| KN32042 |
| KEY NOTE Telecommunications : October 2002 |
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This report covers: telecommunications, fixed-line services, cellular services, residential telecommunications, business telecommunications, fixed telephones, exchange lines, cellular telephony, telex, private leased line, terminating calls, local calls, national calls, international calls, calls to mobiles, special local rate, party, payphones, premium rate, DQ/IDQ, freephone, chargecard calls, VPN OFFNET calls, paging operators, speaking clock, phonebase, connections, subscribers
Companies covered include: British Telecommunications, Cable & Wireless, NTL Group, Orange Personal Communications Services, Telewest Communications, T-Mobile (UK) Retail, Vodaphone Group, MM02 PLC, WorldCom, Kingston, 02,
EXECUTIVE SUMMARY
| The UK telecommunications market was valued at £24bn in the year ending March 2002. Key Note expects this will grow to £25.3bn in the year ending March 2003. Market growth has slowed significantly in recent years, reflecting slower UK economic growth and the continued downward pressure on prices in an intensely competitive market. |
| The telecommunications market splits into two broad sectors: the fixed-line market and the cellular or mobile market. The fixed-line market itself traditionally divides into call revenues and exchange line revenue. The year ending March 2002 was the first in which cellular revenue exceeded fixed-line call revenue although, if exchange lines are included within this subsector, the fixed-line market still generates over 50 percent of industry sales. Mobile revenue, however, is the most dynamic sector of the market, along with areas of the fixed-line market related to data rather than voice transfer (e.g. Internet traffic, virtual private networks [VPNs]). |
| The telecommunications market continues to face a number of serious challenges in 2002. While the market benefits from factors such as the shift towards the mobile and information society, and the resulting growth in data and cellular traffic, the industry is caught in a serious financial crisis. Major telecommunications groups (such as BT, NTL and Telewest) have accumulated huge debts and have had to take drastic action, such as asset disposals and financial restructuring, to cope. This situation is not helped by an intensely competitive market which is seeing end-user prices falling in real terms, given moves to make the market more competitive, including the unbundling of the local loop. The result has been lower levels of customer loyalty to telecommunications providers, as company managers become cautious about signing up to new services from certain operators who may be subject to bankruptcies, splits and takeovers. Consequently, many companies are signing up with multiple service providers and negotiating get-out clauses in their contracts. |
| This situation stems fundamentally from an over optimistic view of the industry's growth potential in the late 1990s. The mobile sector, in particular, is saddled with a huge accumulation of debt taken on to finance third-generation (3G) licences. In 2002, cellular operators are planning the launch of 3G services but are being cautious about the timing of the launch and the likely price structure. There are a number of issues to be resolved, such as how 3G services will be charged when most customers use pre-paid tariffs. |
| In the period to 2007, Key Note expects cellular and data services (especially IP [Internet protocol] networks) to continue to grow at a much stronger rate than the rest of the telecommunications market. Overall, telecommunications revenue is expected to show improved rates of growth compared with 2001 and 2002, reflecting improved and stable economic conditions in the UK. |
