Ofcom UK Communications Market Review 2008: Interactive Key Points

On this experimental site we encourage you to leave informal comments alongside the Key Points from Ofcom's 2008 UK Communications Market Report.

Key Points

Key points: The market context

Key market trends

1.1

Communications industry revenue (based on the elements monitored by Ofcom) increased by 4.0% to £51.2bn in 2007, with telecoms industry revenue the fastest growing component, up 4.1% on the year.

1.2

Real monthly household spend on communications services fell for the third year to £93.63, down 1.8% on 2006, driven by a 6% drop in fixed telecoms spend and a 4% drop in broadband spend. Prices have fallen by 4.4% since 2004, reflecting cheaper prices, which have fallen despite growing take-up and use of many services during this period.

1.3

The availability of key communications services extended further into rural areas during 2007. Initiatives designed to reach the last couple of hundred thousand homes without broadband continued in both Scotland and Wales, while 3G availability (by at least one operator reporting 75% coverage) rose from 70% to 90%, and DAB digital radio extended coverage with new transmission masts in the year for areas such as Derbyshire, North Yorkshire and Derry / Londonderry.

1.4

A number of developments suggest that faster broadband speeds are becoming more widely available:

  • BT continued to roll out 8 Mbit/s services across its network;
  • the number of premises with access to an unbundled local exchange rose from 66.6% to 82.6% in Q1 2008; and
  • by June 2008 almost half of all unbundled exchanges had four or more providers in them.

These factors drove up the average blended headline speed across the UK from 3.6 Mbit/s in December 2006 to 5.9 Mbit/s at the end of Q1 2008.

1.5

In addition, the UK is moving towards even faster broadband with announcements of investment in fibre-based next-generation access networks offering speeds in excess of 30 Mbit/s by both BT (which aims to reach 10 million homes by 2012), and Virgin (which aims to reach 9 million homes by the end of 2008).

1.6

The proportion of homes taking broadband services grew to 58% by Q1 2008, a rise of six percentage points on a year earlier. However, the rate of growth is slowing, following increases of 11% and 10% in the previous two years. Take-up of products offered by local loop unbundlers (LLU) increased from 9% to 19% of lines in areas where LLU services are available.

1.7

Digital television penetration rose by 7.5 percentage points over the year to Q1 2008 to reach 87.1%, and is now as prevalent in UK households as fixed telephone connections. The increase has been largely driven by the adoption of Freeview, now in 63.1% of homes, up from 45.8% in Q1 2007. This has been aided by the increasing sales of sets with integrated digital tuners, which accounted for 80% of all TV sales by Q1 2008. Over two-thirds (67.5%) of the UK’s 60 million TV sets are now digital.

1.8

Two and a half million DAB digital radio sets were sold in the year to June 2008, taking total cumulative sales to 8.3 million. DAB sets accounted for a fifth of all sets sold in the year to April 2008 and around 27% of adults now have access to a DAB set in the home.

1.9

Mobile telephony (including an estimate for messaging) accounted for 40% of the total time spent using telecoms services, compared to 25% in 2002. However, much of this growth has come about as a result of an increase in the overall number of voice call minutes (from 217 in 2002 to 247 in 2007) rather than because of substitution with fixed voice, which still accounted for 148 billion minutes last year, down only 10% from 165 minutes in 2002.

1.10

Satisfaction levels for communications services remained high in 2007 at 88% or above. Satisfaction with fixed-line telephony declined from 92% to 88%, while mobile telephony satisfaction rose slightly to 94% and satisfaction with digital TV was unchanged at 90%.

Communications services and the environment

1.11

Although nearly three-quarters of consumers (72%) say that they care about the environment and take it into account in their personal lives, only 39% say that they compare environmentally-friendly aspects when purchasing communications devices.

1.12

This is perhaps because they find it difficult to compare devices on energy use; less than a third (31%) think this is an easy thing to do, and 29% say that a better understanding of running costs would make them think more carefully about power consumption when buying new devices. Energy savings labels are an important way of trying to improve consumer knowledge about efficiency, but half (50%) say they are not aware of any energy labels.

