Key Points

The market in context

Key market trends

Availability of key communications services remained largely unchanged in 2008. Of the key communications services that are tracked by Ofcom, only the availability of local loop unbundling (LLU) services increased in the year (by four percentage points, to 84% of households).
Communications industry revenue (based on elements monitored by Ofcom) increased by 0.2% to 51.8bn in 2008, with television (in particular pay-TV subscriptions) the main driver of growth. Telecoms revenue remained flat, while radio revenues fell in 2008.
Household spend on communications services fell again in 2008. In real terms, UK households' average spend on communications was 93.69 a month, down 4.39 on 2007. Spend on communications services accounted for 4.63% of total monthly household outgoings, down from 4.8% a year earlier.
Consumer satisfaction with communications services increased in the year to Q1 2009, up to 89% compared to 86% in Q1 2008. Mobile telephony again scored highest out of the five communications services included in our research, with 94% of consumers either satisfied' or very satisfied' with their mobile service.
Ofcom research shows that at the end of Q1 2009, 46% of UK homes bought communications services in bundles', up by seven percentage points since Q1 2008. The majority of these bundles were either fixed voice and broadband double play' (44%) or fixed voice, broadband and multichannel TV triple play' (34%).

Communications markets and the recession

Communications spend appears relatively robust when compared to alternative claims on disposable income. Meals/nights out and holidays are the expenditure categories most likely to be cut from consumers' disposable income; only spend on toiletries and groceries appears more secure than that on communications products.
However, consumers seem to see opportunities to save on their communications spending for example, by bundling services or by deferring mobile handset purchases. Some consumers are also more likely now to shop around for communications services.
Advertising expenditure is generally cyclical, and this is borne out in the latest revenue data from broadcasters. Radio industry revenue contracted year on year, and while overall television revenue rose, the commercial PSBs attracted less advertising revenue this year than last.
While it is less clear that the telecoms industries have been affected by the economic downturn, mobile and broadband operators are affected by the competitive pressures of markets approaching saturation, and the increasing use of mobile phones rather than fixed-line phones is putting pressure on fixed-line operators.

Consumers' use of digital video recorders (DVR)

More than a quarter of consumers (27%) claimed to use a DVR at the end of Q1 2009, equivalent to 7 million homes, according to Ofcom research. This rose to nearly a third of consumers (31%) in multichannel television homes. These figures are a little lower than those from operator and sales data, which suggest that nearly 9 million DVRs had been sold in the UK at the end of Q1 2009.
Fifteen per cent of viewing across the five main PSB channels in 2008 was for recorded programmes, according to data from BARB, the television industry's audience measurement organisation. In Sky+ homes this rose to 19%. Adults aged 16-34 are the group most likely to watch programmes recorded on a DVR; 19% of viewing among this age group was on a recorded basis in 2008, which compared to the lowest figure of 11%, for viewers aged 55 and over.
Forty-two per cent of consumers said that they watched a greater variety of programmes since owning a DVR, although a third (33%) disagreed with this. Eighty per cent of consumers believe that they watch more programmes that they enjoy because of their DVR.
DVRs are becoming increasingly advanced, offering viewers search functionality and push' video-on-demand, where programmes are downloaded to the hard disk drive, for example. Hard drives are also increasing in size. Some offer up to 250 hours of recording, up markedly from the 40 hours available on early generations of devices.

The nations' communications markets

Personal use of mobiles was more prevalent than use of fixed lines in every UK nation for the first time in 2009. Broadband was the fastest growing communications platform, with double digit take-up increases in England, Wales and Northern Ireland.
UK consumers showed a renewed interest in bundling' services during 2008/09. Forty-six per cent of homes took two or more services from the same supplier. People in England were most likely to take a bundle, but growth was fastest in Wales and Northern Ireland.
During 2008, spend per head on networked television production was highest in England during 2008 at 35.51; investment on TV hours for a nation was highest in Northern Ireland (16.05), while expenditure on non-English language output was greatest in Wales at 24.38.
People in Scotland watched more TV than anywhere else in 2008 (4.2 hours/day/head versus UK average of 3.8). PSB TV output was most popular with viewers in Wales (62% share of viewing) and least popular in London (57%). Levels of radio listening across the four nations were similar at around 3.2 hours per listener per day. The popularity of the BBC's radio services varied by nation from 46% of listener hours in Scotland to 63% in Wales.

