Home > Research and Market Data > Communications Market Reports > ICMR 2006 > Overview > 1.3 The UK in context

In this section we summarise the information that appears in much of this report to show how the UK sits alongside our comparator countries in terms of availability, take-up, services and pricing.

Figure 1.12: Key communications market indicators

1.3.1. Digital platforms are becoming widely available throughout the world

In the 2006 UK Communications Market Report we highlighted the growing availability of a variety of digital broadcast, telecoms and online services. This is clearly a pattern being mirrored across the globe.

Television programmes can now be watched online and via mobiles in several countries including the US, Germany, France and the UK, while digital satellite and cable television platforms are available in the majority of territories in our analysis. The timing and speed of digital terrestrial television (DTT) adoption has varied by country; the platform was launched in the late 1990s in the US, the UK and Sweden. At the end of 2005, Sweden had the most extensive DTT coverage for a single multiplex (93% of the population), while Spain and the UK followed with around 80%. China, Poland and the Republic of Ireland have yet to launch DTT. (Coverage by all six multiplexes available in the UK currently stands at 73%).

Digital radio services are also available across the globe, delivered over a range of platforms and technologies. Digital Audio Broadcasting (DAB) was first launched in the UK in 1995, and then in Germany in 1999. At present, DAB services can also be accessed in Italy, China and Japan, although roll-out has stalled in Sweden, where there were complaints of insufficient availability of receivers. Germany and the UK have the highest DAB population coverage of the countries examined (85% and 82% respectively), while China has the lowest (2%), although it has announced plans to launch a wider roll-out in time for the 2008 Beijing Olympics. Digital satellite radio was launched in the US in 1998, with subscription-based services from Sirius and XM, which offer some advertising-free stations.

Digital Satellite radio is also available in Africa, South East Asia and parts of Europe through Worldspace, which has announced its intention to expand to the US and Europe. As the US military was using the spectrum which is required by the DAB broadcast protocol, the country developed an alternative standard, introducing Hybrid Digital (HD) radio in 2002. Thus far, there has been little adoption of HD radio in other countries, but it is expanding within the US and now broadcasts 1,015 stations.

In mid-2003, 16 stations broadcasting via Digital Radio Mondiale (DRM) technology went to air during the World Radiocommunications Conference in Geneva. Over 100 services now broadcast using this technology across Europe, the US, China and North Africa. In addition, the internet is emerging as an important delivery platform for audio, offering live radio, radio-on-demand and downloadable programmes.

Broadband availability was high among all of the territories for which figures were available. Sweden and Germany had the lowest availability; however, 90% of their citizens were still able to subscribe to broadband services. A report published in March 2006 by Ovum and the DTI showed that the UK had the highest broadband availability of the countries in our analysis, at just lower than 100%; according to BT, 99.6% of UK premises are now connected to a DSL-enable telephone exchange at 512kbit/s or above.

With the exception of China, fixed-line telephony is available to almost every household in each country in this study, while mobile networks typically cover around 90% of the population. 3G mobile networks are currently being rolled out in many nations and comparable availability measures have not yet been developed, although the UK appears to have one of the more extensive networks.

The number of WiFi hotspots, which offer localised internet access, has recently started to grow, with hotspots now available in most major cities in the developed world. The US offers the largest number, 26,002 in Q1 2006, followed by the UK, France, Germany and Japan, with between 6,796 and 10,667 each. When measured by population, however, the Republic of Ireland and the UK have the most saturated hotspots market, with around 18 per 100,000 people, followed by France (16), Germany (11) and the US (9).

1.3.2 Proliferation of TV channels, radio stations and new services

Digital technology has brought greater choice in broadcast services in the UK and as a nation we remain at the vanguard of many new digital technologies and services. However, innovation is springing up all over the world and most countries are following a pattern of fixed to mobile substitution and rapid DSL broadband growth.

The switch to digital has increased the number of radio services offered in most countries, with 300 - 500 stations now the norm, while the US has almost 9,000. Similarly in television, digital satellite and cable platforms in several countries offer upwards of 250 channels. Many of these are pay services, but digital technology has also increased the number of free-to-view channels available, particularly on terrestrial television. In France six channels were previously broadcast using analogue signals but this rose to 18 with the advent of DTT, while in the UK five terrestrial channels became more than 30.