1.13

The Energy Savings Trust forecasts that, in 2020, consumer electronics, information and communications devices will account for 45% of all electricity used in the home (excluding heating), up from around 30% in 2008. Consumers believe that power consumption over the last two years has grown, driven primarily by a rise in the number of household communications devices; the availability of more energy-efficient ‘best practice’ devices may help address this. However, it appears that many consumers often use unnecessary power.

1.14

A large majority of consumers (74%) say that they know how to dispose of communications and entertainment devices in an environmentally-friendly way and they employ a variety of methods to do so; for example 43% of consumers have used a special recycling facility provided by the local council to dispose of a device in the last twelve months. However, only 30% are aware of the obligation for retailers to take back and recycle old equipment free of charge when purchasing a new device under the Waste Electronic and Electrical Equipment Directive, and only 7% appear to have taken advantage of this.

Use of communications services by older consumers

1.15

Take-up of fixed-line telephony services among people over 65 was 99% in Q1 2008 (up marginally from 98% in Q2 2005), higher than the Q1 UK average of 88% (down from 91%). However, use of mobile telephony, PC ownership, home access to the internet and broadband take-up were all lower than average among the over-65 age group. Nevertheless, the gap is narrowing, with take-up of all of these services (except broadband) rising faster among older people.

1.16

Older people spend significantly more time than the UK average using many key media. In 2007 the over-65s spent 83 more minutes a day (38%) watching television and 20 minutes longer (12%) listening to the radio. Those with an internet connection spent 30 minutes longer (50%) online per day than the UK average, although they accounted for just 6% of total UK internet usage because take-up was lower among this group.

1.17

The most popular internet activity among older people is ‘communication’ (using email, instant messaging and chat rooms for example); 63% of over-65s say they communicate online, compared to 76% of all adults.

1.18

However, older people generally engage in a narrower range of internet activities than younger people, with the exception of using the internet for transactions (42%), news (22%) and contributing comments to someone else’s weblog (21%), where they are just as likely to engage as the population as a whole.

1.19

However, older people remain much lower users of mobile phones than the general population; only 7% of users aged over 65 make a mobile call every day (50% for all adults), 5% send a text daily (compared to 48%) and nearly nine in ten of these users have a pre-pay phone.

1.20

Television is particularly important to older people. Sixty-nine per cent of those aged 65-74 say it is the media activity that they would miss most (compared to 52% of all adults) and this rises to 77% among the over 75s. Older people are also more likely to say they miss newspapers and magazines – 10% of 65-74s and 7% of over 75s, compared to 5% of all adults.

Advertising – a changing market

1.21

The UK’s advertising market grew by 6.3% to £14.9bn in 2007, the largest growth rate for three years and the first year in which growth has outstripped inflation since 2005.

1.22

However, the majority of this growth came from internet advertising, which has risen by an average of 70.2% in each of the last five years to reach £2.8bn. For the first time in 2007 the internet attracted more advertising spend than the combined net advertising revenues of ITV1, Channel 4, S4C and Five (£2.4bn) , and as much as all outdoor and magazine advertising spend combined. However, newspapers still attract more advertising than any other medium, at £4.7bn in 2007.

1.23

The success of the internet remains a particularly UK-focused phenomenon; accounting for a higher proportion (18.9%) of total 2007 advertising spend than in the USA, France, Germany or Italy for example. Paid-for search makes up the majority of UK internet advertising revenue, accounting for £1.6bn of the total £2.8bn. However, ‘other classified’ advertising was the fastest growing component in 2007, up 54% to £0.6bn.

1.24

Television advertising revenue remained more or less flat in 2007, at £3.5bn. However, the share of the digital-only channels grew by three percentage points to account for nearly a third (32.6%) of all television advertising. The public service broadcasters were the key beneficiaries of this, accounting for, over two-thirds (68%) of the digital channel revenue growth through their portfolio channels.

