KN32044

KEY NOTE Telecommunications : December 2004

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This report covers: Telecommunications

TABLE OF CONTENTS

Executive Summary

1. Market Definition

REPORT COVERAGE

MARKET SECTORS

MARKET TRENDS

The Communications Society

New Market Opportunities and Growing Threats

New Technology: 3G

New and Cheaper Telecommunications Technology

More Competition

ECONOMIC TRENDS

Population

Table 1: UK Resident Population Estimates by Sex (000), Mid-Years 1999-2003

Household Disposable Income

Table 2: Household Disposable Income Per Capita (£), 1999-2003

Gross Domestic Product

Table 3: UK Gross Domestic Product at Current and Annual Prices (£m), 1999-2003

Inflation

Table 4: UK Rate of Inflation (%), 1999-2003

Unemployment

Table 5: Actual Number of Unemployed Persons (million), 1999-2003

MARKET POSITION

Table 6: The Share of the UK Distributive and Services Trades Taken by Telecommunications Services (%), Years Ending March 2000-2004

2. Market Size

THE TOTAL MARKET

Table 7: The Total UK Telecommunications Market by Value (£bn), Years Ending March 2000-2004

BY MARKET SECTOR

Table 8: The UK Telecommunications Market by Sector by Value (£m and %), Year Ending March 2004

End-User Market Revenue

Table 9: The UK Telecommunications Market by Sector by Value (£bn), Years Ending March 2000-2004

Market Shares

Table 10: Shares of the UK Telecommunications Market (%), 2003

Fixed-Line Telephony

Table 11: The UK Fixed-Line Telephones Sector by Type by Value (£m and %), Years Ending March 2000-2004

Table 12: The UK Fixed-Line Telecommunications Market by Volume (000, million minutes and number), Years Ending March 2000-2004

Market Shares

Table 13: Shares of Exchange Lines Outstanding (000 and %), Year Ending March 2004

Table 14: Share of Fixed Telephony Call and Access Revenue by Value (£m and %), Year Ending March 2004

Cellular Telephony

Table 15: The UK Cellular Telephones Sector by Type by Value (£m and %), Years Ending March 2000-2004

Table 16: The UK Cellular Telecommunications Market by Volume (million call minutes, million messages and million subscribers), Years Ending March 2000-2004

Market Shares

Table 17: Shares of the UK Cellular Market by Value (£m and %), Year Ending March 2004

Other End-User Services

Table 18: The UK Other Telecommunication Sector Revenues by Type by Value (£m and %), Years Ending March 2000-2004

Table 19: Spending on Other End-User Telecommunication Services by Type by Value (£m and %), Years Ending March 2000 and 2004

Market Shares

Table 20: The UK Broadband Market by Operator (% of total subscribers), June 2004

3. Industry Background

Recent History

Industry Synopsis

Table 21: Industry Synopsis for UK Telecommunications Companies (£000, % and £), Latest Financial Year

Number Of Companies

Table 22: Number of VAT-Based Enterprises Engaged in Telecommunications by Turnover Sizeband (£000), 2003

Employment

Table 23: Number of Full-Time Employees in the UK Telecommunications Market, Years Ending March 2000-2004

Table 24: Number of Employees in the UK Telecommunications Market by Sex (000), Years Ending March 2003-2004

Distribution

How Robust Is The Market?

Legislation

A New Legislative Framework

A New Telecoms Ombudsman

KEY TRADE ASSOCIATIONS

The Communications Management Association

Federation of Communications Services

Institution of Electrical Engineers

Institution of Electronics and Electrical Incorporated Engineers

Intellect

Office of Communications

The Telecommunications Industry Association

The Telecommunications Users' Association

4. Competitor Analysis

THE MARKETPLACE

MARKET LEADERS

BT Group PLC

Company Structure

Current and Future Developments

Financial Results

Cable & Wireless PLC

Company Structure

Current and Future Developments

Financial Results

NTL Incorporated

Company Structure

Current and Future Developments

Financial Results

Telewest Communications PLC

Company Structure

Current and Future Developments

Financial Results

MMO2 PLC

Company Structure

Current and Future Developments

Financial Results

Orange Personal Communications Services Ltd

Company Structure

Current and Future Developments

Financial Results

T-Mobile Ltd

Company Structure

Current and Future Developments

Vodafone Group PLC

Company Structure

Current and Future Developments

Financial Results

Other Companies

OUTSIDE SUPPLIERS

Telecommunications Equipment Manufacturers

Support Equipment

Bought-in Services

ADVERTISING AND PROMOTION

Table 25: Main Media Advertising Expenditure on Telecommunications (£000), Year Ending June 2004

Table 26: Main Media Advertising Expenditure by Leading Brands (£000), Year Ending June 2004