Traditional analogue broadcasters are adapting their business models in many countries, launching new pay channels, for example NBC with Bravo and CNBC in the US, or moving existing channels from pay to free platforms, as Channel 4 did with Film 4 in the UK. In addition, new services are emerging that exploit the opportunities afforded by digital technology, thereby generating alternative revenue streams. Pay-per-view (PPV) was widely deployed in the early days of digital television, and now content delivered on demand and internet protocol television (IPTV) services are beginning to take shape.

High definition television (HDTV or HD) is also becoming widely available across the globe. Japan launched the first service in 1985 on analogue terrestrial television and the US broadcast the first digital HD service in 2000, offering 30 national HD channels by 2005. In Europe, the technical viability of offering HD via DTT is currently being explored, with pilots launched in Sweden in 2005 and in London in mid-2006.

Given the infancy of HDTV, levels of consumer interest remain relatively untested and business models are still unfolding. Some interesting developments are, however, emerging; in Germany, for instance, Premiere has introduced new tariffs which make it less costly to access HD services.

In telecoms, services that have emerged recently include Voice over Internet Protocol (VoIP), which is already having an impact in many markets; in Japan 9% of the population use the internet to make calls to fixed lines. In addition, a range of advanced mobile services are now available in several territories, including the UK, which can automatically determine the location of a caller and provide a list of nearby retailers of specified types.

1.3.3 Take-up of digital services is growing in most countries

The combination of increased availability, greater choice of services and innovative new communications products has been widely embraced in the UK. But, to varying degrees, digital take-up is increasing in all of the countries in this analysis.

Television reception methods vary by country, but digital take-up is increasing

Countries vary significantly in their adoption of different delivery platforms (Figure 1.13). The UK, the US and Japan rely most heavily on digital distribution (via satellite, cable and DTT), as the drive to digital switchover gathers pace. A majority of homes in some countries, however, still rely on analogue terrestrial television (ATT), for example Italy (66%), China (63%), Spain (60%) and France (58%). Digital terrestrial television has been introduced in the majority of countries in our review, although not yet in the Republic of Ireland, Poland and China.

Unlike the UK and France, countries such as the Netherlands, the US, Germany and Sweden rely predominantly on cable distribution, both digital and analogue, with over half of their homes using the platform.

Figure 1.13: Reception devices connected to the main television set
Proportion of homes (%)

Source: IDATE

While a number of countries, such as France, Italy and the UK, rely more on free-to-view services than pay, others, most notably the US, have a majority of pay subscribers. (In Germany and the Netherlands, cable operators offer ‘utility access’ to ‘free-to-view’ channels for a small monthly fee; this is sometimes counted as ‘pay TV’ but does not conform to our definition, which concerns the provision of ‘premium’ channels).

As with television, radio sets are widely available in most homes. France has an average of six sets per household, the UK has five, while China has one. Given the comparatively recent emergence of digital radio platforms, little cross-country data on DAB take-up is available, although 3.5 million sets had been sold in the UK as at August 2006, equating to around 11 per cent of households. Meanwhile, high-powered satellite radio, delivering services to dedicated sets which contain embedded conditional access without the need for a reception dish (though still requiring an antenna), appears to be gaining ground in the US. Sirius and XM had attracted around 12 million subscribers by July 2006, while Worldspace has a little over 100,000 subscribers in Africa, South East Asia and parts of Europe.

Users are substituting mobile for fixed-line telephones

The number of fixed lines has been declining slowly in the majority of countries we have examined, while the number of mobile subscriptions has been increasing. The decline was largest in the US, where fixed lines were down 6% between 2000-2005, which was offset by a 63% rise in mobile subscriptions over the period. Germany and the UK had fixed-line falls of 14% and 11%, and mobile increases of 43% and 46%, respectively.

China bucks this trend, with around a 50% rise in the number of fixed lines between 2001 and 2005. This stems from the relatively low base of lines installed before 2000 – and even in 2005, with the largest number of lines (267 million) in the world, China has the lowest fixed line penetration at 27 lines per hundred population. This contrasts with Sweden, which had the highest number of lines per hundred people of the countries surveyed at 69 and the UK, which falls slightly above average (56 lines).

