| MP64014 |
| MAPS : Domestic Telecommunications : June 2004 |
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This report covers: customer magazines, and, contract publishing, retail sector, automotive sector, travel, sector, finance,
Companies covered include: Cedar Communications, Forward, Ltd, Haymarket Customer Publishing, Illustrated London News, Group, John Brown Citrus, Publishing, Publicis Blueprint, Redwood, Publishing, River, Highbury Customer, Publications, Incisive communications, Just, Rare,
EXECUTIVE SUMMARY
| 1 | Executive Summary |
| 2 | The UK telecommunications market was valued at £23.84bn in the year ending March 2003; Key Note estimates this to have increased to £25.06bn in the year ending March 2004. In recent years, the rate of market growth has slowed, reflecting slower global economic growth and continued downward pressure on prices in an intensely competitive market. |
| 3 | This report looks as three main sectors: the fixed-line market; the cellular or mobile market; and the broadband and leased line market. Since 2000, mobile revenue has been the most dynamic sector of the market along with those areas of the market related to data rather than voice transfer — especially Internet traffic — with broadband connections growing rapidly. |
| 4 | Key Note expects the telecommunications market to experience improved rates of market growth between the years ending March 2005 and 2009 but also to continue facing problems in generating profits. Broad social trends, such as the rise of the information society, are making telecommunications more important. However, the industry will continue to have to live with the high levels of accumulated debt that were taken on to finance third generation (3G) licenses, network developments and past acquisitions. The telecommunications market is also seeing the degree of competition intensify — a factor encouraged by new competition-promoting legislation — which, in turn, is putting downward pressure on end-user prices. The consequence of this is the growing importance of scale in the industry as profit margins come under pressure: a scramble for market share is underway. |
| 5 | The need to write off large amounts of goodwill and adjust profits for exceptional items stems from decisions taken in the late 1990s, when leading players — especially those in the mobile sector of the market — made over-optimistic assumptions about potential industry growth. Based on these, companies used debt to finance acquisitions and buy 3G licenses, both of which, in hindsight, had highly inflated valuations. |
| 6 | Cellular operators are now being extremely cautious and circumspect when planning the launch of 3G services. Only one service is fully operational in the UK, although all the major operators are now set to introduce some form of 3G services in 2004; these will not necessarily be full-scale consumer services. |
| 7 | 3G is unlikely to be a major mobile service in the UK until 2006 and, until then, General Packet switched Radio System (GPRS) services look set for rapid growth. The longer-term potential for 3G could be hampered by the expected growth in Voice over Internet Protocol (VoIP) services delivered through Wireless Fidelity (Wi-Fi) Local Area Network (LAN) technology, although cellular operators will undoubtedly capture an important share of this market. |
| 8 | The future competitive nature of the industry will depend to a large degree on the shape of British Telecommunications (BT). BT rivals claim that if BT is broken up into two operations (Retail and Wholesale), this will make the market more competitive, although BT argues that this is not the case as it claims BT Retail does not get preferential treatment from BT Wholesale. Even without a break up, the dominant player in the fixed-line market will face increased competition in the future. Legislative pressure will continue to impact on BT's business while a newly merged NTL and Telewest will be a much more significant competitor to BT than both are individually at the moment. A broken up BT would also face more intense competition from rival broadband providers. |
| 9 | More generally, VoIP services are set to become firmly established in the 2004/2005 period, with major operators such as BT entering the market in 2004. This could have significant long-term implications for the voice revenues generated from both fixed and cellular networks. |
