The Communications Market 2008

4

4 Radio

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Contents

4.1 Key market developments in radio 235 4.1.1 UK radio industry key metrics 235 4.1.2 Introduction 235 4.1.3 Commercial radio revenue grows despite audience decline… 235 4.1.4 …although listening to national commercial stations rises 3.2% 236 4.1.5 Younger listeners lead a fall in listening hours 236 4.1.6 The Hits becomes the first digital station to enter the top ten by reach... 237 4.1.7 …helped by a rise in digital listening to 18% of the total 238 4.1.8 Digital Radio Working Group publishes interim report on digital plan 241 4.1.9 RAJAR to review listening survey methodology 242 4.2 The radio industry 243 4.2.1 Radio licences 243 4.2.2 Industry revenues and expenditure 248 4.2.3 Commercial groups’ performance 251 4.2.4 Overview of the major radio operators in 2008 254 4.2.5 DAB availability and station choice 270 4.2.6 Restricted service licences 274 4.3 The radio listener 277 4.3.1 Radio reach 277 4.3.2 Listening hours 278 4.3.3 Radio ownership and listening trends 282 4.3.4 Digital listening 285 4.3.5 Listening patterns and satisfaction with radio 288

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4.1 Key market developments in radio

4.1.1 UK radio industry key metrics

UK radio industry 2002 2003 2004 2005 2006 2007

Weekly reach of radio (% of population) 90.5% 90.5% 90.3% 90.0% 89.8% 89.8%

Average weekly hours per head 21.8 22.1 21.9 21.6 21.2 20.6

BBC share of listening 52.6% 52.8% 55.5% 54.5% 54.7% 55.0%

Total industry revenue (£m) 1,083 1,128 1,158 1,156 1,149 1,179

Commercial revenue (£m) 509 543 551 530 512 522

BBC expenditure (£m) 574 585 607 626 637 657

Radio share of advertising spend 3.4% 3.6% 3.5% 3.3% 3.0% 2.9%

Number of stations (analogue and DAB) 345 357 364 372 389 397

DAB digital radio take-up (households) 1% 2% 5% 10% 16% 22%

Source: Ofcom, RAJAR (all individuals age 15+), BBC, WARC, radio operators 2007

4.1.2 Introduction Radio has maintained its audience reach in 2007 but average hours of listening have fallen. Despite this, commercial revenues and BBC expenditure are up since last year, while levels of digital listening have also continued to increase.

The following section provides an overview of the performance of the radio sector in 2007. This includes analysis of the separate radio sectors, including the growth in digital listening, and a review of some of the key events of the year.

4.1.3 Commercial radio revenue grows despite audience decline… The BBC’s share of total radio listening rose by 0.3 percentage points to an average of 55.0% in 2007. Over the same period, total commercial radio share fell to 42.8%, down by 0.3 percentage points on the year, and down by 2.6 percentage points on five years ago. By Q1 2008, BBC share had increased further to 56.8%, with commercial radio down to 41.1%.

Despite this fall, commercial radio revenues have grew by around £10m (2.0%) in 2007 to £522. This suggests that the radio industry has been successful in attracting advertisers despite a more uncertain marketplace over the last 12 months. Commercial radio accounted for a 44.3% share of total radio funding in 2007, down slightly (by 0.3 percentage points) on 2006. Meanwhile, the BBC’s radio expenditure rose by an estimated £20m in 2007 (up 3.2%) to around £657m for the year. The BBC’s share of industry funding, at 55.8%, almost matches its audience share of 55.0%.

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Figure 4.1 BBC and commercial radio share of listening and funding Share of listening hours / share of radio funding 70% BBC radio share of funding 60% 55.8% 53.0% 52.8% 53.5% 54.5% 55.4% BBC radio 50% 52.6% 51.9% 52.4% 54.2% 54.7% 55.0% share of hours 47.0% 48.1% 47.6% Commercial radio 40% 45.8% 44.6% 44.3% 45.2% share of funding 45.5% 44.6% 43.5% 43.1% 42.8% 30% Commercial radio share of hours 20%

10%

0% 2002 2003 2004 2005 2006 2007

Source: Listening data based on RAJAR (Adults 15+). Funding share data based on commercial radio revenues and estimated BBC expenditure on radio for 2007. Note: Remaining percentage for listening data is for ‘other’ listening, including independent stations, local community and RSL services.

4.1.4 …although listening to national commercial stations rises 3.2% The national commercial radio sector saw its listening hours rise by 3.2% in 2007, aided by the wider availability of national stations on digital formats, while BBC network (Radios 1-5 Live) listening was stable during the year. Listening to local stations was lower, both for BBC and commercial radio, down by 7.0% and 4.5% respectively.

Figure 4.2 Change in listening hours 2006-2007, by sector Percentage change in listening hours BBC network radio BBC local / national National commercial Local commercial

10%

5% 3.2% 0.0% 0%

-5% -4.5% -7.0% -10%

Source: RAJAR, (all listeners aged 15+). Data based on calendar year 2006 -2007.

4.1.5 Younger listeners lead a fall in listening hours Over the year, the amount of time spent listening to radio has continued to fall across all age groups. According to RAJAR, average listening for all adults 15+ stood at 20.6 hours a week over 2007,.down 2.8% from 21.2 hours a year ago and down 5.5% from 21.8 hours five years ago. By comparison television viewing was up during 2007, with average viewing at 23.7 hours per week, up from 23.5 the previous year and from 23.4 hours five years ago.

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Generally, the reduction in radio listening hours has been more pronounced among younger people, with the 15-24 age group listening 3.1% less in an average week than a year ago. When including children, the 4-24 age group is down 7.8% overall. However, 2007 also saw a fall in older age groups, with listening down 2.4% among 35-44s, and down 2.3% among the over-55 age group.

Figure 4.3 Changes in listening hours, 2006-2007, by age group Percentage change in listening hours

All adults 15+ 4-24 15-24 25-34 35-44 45-54 55+

0% -0.6% -1.2% -2.0% -2.4% -2.3% -3.1% -5%

-7.8% -10%

Source: RAJAR, data based on calendar years 2006 – 2007.