Similarly, the sheer size of the Chinese population meant it had the most mobile subscriptions (374 million) but had among the lowest population penetrations (29%) of the countries examined. By 2005, Italy, Spain, Ireland and the UK all had more mobile subscriptions than inhabitants, implying a growing number of users with multiple subscriptions. This is partly because of a rise in the take-up of secondary business mobiles but could also be the result of consumers using alternative pre-pay subscriptions at different times of the day according to tariff availability.

There is significant variation between countries in the ratio of pre-pay (pay-as-you-go) to post-pay (contract) mobile use. For instance, in 2005 over 90% of Italians pre-paid for their mobiles, whereas nearly all Japanese and Americans used post-pay contracts. In the UK, nearly 70% of mobile users had pre-pay contracts.

3G mobile services appear to be gaining ground now in many countries – NTT DoCoMo in Japan was the first to launch a large-scale commercial offering and has nearly three times as many subscriptions (29 million) as Italy which was second with 10.8 million in 2005. Germany counted over five million and the UK around 4.6 million, while China has yet to launch 3G services.

When measuring 3G as a proportion of total mobile connections a similar picture emerges, with Japan leading with a share of 32%, ahead of Italy at 15% - the UK stands at 9%. In population terms, however, the penetration gap narrows – with Japan at 22.7% and Italy at 18.6%, and the UK lower with 10%.

Broadband penetration is rapidly increasing, particularly DSL

Broadband take-up is also increasing rapidly across the countries examined; the US had the largest number of connections at 44.9 million in 2005, closely followed by China with 40 million (up from just one million in 2001). The UK had ten million broadband connections by 2005, growing at a rate of 27% between 2001 and 2005.

The penetration of broadband connections per 100 people similarly grew between 2001 and 2005. The Netherlands saw the greatest increase in connections (49% over the period), followed by Japan and the UK (both 38%). The countries with the highest penetration rates were the Netherlands (58%), Sweden (45%) and Japan (44%).

The platform over which broadband internet is received varies significantly by country, although there is a trend away from using cable modems and towards DSL, largely owing to wholesale price decreases for bitstream or LLU, thereby encouraging competitive broadband operators to enter the DSL market. In Germany, Deutsche Telekom, which originally owned both the cable and fixed line networks, chose to invest in the latter – and practically all broadband connections there were via DSL in 2005, as were around 94% of those in France and Italy. By contrast, cable still has a strong role in the US (55% of connections), the Netherlands (39%), Poland (35%) and the UK (27%).

1.3.4 Watching TV programmes remains a key leisure activity

Television and radio consumption varies by country but everywhere broadcasting plays a hugely significant role in the leisure activities of the average citizen (Figure 1.14). The Japanese and Americans view the most, at 311 and 271 minutes per day respectively, whereas China consumes the least at 154 minutes (2.6 hours). The UK, too, has relatively high viewing of TV at 219 minutes, and leads the group of countries in this analysis in terms of radio listening at 195 minutes per day, followed by France (177 minutes) and Germany (171 minutes). The Chinese listen the least (89 minutes), reflecting the lower penetration of radio sets.

Figure 1.14: Daily consumption of broadcasting services
Minutes per day

Source: Ofcom

Consumers spend far less time talking on the telephone than watching TV or listening to the radio. However, consumption is growing here too; between 2001 and 2005 mobile call volumes grew rapidly, fuelled by both increasing numbers of subscriptions and a rise in use per subscriber, with average use of between four and eight minutes per day across the countries covered. Fixed call volumes remained broadly flat, despite falling prices, leading to average landline use of between one and four minutes.

1.3.5 A new approach to international price benchmarking

As part of our original research for this publication, we conducted a price benchmarking analysis using a new methodology. We believe our approach better reflects the prices consumers actually pay, because it takes into account both bundled service packages and connection/equipment costs.

