United Kingdom Telecommunications Report Q3 2011

The Q311 update of the UK Telecommunications Report contains an analysis of market trends and data using the latest data released by fixed-line and broadband providers, mobile operators and the telecoms regulator Ofcom. It also contains our updated forecasts for the fixed, mobile and broadband sectors looking forward through to the end of 2015. For the first time, it also includes BMI’s forecasts for mobile monthly blended ARPU rates up until 2015, by operator.
We forecast the mobile market to reach 84.074mn subscribers by 2015. However, we expect the market to grow but decelerate as the market penetration increases. In contrast we forecast continued strong growth in 3G subscriptions which will increasingly become the norm, increasing to 53.511mn subscriptions in 2015. At this stage of market development, changing competitive dynamics and new patterns of revenue generation are becoming increasingly significant relative to subscription growth. The contraction in the fixed-line market will also continue at a slower rate as operators increase bundled services.
Vodafone, O2 and Everything Everywhere reported declining average revenue per user (ARPU) for the second successive quarter in Q111. Competitive pressures between operators fighting over postpaid subscriptions and seeking to migrate prepaid to postpaid subscribers placed downward pressure on postpaid ARPUs. Despite this decline, we believe ARPU declines will plateau as we expect growth in data revenues to continue as Everything Everywhere reported 64% of contract phones sold in Q310 were smartphones, compared to 42% Q409, and projections are that this will increase. Ofcom reports similar figures for the whole market comparing Q209 and Q210.
BT continues to lead in the broadband market although the market is not concentrated with BT as TalkTalkTalkTalk migrated Tiscali subscribers onto its own network. Cable operator Virgin Media reported positive Q111 results to follow a particularly strong 2010, with positive revenue and subscriber growth across its business. Further, with the launch of 100Mbps broadband and a new set top box to rival Sky+ it will likely have another positive year in 2012. Other alternative providers, including O2 and Orange, have reported strong uptakes of their broadband services. Satellite broadcaster BSkyB has also reported strong broadband subscriber growth on their networks. At the end of Q111, BT reported a retail broadband base of 5.7mn and wholesale broadband customer base of 8.112mn. BT claims to be on track with plans to roll out superfast fibre-optic broadband to two-thirds of UK households by 2015.
This update also contains information on a number of developments in the UK market including the introduction of spectrum trading for mobile frequencies and developments around the operator response to the rules announced for the forthcoming 4G auction (see broadband, fixed-line and regulatory environment sections). We also provide an analysis of Fujitsu’s announcement that it plans to roll out a fibre network in partnership with Virgin Media and TalkTalk to challenge BT in this area. Finally, we analyse the Microsoft trial of Super WiFi announced in June 2011, in terms of the potential boost to next generation roll-out and the potential implications in the mobile market.

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Executive Summary 5
SWOT Analysis 7
UK Mobile Sector SWOT 7
UK Fixed-Line Sector SWOT 8
UK Broadband Sector SWOT 9
UK Political SWOT 10
UK Economic SWOT 11
Business Environment 12
Table: Western Europe Business Environment Rankings 14
UK 14
Industry Forecast Scenario 16
Mobile 16
Table: Industry Trends – Mobile Sector, 2008-2015 16
Mobile ARPU 18
Table: Industry Trends – Mobile ARPU Sector, 2008-2015 18
Fixed-Line 20
Table: Telecoms Sector – Fixed-Line – Historical Data & Forecasts, 2008-2015 20
Internet 22
Table: Telecoms Sector – Internet – Historical Data & Forecasts, 2008-2015 22
Market Data Analysis 24
Mobile 24
Table: UK Mobile Market, Q111 26
Table: Net Additions By Subscription Type 28
3G 34
Mobile Contract Wins 36
Table: Mobile Contract Wins 36
Mobile Content 37
Table: Smart Meter Race Is On 40
UK 40
Table: UK Smartphone Users (000s) and Smartphone Penetration, Q407-Q210 41
VAS Timeline 44
Table: VAS Timeline 44
Mobile Data 45
Table: UK Mobile Market Overview 45
Table: O2 45
Table: Vodafone 46
Table: Orange (now reported as part of Everything Everywhere) 47
Table: T-Mobile (now reported as part of Everything Everywhere) 48
Table: Everything Everywhere 49
Table: Hutchison 3G 50
Fixed Line 51
Table: Fixed Line Numbers By Operator, 2008-2010 (‘000) 52
Broadband 56
Table: Residential And Small Business Broadband Connections (‘000) 56
Pay-TV 58
Wireless Broadband 62
Wireline (Fixed-Line & Broadband) Developments 68
Table: Wireline Developments, 2008-2009 68
Regulatory Environment. 69
Table: Division Of Regulatory Responsibilities In The UK 69
Background & Regulatory Bodies 69
Regulatory Issues 70
Competition 71
Regulatory Development 72
Table: Proposed average Mobile Termination Rates (pence per minute)* 72
Industry Development 75
Competitive Landscape 77
Market Overview 77
Table: Key Players – UK Telecoms Sector 77
Table: Selected Operators’ Financial Indicators 78
Company Monitor 79
IPTV's Rebound: Good News For Set-Top Box Makers? 79
Operator Profiles 85
BT 85
O2 89
Vodafone 91
Everything Everywhere 94
T-Mobile (Everything Everywhere) 97
Orange (Everything Everywhere) 99
Regional Telecommunications Penetration Overview 101
Fixed-Line 101
Table: Regional Fixed-Line Penetration Overview 102
Broadband 103
Table: Regional Broadband Penetration Overview .103
Mobile 104
Table: Regional Mobile Penetration Overview 105
BMI Telecoms Industry Glossary 106
Table: Glossary Of Terms .106
BMI Methodology 108
How We Generate Our Industry Forecasts .108
Table: Key Indicators For Telecommunications Industry Forecasts .108
Telecoms Business Environment Ratings .110
Risk/Reward Ratings Methodology 110
Table: Ratings Indicators .111
Weighting 111
Table: Weighting Of Indicators .112
Sources 112
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