Key points: television

Total television industry revenue grew by 1.3% to reach 11.2bn in 2008. This was largely driven by subscription revenue, which increased by 5.7% in 2008 to reach 4.32bn. Pay-TV providers increased subscriber numbers while products like multiroom and high-definition television also gained in popularity.
Total TV net advertising revenue was 3.47bn in 2008, down 3% year on year, as the gains in multichannel revenue, up 9.3% to nearly 1.3bn, helped to offset the reductions on the mainstream channels.
Net advertising revenue for ITV1, GMTV1, Channel 4 and Five decreased 8% year on year to 2.1bn. The four main commercial PSBs undertook several cost-cutting measures as they felt the impact of the recession and the wider structural challenges facing free-to-air broadcasting.
Broadcasters' total spend on television output passed the 5bn mark, fuelled mostly by increased investment in Sport and Film channels (driven by higher costs for rights acquisitions) and BBC One.
The five main PSB channels broadcast 33,165 hours of first-run originated programming in 2008, down by 3% on 2007 and by 5.6% (1,845 hours) since 2003. The five PSB channels also invested less in first-run originations. In 2008 prices, they spent 2.6bn in 2008, down by 2.9% year on year.
UK television channels broadcast nearly 2.5 million hours of programming in 2008. Of these, almost 1.5 million hours were broadcast by the PSB channels and key multichannel genres, of which 9% (133k hours) were first-run originations.
The five main PSB channels (BBC One, BBC Two, ITV1, Channel 4 and Five) attracted a viewing share of 60.8% in all homes during 2008, down by 2.7 percentage points year on year.
Digital television penetration in the UK reached 89.2% at the end of Q1 2009, an increase of 2.1 percentage points year on year. This meant that around 22.8 million homes received digital television on their main set at the end of March 2009.
Digital switchover is now well under way and Exeter in the West Country became the UK's first digital city' in May 2009. Analogue switchover in the first region of the Scottish Borders was completed in November 2008.
High-definition television gained traction over the past 12 months, as new HD channels launched and more platforms developed their HD propositions. By the end of the first quarter of 2009, 2.3 million homes (9%) had reception equipment capable of accessing linear or on-demand HD content. Thirty-three per cent of UK homes claimed to have HD-ready television sets at the end of 2008, according to our research.
A total of 77 television channel licences were issued by Ofcom in 2008, significantly down from the 143 issued during 2007. Overseas licences formed an increasingly large proportion of the new licences. There were 495 channels broadcasting in the UK at the end of 2008, up from 470 a year earlier.

Key points: radio

Total UK radio industry funding stood at 1.15bn in 2008, down by 2.3% on 2007. This followed a fall in commercial revenues of 3.3% to 505m and we estimate that the BBC reduced its radio spend by 1.5% to 643m (accounting for a 56% share of all radio income/spend).
By Q1 2009, digital radio platforms attracted just over a fifth of all radio listening hours (20.1%), up from 17.8% in Q1 2008, according to RAJAR figures. The majority (63%) of digital listening came via DAB, which accounted for 12.7% of all radio listening. Digital television delivered a further 3.4% and the internet 2.2%.
Radio audience reach was down by one percentage point in 2008 on five years previously, at 89.5% of adults. Time spent listening to the radio was also down, by 5% in five years, and by 1.7% year on year. Total listening hours to all BBC Radio stations were down by 0.5% during 2008 but still up modestly (0.2%) since 2003. By contrast, all commercial radio listener hours were down both by 3.2% in the year and 11.4% over five years.
Within this overall pattern of reductions, listening to national radio stations has risen, while local radio listening hours have contracted. BBC network radio listening hours have risen by 6.4% in five years and national commercial hours are up 16.9%, although down on the past year. By comparison, local BBC station hours fell by 19.1% and local commercial by 18.3%.
The decline in radio listening has been most notable among younger listeners, with hours falling by 21% among 4-15 year olds between 2003 and 2008. The reduction in hours grew progressively lower as the age of the audience increased. Among younger adults (15-24), hours were down 12.0%; among 25-34s they were down 11.1%. Listening among older age groups was more stable; down by 1.7% among listeners aged 55+, while hours were flat among 45-54 year olds.
Cumulative sales of DAB digital radio sets passed 9 million by Q1 2009 (up from almost 7 million in Q1 2008), following sales of around 2 million in the previous 12 months. RAJAR estimates that almost a third (32%) of UK adults owned a DAB set by the end of Q1 2009, up by five percentage points on the previous year.
A third of adults (33%) had listened to the radio online, according to the RAJAR internet and audio services survey carried out in May 2009. This was up from 29% a year previously and from 24% six months before that.
In June 2009, the Government's Digital Britain report was published, recommending the digital migration of the majority of radio services in the UK, with a proposed target of 2015. It specified an interim 2013 milestone of 50% of all radio listening to be through a digital platform, and targets for national DAB coverage to be comparable to FM and for car manufacturers to be installing DAB sets as standard.
Twenty-one new community radio licences were awarded in the six months to June 2009, covering a number of regions in England including the Midlands, the North West, the East and the South East. By July 2009, Ofcom had awarded a total of 205 community radio licences, with 141 stations already on air. Licences are still to be awarded for community stations in Greater London and areas within the M25, within the current second round of licensing.