4.1.6 The Hits becomes the first digital station to enter the top ten by reach... BBC Radio 2 remained the station with the highest weekly audience, with over 14 million listeners by Q1 2008. However, Radio 1 achieved the highest growth of the BBC stations, up 6.5% on last year with a weekly reach of over 13 million. Among the commercial radio stations, Classic FM had the highest reach, with 5.9 million weekly listeners, although this was down on a year ago when the audience reached 6.5 million. TalkSPORT was a large gainer in the year, up by 8.0% to a weekly audience of almost 2.7 million, while Virgin Radio was up by 2.0%, to 2.8 million weekly listeners. In London, Magic 105.4 saw its audience increase by 3.9% to over 2.2 million, boosted by the station’s availability on digital platforms in areas outside London. The Hits became the first digital-only station to break into the top ten, with a weekly audience of 2.3 million, up by 43.2% since last year.

Figure 4.4 Most listened-to radio stations, Q1 2008 Weekly reach (thousands) % change year-on-year 15000 + 4.4% Radio group + 6.5% BBC 12000 -1.6% Gcap (now Global Radio) 9000 SMG (now TIML) + 2.4% 14,959 -8.6% UTV 6000 13,118 9,980 Bauer + 43.2% + 2.0% + 8.0% + 20.1% 3000 6,544 5,944 + 3.9% -1.9% -4.8% -6.0% 2,814 2,680 2,320 2,242 2,221 1,904 1,908 1,836 0 BBC BBC BBC BBC Classic Virgin talkSPORT The Hits Magic Heart BBC Kiss 100 95.8 Radio 2 Radio 1 Radio 4 Radio 5 FM Radio 105.4 106.2 Radio 3 Capital Live FM/AM Radio

Source: RAJAR, Q1 2008 (all listeners 4+), figures are rounded. Note: New RAJAR specification introduced in Q2 2007, therefore in some cases data may not be comparable with previous years.

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4.1.7 …helped by a rise in digital listening to 18% of the total Cumulative sales of DAB digital radio sets passed the 8 million mark during 2008, with RAJAR estimating that around 27% of adults had access to a DAB set at home by Q1 2008. Digital radio services are also available via digital television, for which take-up had reached 87% by the end of Q1 2008, and also via broadband, where residential penetration reached 57%. Listening share, across all digital radio platforms reached 18% by Q1 2008, of which DAB digital radio accounted for 11%, digital television 3%, online 2%, with 2% unspecified (Figure 4.4).

Figure 4.5 Digital radio’s share of total radio audience Digital radio platforms share of all radio hours Year-on-year increase (percentage points)

+ 5%+ 3.8% + 0.5% + 0.6% 0% 20% 18% 11%

15%

10% 3%

5% 2% 2% 0% All digital DAB DTV Internet Digital unspecified

Source: RAJAR (adult listeners 15+), Q1 2008.

Listening while online tried by majority of internet users aged under 45

The majority of younger internet users have listened to radio services while online, either through a radio set or by listening to an online station. The over-65s are significantly less likely to have done these two activities concurrently.

Figure 4.6 Listening to the radio while online, by age group All who use the internet at home

80%

60% 51% 52% 47% 40% 28% 20%

0% 15-24 25-44 45-64 65+

Source: Ofcom research Q1 2008.

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Online radio audience approaching 10 million a week

RAJAR conducted a survey: on online listening and published their results in a report entitled Podcasting and Radio Listening Via Internet during April and May 2008. This showed that the number of people who have listened to radio via the internet, (either live or listen-again services) had increased to 14.5 million by May 2008, up from 12.0 million six months earlier. And listening online was a weekly activity for 9.4 million people by May 2008, up from 8.1 million in November 2007 (Figure 4.6)

Figure 4.7 Listening to radio via the internet

Six month increase (percent)

21% 16% Nov 07 May 08 Internet users (millions) 14.5 15 12.0 12 9.4 9 8.1 6 3 0 Have listened online Listen online every week

Source: RAJAR / Ipsos MORI, ‘Podcasting and Radio listening via Internet Survey’, conducted during April and May 2008 and previously in October and November 2007.

Podcasting also increasing, 3.7 million people per week downloading

In the same survey RAJAR found that listening to podcasts was becoming more widespread, with 6 million internet users having used this facility by May 2008, up from 4.3 million six months earlier. Podcasting was a weekly activity for 3.7 million internet users, almost double the figure six months earlier (Figure 4.7).

Figure 4.8 Listening to podcasts

Six month increase (percent)

40% 95% Nov 07 May 08 Internet users (millions) 6.0 6 5 4.3 4 3.7 3 1.9 2 1 0 Have downloaded a podcast Podcast every week

Source: RAJAR / Ipsos MORI, ‘Podcasting and Radio listening Via Internet Survey’, conducted during April and May 2008 and previously in October and November 2007.

The survey also found that, on average, listeners subscribed to 3.6 podcasts per week, and listened to them for an average of an hour a week, with comedy and music the most popular genres. In contrast to general radio listening patterns, the peak time for podcast listening was in the evening, with 44% of podcasts being played at this time. Two-thirds of these

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listeners (66%) took advantage of podcasts’ portability by listening via an audio device such as an MP3 player. The attraction of catch-up or listen-again services was also illustrated; with 83% of podcast listening being to content that had originally been broadcast more than a week earlier.

Fifteen per cent of podcast listeners said that they had listened to more live radio since they began downloading podcasts, while 10% listened to less. In addition, 39% said that they listened to radio programmes they previously would not have listened to, and around one in three respondents (31%) said they would be interested in paying for podcasts that were advertising-free.

