Home > Research and Market Data > Communications Market Reports > The Communications Market 2006 > The Communications Market 2006 Overview > Key communications themes

1.2 Key communications themes

1.2.1 Communications consumers get more for their money

In 2005, for the first time in five years, average UK household spend on communications fell slightly, from 4.63% to 4.60%, as a proportion of total household expenditure. Despite growth in take-up of many key services – 3.8m more broadband connections, 5.8m more mobile connections and 2.7m net additional digital TV households (of which 441,000 subscribed to pay TV) – total 2005 communications spend per household rose in real terms by just 0.6% (54 pence) to £87.67.

This was almost entirely because of falling prices, particularly in the fixed-line sector, where average household spend decreased from £25.90 to £23.60/month, largely offsetting increased mobile, broadband and broadcasting spend. We can see this more clearly if we apply 2005 telecoms usage levels to 2001 prices; average spend on telecoms services would have been 15% higher in real terms at £71.94 per household in 2001, against £60.96 in 2005.

These data show that, in simple terms, consumers are using more and paying less. This is largely due to a combination of increasing competition, new delivery platforms, innovative pricing and marketing, and regulatory intervention where necessary. However, this trend looks set to continue: further increases in competition, combined with innovative service bundling, could increase the downward pressure on prices over the next year; wide-scale local loop unbundling (LLU) should give operators new ways of packaging and pricing broadband and fixed-line services; and new ways of delivering TV and radio programming (primarily via broadband and mobile platforms) could result in increasing competition and a broader range of service offerings.

1.2.2 Young people are moving away from old media

In 2005, we noticed a further shift in communications consumption patterns among the young (16-24 year old) age group. While it is true that usage of media, telecoms and technology has always varied by age, this difference has become more marked over the past year.

Younger people have embraced the multitude of new technologies and means of communication, to the detriment of ‘traditional’ platforms and services. For example, in a multi-channel TV world, younger viewers now watch less public-service broadcasting output than ever before (share of viewing to terrestrial channels among 16–24 year olds is down from 74.3% of their viewing time in 2001 to 58% in 2005) – opting instead for newer digital channels that might better reflect their values and interests. In radio, too, this age group is listening to proportionately less analogue and local commercial output than average and is instead replacing it with digital listening and output from the newer national commercial services.

A similar theme emerges in telecoms, where young adults are forsaking fixed-line telephony in favour of mobile calls and texts – 16-24 year old subscribers make on average seven more calls and send 42 more texts per week than the population as a whole. They also spend more time online; young adults who use the internet do so for 21 more minutes per week than the UK average and at least 70% of them have used websites for keeping up contacts (against 41% of all adults).

These are the ‘children of the internet age’, many of whom have never known a life without home computers, games consoles, mobile phones and online connectivity. They are accustomed to more ‘on-demand’ delivery of services: they want to contact their friends whenever and however is most convenient; they expect to watch TV programmes and listen to radio stations which interest them; they want to create their own online presence, and connect directly to others with similar tastes and interests.

1.2.3 Competition in bundling heats up

Throughout 2005 and early 2006, many operators started combining a number of different communications services – known as ‘bundling’. The first players to bundle services were the cable operators, which were able to offer TV and fixed-line telephony from their inception in the mid 1990s. The bundling aspect of these early offers was usually merely a single billing relationship for customers, and sometimes a single point of customer service. When the cable companies also began to offer broadband internet, in the early 2000s, they started giving discounts to customers who took two or three services.

Until around 2003, the cable companies were the only operators that could offer any kind of cross-platform bundles: every player in the communications sector only owned or operated one type of service (mobile, fixed-line, broadband, TV), with the exception of BT which has operated fixed-line and broadband services since 2000, but marketed them separately. However, the introduction of commercially-viable wholesale line rental (WLR), which gave any company the chance to sell voice and broadband products over fixed lines rented from BT, opened the door to the first fixed/broadband bundles.

At the same time, WLR gave operators with existing strengths in other platforms (TV and mobile for example) the opportunity to bundle their core product with broadband, or fixed-line voice, or both. This received fresh impetus with the introduction of changes to the regime for local loop unbundling (LLU) in 2005. LLU gives operators the chance to effectively take over operation of local exchange lines from BT, thereby establishing a unique fixed-line relationship with the consumer. In August 2005, BT voluntarily reduced the fully-unbundled line rental charge from £109 to £80 per annum, and Ofcom subsequently set price ceiling rules to guard against future LLU price increases.

While BSkyB had tried a basic TV/fixed-line bundling strategy in the 1990s by establishing a marketing deal with BT, by 2005 it could use LLU to bypass BT altogether. BSkyB signalled its intention to do just that with its acquisition of Easynet, one of the UK’s largest LLU operators, in October 2005. Other operators that introduced new bundled offers during 2005 and early 2006 include:

• Carphone Warehouse used LLU to offer new subscribers “free broadband for life” provided they took the fixed-line rental plus calls bundle. This offer surpassed the company’s expectations, with over 340,000 new subscribers pre-ordering the service in the first eight weeks after the announcement ;
• Orange rebranded its Wanadoo broadband ISP and began to offer ‘free broadband’ to customers who spent more than £30 each month on an Orange mobile contract;
• O2 appeared to follow suit by acquiring LLU operator Be in June 2006;
• BSkyB announced the introduction of ’free broadband’ for all of its pay TV subscribers in July 2006;
• BT trialled a fixed/mobile offering in 2005; and
• Ntl acquired Virgin Mobile in early 2006, giving it the potential capability to offer ‘quad-play’ services: TV, fixed voice, mobile and broadband.

We may see bundling becoming more ‘intelligent’ – meaning that there is some level of true service convergence, rather than a series of stand-alone services being offered under the same marketing and billing umbrella. For example, mobile/broadband bundles could make it possible for subscribers to remotely access their central email and diary functions more seamlessly, regardless of whether they were at their PC or away from home using their mobile device. The evolution of TV over broadband also brings a potentially new element to the bundling product set.

• Overview - The year in communications

Back to top