1 Converging communications markets

1.1 Introduction

In recognition of the changing shape of the communications sector, we have altered the structure of this year’s Communications Market Report. More and more operators are providing services which cross the traditional boundaries of communications; for example telecommunications operators are offering content over their infrastructure, and broadcasters are using the internet and mobile platforms for distribution. And consumption habits are changing too. We believe that this calls for a new approach on how Ofcom reports market developments.

This chapter begins with key industry measures of availability, take-up, spend, revenue and consumption time, for the telecoms, TV and radio sectors. We then move away from an industry-by-industry analysis to provide an overview of converging markets. The heart of this chapter follows the progress of services and content: from their creation and packaging; through distribution over fixed and wireless networks; into navigation; and then use by consumers. Readers can then find detailed industry analysis for telecommunications, television and radio in the three chapters which follow this one.

Data in this report cover the 2006 calendar year, with additional Q1 2007 data where available. We show trends using a five year historical time series where possible and use nominal figures unless stated. Comments and responses to this report, and the converged approach we have adopted in particular, would be very welcome at market.intelligence@ofcom.org.uk.

The information set out in this report does not represent any proposal or conclusion by Ofcom in respect of the current or future definition of markets and/or the assessment of significant market power for the purposes of the Communications Act 2003, the Competition Act 1998 or other relevant legislation.

1.2 Key market data

In 2006 consumers embraced digital communications devices and services in increasing numbers, while operators began to harness new business opportunities made possible through converging technologies. The availability of many platforms continued to widen and particular progress was made with:

• Local loop unbundling, where the number of premises with access to an unbundled exchange rose more than a half to 72%;
• 3G mobile, where the proportion of the population living in a postal district where at least one operator reported at least 50% area coverage rose from 84.3% to 91.4%;
• Broadband speeds, where blended headline speeds increased from 1.6Mbit/s at the end of 2005 to 4.6Mbit/s in June 2007; and
• IPTV, where Tiscali TV rolled out its service beyond London and Stevenage in 2007 to Birmingham, Newcastle and Edinburgh, and we now estimate the service to be available to 15% of homes.

Figure 1.1 Digital communications service availability, 2005 and 2006

Notes
1. Percentage of population living in postal districts where at least one operator reports at least 95% 2G area coverage. Sourced from GSM Association / Europa Technologies.
2. Percentage of population living in postal districts where at least one operator reports at least 50% 3G area coverage. Sourced from GSM Association / Europa Technologies.
3. Percentage of premises able to receive DSL services based on data reported by BT.
4. Percentage of premises connected to an LLU-enabled exchange.
5. IPTV availability figure calculated on the assumption that Tiscali TV is now available in London, Stevenage, Birmingham, Newcastle and Edinburgh.
6. Digital cable availability only. Analogue cable is still available in a small number of additional areas.
7. Availability of services from all six digital multiplexes.
8. DAB digital radio coverage figure based on a Digital One estimate. Both the BBC and Digital one have built new transmission masts during 2006/07.
9. Changes in availability are expressed as percentage points.

Improved coverage was a factor driving increased consumer take-up of digital devices and services in 2006. Fifty-two percent of homes had taken broadband services by the end of the first quarter of 2007; digital television penetration rose seven percentage points to 80.5% by the end of the same period; 15% of homes now have a digital video recorder (DVR); and 11.2% of mobile subscribers connect through a 3G mobile network.

Figure 1.2 Digital communications technologies take-up , 2005 and 2006
Proportion of individuals (%)

Source: Ofcom research and operator data

Notes: All figures relate to the end of Q1 2007 except for 3G which is end of 2006. All figures are measured as a proportion of individuals except for 3G, which represents the proportion of mobile subscribers, LLU which represents the proportion of premises in unbundled areas and DTV, which represents the proportion of homes with a digital television reception device on the main set.

Real monthly household spend on communications services fell for the second year running in 2006, to £92.65, down 1.5% in real terms on 2005, with telecoms spend continuing to account for the lion’s share; competitive pressure on fixed and mobile voice played a large part in the reduction. Consumer spend per household on television services also fell slightly year-on-year in real terms.

Figure 1.3 Household spend on communications services, 2006
£ per month, 2006 prices

Source: Operators and Ofcom estimates

Despite an expanding range of media available to many consumers, the amount of time spent watching television and listening to radio each day continued to exceed comfortably the number of minutes spent making landline or mobile phone calls. However, for the last four years there have been signs that use of the internet may be starting to substitute to some extent for broadcast media; since 2003 TV viewing hours per head have fallen by 3.6% while radio listening declined 2.0%. Mobile has made some inroads into the fixed sector over the period, increasing by 58% between 2002 and 2006 to 3.7 minutes per day per person, while fixed line minutes fell by 8% over the same period to 6.9 minutes per day per person. The increasing tendency of consumers to perform ‘media stacking’, whereby more than one medium is consumed at the same time, should be taken into account when comparing these figures – while the total media consumption time per day in 2006 amounted to 433 minutes per person the total time spent on media is likely to be less as some of these minutes ‘double up’.

Figure 1.4 Time spent using communications services
Minutes per day per person

Source: BARB, RAJAR, operators, Nielsen//Netratings and Ofcom calculations
Notes: The TV figure is for 2003 rather than 2002 to avoid the effects of changes in BARB panel composition. Daily figures were calculated from monthly data on the assumption that there are 30.4 days in the average month; the exception was internet consumption where the quoted figures relate to May 2002 and April 2006, and the number of days in those months were used. The internet consumption figures for 2006 excludes the use of applications. The numbers quoted in this report are not comparable to those in the 2006 edition, owing to a change in source.

Widening service availability and increased consumer take-up have each played a part in boosting the components of industry revenue that Ofcom monitors by 1.2% to £50.4bn in 2006. Mirroring consumer spend, telecommunications services continued to account for a large part of revenue but, as in 2005, television industry revenue was the faster growing component. It was fuelled partly by increasing subscriber numbers, but mostly by rising average revenue per user, offset somewhat by falling advertising revenue. Radio advertising also experienced a contraction in 2006, but unlike TV it did not have the ‘cushion’ of growing subscription revenue; so total radio revenue fell by nearly 9% in 2006.

Figure 1.5 Communications industry revenue
Revenue (£bn)

Source: Operators