Digital stations’ audiences increase, but some stations close

The number of people listening to radio services that are only available on a digital platform has continued to rise. Most of the leading stations showed very strong growth in listeners, with those owned by the BBC and Bauer accounting for nine of the top ten. Of digital stations owned by other groups, Planet Rock, which was later sold by GCap in June, saw weekly reach up by 19% and had almost 670,000 listeners per week, while Virgin Radio Classic Rock, part of the SMG Virgin radio portfolio sold to TIML in May, saw its audiences rise by almost 36%. The make-up of the digital radio roster has changed over the year, with four of the national digital stations having closed, while GCap closed or disposed of a number of its digital stations prior to the sale to Global Radio.

Figure 4.9 Most listened-to digital-only stations, Q1 2008 Weekly reach (thousands) % change year-on-year

2400 + 43.2% Radio group 2000 Bauer + 38.7% 1600 BBC 1200 2320 -2.6% -5.0% Other + 19.4% + 96.3% + 8.9% + 38.9% 800 1452 -12.9% + 23.4% + 35.5% 869 400 648 666 585 558 676 330 301 259 0 The Hits Smash BBC 7 BBC 5 Planet Heat BBC 6 1Xtra Q Mojo Virgin Hits Live Rock (Digital) Music Radio Radio Radio Sports (Digital) Classic Extra Rock

Source: RAJAR, Q1 2008, (all listeners 4+), figures are rounded. Note: New RAJAR specification introduced in Q2 2007, therefore in some cases data may not be comparable with previous years.

WiFi radio gaining a foothold

A number of technical developments in radio in 2008/09 could have wider repercussions for the industry as online technologies and new digital formats offer the potential for new audio services.

WiFi radio allows users access to thousands of live radio stations from around the world without requiring a PC and provides access to archived on-demand programmes and podcasts. Rather than tuning to radio frequencies, WiFi radio devices link to the web addresses of radio stations or to archived programme sites, giving access to a wide range of stations (currently an estimated 10,000) and podcasts.

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With around 40 companies now manufacturing WiFi radio devices, including Acoustic Energy, BT, Bush, Denon, Intempo, Roberts, Sagem, and Sony Ericsson, a wide range of WiFi radio models is now available. Features can include the ability to search by country or by genre of programme, plus access to a database of podcasts and archive programming, and also the ability to download music stored on a network or PC onto the WiFi player. WiFi devices can send audio output to a hi-fi set via standard speaker wire, by wireless Bluetooth connection or by using a broadband connection and a wireless gateway such as a WiFi router. Portable models, which allow users to access internet and analogue radio stations while on the move, are now on the market. With a battery life of about 20 hours, sets currently retail at around £150.

According to research carried out by Ofcom in July 2008, around 6% of people claimed to have a WiFi radio with a further 11% saying they would be interested in WiFi radio services.

Digital platforms set to develop across the globe in 2008/09

The number of digital radio services using variants of the Eureka147 standard (of which DAB is the original standard) looks set to increase in 2008/09, as a number of countries around the world are looking to launch (or re-launch) DAB, DAB+ or DMB-A services. Countries including France, Germany and Australia are planning to launch such services in 2009. WorldDMB has announced that it is developing a set of standard receiver profiles which will allow all future Eureka 147-based radios to receive DAB, DAB+ and DMB-A.

Initial enthusiasm in a number of countries for DRM (Digital Radio Mondiale), using medium wave or short wave frequencies, has now cooled following a number of trials. However, a number of international broadcasters remain keen on the platform.

Satellite radio provider World Space is also planning to launch a satellite radio service in Italy in the coming year, with a wider-roll-out across Europe planned for the future.

4.1.8 Digital Radio Working Group publishes interim report on digital plan The Digital Radio Working Group (DRWG) group was established by the Secretary of State for Culture, Media, and Sport in November 2007, to bring together industry leaders and stakeholders to consider issues such as:

• what conditions would need to be achieved before digital platforms could become the predominant means of delivering radio?;

• what are the current barriers to the growth of digital radio?; and

• what are the possible remedies to these barriers?

In June 2008 an interim report from the DRWG made a number of suggestions:

• DAB is the most appropriate replacement for analogue radio in the UK.

• The future radio landscape should, at least in the medium term, be a mixed ecology with:

o DAB as the primary platform for national, regional and large local stations;

o FM capacity for small local and community radio stations; and

o IP delivery to complement the above and to provide opportunities for greater interactivity.

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• Future receivers should be capable of receiving FM, DAB and the other main variants of the Eureka 147 family.

• A long-term plan should be developed to move all services to digital.

• MW should be re-allocated for other uses, while more work is needed to consider the future role of LW.

• Government should make a clear statement on the future of digital radio.

• Government should agree a set of criteria and timetable for the migration to digital.

• These criteria should include an assessment of:

o the percentage of listening to DAB-enabled devices; and

o the current and planned coverage of DAB and FM.

• In considering the case for migration the DRWG expects the government will also want to consider the take-up of digital radio in cars, affordability, functionality, and an environmental impact plan.

• The aspiration should be to meet these criteria by between 2012 and 2015, with migration completed by 2020.

4.1.9 RAJAR to review listening survey methodology RAJAR (Radio Joint Audience Research Limited) announced in April that it was to carry out an industry-wide review of the future direction of radio audience research, and would publish a three-year strategic plan later in 2008. The research organisation said it would not be investing further funds into the personal audiometer devices which it had been trialling, and would instead look to develop an online survey methodology.

RAJAR acknowledged that the radio industry had changed rapidly in recent years with developments in mobile technology and time-shifted listening, and that a new approach was needed to measure these ways of accessing radio content. RAJAR hopes that a new online diary will provide more in-depth analysis and offer greater flexibility in reporting, with more- frequently added data. As part of the first stage of development, an online interactive diary was due to be field-tested in July 2008.

Note: the RAJAR data used in the report cover a five year time period. RAJAR used a new survey specification from Q2 2007 which introduced changes to the total service areas (TSA) for the radio stations included on the survey. In some cases this may have potentially caused a change in audience reach and share. Caution should therefore be exercised when comparing data from before Q2 2007.