Key points: telecoms

For the first time since Oftel started to collect market data in 1992/93, operator-reported revenues from telecoms services did not increase in 2008. Total revenues were unchanged at 39.5bn, with increasing retail revenues being offset by falling wholesale revenues.
Telecoms services accounted for 3.2% of total household expenditure in 2008, down from 3.4% in 2007. Telecoms spend fell by 5.2% in real terms over the year, the largest annual decline since spend on telecoms services began to fall in 2006.
Nearly two-thirds (65%) of UK households had a fixed-line broadband connection in Q1 2009, up from 58% a year previously.
Mobile broadband has continued to grow, with take-up of pre-pay services contributing to over a quarter of a million new connections in May 2009 alone. Around 12% of UK households had a mobile broadband connection in Q1 2009; three-quarters of these also had a fixed-line broadband connection, indicating that for many mobile broadband is a complement to, rather than a substitute for, a fixed-line service.
Eleven per cent of households had a mobile connection but no fixed-line connection in Q1 2009 (unchanged from a year previously). However, 22% of households in socio-economic group DE are mobile-only.
Mobile use continues to grow. The number of monthly outbound minutes per mobile connection increased by 6%, to 123 minutes, while the number of text messages increased by 29% to an average of 99 messages per month from each mobile connection.
For the first time, the number of pre-pay (pay-as-you-go) mobile connections fell during 2008. This was driven by the availability of low-cost contracts, including SIM-only tariffs which accounted for nearly a quarter of new contract sales in the first five months of 2009. Thirty-two per cent of mobile contracts sold in Q1 2009 were for tariffs of less than 20 per month, compared to 23% in Q1 2008 and just 5% in Q1 2007.
24-month mobile contracts emerged during 2008, accounting for 13% of new post-pay connections in Q1 2009, compared to 2% a year previously. At the other end of the scale, 24% of new contracts were for just one month in Q1 2009 (driven by the take-up of SIM-only tariffs), up from 10% in Q1 2008 and less than 1% in Q1 2007.
More than 8 million people in the UK (16% of adults) accessed the internet on their mobile phone in Q1 2009, up by 42% on a year previously. This growth has in part been driven by the increasing use of smartphones, which accounted for 16% of all handset sales in Q1 2009, and the increasing use of mobile applications.
BT's share of retail fixed voice calls to UK geographic numbers fell to under 50% for the first time in 2008. Increasing use of wholesale line rental (WLR) and local loop unbundling (LLU) services contributed to the erosion of BT's retail share.Overall satisfaction levels are high, with 90% or more of consumers satisfied with their fixed-voice, fixed-broadband and mobile services. However, satisfaction with the speed of fixed-line broadband connections has fallen from 90% in Q1 2006 to 81% in Q1 2009.

Key points: converging markets

Online catch-up TV began to enter the mainstream in 2008, largely thanks to the growing popularity of the BBC iPlayer. Twenty-three per cent of households claim to watch programmes online, rising to 33% among 15-24s. But 10% of people aged 65+ reported that someone in their household watched catch-up TV online.
The BBC's iPlayer served up 275 million online video streams (750,000 streams per day) in 2008, and a further 100 million over Virgin Media's network. Channel 4 delivered nearly 150 million streams during the same period. All major broadcasters now have similar offerings.
A quarter of the population admitted to the unauthorised sharing of music online according to data from Entertainment Media Research, and 5% admitted to doing so regularly. However, most unauthorised sharing is done by copying physical discs 37% have let someone else copy a CD. Younger people seem less concerned about obtaining content for free 66% believe it is morally acceptable to do so.
Social networking is growing more slowly than previously. Facebook cemented its position as the most used site, growing by 73% since May 2008 to reach a monthly unique audience of 19 million, compared to 5 million for MySpace and 4 million for Bebo. But new services are still growing fast Twitter now has 2.6 million unique users, up from 150,000 in May 2009.
Social networking is also maturing - literally. Use grew fastest among 35-54s up by eight percentage points since Q1 2008 to 35%. Among 25-34 year olds use grew by six percentage points to 46% but it actually fell slightly among 15-24s by five percentage points to 50%.
The free ad-supported streaming service Spotify has made its mark in online music the average user now spends over two hours per month browsing and searching for music through Spotify. This is ahead of established music applications with much larger audiences such as iTunes (just under two hours) and Windows Media Player (just under an hour).
Older consumers are increasingly adopting digital platforms. Since 2008 take-up of mobile phones, digital TV, DAB radio and the internet grew by double digits among consumers aged 65+. Seventy-seven per cent now have digital TV, 68% have a mobile phone, 41% have the internet and 28% a DAB digital radio set.
Only a minority of people use advanced functions on their mobile phone handsets. Apart from text messaging (83%) and voicemail (56%), the only other function used by the majority of mobile phone users was taking and storing photos (52%). Internet advertising spend grew to reach 3.3bn in 2008. For the first time, in 2008 the internet accounted for over one in every five pounds (20%) of UK advertising spend. The internet's share has grown by 17 percentage points since 2003, with nearly half this growth at the expense of newspapers.