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This report covers: internet service providers, unmetred access, providers, ISP, interactive TV, PEST, analysis,
companies covered include: Freeserve, World Online, AOL, BTinternet, Tiny Online, ntlworld, Breathe, LineOne,
EXECUTIVE SUMMARY
| Executive Summary |
| This report examines the market for Internet service providers (ISPs), in the UK and, in the course of this assessment, looks at the Internet business from both the consumer and the supply side. The report brings together material from a very wide range of online sources to present a comprehensive analysis, hitherto unavailable, of this dynamic, rapidly changing and little-understood market. |
| Internet usage in the UK has expanded exponentially, in a very short period of time. Although estimates vary, according to methodology, there were around 15 to 16 million users by mid-2001. The explosion in Internet usage represents the most rapid takeup of new technology in history, including that of television; mobile phone usage has also burgeoned, with over half the UK population now subscribing. |
| The personal computer (PC) remains the prime medium for Internet access, in the UK. Only 6% of Internet users, currently, ever access it via a mobile phone. Interactive television has been hailed as the medium offering the Internet to the masses, with the penetration of digital TV likely to reach 100% in the UK, once analogue broadcasting is switched off, by 2010. The recent AOL-Time Warner merger is a clear indication that synergy between the PC-based and TV industries is very much the shape of things to come. |
| In 1999/2000, data from National Statistics suggests that, 38% of UK households owned a PC, which was very nearly three times the percentage recorded in 1985. |
| Other data, from May 2001, shows that, of the total UK `Internet population', 45% are women — a 6% increase on 2000. Takeup is currently faster among C2DEs, although ABC1s continue to dominate usage. Half of all users are under 35. The flow of new users has remained steady; one in three users had come online in the previous year. Speed of access remained the cause of most concern, although it was less of an issue, than in 2000. |
| National Statistics' data, regarding Internet users' principal usage patterns, suggests that e-mail accounted for just over a third of usage, with searching for information on goods and services accounting for 22% and general browsing, or `surfing' accounting for a further 18%. Almost three-quarters of Internet usage was for these three purposes. E-mailing accounted for nearly half the Internet usage by the over 55s, whilst 35 to 44 year-olds were the most avid information seekers on goods and services and 25 to 34 year-olds the most prone to general browsing. |
| According to the annual Which? Online Internet Survey, information replaced communication, in 2001, as the most widespread purpose of Internet use. E-mail remained hugely important, but was overtaken by Internet use for education and research, perhaps because the explosion of SMS (short message service) messaging has provided a cheaper and more convenient way of staying in touch. |
| The average time spent online in the UK has risen from 4 hours per month, in October 1999, to just over 7 hours per month, by May 2001. Heavy users accounted for 20% of users, but for more than 70% of the total time spent online. Heavy users, unsurprisingly, were online almost every day, averaging at least 20 days per month. 68% of heavy Internet users are men. Men over 55 spent an average of half an hour longer on the Internet, than did other age groups. |
| Internet usage remains heavily weighted to the under 55s and to consumers in the higher social groups, although take up has been broadening. |
| The ten leading ISPs, together, account for almost 72% of UK Internet users; in other words, the remaining 247 share only 28% of the current consumer base, at a rough average of 17,000 users per ISP. The UK market clearly remains characterised by a very small number of ISPs with a large subscriber base and a very large number of ISPs with relatively few customers. |
| Leading UK ISPs, as at June 2001, were Freeserve (France Telecom); World Online (Tiscali); AOL (AOL-Time Warner); BTinternet; 08002Go; ic24 (Mirror Group); Tiny Online; ntlworld; Breathe (Affinity Internet Holdings); and LineOne (Tiscali). |
| 2000 saw the proliferation of `free' ISPs, with a wide range of call charge packages. The cost of phone calls has been a major factor limiting the use of the Internet and unmetered access has been seen as the solution. However, the development of unmetered access, on a realistic cost basis, was held up by British Telecom (BT), which continues to dominate telecoms services in the UK. Under pressure from Oftel, BT has finally accepted a system known as FRIACO (Flat Rate Internet Access Call Origination), which allows ISPs to offer unmetered calls at a fixed cost and thus charge users a realistic and fixed subscription. Currently, unmetered access appears to be the future of the market. |
| The ISP sector is highly competitive and many ISPs, not only the smaller ones, have found it extremely difficult to make profits. As a result, consolidation has become widespread, with Freeserve going to France Telecom, Italy's Tiscali buying several ISPs and Breathe changing hands. The largest ISPs are becoming larger still and are expanding into portals, to extend their revenue bases into advertising. |