| 10 | The growth of VoIP and 3G services is increasing the importance of new billing- and operation-support systems for telecommunications operators. In the future, the ability to offer highly flexible pricing structures will be vital in the market. |
| 11 | In the coming 5 years, Key Note expects cellular and data services (especially IP networks) to continue to grow at a much stronger rate than other sectors of the telecommunications market. Key Note has identified six key growth markets over the years ending March 2005 to 2009. |
| 12 | In the mobile sector, the key opportunities are: |
| 13 | |
| 14 | mobile video — including video telephony |
| 15 | premium mobile content offered by the network operators rather than third parties, such as sports, travel, entertainment and mobile games |
| 16 | GPRS — at least until 2006 and 3G thereafter. |
| 17 | |
| 18 | In the fixed-line sector, key opportunities are: |
| 19 | |
| 20 | Asymmetric Digital Subscriber Line (ADSL) services, although profits may be hard to generate |
| 21 | video telephony |
| 22 | premium services delivered via broadband networks. |
| 23 | |
| 24 | Overall, telecommunications revenue is expected to show improved rates of growth between the years ending March 2005 and 2009 compared with the the years ending March 2003 and 2004, reflecting improved global economic conditions and the uptake of new services such as 3G and broadband applications. |
TABLE OF CONTENTS
| Executive Summary |
| 1. Introduction |
| OVERVIEW |
| DEFINITIONS |
| Fixed-Line Telephony |
| Cellular Telephony |
| Market Structure |
| 2. Strategic Overview |
| MARKET DYNAMICS AND SEGMENTATION |
| Turnover Versus Market Revenue |
| Turnover |
| Table 1: Turnover of the UK Telecommunications Industry (£m), Years Ending March 2000-2004 |
| Table 2: A Comparison of Market Revenue and Turnover of the UK Telecommunications Industry (£m), Years Ending March 2000-2004 |
| Market Revenue |
| Table 3: The Domestic Telecommunications Market by Sector by Market Revenue and Share (£m and %), Years Ending March 2000-2004 |
| Market Volume |
| Table 4: The UK Telecommunications Market by Volume (million call minutes), Years Ending March 2000-2004 |
| Expanding Market Opportunities and Growing Threats |
| The 3G Holy Grail — Myth or Reality? |
| Wi-Fi — The New Kid on the Block |
| Wi-Fi and Bluetooth — 3G Killers? |
| 2004 — the Year of VoIP? |
| Why the BOSS is So Important? |
| A New Legislative Framework |
| DISTRIBUTION |
| COMPETITIVE STRUCTURE |
| The Main Players |
| Table 5: The Largest UK Telecommunications Operators by Market Revenue Share, Owner and Country of Owner (%), Year Ending June 2003 |
| A New Force in the Market? |
| Where are the Profits? |
| Table 6: The Profitability and Operating Efficiency of Telecommunications Companies† in the UK (£000, % and £), 2003/2004 |
| Pressure On Fixed-Line Operators |
| Pressure on Mobile Operators |
| Should BT Be Broken Up? |
| ADVERTISING |
| Table 7: Main Media Advertising Expenditure on Telecommunications by Sector (£000), Year Ending December 2003 |
| Table 8: Main Media Advertising Expenditure and Growth in Telecommunications Services by Sector (£000 and %), Years Ending December 2002 and 2003 |
| Table 9: Main Media Advertising Expenditure on Telecommunications by Operator by Sector (£000), Year Ending December 2003 |
| THE CONSUMER |
| Importance of Residential and Business Users |
| Table 10: The UK Domestic Telecommunications Market by Broad Customer Type by Value and Market Share (£m and %), Years Ending March 2003 and 2004 |
| Table 11: Breakdown of the UK Domestic Telecommunications Market by Broad Customer Type by Market Share (%), Year Ending March 2004 |
| MARKET FORECASTS |
| 3. Fixed-Line Telephony |
| BACKGROUND |
| Integrated Services Digital Network |
| MARKET SIZE |
| Call Revenue |
| Table 12: Fixed-Line Telephones — Call Revenues by Type of Call (£m and %), Years Ending March 2000-2004 |
| Table 13: Breakdown of Other Calls Revenue (£m), Years Ending March 2003 and 2004 |
| Call Minutes |
| Table 14: Fixed-Line Telephones — Call Minutes by Type of Call (millions of minutes and %), Years Ending March 2000-2004 |
| Table 15: Breakdown of `Other Calls' Call Minutes (millions of minutes), Years Ending March 2003 and 2004 |