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4.2 The radio industry

This section looks at the radio industry in terms of financial performance (including commercial revenue and BBC expenditure) and radio audience share, by sector. It includes a review of the main commercial operators’ activities over the year and a round-up of the licences awarded by Ofcom during 2007/08.

4.2.1 Radio licences The number of radio stations broadcasting in the UK on AM, FM or digital audio broadcasting (DAB) platforms (including local, regional and national services, but excluding community radio) had reached 397 by July 2008. With the Ofcom awards of new local commercial FM licences drawing to a close, this year’s increase was mainly due to recently licensed stations going live during the year. A number of digital stations also ceased broadcasting in 2007/08, which led to a reduction in the number of UK-wide commercial stations from eight to four by July 2008.

Figure 4.10 UK radio stations broadcasting on analogue and DAB digital radio July 2008 (excluding community radio)

Type of station AM FM Total DAB Analogue analogue1 or DAB stations 2

Local commercial 60 245 305 124 336

UK-wide commercial 2 1 3 4* 4

BBC UK-wide networks 1 4 5 11 11

BBC local and nations 36 46 46 32 46

TOTAL 99 296 359 171 397

1There are 99 services available on AM and 296 services on FM. In total there are 359 individual analogue services as 36 are simulcast over both AM/FM wavebands. 2Of the 359 analogue stations and 171 DAB stations, there are 397 unique stations, as 38 stations are digital-only brands. *The existing Digital One national DAB radio multiplex does not offer coverage of Northern Ireland.

In addition to services on AM, FM and DAB, around 80 stations were broadcasting on digital satellite in July 2008, with a further 27 stations on Freeview and 34 on cable. Most of these DTV stations are simulcasts of AM/FM/DAB services).

Local commercial FM licence awards 2007/08

Ofcom awarded 18 local commercial analogue FM licences across the UK in 2004/05 and another 18 in 2006/07. Only two further licences have been advertised in 2008, with a new local commercial FM station for Plymouth awarded in July to Radio Plymouth Ltd. The station is 65% owned by the London Media Company, with the remaining shares held by individuals. The new service has a potential reach of around 250,000 adults (aged 15+) in the Plymouth area. Ofcom’s recent round of local commercial awards are now drawing to a close, with only one more licence to be awarded: for north / mid Wales. This licence is expected to cover a potential audience of around 600,000 people, with the closing date for applications set for September 2008.

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Figure 4.11 Number of analogue radio station licences awarded Number of operators

400 364 369 342 46 BBC local (inc. 326 315 322 nations) 296 302 309 5 280 300 259 3 226 231 BBC national 200 310 315 National 272 288 242 248 255 261 268 commercial 205 226 100 172 177 Local and 0 regional commercial 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Ofcom Note: Chart does not include community radio stations

13 more local commercial FM stations launch in 2007/08

Of the 18 FM licences awarded in 2006/07, 13 went live during 2007/08. These included GCap’s Xfm in South Wales, which went on air in November 2007, but was later sold to Town & Country Broadcasting and re-launched as Nation Radio in June 2008. Smooth Radio North East, originally awarded to Saga Radio, was acquired and launched by the Guardian Media Group in January 2008. Other services going live in 2008 include local commercial FM stations in Liverpool, Exeter, Southend and Warwick (Figure 4.12).

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Figure 4.12 Local commercial radio stations going on air in 2007/08

On-air date Area Station name Ownership Date of award May 2007 Bristol Original 106 CanWest MediaWorks UK Ltd 95%, Sept 2006 Seven Broadcast Ltd 5%

June 2007 Northallerton Minster FM The Local Radio Company Nov 2005 Aug 2007 Hull KCFM 99.9 Planet Broadcasting Co Ltd July 2006 Oct 2007 Oxford and South Jack FM Absolute Radio International Ltd Oct 2006 Oxfordshire Oct 2007 Aberdeen Original FM CanWest MediaWorks UK Ltd 95%, Jan 2007 Seven Broadcast Ltd 5% Nov 2007 South Wales Nation Radio (formerly Town and Country Broadcasting, May 2007 XFM South Wales) (formerly owned by GCap) Dec 2007 Herefordshire Sunshine Radio Laser Broadcasting Ltd 60%, Feb 2007 and Monmouth Local Radio Ltd 20%, Monmouthshire Hereford Local Radio Ltd 20%

Jan 2008 Liverpool City Talk 105.9 FM Radio City (Sound of Merseyside) Ltd, Nov 2006 a wholly owned subsidiary of Bauer Radio 100% Jan 2008 North East Smooth Radio Guardian Media Group (GMG) April 2006 England (Previously awarded to Saga Radio (North East Ltd)

Feb 2008 Exeter Exeter FM London Media Company (LMC) 75%, Sept 2006 Riverside Radio Ltd 25% March 2008 Southend Southend Radio Stockvale Ltd (80%), Provincial Radio April 2006 Ltd (20%)

April 2008 Warwick Touch Radio 107.3 CN Group Jan 2006

May 2008 Manchester Rock Radio Guardian Media Group (GMG) Feb 2007

Source: Ofcom

Over 100 community stations now on air

Community radio licences are awarded to small-scale operators working on a not-for-profit basis to serve local areas or particular communities. The number of community stations has increased over the past three years, with a total of 179 community licences awarded by July 2008. Of these awards, 136 are for areas in England, 20 in Scotland, 14 in Northern Ireland and nine in Wales. By July 2008 112 community radio stations were on air and serving their local areas. Figure 4.13 shows that the majority of community stations are concentrated in highly-populated areas.

