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Key facts

Radio

• Cheapest portable DAB radio set falls below (GBP) £50 for the first time
• 12 applications for new FM licence in Edinburgh; four for Blackburn; six for Ashford ( Kent)

Telecoms

• UK broadband subscribers pass 5m; penetration now ahead of Germany
• Fixed lines with CPS pass 4m; BT’s share of fixed voice calls falls to 55%
• Fixed voice and access falls to 30% of total end-user telecoms spending
• 84% fixed line and 87% mobile customers satisfied with level of service
• Business users spend (GBP) £1bn on fixed data services and (GBP) £100m on mobile data services every quarter.

Television

• Digital penetration exceeds 55%
• Freeview adds 400,000 households in Q2 2004; cable / satellite add 135,000
• Digital channels account for greater share of viewing than either BBC ONE or ITV1 in Q2 – first time this has happened on a quarter-by-quarter basis
• Viewing of main five channels accounts for more than 80% of viewing in the South West of England but just 65% in Wales
• ITV1’s share exceeds BBC ONE’s in Northern Ireland and the Scottish Borders but is less in every other region

Introduction

This is the first in a series of quarterly supplements to Ofcom’s annual Communications Market reports, the first of which was published in August 2004.

The Communications Market supports Ofcom’s objective to provide best-in-class research to which stakeholders have regular access. It aims to give a comprehensive picture of the radio, telecommunications and television sectors, with a round-up of recent developments and the latest available data on:

• Industry size, structure and financing;
• Availability, penetration and use of products and services;
• Consumer attitudes and behaviour.

In addition, we take a closer look at some emerging themes in each sector:

• The London radio market and the pointers it may offer the rest of the UK;
• UK broadband internet connections passing 5 million;
• Regional differences in television viewing.

The August release of our annual Communications Market report meant that the key radio listening data for the second quarter of 2004 was included in that publication. Ongoing listening data will be included in these quarterly reports from January.

Note that 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.

Ofcom welcomes comment on the content and style of the Communications Market to help inform future publications. Suggestions and queries should be sent to market.intelligence@ofcom.org.uk.

Executive summary

Radio

The last couple of months have signalled a period of potential change across the UK radio industry. Capital and GWR have announced their intention to merge, Channel 4 has indicated an interest in radio and Rajar has announced potential changes to the audience measurement system. Whilst this has been going on the new radio licence award process has got under way and digital radio growth has continued. All of these are examined in more detail below.

The final chapter of this update looks in more detail at what the UK may learn from the highly developed London radio market. The most surprising lesson may be that more choice does not automatically lead to more listening. While Londoners do have more choice they listen to less radio than the rest of the country, with the BBC stations losing relatively the most share.

Telecommunications

During September the number of UK broadband connections passed the 5 million mark. The number of new subscriptions added each week remains at around 50,000 and the UK has now overtaken Germany in terms of broadband penetration.

The total number of DSL subscribers also reached a significant landmark during the last quarter with BT announcing 3 million DSL connections, either to its own retail service or to that of other service providers.

In September, BT confirmed details of the latest reduction in the price of unbundled local loops (LLU). These cuts have been followed by investment commitments and announcements of new LLU-based services from Cable & Wireless and ntl among others.

Take-up of carrier pre-selection (CPS) services (e.g. TalkTalk from Carphone Warehouse or One.Tel from Centrica) continues to grow. At the end of September there were 4.2 million lines with CPS, up from 3.7 million in June, representing some 15% of all BT lines. At the end of August there were also nearly 300 service providers offering fixed telecoms services. Mainly as a result of growth in these services, BT’s share of fixed voice volumes fell from 56.7% to 55.4% in the three months to June.

3G mobile services also reached a significant landmark in the last quarter with 3UK announcing over 1 million subscribers. Ofcom has completed consumer research into the demand for advanced mobile services such as video and music playback; while current use remains low there are signs of growing interest, particularly among traditional early technology adopters. Overall mobile revenues grew by 4% in the quarter with data services now accounting for 17% of all revenues.

Ofcom has commissioned further research to improve its understanding of the corporate data services market. Corporate data services represent around 12% of all end-user spending on telecoms and form a significant revenue stream for many fixed network operators and service providers. Growth in bandwidth and the number of broadband connections is currently offsetting the decline in dial-up and leased line internet connections. Managed IP VPN (Internet Protocol Virtual Private Network) and ethernet services are also showing strong growth.

Consumer use of telecoms services is still evolving. Average fixed voice telecoms use continues to decline slowly, despite increased price competition and a record number of consumers using non-BT services. The average number of mobile voice calls also failed to show any signs of a significant increase in the three months to June, although the total proportion of voice calls made from mobile phones grew slightly over the same period. This was despite an increase in the average price differential between mobile and fixed calls.

The average number of SMS message per active customer also remained flat quarter on quarter, although up year on year. MMS use per customer doubled over the quarter but overall use remains small. Household internet penetration increased from 54 to 56% in the quarter, although the average amount of time spent on line did not change significantly over the same period. This is thought to reflect the majority of dial-up migrations being from unmetered customers.

The proportion of SMEs with an internet connection has increased only slightly over the past six months. But there has been a significant increase in more advanced internet services and over 50% of business internet users now have a broadband connection.

Television

Digital TV penetration continues to grow rapidly. As at the end of June, more than 55% of UK households were equipped to receive digital services; Freeview added 400,000 DTT households in the second quarter, while cable and satellite added 135,000 pay-TV subscribers.

Satellite platform operator BSkyB has launched a drive for new subscribers, including a relaunch of the Sky brand, a renewed focus on the depth and breadth of its service, continued investment in ‘must-see’ programming and an enhanced Sky+ box. The company also announced the launch of a free to view satellite service.

Broadband TV is starting to grow, albeit from a low base. Homechoice launched a major new marketing campaign and expanded its coverage. It claims that its network can now reach 1.25 million people in London, with further expansion planned. BT, Wanadoo and ntl also have TV over DSL services planned.

A range of new services launched on Freeview, including ABC1 (Disney’s daytime service), Ideal World and several radio stations. ITV3 and More4 expect to launch on the digital terrestrial platform, in November and 2005 respectively. New services launched on satellite include The Move Channel, The Advert Channel and Racing UK.

ITV plc, SMG and UTV all announced growth in their half-year results, but ITV1 continues to face growing competition from multichannel services. Its share of commercial impacts was down 7% in the first half of 2004, compared to the same period in 2003.

Viewing of the digital channels, in total, exceeded both BBC ONE’s and ITV1’s audience share in the second quarter of 2004 – the first time this has happened on a quarter-by-quarter basis. However, the two main channels continue to dominate peak-time viewing.

ITV1’s and BBC TWO’s audience share declined on all platforms in the second quarter of 2004. Overall, BBC TWO has suffered most from increasing digital take-up, with more than half of all multichannel homes watching less than 15 minutes of the channel in an average week in June 2004.

Viewing of the digital-only channels is highest in Wales, where they accounted for almost 35% of total viewing in the second quarter of 2004. Digital-only viewing is lowest in the South West of England (18%).

The BBC’s channels received their highest share of viewing in the second quarter in the South West, the South and East of England. ITV1 performed best in the Scottish Borders, Northern Ireland, the North West and Yorkshire. Channel 4 was strongest in the South West and South. Five achieved its highest share in Scotland, the Midlands and the North-East.

The full document is available via the link below

• Quarterly Update October 2004 [pdf]
• The Communications Market - Telecommunications Appendicies [pdf]
  Appendix 1 - Fixed telecoms market data tables
  Appendix 2 - Mobile telecoms market data tables

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