobile market consolidation and competitive pressures obliging operators to concentrate on packaging service bundles and promoting applications such as mobile searching and advertising facilities;
• Broadband migration to an FttH architecture;
• Historical and current subscriber statistics and forecasts;
• ARPU statistics and forecasts. 

Data in this report is the latest available at the time of preparation and may not be for the current year.