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Figure 4.13 Location of the UK’s community radio stations

The Superstation

Community stations Ness FM Licensing Round 12 Speysound shmuFM FM on-air FM not yet on-air Mearns FM AM on-air AM not yet on-air Celtic Music AM Jubilee FM Dunoon CR Sunny Govan Insight R Not yet considered Leith FM Awaz Revival R Edinburgh Garrison FM Black Diamond Bute FM Pulse FM

3TFM Brick FM

Lionheart R

Spice FM Alive R NE1 FM Utopia FM Bishop FM Drive FM R Hartlepool R Teesdale Cross Rhythms Aldergrove & Antrim FM Drystone R Community Voice Holywood FM R Failte Catterick Garrison FM Feile FM Star FM Diversity BFBS Lisburn Blast FM Indigo FM Vibe FM Lisburn City R Oldham CR Down FM Pendle CR Shine FM Ballykinler FM JCom Vixen Seaside R Iur BCB Tempo Preston FM West Hull CR Leicester Crescent Asian Fever Phoenix Takeover Radio Chorley Branch FM FM Demon FM Greater Manchester & N Cheshire KCC Live EAVA FM Salford CR Penistone TMCR 7 Waves Redroad FM Kohinoor FM All FM – South central & East Manchester Tudno FM Burngreave CR R Lindum Wythenshawe FM Sheffield Live Takeover Siren FM Tameside CR Point FM HCR Flame CCR Amber Sd Boundary Sd Pure R – Stockport Cheshire FM Canalside Erewash Sd R Dawn Oldham CR Moorlands Gravity FM Calon FM R Faza Bolton FM Cross Rhythms R Ikhlas Kemet R Tulip R Peace FM – Hulme Hermitage FM Rossendale Radio North Manchester FM TCR The Eye Future R Gaydio – Manchester Unity Radio – central Manchester The Hillz Corby R The ‘Bridge Cross Rhythms HFM Inspiration FM Youthcomm R 209 Radio Ipswich CR Diverse FM Birmingham & Black Country Forest of Dean CR Gloucester FM Aston FM - Aston Colchester Garrison BRFM Stroud FM Unity FM - Birmingham R Verulam Saint FM New Style R - Birmingham Swindon 105.5 WCR - Wolverhampton Afan FM GTFM Phoenix FM SACDA Radio – Sandwell R Tircoed Bristol C FM Raaj FM – Sandwell R Cardiff Asian Star Switch Radio – Sandwell Bro R BRFM UJIMA R Somer Valley FM Ambur Radio – Walsall Glastonbury FM Greater London Castledown R Aldershot Army R CSR Salisbury Plain 10Radio Army R Skyline CR Unity 101 Express FM Forest FM R Reverb Greater London Aspire FM Angel R Havant Phonic FM Desi R– Southall Hope FM The Bay Hayes FM - Hayes Angel R IOW On FM – Hammersmith Soundart R Life – Stonebridge & Harlesden Cross Rhythms Plymouth Link FM – Havering R St Austell Bay NuSound R – Newham A39 Radio Resonance FM – C London Radio Scilly Sound R - Hackney R Umma – Newham Voice of Africa - Newham Westside CR – Southall

Source: Ofcom, July 2008

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Twenty-five community radio stations awarded in 2008

In 2008, a further 25 stations have been awarded, covering communities in the north of England, the Midlands and north Wales. Recent awards in June 2008 include three in Leicester: EAVA FM, which will serve the city’s East African community, Kohinoor FM which will serve the Panjabi community and Demon FM, which will target young people aged 16-30 and include educational programming.

Figure 4.14 Community radio licence awards in 2008

Station Town Area Awarded

Tudno FM Llandudno North Wales January 2008

Radio Elwy/Point FM Rhyl North Wales January 2008

Preston FM Preston Lancashire January 2008

Rossendale Radio Rossendale Valley Lancashire February 2008

Canalside Radio Bollington Cheshire February 2008

Moorlands Radio Bidduplh Staffordshire February 2008

KCC Live Knowsley Merseyside February 2008

Radio Lindum Lincoln Lincolnshire March 2008

Boundary Sound Newark-on-Trent Nottinghamshire March 2008

Gravity FM Grantham Lincolnshire March 2008

Peace Radio Manchester Lancashire March 2008

North Manchester FM Manchester Lancashire March 2008

Bolton FM Bolton Lancashire March 2008

Amber Sound Ripley, Amber Valley Derbyshire April 2008

Erewash Sound Ilkeston Derbyshire April 2008

Tulip Radio Spalding, South Holland Lincolnshire April 2008

Takeover Radio Sutton-in-Ashfield Nottinghamshire April 2008

TCR FM Tamworth Staffordshire May 2008

Switch Radio Castle Vale Birmingham May 2008

Ambur Radio Walsall West Midlands May 2008

Raaj FM Sandwell West Midlands May 2008

SACDA Radio Sandwell West Midlands May 2008

EAVA FM Leicester Leicestershire June 2008

Demon FM Leicester Leicestershire June 2008

Kohinoor FM Leicester Leicestershire June 2008

Source: Ofcom

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Of the current round of community licence awards, only two areas are still to be awarded, with applications for East and South East England opening in August and closing in November 2008. Community stations for Greater London, including other areas within the M25, will be advertised at a later date.

Figure 4.15 Community radio licences to be awarded

Region Application date Closing date

1. East and South East England 27th August 2008 18th November 2008 2. Greater London (including areas within the M25) To be announced To be announced

Source: Ofcom

4.2.2 Industry revenues and expenditure Radio funding up 2.6% in 2007

Ofcom estimates that total radio revenue in 2007 was just under £1.18bn, up by 2.6% (£30m) on last year. This compares to £11.2bn of revenue in the TV industry for 2007. The radio revenue figure comprises all reported commercial radio revenue along with an estimate of BBC expenditure on its radio services.

BBC spend on radio was approximately £657m in 2007, up by £20m (3.2%) on the previous year, and by £83m (14.5%) over five years. By comparison BBC expenditure on TV was around £2.6bn, equivalent to 23% of the overall TV market. BBC expenditure continues to form the largest single source of funding for the radio industry.

Total commercial revenue was also up (in nominal terms) in the year, following two years of decline. In 2007 commercial revenues reached around £522m, an increase of £10m (2.0%) on 2006. National commercial advertising sales accounted for £271m, up by £3m in the year following a fall of £6m the previous year. Local commercial sales reached £156m, up by £3m on 2006, following a fall of £16.0m in the previous year. Revenues from sponsorship continued to grow, up by £5m (5.5%) on last year to £96m in 2007. Growth in this area has been aided by crossovers with online and digital TV in recent years (Figure 4.16).