TABLE OF CONTENTS
| 1. Market Definition | |
| REPORT COVERAGE | 2 |
| MARKET SECTORS | 2 |
| Fixed-Line Telephony | 2 |
| Cellular Telephony | 3 |
| Residential Telecommunications | 3 |
| Business Telecommunications | 3 |
| MARKET TRENDS | 3 |
| The Rise of the Information Society | 3 |
| Lower Call Charges | 4 |
| The Mobile Society | 4 |
| Business Technology Enters the Home | 5 |
| More Competition | 5 |
| Convergence | 5 |
| MARKET POSITION | 6 |
| The UK | 6 |
| Table 1: Telecommunications as a Proportion of the Total UK Information and Communications Technology Market by Sector ( percent), 1998-2002 | 6 |
| Overseas | 6 |
| Table 2: The Global Telecommunications Market by UK Share ( percent), 1998-2002 | 7 |
| 2. Market Size | |
| THE TOTAL MARKET | 8 |
| Table 3: The UK Telecommunications Market by Sector by Value (£bn), 1998/1999-2002/2003 | 8 |
| Table 4: The UK Telecommunications Market by Sector by Volume (million call minutes), 1998/1999-2002/2003 | 9 |
| CELLULAR TELEPHONY | 10 |
| Call Revenues | 10 |
| Table 5: The UK Cellular Telecommunications Market by Value (£m), 1998/1999-2002/2003 | 10 |
| Call Minutes | 11 |
| Table 6: The UK Cellular Telecommunications Market by Volume (million call minutes and million subscribers), 1998/1999-2002/2003 | 11 |
| Market Shares | 12 |
| Table 7: The UK Cellular Market by Market Share ( percent), Year Ending March 2002 | 12 |
| FIXED-LINE TELEPHONY | 12 |
| Call Revenues | 12 |
| Table 8: Call Revenues for Fixed-Line Telephony by Type of Call by Value (£m), 1998/1999-2002/2003 | 13 |
| Call Minutes | 13 |
| Table 9: Call Minutes for Fixed-Line Telephony by Type of Call (million call minutes), 1998/1999-2002/2003 | 14 |
| Market Shares | 14 |
| Table 10: Fixed-Line Telephony Call Revenue and Call Minutes by Company Share ( percent), Year Ending March 2002 | 15 |
| Table 11: Fixed-Line Telephony Call Revenue and Call Minutes by Target Market ( percent), Year Ending March 2002 | 15 |
| Exchange Lines | 16 |
| Lines Installed | 16 |
| Table 12: Number of Fixed Exchange Lines and Revenues from Connections and Line Rental (000 and £m), 1998/1999-2002/2003 | 17 |
| Call Minutes | 17 |
| Market Shares | 17 |
| Table 13: The Exchange Line Market by Market Share ( percent), Year Ending March 2002 | 18 |
| 3. Industry Background | 19 |
| INTRODUCTION | 19 |
| Recent History | 19 |
| NUMBER OF COMPANIES | 20 |
| Table 14: Concentration in the Telecommunications Industry by Turnover Sizeband (number of enterprises and percent), 2002 | 20 |
| EMPLOYMENT | 20 |
| Table 15: Number of Employees Engaged in UK Telecommunications (number of employees), Years Ending March 1997 and 1999-2002 | 21 |
| DISTRIBUTION | 21 |
| HOW ROBUST IS THE MARKET? | 21 |
| LEGISLATION | 22 |
| EU Directives | 23 |
| KEY TRADE ASSOCIATIONS | 24 |
| The Communications Management Association | 24 |
| Federation of Communication Services | 24 |
| The Institution of Electrical Engineers | 25 |
| The Institution of Electronics and Electrical Incorporated Engineers | 25 |
| Intellect | 25 |
| Office of Telecommunications | 26 |
| The Radiocommunications Agency | 26 |
| The Telecommunications Industry Association | 26 |
| The Telecommunications Users’ Association | 27 |
| Exhibitions and trade Shows | 27 |
| 4. Competitor Analysis | |
| THE MARKETPLACE | 29 |
| MARKET LEADERS | 29 |
| BT Group PLC | 29 |
| Cable and Wireless PLC | 31 |
| MMO2 PLC | 32 |
| NTL Group Ltd | 33 |
| Orange Personal Communications Services Ltd | 34 |
| Telewest Communications PLC | 34 |
| T-Mobile (UK) Ltd | 35 |
| Vodafone Group PLC | 36 |
| OUTSIDE SUPPLIERS | 37 |
| Telecommunications Equipment Manufacturers | 37 |
| The Dry Battery Industry | 38 |
| The Electronic Component Industry | 38 |
| The Cable Industry | 38 |