Basic methodology

For our benchmarking project, we constructed four household types, each with different usage and device ownership patterns:

• Household 1 consisted of two high users, with high use of voice within the home, two above-average-use mobile contracts, high-speed broadband, premium pay TV with sports and movies. This household also owned a premium LCD flat screen TV and a regular TV, and both a high-end home computer and a second basic PC.
• Household 2 represented a family of two adults and two teenage children, with average home voice usage, one contract mobile service and two pre-pay, basic pay TV and basic broadband. This household owned two PCs and three TVs (one of them premium).
• Household 3 was a lower user household, with low in-home voice usage, one pre-pay mobile, dial-up internet and free-to-air DTV. It owned one basic PC and two basic TV sets.
• Household 4 represented a very low user group, with only basic in-home voice needs, no internet use, and free-to-air TV. This household owned one TV and no PCs.

We have analysed five countries: the UK, France, Germany, Italy and the US. (We did not analyse Japan and China, largely owing to the difficulty of obtaining English language tariff information in the available timeframe). For each of the countries, we gathered tariff information (as of September 2006) across all communications services – including bundled tariffs where they were available and appropriate. We generally collected tariffs for two or three major operators in each communications sector (or cross-sector where bundles were involved). In this way, we intended to capture real-world tariffs that were available and being used by significant proportions of the population in each country. We chose not to do an exhaustive search of all possible tariffs, both because the tariffs of the major operators capture the prices paid by the largest subscriber bases in each country and also because they reflect price competition lower down the market share scale. We therefore feel that our results are broadly reflective of the state of prices in each market.

Having collected tariffs, we then matched usage patterns to these tariffs by country. For each household type, we selected the tariffs that met these usage patterns for the lowest price, using bundles where appropriate. As an example, our approach allowed us to use ‘triple-play’ cable TV / broadband / fixed-line for higher-use households, rather than stand-alone services.

In addition to service tariffs, we also examined equipment costs, amortised over a product lifecycle, as part of a ‘total cost of ownership’ approach. This is particularly important in the area of mobile telecoms, where operators in some countries typically subsidise handsets to attract new customers – these are then effectively ‘recouped’ through tariff payments through the life of the contract. In other countries, by contrast, mobile operators do not (or in some cases are not permitted to) subsidise handsets: the consumer therefore buys them at retail cost, and the operator has no commercial need to recoup a subsidy via the tariff. This anomaly means that a simple comparison of tariffs can be misleading; we believe our approach helps to eliminate this disparity. We chose to amortise mobile handsets over a two-year lifecycle; evidence comparing European mobile handset sales in 2005 with the installed subscriber base (making adjustments for new subscribers) suggests that this is a fair amortisation period.

As well as mobile handsets, we have also considered other communications equipment, chiefly home computers, set top boxes/modems, and TV sets. All of these products are critical enablers of their relevant communications services, and should, we feel, form part of the total cost of ownership model. These costs were also amortised over suitable periods (again, see Appendix A for details). For the purposes of this report, we have not calculated an annuity to represent the equipment costs – rather, we have used a simple unadjusted straight-line amortisation. In future versions, we intend to calculate the relevant annuities.

One last factor that we considered was also mobile-specific: we made allowances for the ‘called party pays’ mobile pricing approach used in the US (and a handful of other countries). We captured this through allowing for variations in both mobile-to-fixed and fixed-to-mobile prices within each household bundle (a fall in one tends to be cancelled out by a rise in the other).

Note that we have converted prices back to GBP, using a comparative price level adjustment. Monthly comparative price levels are defined as the ratios of PPPs (purchasing power parities) for private final consumption expenditure to exchange rates. This represents the number of specified monetary units needed in each of the countries listed to buy the same representative basket of consumer goods and services, relative to any specified country (in this case, the UK). Further information on comparative price adjustment can be found on the OECD website: www.oecd.org. We have also included all sales taxes and other surcharges in our price analysis – this has been done in order to reflect the total prices that consumers actually pay, but obviously does not allow for differences in other areas of personal taxation policy within each country.

Initial results

Figure 1.15 shows the results of our benchmarking exercise, which reflect monthly recurring service costs only. Subject to the methodological caveats outlined above and in Appendix A, the output suggests that the UK sits towards the lower end of the five countries.