Figure 4.16 UK commercial radio revenue and BBC radio spending £ million 1158 1156 1149 1179 1,200 1083 1128 Total

1,000 BBC expenditure (estimated) 800 637 657 Total commercial 574 585 607 626 600 National 543 551 530 522 commercial 400 509 512 291 306 286 274 268 271 Local commercial 200 146 163 177 169 153 156 Commercial 96 0 71 75 88 87 91 sponsorship 2002 2003 2004 2005 2006 2007

Source: Ofcom / operator data / BBC Notes: BBC expenditure figures are estimated by Ofcom based on figures supplied by the BBC; figures in the chart are rounded.

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Mainstream stations hold two thirds share of revenues

The largest share of revenue by station format continues to be held by the Chart-Led and Adult Mainstream genres, which together accounted for 65% of commercial analogue net broadcasting revenue in Q1 2008. This was the same share as five years ago, but with the Chart-led and Chat genres increasing their shares within the overall Mainstream sector. Specialist music has also seen an increase in share up by almost 7 percentage points from five years ago, as music station choice has increased (Figure 4.17).

Figure 4.17 Commercial net broadcasting revenue share 2007 2002 Specialist Other 35+/Gold Other 8% 35+/Gold 7% 9% 7% Specialist News/Speech 6% News/Speech 5% Adult Mainstream Specialist Music - Specialist Music - 28% Youth-orientated Youth-orientated 7% 10% Specialist Music - Specialist Music - Other 7% Other Ethnic Adult Mainstream 0% Ethnic 1% 3% 42%

Chart-led Mainstream Chart-led Mainstream Adult Mainstream and 18% 29% Chat 8% Adult Mainstream and Chat 5%

Source: Ofcom

Spend on radio advertising up in 2007

Expenditure on radio advertising increased during 2007 for the first time in three years, up by £5m (1%) in the year to £442m according to data from the World Advertising Research Council (WARC). For 2008, WARC has forecast that radio advertising spend would grow by 1.4%, slightly ahead of the growth in the overall display market, and by a further 1.0% in 2009 based on current prices.

Despite growth in radio advertising revenue, radio’s share of total advertising spend continued to fall, from 3.0% in 2006 to 2.9% in 2007 (Figure 1.17). This followed the pattern in television, where advertising was stable during the year at £3.5bn, but its share of all advertising spend fell 0.5 percentage points to 23.4%. By contrast, internet advertising spend was up by 36% in the year, to £2.5bn, and was more than four times the expenditure level of five years ago. The internet now has a 16% share of all advertising, up from 12% in 2007 and from 3% five years ago.

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Figure 4.18 UK radio advertising spend and share of display advertising 2002 - 2007 Revenue £m Share of all advertising 600 4% 3.4% 3.5% 3.4% 3.2% Radio 3.0% 2.9% 3% advertising 400 expenditure

2% Radio share 480 506 518 485 200 437 442 of all display 1% advertising

0 0% 2002 2003 2004 2005 2006 2007

Source: The Advertising Forecast, WARC Note: Chart uses 2000 prices

Commercial radio revenue per listener increases in 2007

By dividing the total revenue generated by the commercial radio sector by the number of listeners, it is possible to derive estimates of revenue per listener. Revenue generated per listener in 2007 stood at £16.81, up by £0.22 (1.3%) on last year’s figure of £16.59 per listener, and £0.84 (5.3%) higher than five years ago.

Figure 4.19 Commercial radio revenue per listener £ per listener

20 £17.15 £17.60 £17.13 £16.59 £16.81 £15.97 15

10

5

0 2002 2003 2004 2005 2006 2007

Source: Operator data and RAJAR

Urban area stations gain a higher pro-rata return

Average revenue per listener tends to be higher for stations covering more densely populated areas such as large cities. Stations which cover a total service area (TSA) of between 500,000 and 1 million people generated the highest revenues in 2007 at around £16.15 per listener. By comparison, stations covering wider regional or national areas of over 5 million people had an average revenue of £5.43 per listener in 2007. The smallest stations, with TSAs of fewer than 100,000 potential listeners, generated an average of £13.35 per listener in 2007 (Figure 4.20).

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Smaller local stations can often have higher reach within their local population area, although they may not be able to attract the same level of advertising as larger area stations. Medium-sized stations covering larger towns and cities can benefit from a concentrated local reach and also through being a primary advertiser serving a large urban area.

Figure 4.20 Average revenue per listener, by population coverage of local station (TSA) £ per listener

20

£16.15 £15.23 £15.15 15 £13.35

£9.53 10

£5.43 5

0 <100k 100 to 500 500 to 1m 1m - 2m 2m to 5m 5m+

Source: Operator data, RAJAR (adults 15+), 2007.

4.2.3 Commercial groups’ performance Global and Bauer own almost 40% of commercial licences

The last 12 months have seen major changes in the commercial radio landscape, with three of the top six radio groups changing ownership and the two largest commercial groups, GCap and Emap, both now in private hands. Global Radio completed its purchase of GCap in June 2008, Bauer bought the Emap radio stations in January 2008, and national commercial station Virgin (including its digital radio stations) was sold by the Scottish Media Group (SMG) to the Times of India Group (TIML) in May 2008.

The leading seven radio groups currently own 64% of all commercial stations, down slightly from last year when seven groups owned 65%. With the acquisition of GCap and the Chrysalis group, Global Radio is the largest group in terms of number of licences, with 76 analogue licences (25% of all commercial analogue stations), followed by Bauer with 41 analogue licences (14%). The Local Radio Group owns many smaller stations and has 7% of all licences, while UTV has a 6% share (Figure 4.21).