| ADVERTISING AND PROMOTION | 39 |
| Table 16: Main Media Advertising Expenditure on Residential and Business Telecommunications Services by Subsector (£000 and percent), Year Ending June 2002 | 39 |
| Table 17: Main Media Advertising Expenditure on Residential and Business Telecommunications Services by Company Category (£000), Year Ending June 2002 | 40 |
| 5. Strengths, Weaknesses, Opportunities and Threats | |
| STRENGTHS | 42 |
| WEAKNESSES | 43 |
| OPPORTUNITIES | 43 |
| THREATS | 43 |
| 6. Buying Behaviour | |
| IMPORTANCE OF RESIDENTIAL AND BUSINESS USERS | 45 |
| Table 18: The Residential and Business Market by Value | |
| (£m and percent), Year Ending March 2002 | 45 |
| CUSTOMER PROFILE | 45 |
| The Residential Market | 45 |
| Table 19: Ownership of Telephone Lines Among Residential Customers (000 and percent), 2001 | 46 |
| Table 20: The Penetration of Fixed and Mobile Telephones in UK Homes ( percent), May 2002 | 46 |
| Table 21: Residential Telephone Usage by Destination of Calls Made Per Week ( percent), 1996, 1997, 1998 and 2001 | 47 |
| Table 22: Mobile Tariffs Used by Residential Cellular Subscribers ( percent), May 2002 | 48 |
| Table 23: Residential Telephone Usage by Number of International Calls Made Per Month ( percent), 1997, 1998, 1999 and 2001 | 48 |
| The Business Market | 49 |
| Table 24: UK Small- and Medium-Sized Business Use of Fixed Lines by Business Size ( percent), May 2002 | 49 |
| Table 25: Business Telephone Usage by Number of Calls Made Per Week ( percent), 1997, 1998, 1999 and 2001 | 51 |
| 7. Current Issues | |
| TELECOMmunications MELTDOWN | 52 |
| 3G ROLL-OUT | 53 |
| The SEARCH FOR NEW CELLULAR SERVICES | 54 |
| How to Launch Next-Generation Services? | 54 |
| UNBUNDLING THE LOCAL LOOP | 55 |
| Table 26: Current State of Local Loop Unbundling in the UK, April 2002 | 56 |
| Broadband (Asynchronous digital subscriber lines) | 57 |
| Table 27: The Roll-Out of Broadband (number of BT exchanges enabled to deliver ADSL), July 2000 to March 2002 | 57 |
| Oftel Open the Local Loop — 1999 | 58 |
| Unified Telephone Charges | 58 |
| 8. The Global Market | |
| INTRODUCTION | 59 |
| INTERNATIONAL PRICE COMPARISONS | 60 |
| Mobile | 60 |
| Table 28: Price Index for Mobile Phone Services (best of post- and pre-pay packages with cost of handset included — base: UK=100), February 2002 | 60 |
| Table 29: Price Index For Mobile International Roaming Services by Visited Country (based on two cheapest deals — base: UK=100), February 2002 | 61 |
| Fixed Line | 61 |
| Table 30: International Price Index for Residential and Business PSTN Services (base: UK=100), February 2002 | 62 |
| 9. Forecasts | |
| INTRODUCTION | 63 |
| Fixed-Line Telephony | 63 |
| The Internet Protocol Future | 63 |
| The Cellular Future | 64 |
| The Economy | 64 |
| FORECASTS | 64 |
| Table 31: The Forecast UK Telecommunications Market by Sector by Value (£bn), 2003/2004-2007/2008 | 65 |
| Table 32: The Forecast UK Telecommunications Market by Sector by Volume (million call minutes), 2003/2004-2007/2008 | 66 |
| 10. Company Profiles | |
| British Telecommunications PLC | 68 |
| Cable and Wireless PLC | 70 |
| NTL Group Ltd | 72 |
| Orange Personal Communications Services Ltd | 74 |
| Telewest Communications PLC | 76 |
| T-Mobile (UK) Retail Ltd | 78 |
| Vodafone Group PLC | 80 |
| 11. Further Sources | |
| Associations | 82 |
| Publications | 84 |
| Directories | 85 |
| General Sources | 85 |
| Bonnier Information Sources | 86 |
| Government Publications | 87 |
| Other Sources | 88 |
| Understanding TGI Data | 90 |
| Number, Profile, Penetration | 90 |
| Social Grade | 91 |
| Standard Region | 91 |
Text © 2002 Key Note
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Last updated by Amanda Porteous February 2002