1.25

Television advertising revenues continue to face challenges; 23% of homes now own a digital video recorder (DVR), up from 15% since Q1 2007, and 88% of DVR owners claim that they usually fast-forward through commercial breaks when watching recorded programmes (which currently account for 14% of viewing in DVR-owning homes).

1.26

Expenditure on radio advertising increased during 2007 for the first time in three years, up by £5m (1%) in the year to £442m. However, radio’s share of total advertising revenue continued to fall, from 3.0% in 2006 to 2.9% in 2007.

Key points: Converging markets

2.1

Consumer take-up of devices with converged functionality rose significantly in 2007. Homes with a digital television decoder connected to their main set rose from 80% to 87%; people with access to a digital video recorder increased by 8 percentage points or 53%, to 23% of homes; MP3 player ownership stood at 45% of individuals (up five percentage points) while consumers with access to a DAB digital radio increased by ten percentage points.

2.2

Take-up of platforms and devices offering access to two or more types of content has grown among most age groups over the last two years. Penetration of the internet, DAB digital radio and DTV experienced double digit percentage point growth among 20-24s; but even among the over-45s, DTV and DAB take-up rose by over ten percentage points (albeit from a smaller base).

2.3

The internet emerged as a popular platform for broadcasters for the distribution of audio-visual content in 2007/08. Itv.com re-launched in summer 2007 with free access to live channels, catch-up and archive content. The BBC’s iPlayer went live in the same period, first offering downloads and then at Christmas streamed content. By April 2008 it had a unique monthly audience of 1.4m and was dealing with over 700,000 daily viewing requests; Sky re-launched its internet service as Sky Player and Channel 4 began offering free access to its programmes from the last seven days on its website.

2.4

Consumers appear to be responding to this increased supply. Twenty-seven per cent of those aged 15-24 claim to use the internet for ‘watching TV programmes’ in 2008, up by 17 percentage points in twelve months. Forty-five per cent used it for ‘watching video clips/webcasts’, also up by 18 percentage points over the same period.

2.5

Mobile broadband emerged in 2008 as an increasingly popular means of accessing the internet. The five mobile network operators have all begun to target their mobile broadband offers at residential consumers, and while the subscriber base is relatively low, it is growing fast. There were over 500k new connections in the five months from February 2008, with 133k connections in June 2008. Seventy-five per cent of those with access to mobile broadband use it at home, 18% do so at work and 27% while elsewhere/on the move.

2.6

The converged nature of mobile handsets became apparent during 2007, with 41% of mobile phone users claiming to use their handset for taking pictures and 15% uploading photos to their PC. Nearly one in five (17%) also claimed that they used their phone for gaming.

2.7

Media stacking continues to play a significant role in the way consumers juggle the media they consume. Ofcom research suggests that two in five consumers use their mobile phones while watching television, and the same proportion watch the TV while surfing the web.

2.8

Sixty-three per cent of people 15-24 had access to a games console in  Q1 2008, up by eight percentage points in a year; as an exemplar of a converged device, consumers use consoles for a variety of purposes – 39% for watching DVDs and 26% for listening to CDs.

2.9

One in four people aged 18-24 in 2007 claim to stream, download or copy unauthorised music with the proportions for film and television programmes standing at 15% and 13% respectively. Across age groups, more people in 2007 claimed to have ever accessed unauthorised music ‘ever’ than they did in 2006.

2.10

Four in ten households took a bundled communications service in 2007 (the same proportion as in 2006), but Ofcom’s research suggests that more complex bundles are becoming increasingly popular, with a shift during 2007 in favour of the triple-play of fixed/broadband/TV. The proportion taking this option rose by 78%, to account for 32% of all bundles taken in 2007. Fixed line and broadband double-play bundles were the main casualty.

Key points: Television

3.1

Total television industry revenue reached nearly £11.2bn in 2007, up 3.8% from 2006. The gap between subscription and advertising revenue widened further; subscriptions grew 6.4% to £4.3bn while advertising rose 2.2% to £3.5bn.

3.2

Total expenditure on UK first-run originations by the five main PSB channels fell 5.3% to £2.6bn. This decline in spend dates back to 2002 when it stood at £3.0bn.