| Access Lines |
| Table 16: Revenue from Line Rentals and Connections; and Number of Lines (£m, % and 000), Years Ending March 2000-2004 |
| Table 17: Access Line Market Revenue by Type by Value and Market Share (£m and %), Years Ending March 2003 and 2004 |
| MARKET SHARES |
| Fixed-Line Calls |
| Table 18: UK Fixed-Line Telephony Calls by Market Share of Call Revenue and Minutes by Providers (%), Quarters Ending September and December 2002, March and June 2003 and Year Ending June 2003 |
| Table 19: UK Fixed-Line Telephony Calls by Market Share by Residential and Business Customers (%), Quarters Ending September and December 2002, March and June 2003 and Year Ending June 2003 |
| Access Lines |
| Table 20: Market Shares of Access Lines by Revenue and Lines by Providers (%), Quarters Ending September and December 2002, March and June 2003 and Year Ending June 2003 |
| CONSUMER TRENDS |
| Fixed-Line Calls |
| Table 21: Fixed-Line Telephony Calls by Share of Revenue and Call Volume by Customer Type (%), Years Ending March 2003 and 2004 |
| Access Lines |
| Table 22: The Customer Base for Access Lines by Share of Revenue (%), Years Ending March 2003 and 2004 |
| Residential Consumers |
| Table 23: Penetration of Fixed and Mobile Telephony in UK Homes (%), August 2000-2003 |
| Table 24: Ownership of Telephone Lines Among Residential Customers (000 and %), April 2002-March 2003 |
| Table 25: Breakdown of Residential Consumer Expenditure on Fixed-Line Telephony (£m and %), Years Ending March 2003 and 2004 |
| Business Consumers |
| Table 26: Penetration of ISDN Lines in SMES (%), November 2001 and May/August 2002-2003 |
| Table 27: Penetration of ISDN Lines in Medium and Large UK Organisations† (%), End of 2003 |
| Table 28: Breakdown of Business Consumer Expenditure on Fixed-Line Telephony (£m and %), Years Ending March 2003 and 2004 |
| MARKETING ACTIVITY |
| ADVERTISING |
| Table 29: Main Media Advertising Expenditure on Fixed-Line Services (£000), Years Ending December 2002-2003 |
| Table 30: Main Media Advertising Expenditure on Fixed-Line Services by Company (£000), Year Ending December 2003 |
| 4. Cellular Telephony |
| BACKGROUND |
| MARKET SIZE |
| Call Revenue |
| Table 31: The UK Cellular Telecommunications Market by Value (£m and %), Years Ending March 2000-2004 |
| Volume |
| Table 32: The UK Cellular Telecommunications Market by Call Minutes and Messaging Volumes (million), Years Ending March 2000-2004 |
| Table 33: The UK Cellular Telecommunications Market by Number of Subscribers (million), Years Ending December 2000-2004 |
| MARKET SHARES |
| Table 34: The Cellular Market by Operator Share of Revenue and Subscribers (%), Years Ending March 2002 and June 2003 |
| CONSUMER TRENDS |
| Residential Versus Business Users |
| Table 35: Mobile Telephone Call Revenue Expenditure by Type of Customer (£m and %), Years Ending March 2003 and 2004 |
| Residential Consumers |
| Table 36: Household and Adult Penetration of Mobile Telephony (%), August 2000-2003 |
| Table 37: The Mobile Tariffs Used by Residential Cellular Subscribers (%), May 2001-2003 and August 2003 |
| Table 38: Use of Mobile Tariffs by Residential Cellular Subscribers (%), April 2002-March 2003 |
| Table 39: Estimated Spending on Mobile Telephones by Type by Mid Point, Number Paying and Annual Spend (£, 000 and £m), April 2002-March 2003 |
| Table 40: Estimated Spending on Mobile Telephones by Type by Sex, Age, Social Grade and Region (% of adults), April 2002-March 2003 |
| Business Consumers |
| Table 41: Use of Mobile Tariffs by Small and Medium-Sized Enterprises (%), Combined Data from November 2002 and February 2003 |
| Table 42: Business Wireless Service Adoption Among Medium/Large-Scale Organisations† (%), End of 2003 |
| MARKETING ACTIVITY |
| ADVERTISING |
| Table 43: Main Media Advertising of Mobile Telephone Services (£000), Years Ending December 2002 and 2003 |
| Table 44: Main Media Advertising of Mobile Telephone Services by Company (£000), Year Ending December 2003 |
| 5. Broadband and Leased Lines |
| BACKGROUND |
| MARKET SIZE |
| Broadband |
| Table 45: The Uptake of Broadband by Type of Connection by Number of Connections (000), Quarters Ending June 2002-March 2004 |
| Roll Out of DSL |
| Table 46: The Roll Out of DSL Across the UK (number and %), 2000-2003 |
| Wireless Access |
| Leased Lines |