Figure 1.15: PPP-adjusted monthly price of communications services, excluding connection/equipment costs

Source: Ofcom

Adding amortised equipment costs and connection fees alters the monthly costs significantly, as shown below in Figure 1.16. When these costs are added, Household 1 in the UK pays a total of around £188/month (compared with £165/month excluding equipment/connection charges). In addition, the combination of lower hardware costs and higher mobile handset subsidies in the UK (particularly compared with other European countries) means that using this ‘total cost of ownership’ measure, Household 1 in the UK pays less per month than any other country in the analysis. This is in contrast to the ‘service-only’ analysis, where UK Household 1 sat in line with France and Italy. Here, the UK also appears to be the cheapest for the lowest users (Household 4).

Figure 1.16: PPP-adjusted monthly price of communications services, including connection/equipment costs

Source: Ofcom

1.3.6 Communications revenues - telecoms biggest but TV growing fast

The UK generated £38bn of communications sector revenue in 2005, making it the fourth largest communications market in the world, and the fourth largest of the countries in this study in terms of revenue per capita. In this section we give a breakdown of revenue and growth for other territories to help place the UK in context.

Worldwide communications revenue totalled £837bn in 2005, having grown at an average annual rate of 5.9% since 2001 (Figure 1.17).

Telecommunications revenue (fixed voice, mobile voice and mobile data and broadband subscriptions) at £649bn, accounted for 78% of the total. Television revenue (advertising, subscriptions and public funding) made up a further 19% (£163bn), with radio (advertising and some subscription revenue) accounting for the remaining 3% (£25bn).

On a global scale, television was the fastest growing of the three industries, with revenue up an average of 7.2% per annum since 2001, comfortably outstripping telecommunications (5.7%) and radio (3.9%).

Figure 1.17: Global communications revenue, 2001 – 2005
Total revenue (£bn)

Source: IDATE DigiWorld, PWC Global Entertainment and Media Outlook andOfcom

Revenue in the twelve countries examined in this study totalled £532bn in 2005, accounting for 64% of the worldwide figure. However, a higher concentration of television and radio revenues among the studied countries means that they capture 85% of television sector revenues and 80% of radio (Figure 1.18). The telecommunications industry is more evenly distributed across the globe so that our comparator countries account for 58% of worldwide telecoms revenue.

Figure 1.18: Revenue distribution between countries in and out of study
Proportion of global revenue (%)

Source : IDATE DigiWorld and PWC Global Entertainment and Media Outlook 2006-2010

Figure 1.19 illustrates the distribution of industry revenue among countries in this study. The US makes by far the most substantial contributions to the radio and television sectors (56% and 54% of total revenue respectively), although in telecommunications it accounts for just 34% of the industry total.

Japan has the second largest television market (with £19.5bn, or 14%, of total revenue) owing to its large population, followed by the UK (£10.6bn or 8%). In radio, the German industry is second largest (£2.2bn) explained by the substantial investment made by the publicly-funded broadcaster ARD in its network of radio stations. Japan comes third with £2bn, followed by the UK at £1.2bn in 2005.

In telecoms, Japan and China attract the largest revenues after the US (£75.4bn and £36.4bn), followed by Germany (£31.9bn), Italy (£25.4bn) and the UK (£24.8bn).

Figure 1.19: Proportion of revenue accounted by the countries in this study
Breakdown of revenue by countries analysed

Source :IDATE DigiWorld / PWC Global Entertainment and Media Outlook 2006-2010 / IDATE / Ofcom / estimates based on national regulator data
Note: telecoms revenue in this chart excludes corporate, value-added and dial-up internet service revenue as comparable data was not available for all countries; ‘Other’ includes Poland, the Netherlands, Sweden and Ireland.

On a per capita basis, Figure 1.20 shows that Japan emerged as the country with the highest annual communications revenue in 2005 (£758 per head per annum). The US came a close second with £715 followed by the Republic of Ireland with £660, perhaps explained by the country’s current economic buoyancy. China and Poland, with £31 and £166 respectively, were the countries in this survey with the lowest per capita revenue by a considerable margin.

Japan’s high overall communications revenue is driven by its position as the country with the highest per capita telecoms revenue, with the Republic of Ireland coming second at £520. Telecoms revenue per head among the remaining countries all fell in the range £356-£450.