3.3

The combined spend on external commissions from the BBC, ITV1, Channel 4 and Five increased by 8.9% to £1.2bn, while spend on in-house productions declined by 9.6% to just over £1.2bn over 2007.

3.4

The television industry broadcast over 2.1 million hours of output in 2007 (2006: 1.8 million). Channels within the Entertainment, Factual, Children’s, Sport, News, Leisure and Music genres accounted for just over one million of these hours. First-run originated content accounted for 9.6% of the hours; acquired content and repeats for 90.4%.

3.5

DTV take-up on main sets reached 87.1% by Q1 2008, up by 7.5 percentage points over the year. Freeview accounted for 75% of the growth over the period; pay-TV platforms also continued to grow over the year.

3.6

The number of subscribers to high-definition (HDTV) television services rose by 435,000 to reach 829,000 in Q1 2008, 5% of Sky TV subscribers were using HD services (accounting for 465,000 of the total) compared to 11% of Virgin TV subscribers (accounting for the remaining 364,000 – where HD functionality comes as standard with the company’s V+ box).

3.7

The combined share of the five main networks declined by 1.1 percentage points from 2006 to 2007 in multichannel homes. However, the PSBs’ portfolio channels offset this loss by more than doubling their share in five years, from 6.2% in 2002 to 13.6% in 2007, which resulted in over 70% of multichannel share being secured by the PSBs for the first time. (In all homes the five main networks’ combined audience share has fallen below two-thirds for the first time - reducing from 66.7% in 2006 to 63.5%).

3.8

Audiences for channels in the Entertainment genre continued to grow, reaching 20% of viewing share in all homes by 2008, around six percentage points higher than in 2002. The Factual and Lifestyle channel category lost the greatest share, with Movies and Sport also falling.

3.9

Television is the main source for UK and world news and entertainment for nearly 70% of consumers. TV is also the medium that 55% of people would miss most if it was taken away. However, those aged 16-24 who had broadband in their homes claimed that they would miss the internet (47%) more than TV (41%).

3.10

Nearly a third (31%) of parents with children aged 8-11 years and over a quarter (26%) with children aged 12-15 claim to use the PIN or password protection devices on their television sets to block unwanted content (2005: 28% and 29% respectively). This leaves a large proportion of parents who do not use these services.

Key points: Radio

4.1

Total funding for the UK radio industry stood at £1.18bn in 2007, up by 2.6% on 2006. We estimate that BBC radio expenditure accounted for £657m, or 56%, of this total, up by 3.2% in the year. Total commercial radio revenues reached around £522m, up by 2.0%, of which national advertising sales accounted for around £271m (52%), local advertising sales for £156m (30%) and commercial sponsorship for £96m (18%).

4.2

Radio reach has been stable over the last five years at around 90% of adults. However, total adult listening hours fell by 2.0% in 2007 and are down 3.1% on five years ago, to an average of 20.6 hours per week. The group which listens least is the 4-24 year olds, and this is also the group whose listening is falling fastest; down by 7.8% in the year and by 10.6% over five years. The only age group in which listening has increased since 2002 is the over 55s, up by 2.3%.

4.3

As in 2006, the fall in listening hours in 2007 was mainly in local radio, with BBC local radio listening down by 7.0% over the year, and local commercial radio down by 4.5%. By contrast, national commercial radio grew, by 3.2% in 2007, driven by the increasing availability of national stations on digital formats. Listening hours for BBC network radio remained flat over the year, although the BBC’s share of listening rose to an average of 55.0% by 2007, up by 0.3 percentage points in the year and by 2.5 percentage points on five years ago. (By Q1 2008 this had increased further to a new high of 56.8%).

4.4

According to RAJAR research, 14.5 million people had listened to radio via the internet by May 2008, up by 21% on six months earlier, and 9.4 million listen to radio online every week, up 16% over six months. Ofcom research indicates that listening online is more likely to have been tried by younger people, with just over half of internet users under 45 having listened while online. However, there is not much drop-off with age; just under half of 45-64s having also tried it, although this declines to less than a third for over 65s.