| Table 47: The UK Leased-Line Market by Sector (£m and %), Years Ending March 2000-2004 |
| Table 48: The UK Leased-Line Market by Number of Lines (000), Years Ending March 2000-2004 |
| MARKET SHARES |
| Table 49: The Broadband Market by Number of Subscribers and Share of Operator (%), December 2003 |
| CONSUMER TRENDS |
| Business versus Residential Consumers |
| Table 50: Breakdown of Leased Lines Installed (000 and %), Year Ending March 2004 |
| Table 51: Breakdown of the Broadband Market by Type by Connections and Expenditure (000, % and £m), September 2003 |
| Consumer Broadband Usage |
| Business Broadband Usage |
| Table 52: Broadband Penetration Among SMEs by Size (%), August/November 2002-May/August 2003 |
| MARKETING ACTIVITY |
| ADVERTISING |
| Table 53: Main Media Advertising of Broadband Internet Services (£000), Years Ending December 2002 and 2003 |
| Table 54: Main Media Advertising of Broadband Internet Services by Company (£000), Year Ending December 2003 |
| 6. An International Perspective |
| MARKET DEVELOPMENTS |
| Table 55: The Global Market for Telecommunications Services (£bn), Years Ending December 2000-2004 |
| Table 56: Breakdown of the Global Telecommunications Services Market by Value and Share (£bn and %), Years Ending December 2000-2004 |
| COMPETITOR ENVIRONMENT |
| CONSUMER BEHAVIOUR |
| 7. PEST Analysis |
| POLITICAL FACTORS |
| Political Forces Have Shaped the UK Telecommunications Industry |
| Concerns Over Radiation From Mobile Telephones |
| Environmental Concern Over Mobile Telephone Base Stations |
| ECONOMIC FACTORS |
| A Vulnerable Industry |
| Broad Economic Trends |
| A Weakened Industry |
| SOCIAL FACTORS |
| The Shift Towards the Information Society |
| Growing Need for Communications |
| Commercialisation of the Home |
| The Internet at Home |
| The Mobile Society |
| Changing Population |
| TECHNOLOGICAL FACTORS |
| New Technology Shapes the Industry |
| Digital Subscriber Line |
| 3G Mobile Services Open Up New Opportunities |
| 3G — a Major Threat to the Industry |
| Wi-Fi Technology — a Challenge to 3G? |
| Network-Centric Computer Technology |
| Impact on Call Volumes |
| 8. Consumer Dynamics |
| RESIDENTIAL CONSUMERS |
| Fixed Line Versus Mobile |
| Table 57: Household Penetration of Fixed and Mobile Technology (%), August 2000-2004 |
| Table 58: The Main Method of Making and Receiving Calls (% of adults), May 2003 |
| Table 59: Penetration of Fixed and Mobile Telephones (% of adults), April 2002-March 2003 |
| FIXED LINE |
| Number of Telephones Owned |
| Table 60: The Number of Telephone Lines Owned (% of adults), April 2002-March 2003 |
| Table 61: Residential Telephone Usage by Destination of Calls Made in a Week (%), 1996-1998, 2001 and 2003 |
| Table 62: Residential Telephone Usage by Number of International Calls Made in a Month (%), 1997-1999, 2001 and 2003 |
| Table 63: Business Telephone Usage by Number of Calls in a Week (%), 1997-1999, 2001 and 2003 |
| BT Retains a Strong Hold on the Market |
| Use of Indirect Access Suppliers |
| Service Versus Price |
| Table 64: The Differences in Service Versus Value Perceptions for Fixed-Line Customers (%), August 2003 |
| MOBILE TELEPHONY |
| Tariff Structures |
| Table 65: Alternative Pricing Structures for Mobile Telephones (% of adults), April 2002-April 2003 |
| Average Spend on Mobile Telephones |
| Table 66: Annual Average Expenditure on Mobile Telephones (% of adults), April 2002-March 2003 |
| Types of Calls Made |
| Table 67: The Types of Calls Made on Mobile Telephones (%), April 2002-March 2003 |
| Messaging Services |
| Table 68: The Use of Advanced Mobile Services (%), August 2003 |
| Consumer Internet |
| Narrowband Versus Broadband |
| Table 69: Type of Internet Package Used by UK Homes With Internet Access (%), May and August 2002-2003 |
| Main Reasons for Taking Broadband |
| Table 70: The Main Reasons for Upgrading to Broadband (% of adults), August 2003 |
| Value-Added Services |
| Main Factors Demanded of a Broadband ISP |
| Table 71: Importance of Specific Factors When Choosing a Broadband Internet Service Provider (%), August 2003 |
| Expenditure on Broadband |
| BUSINESS CONSUMERS |
| Fixed Line |
| Satisfaction With Telephone Operators: Small and Medium-Sized Enterprises |
| Table 72: The Tendency for SMEs to Check Their Telephone Bills (%), May 2003 |
| Mobile Telephony |