Table 27: Key Telecommunications and Allied Conferences and Exhibitions, September 2004-March 2005

5. Strengths, Weaknesses, Opportunities and Threats

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

6. Buying Behaviour

CUSTOMER PROFILE

Table 27: Segmentation of the UK Domestic Telecommunications Market by Broad Customer Type by Value (% of total revenue), Years Ending March 2003 and 2004

The Residential Market

Table 28: The Penetration of Mobile Telephony in UK Homes and among UK Adults (%), May 2002, February 2003 and May 2003

Table 29: Main Methods of Making and Receiving Calls (% of adults), May 2003

Table 31: The Number of Telephone Lines Owned by Adults (000 and %), April 2003-March 2004

Service Versus Price

Table 31: The Differences in Service Versus Value Perceptions for Fixed-Line Customers (%), August 2003

Business Users

Table 32: Business Wireless Service Adoption Among Businesses with 250 or more employees (% of companies), 2003 and 2004

Table 35: Estimated Current and Planned Penetration of Broadband Technology in Organisations with More Than 250 Employees (% of Organisations), 2003 and 2004

Table 34: Estimated Current and Future Technology Used by Businesses with 250 or more employees for Internet Access (%), 2003

7. Current Issues

Local Loop Unbundling

New tariff structures

Third Generation Comes to the Market

WI-FI

Wi-Fi and Bluetooth — 3G Killers?

2004 the Year of VoIP?

Strategic Review of Telecoms

Should BT be Broken Up?

8. The Global Market

The Total Market

Table 35: The Global Market for Telecommunication Services by Value (£bn), 2000-2004

Table 36: Estimated Breakdown of the Global Telecommunications Services Market by Value (£bn and %), 2000-2004

9. Forecasts

INTRODUCTION

Inflation

Table 37: Forecast UK Rate of Inflation (%), 2004-2008

Gross Domestic Product

Table 38: Forecast UK Growth in Gross Domestic Product in Real Terms (%), 2004-2008

FORECASTS 2005 to 2009

Table 39: Forecast End-User Spending on UK Telecommunications by Sector by Value (£m), Years Ending March 2005-2009

FUTURE TRENDS

Mobile Sector

Fixed Market

Broadband

10. Company Profiles

British Telecommunications PLC

ntl Group Ltd

telewest Communications Plc

Orange Personal Communications Services Ltd

Vodafone Group Plc

11. Glossary

3G

Analogue Technology

ADSL

ATM

Bandwidth

Broadband

Circuit Switching

Dial-Up

Digital Technology

DECT

GSM

IP

IP Network

IP Telephony

ISDN

LAN

Leased Lines

Local Loop

Network

Packet Switching

POTS (see PSTN)

PSTN

SDSL

VOIP

VPN

WAN

Wireless LANs

Further Sources

Associations

General Sources

Government Publications

Bonnier Information Sources

EXECUTIVE SUMMARY

In terms of end-user market revenue, the UK telecommunications market was worth £34.6bn in the year ending March 2004. The market has grown strongly in the past 5 years (2000 to 2004), despite intense price competition and price regulations. Growth has been driven largely by the rapid rise in revenue from Internet and broadband services and cellular services like short message service (SMS) messaging.

This Key Note Market Report looks mainly at the market for end-user spending on telecommunications services, which splits into three areas: fixed-line revenue (revenue generated from calls to fixed-line handsets and exchange lines), cellular revenue (revenue from mobile phone usage), and other revenue (from Internet Broadband, and business data services).

The structure of the telecommunications market is changing radically. Those areas of the market related to cellular services (including calls from fixed lines to cellular phones) and data traffic (including Internet and broadband services, business data networks, and text and picture messaging) are growing the fastest.

Given the above, 2004 is seeing new areas of the market opening, including third-generation (3G) data services to businesses, broadband (including the niche Local Loop Unbundling [LLU] market and Wi-Fi connectivity) and voice over Internet Protocol (IP) networks. At the same time, new tariff structures are being introduced to make fixed-line services more competitive and to reflect changes in the market.

The telecommunications market is highly regulated and the main regulatory body, the Office of Communications (Ofcom), is now undertaking a strategic review of the market.

In the coming 5 years (2005 to 2009), Key Note expects cellular and data services (especially IP networks) to continue to grow at a much stronger rate than the rest of the telecommunications market. Key growth areas will be video messaging, video alerts and video telephony (in the mobile sector), Asymmetric Digital Subscriber Line (ADSL) and fixed-line video telephony (in the fixed line sector) and broadband and ADSL services in general.

Convergence between mobile and fixed services is expected to be a growing theme in the market, with companies such as British Telecommunications (BT) already introducing hybrid fixed and mobile handsets and services.

Text © 2004 Key Note

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Last updated by Amanda Porteous 2004