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The Communications Market 2007 (August)

Foreword

This is the fourth of Ofcom’s annual reports to focus on trends and developments in the UK’s communications market, with the aim of providing a context for decision-making by Ofcom, as well as by commercial and public sector organisations.

The communications sector plays a vital role in the UK’s economy and in the life of its citizens. We estimate that revenue of over £50bn was generated in 2006 by a combination of broadcasting and telecoms networks and services. And figures from the Office of National Statistics suggest that in terms of Gross Value Added, telecoms, broadcasting and the content-related components of the creative industries contribute over three times as much as the UK’s electricity, gas and water supply industries combined.

But given the amount of time we spend using communications services this is perhaps not surprising. We estimate that, on average, each person now spends more than seven hours cumulatively every day watching, listening, making phone calls and web-browsing. This reflects both the growing importance of communications services in our work and leisure lives and a growing desire, particularly among the young, to use multiple services simultaneously.

Driving this growing role in our lives is the widening availability of increasingly sophisticated telecoms services and a greater number of audiovisual services accessible via the internet. Yet despite this, real household monthly spend on communications services fell for the second year running in 2006, down 1.5% to £92.65, driven by falling fixed and mobile call prices amid growing competition in the telecoms sector.

Much of the growth in the sector stems from the arrival of ‘converged’ equipment, capable of receiving services from more than one operator and over multiple platforms. Many operators now also offer communications ‘bundles’ comprising a variety of different services. To reflect this, we have changed the structure of this year’s report by introducing a section on convergence at the start of the document. This adopts an approach which follows the progress of services and content from their creation and packaging, through distribution over fixed and wireless networks, and into navigation and then use by consumers.

We have also commissioned new research which looks at the impact on traditional media of two key digital technologies: the mobile phone and the digital video recorder (DVR). In both cases we observe signs of a challenge to traditional industry economics, with up to 78% of DVR owners claiming that they regularly fast forward through advertisements while watching recorded programmes, and growing substitution of the new generation of high specification mobile handsets for devices such as cameras, portable music players and games consoles.

Last year we reported on the particular threat to traditional media posed by the changing consumption habits of 16-24 year-olds. This year we explore the results of the first wave of a continuous research project commissioned by Ofcom into the use of communications by UK children. This research finds, for example, that more than 75% of 11 year olds claim that they own each of: TV sets, games consoles and mobile phones.

We then consider each of the communications industries looking at the provision and take-up of networks, services and content, across television, radio and telecoms. We draw on a range of data provided by operators, primary research findings from Ofcom’s regular surveys, and audience measurement from BARB and RAJAR. In addition, we have used more third party data this year, to help us describe the converging marketplace.

This publication forms the second of Ofcom’s three major 2007 Communications Markets Reports (CMRs). The Nations and Regions CMR, published in May, looked at issues affecting the rural and urban populations in different parts of the UK, and the International CMR, to be published around Christmas, aims to place the UK in a wider perspective, reflecting the globalisation of the sector and the growing importance of the European Union on regulatory issues.

We hope that this report will contribute to a greater understanding of the changing ways in which communications services are delivered and consumed in the UK. As such, it is intended to support Ofcom’s regulatory goal to research markets constantly and to remain at the forefront of technological understanding. It also fulfils the requirements of section 358 of the Communications Act to publish an annual statistical review.

We welcome feedback on all Communications Market Reports and would be particularly interested to hear views on the Convergence section of this document. Please email Ofcom’s Market Intelligence team on market.intelligence@ofcom.org.uk

Ed Richards
Chief Executive

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