| Table 73: Business Wireless Service Adoption Among Medium/Large-Scale Organisations† (%), Years Ending December 2003 and 2004 |
| Wi-Fi a New Key Technology |
| Satisfaction With Mobile Services |
| Business Internet |
| Table 74: Methods by Which SMEs Connect to the Internet (%), November 2001-May/August 2002 and 2003 |
| Table 75: Current and Planned Penetration of Broadband Technology in Medium and Large Organisations† (%), Years Ending December 2003 and 2004 |
| Table 76: Current and Future Technology Used for Internet Access by Medium and Large Organisations† (%), Years Ending December 2003 and 2004 |
| Main Factors Driving Broadband Penetration |
| Table 77: The Most Valued Features of Broadband (%), August 2003 |
| Main Use of Broadband in Business |
| Table 78: Business Use of the Internet by Activity by Access (%), August 2003 |
| Frustration with Broadband Roll Out |
| 9. Company Profiles |
| BRITISH TELECOMMUNICATIONS GROUP PLC |
| Corporate Strategy |
| Strengths and Weaknesses |
| A New Strategy |
| New Product Development |
| Brand Developments |
| Innovation |
| Advertising |
| Table 79: Main Media Advertising Expenditure by BT by Type (£000), Year Ending December 2003 |
| Profitability |
| Table 80: Financial Results for British Telecommunications Group PLC (£m and %), Years Ending 31st March 2002 and 2003 |
| Future Company Developments |
| MMO2 PLC |
| Corporate Strategy |
| Strengths and Weaknesses |
| New Product Development |
| Innovations |
| Advertising |
| Table 81: Main Media Advertising Expenditure by MMO2 by Type (£000), Year Ending December 2003 |
| Profitability |
| Table 82: Financial Results for MM02 PLC (£m and %), Years Ending 16th November 2001 and 31st March 2002-2003 |
| Future Company Developments |
| NTL GROUP/INC |
| Corporate Strategy |
| Strengths and Weaknesses |
| New Product Development |
| Brand Development |
| Advertising |
| Table 83: Main Media Advertising Expenditure by NTL by Type (£000), Year Ending December 2003 |
| Profitability |
| Future Company Developments |
| TELEWEST COMMUNICATIONS PLC |
| Corporate Strategy |
| Strengths and Weaknesses |
| Board Changes |
| Advertising |
| Table 84: Main Media Advertising Expenditure by Telewest by Type (£000), Year Ending December 2003 |
| Profitability |
| Future Company Developments |
| ORANGE PERSONAL COMMUNICATIONS SERVICES LTD |
| Corporate Strategy |
| Strengths and Weaknesses |
| New Product Development |
| Brand Development |
| Advertising |
| Table 85: Main Media Advertising Expenditure by Orange by Type (£000), Year Ending December 2003 |
| Profitability |
| Table 86: Financial Results for Orange PCS Ltd (£000 and %), Years Ending 31st December 2000-2002 |
| Future Company Developments |
| T-MOBILE LTD |
| Corporate Strategy |
| Strengths and Weaknesses |
| New Product Development |
| Advertising |
| Table 87: Main Media Advertising Expenditure by T-Mobile by Type (£000), Year Ending December 2003 |
| Profitability |
| Future Company Developments |
| VODAFONE GROUP PLC |
| Corporate Strategy |
| Strengths and Weaknesses |
| New Product Development |
| Brand Development |
| Innovation |
| Appointments |
| Advertising |
| Table 88: Main Media Advertising Expenditure by Vodafone by Type (£000), Year Ending December 2003 |
| Distribution |
| Profitability |
| Table 89: Financial Results for Vodafone Group PLC (£m and %), Years Ending 31st March 2001-2003 |
| Future Company Developments |
| OTHER COMPANIES |
| Cable & Wireless |
| Hutchison 3G UK Ltd |
| 10. The Future |
| Forecasts |
| Table 90: The Forecast Domestic Telecommunications Market (£m), Years Ending March 2005-2009 |
| Table 91: The Forecast Domestic Telecommunications Market by Sector by Market Revenue and Share (£m and %), Years Ending March 2005-2009 |
| FUTURE GROWTH OPPORTUNITIES |
| Mobile Operators |
| Mobile Video — a Key Mobile Opportunity |
| Move Into Content |
| Scale is Important |
| 3G in the Longer-Run, GPRS Now |
| Fixed Operators |
| Broadband ADSL — a Revenue Generator, But Where are the Profits? |
| Fixed-Line Video Telephony |
| Broadband — An Opportunity for Both Fixed and Mobile Operators |
| 11. Further Sources |
| General Sources |
| Government Publications |
| Bonnier Information Sources |
Text © 2004 Key Note
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Last updated by Amanda Porteous November 2004