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Figure 4.21 Number of commercial analogue stations owned, by group

Guardian Media 4% Tindle Radio UKRD 6-10 stations in group 6-10 stations in group 4% 4% 15% 2-5 stations in group UTV Independent 2-5 stations in group 6% 7% Global Radio Local Radio Co Bauer Radio 7% Local Radio Co Independent 14% UTV Bauer Radio Tindle Radio 14% UKRD Guardian Media Global Radio 25% Source: Ofcom

Commercial listening hours: mixed fortunes for radio groups

The former GCap stations, recently bought by Global Radio, continued their decline in listening share decline in 2007, down by 0.8 percentage points to a 30.4% share of all commercial radio hours by 2007, prior to their sale. The group’s commercial listening share has fallen by 9.0 percentage points from five years ago. Global Radio acquired the Chrysalis group of stations in June 2007, these stations had an 11.7% share of listening by the end of the year.

The former Emap stations, now owned by Bauer, saw their listening share increase over the year, up by 0.9 percentage points to almost a quarter of the commercial audience, at 24.6%. Guardian Media Group (GMG) also continued its recent growth, up by 2.5 percentage points to 11.1% in 2007. The smaller groups, shown as ‘other’ in Figure 4.22 below, lost share over the year, down by 2.5 percentage points, mainly because GMG acquired a number of these stations during 2007.

Figure 4.22 Share of commercial listening hours Percentage of listening hours GCap (now 40% 37.9% 35.7% 39.4% 34.0% 31.2% Global Radio) 30.4% Emap (now 30% Bauer) 25.1% 23.1% 24.5% 23.3% 23.7% 24.6% Global Radio (former Chrysalis) 20% 13.7% 11.8% 11.5% 13.0% 14.0% 11.7% Other 11.7% 12.1% 11.0% 11.3% 11.2% 11.2% GMG 10% 7.2% 6.6% 6.6% 7.4% 8.6% 11.1% 4.6% 5.8% 3.8% 4.8% 6.9% 7.2% UTV 3.7% 3.6% 3.6% 3.8% 3.8% 0% 3.7% SMG (now TIML) 2002 2003 2004 2005 2006 2007

Source: RAJAR, (adults 15+) Note: Emap now Bauer Radio, as at January 2008, SMG now TIML as at May 2008, GCap Radio now owned by Global Radio as at June 2008.

The BBC’s share of radio listening hours reached almost 57% by Q1 2008, up from 56% a year ago, of which BBC local / nations radio accounted for 10% and BBC network radio for 47%. The commercial radio stations’ share of all radio listening stood at just over 41% by Q1 2008, led by the former GCap stations with 12%, closely followed by Bauer with 10%. Global Radio’s former Chrysalis stations held a 5% share, meaning that, if including the GCap

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stations, Global would have had a 17% share of the radio audience in Q1 2008. Of the other commercial groups, Guardian Media Group (GMG) held a 5% share of all hours while UTV had 3%.

Figure 4.23 Share of all radio listening hours Percentage of listening hours

SMG (now TIML) TLRC Other 1% 1% 6% UTV BBC network GMG 3% 5% BBC network BBC local / nations Global Radio 47% GCap (now Global Radio) (former Chrysalis) Bauer Radio (former Emap) 5% Global Radio (former Chrysalis) Bauer Radio (former GMG Emap) UTV 10% SMG (now TIML) GCap TLRC (now Global Radio) Other 12% BBC local / nations 10%

Source: RAJAR, (adults 15+), Q1 2008 Note: GCap now Global Radio, as at June 2008, SMG now TIML as at May 2008.

Commercial groups’ weekly audience reach

The GCap stations had the largest weekly reach in Q1 2008, with over 14.4 million adult listeners per week, although this was down from 15.2 million last year. Global’s former Chrysalis stations held a combined weekly audience of over 6.5 million listeners in Q1 2008. Therefore the new combined Global and former GCap stations could potentially reach over 20 million listeners per week.

The former Emap stations, now owned by Bauer, make up the second largest group by reach, with a weekly audience of over 11.9 million listeners, up 2.5% year on year. Other major commercial groups include GMG, with a combined reach of almost 4.8 million, up slightly on last year, and UTV, including national station talkSPORT, which reached 3.7 million listeners a week, up by 2.5%. Scottish Media Group (SMG), which recently sold its Virgin Radio portfolio of stations to the Times of India group (TIML), reached around 2.7 million listeners a week, up 1.2% in the year. The Local Radio Company (TLRC) controls a portfolio of smaller local stations which serve around a million listeners a week, up 2% on 2006.

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Figure 4.24 Commercial radio: weekly audience reach Annual change - 4.9% + 2.5% + 6.4% + 0.1% + 2.5% + 1.2% + 2.0% in reach Weekly reach Q1 2008 (thousands) 16,000 14% 14,000 12% 12,000 10% 10,000 8% 8,000 14,429 6% 6,000 11,904 4% 4,000 6,532 2,000 4,792 3,733 2,695 925 2% 0 0% GCap (now Bauer Global GMG UTV SMG (now TLRC Global Radio Radio TIML) Radio) (former (former Emap) Chrysalis)

Source: RAJAR Q1 2008, (adults 15+) Note: GCap now Global Radio, as at June 2008, SMG now TIML as at May 2008.

Of the three commercial stations available on FM or AM radio on a nationwide basis, Classic FM has the largest reach, with over 5.6 million adult listeners per week. The station held a 3.7% share of all radio listening in Q1 2008, although this was down from 4.1% last year.

During the year talkSPORT reached 2.5 million listeners each week, as did Virgin Radio (which is available nationally on AM and also in the London area on FM). TalkSPORT had a higher share of listening than Virgin (1.9% versus 1.4%) driven by higher average hours per listener per week (8.0 compared with 5.9).

Figure 4.25 National commercial stations: reach and share Annual change - 6.8% + 5.5% + 0.7% in weekly reach

Weekly reach Q1 2008 (thousands) % share of all radio listening hours

6000 3.7% share of hours 5000 4000

3000 5622 1.9% share of hours 1.4% share of hours 2000 1000 2470 2466 0 Classic FM talkSPORT Virgin AM / FM

Source: RAJAR Q1 2008, (all listeners 15+).