| Exclusive consumer research, commissioned from National Opinion Poll (NOP), offers a unique snapshot of trends in user profile, habits and demands in the current UK market. |
| Key Note believes there is scope for continuing growth in Internet user numbers, which are expected to more than double to 2005, creating a UK online consumer base of some 28 million. |
| In terms of access packages, the market can be expected to polarise between three main types: unmetered broadband; unmetered dial-up; and metered dial-up. By the end of 2002, there are likely to be far fewer ISPs to choose from, in a market dominated by a few big pan-European and global players. The PC looks unshakeable, as the principal access medium. Internet access through digital TV and mobile devices will grow, but slowly, unless radical developments in technology and cost bring about another revolution in the market. |
TABLE OF CONTENTS
| Executive Summary | 1 |
| 1. Introduction | 3 |
| 2. Strategic Overview | 5 |
| Market Background | 5 |
| Table 1: UK Internet Market Indicators, 1996-1999 | 5 |
| Internet Audience | 5 |
| Table 2: UK Home Internet Users (million), October 1999-May 2001 | 6 |
| Internet Usage | 6 |
| Table 3: Home Internet Usage by Segment (% of users), | |
| 1999-2001 | 7 |
| Table 4: Home Internet Usage by Household Income | |
| (% of users), 2000 and 2001† | 7 |
| Table 5: Internet Usage by Age (%), July 2000 | 9 |
| Table 6: UK Top Ten Internet Categories by Unique Visitors and Digital Media Reach (000 and %), March 2001 | 10 |
| Figure 1: UK Top Ten Internet Categories by Unique Visitors and Digital Media Reach (000 and %), March 2001 | 11 |
| Accessing the Internet | 12 |
| Which? Online Annual Internet Survey | 12 |
| Internet Users | 12 |
| Type of Internet | |
| Subscription | 13 |
| Table 7: Type of Internet Subscription (% of users), 2001 | 13 |
| Internet Usage | 13 |
| Table 8: Types of Websites Visited (% of users), 2001 | 14 |
| Figure 2: Types of Websites Visited (% of users), 2001 | 15 |
| Table 9: Purpose of Internet Use (% of users), 2001 | 15 |
| Figure 3: Purpose of Internet Use (% of users), 2001 | 16 |
| Internet Access | 17 |
| Table 10: Methods of Accessing the Internet (% of users), | |
| May-01 | 17 |
| Figure 4: Methods of Accessing the Internet (% of users), | |
| May-01 | 18 |
| Non-Internet Users | 19 |
| General Attitudes | 19 |
| Summary | 20 |
| 3. Internet Service | |
| Providers | 21 |
| What is an ISP? | 21 |
| The Development of the UK Market | 22 |
| Oftel and FRIACO | 24 |
| Marketing, Advertising and Promotion | 25 |
| Table 11: Main Media Advertising by ISP (£000, at rate card), 1998-2001† | 26 |
| Visitor Measurements | 28 |
| Table 12: UK Top Ten Domains by Unique Visitors and Digital Media Reach (000 and %), March 2001 | 29 |
| Table 13: UK Top Ten Global Domains by Unique Visitors and Digital Media Reach (000 and %), March 2001 | 29 |
| Table 14: UK Top Ten Internet Properties by Unique Visitors and Digital Media Reach (000 and %), March 2001 | 30 |
| 4. Key Issues | 31 |
| The Move to Unmetered Access | 31 |
| Interactive TV | 32 |
| Other Access Media | 33 |
| 5. An International Perspective | 34 |
| 6. Pest Analysis | 35 |
| Political | 35 |
| Economic | 35 |
| Social | 35 |
| Technological | 35 |
| 7. Consumer Dynamics | 36 |
| Table 15: Response to ISP Survey (% of respondents), 2001 | 36 |
| Table 16: Use of The Internet or Importance of an ISP | |
| That Allows Speedy Access (% respondents), 2001 | 38 |
| Table 17: Importance of Technical Support or Free Access (% respondents), 2001 | 40 |
| Table 18: Importance of ISP being User-Friendly or Allowing Unmetered Phone Charges (% respondents), 2001 | 42 |
| Table 19: Importance of Having More Than One E-mail Address and Happiness with Service Received (% respondents), 2001 | 43 |
| Table 20: Changing ISP and Willingness to Pay to Subscribe | |
| (% respondents), 2001 | 45 |
| Table 21: Use of An ISP Loaded From a CD and Similarity | |
| of ISP Service (% respondents), 2001 | 46 |
| Table 22: Preference For a UK-based ISP and Retention | |
| of ISP included with PC (% respondents), 2001 | 48 |
| 8. Supplier Profiles | 50 |
| Table 23: Numbers and Types of ISP Service, June 2001 | 50 |
| Table 24: Leading UK ISPs, by Number of Subscribers | |
| (million), June 2001 | 51 |
| Freeserve | 51 |
| www.freeserve.com | 51 |
| Table 25: Freeserve — Financial and Other Data, 1998/1999 and 1999/2000† | 53 |
| World Online | 54 |
| www.worldonline.co.uk | 54 |
| Table 26: Tiscali SpA — Financial Highlights (million Euros), | |
| 1999 and 2000 | 55 |
| AOL | 56 |
| www.aol.co.uk | 56 |
| Table 27: America Online Inc — Financial Highlights (US$m), 1996-2000† | 57 |
| BTinternet | 59 |
| www.btinternet.co.uk | 59 |
| 08002Go | 60 |
| www.08002go.com | 60 |
| ic24 | 60 |
| www.ic24.co.uk | 60 |
| Tiny Online | 61 |
| www.tinyonline.co.uk | 61 |
| ntlworld | 62 |
| www.ntlworld.com | 62 |
| Breathe | 63 |
| www.breathe.com | 63 |
| LineOne | 64 |
| www.lineone.net | 64 |
| 9. The Future | 66 |
| Table 28: Projected UK Home Internet Usage (millions), | |
| 2000-2005 | 66 |
| 10. Glossary | 68 |
| 11. Further Sources | 69 |
| ISPs | 69 |
| Reference | 69 |
| Trade Organisations | 70 |
| General Sources | 70 |
| Bonnier Information Sources | 71 |
| Government and Official Sources | 71 |
| Key Note Research | 73 |
| The Key Note Range of Reports | 74 |
Text © 2001 Key Note
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Last updated by Amanda Porteous 2001