Greater variance was found in the revenue per head in the television industry, where the US was highest, at £252 per annum, followed by the UK with £164 and Japan with £152. The remaining countries (except China and Japan) generated per capita television revenue in the £77 - £118 range. China and Poland once again were lower, with £3 and £41 respectively.

Figure 1.20: Communications revenue generated per capita
Revenue generated per capita (£)

Source :IDATE DigiWorld / PWC Global Entertainment and Media Outlook 2006-2010 / IDATE / Ofcom / estimates based on national regulator data

While China’s current total communications industry revenue is low, all three sectors have shown considerable capacity for expansion, with growth in the 13% - 19% range over the period 2001 – 2005, compared to 5% for the UK (Figure 1.21). All other countries have experienced a less even pattern of growth between the sectors that make up the communications market. For example:

• Telecommunications has been the fastest growing communications sector in France, Germany and Spain;
• The television industry has been the fastest growing communications sector in the US, Ireland and the Netherlands; and
• Italy and Sweden have seen significant growth in both television and telecommunications.

With the exception of China, Poland and Ireland, the radio industry has seen more modest growth than the other parts of the communications sector in each country, perhaps starting to feel the impact of online advertising.

Figure 1.21: Annual growth across communications industries, 2001 - 2005
CAGR 2001 – 2005 (% p.a.)

Source :IDATE DigiWorld / PWC Global Entertainment and Media Outlook 2006-2010 / IDATE / Ofcom / estimates based on national regulator data

Finally, there is some variation to the overall contribution made by the communications industries to each country’s economy (Figure 1.22). At 4.3% of GDP, China’s communications market has a significant impact on the Chinese economy as it does in the UK at 4.1%. Japan and Poland (3.8% and 3.9%) also make a significant contribution; in the remaining countries, communications revenues make up between 2.4% and 3.3% of total GDP.

Figure 1.22: Communications revenue as a proportion of GDP
Proportion of GDP (%)

Source: IDATE DigiWorld / PWC Global Entertainment and Media Outlook 2006-2010 / IDATE / Ofcom / estimates based on national regulator data

1.3.7 The global market for advertising expenditure reached £251bn in 2005

Advertising expenditure globally reached £251bn in 2005, and the market has expanded at an average annual rate of 8% since 1996 (Figure 1.23). Television advertising accounted for 45% (£112bn) of total spend, while radio took a further 8% (£19bn). However, the big growth medium is the internet, where advertising has grown at an average of over 60% per annum for the last ten years, and stood at £12bn in 2005.

Figure 1.23: Global advertising expenditure in 2005

Source: WARC 2006

The US market for advertising is the largest of the countries in this study, accounting for 34% (£86bn) of the global total in 2005. Japan ranked second with 8% (£19bn) while the UK came third with 8% (£14bn).

Although the Polish market is currently relatively small, it is expanding rapidly, notching up annual growth of 22% since 1996. In the Republic of Ireland, too, advertising spend has grown substantially over this period (11% per annum) benefiting from a buoyant economy. At the other end of the spectrum, the Japanese and German advertising markets have grown more slowly since 1996 (1.7% and 0.2% per annum. respectively), reflecting more subdued economic performance.

Adjusting for population size reveals that the US still occupies the top position with the largest market for total advertising revenue (Figure 1.24). The UK ranks second, matching the US on a per capita basis for print and internet; the difference between the two is explained mainly by smaller per capita contributions from TV and radio in the UK.

Figure 1.24: Advertising revenue per capita

Source: WARC 2006 and Ofcom analysis

Spend by medium varies by country, reflecting, among other things, differences in reach. In Germany, the Netherlands and Sweden, spend on print advertising dominates, with television ranking second (Figure 1.25). Italy, Japan, Poland and Spain offer a contrast, with television taking first place, followed by print. A more equal distribution of revenue between print and television is found in the US and France.

The internet takes a larger proportion of advertising spend in the UK than in any other country in this analysis (around 10% in 2005). At the same time, UK radio is notable for making one of the smallest proportionate contributions.

Figure 1.25: Advertising expenditure by medium, 2005

Source: WARC 2006 and Ofcom analysis

• 1.4 The regulatory landscape

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