4.2.4 Overview of the major radio operators in 2008 The BBC

The BBC’s local and national analogue radio stations across the United Kingdom are illustrated below (Figure 4.26).

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Figure 4.26 The BBC’s analogue radio stations

BBC Local and National Networks Nations’11B radio BBC Radio 1 11C BBC Radio 2 National station 11D BBC Radio 3 12ALocal station Nan Gaidheal BBC Radio 4 12C BBC Radio 5 Live 12D Scotland BBC Asian Network (only available in some areas on analogue) Newcastle Foyle Cumbria Tees Digital-only stations: Ulster York BBC 1 Xtra Lancashire Leeds Humberside BBC 5 Live Sports Extra Merseyside Sheffield Manchester Lincolnshire BBC 6 Music Derby Stoke Nottingham BBC 7 Shropshire Leicester Norfolk WM Northampton Hereford & C & W Cambridgeshire BBC World Service (available in analogue in parts of Worcester Suffolk Gloucester Oxford 3 Counties the UK and in digital) Guernsey Cymru London Essex Wales Swindon Jersey Bristol Berkshire Kent Somerset •All national networks and digital only stations are Wiltshire Sound Southern available on DAB, Sky, Freeview and cable Solent Counties Cornwall Devon

Source: BBC / Ofcom

BBC network radio increases share

BBC national networks (Radios 1 to 4 and 5 Live) attracted a 45.4% share of all radio listening hours by 2007, an increase of 2.2 percentage points on 2006 and up 3.4 percentage points on five years ago. BBC Radio 2 remained the leading radio station with a 15.7% share of all listening in 2007; Radio 1 grew by 0.6 percentage points to 10.3%, while Radio 4 gained the most share up by 0.7 percentage points to 11.8%. However, the BBC local and nations’ stations fell for the second year, down 0.4 percentage points to a 10.0% share, and 1.0 percentage point down on five years ago (Figure 4.27).

Figure 4.27 BBC radio audience share Listening hours (%)

20% 15.8% 16.0% 16.4% 16.0% BBC Radio 2 15.8% 15.7% 15% BBC Radio 4 11.5% 11.5% 11.5% 11.8% 11.1% 11.8% 11.0% 10.9% 11.0% 11.1% 10.4% 10.3% BBC Local / Nations 10% 8.4% 7.7% 8.2% 9.2% 9.7% 10.0% BBC Radio 1 4.7% 4.3% 4.5% 4.6% 5% 4.4% 4.2% BBC Radio 5 Live 1.2% 1.4% 1.3% 1.2% 1.4% 1.2% BBC Radio 3 0% 2002 2003 2004 2005 2006 2007 Source: RAJAR, (adults 15+)

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Over two-thirds (68%) of adults listen to the BBC every week

In Q1 2008 BBC radio reached 34.2 million or 68% of UK adults a week, up from 66% in 2007. By comparison, BBC television reaches around 85% of the population weekly. BBC radio’s average reach peaks at breakfast time and falls steadily during the course of the day; around 8.4 million listeners tune in to a BBC station during the breakfast peak, falling to 6.1 million by mid-morning, 4.9 million during the drive-time slot, and 1.4 million overnight.

Figure 4.28 All BBC radio listening across the day (weekday) Listening audience (millions)

10 8.4 8 6.1 6 4.9 4.9 4

1.9 2 1.4

0 Breakfast Mid Afternoon PM drive Evening Overnight peak morning

Source: RAJAR Q1 2008, (all listeners 4+)

Weekly percentage reach of BBC stations

BBC Radio 2 has the highest reach of any UK radio station, with over a quarter (27%) of adult listeners (13.6 million) tuning in every week in Q1 2008. Radio 1 reached 11 million (22%) adults, its highest figure for six years and attracted 25% of listening among 15-29 year olds, its highest share of this age range for seven years. The BBC local / nations’ stations reach around one in five UK adults a week (10.3m listeners); for 2.8 million people their local BBC station is the only BBC station they listen to. Radio 4 had a slightly lower reach, at 19% or 9.6 million adults weekly.

Figure 4.29 Weekly reach of BBC stations Average weekly listening audience (% UK adults) BBC Radio 2 27.1% BBC Radio 1 22.0% BBC Local/Nat 20.4% BBC Radio 4 19.0% BBC Radio 5 Live 12.0% BBC Radio 3 3.6% BBC World Service 2.7% BBC 7 1.6% 5 Live Sports Extra 1.3% 1Xtra from the BBC 1.2% BBC Asian 1.1% BBC 6 Music 1.0%

0% 10% 20% 30%

Source: RAJAR Q1 2008, adults 15+

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BBC digital audience over 10 million per week

By Q1 2008, more than 10 million people were listening to BBC radio services on digital platforms, accounting for 100 million listening hours per week. Of these, 6.4 million people were listening to the BBC through DAB digital radio sets, equating to 71 million hours per week. Listening via digital TV and the internet increased the digital audience by 4.4 million and 29 million hours a week respectively.

Listening to the BBC's digital-only services continued to grow over the year, with the digital- only portfolio reaching 2.9 million people per week; each digital-only station now has more than half a million listeners. BBC Radio 7 is the most popular of the BBC’s digital-only stations, reaching over 800,000 adults per week in Q1 2008. Almost a third (31%) of BBC Radio 5 Live listeners were listening via digital platforms by Q1 2008, with the station being available on analogue radio only on the AM band. Podcasts are also becoming an increasingly popular component of the BBC radio services; Russell Brand’s weekend show on Radio 2 was averaging 540,000 downloads per month by Q1 2008.

Music makes up half of all BBC network hours

Over half (51.6%) of all hours broadcast by BBC network radio have music content. News and Weather account for 17.3%, followed by Drama (5.9%), Sport (5.7%), Entertainment (5.3%), and Current Affairs (3.5%).

Figure 4.30 BBC network radio broadcast hours, by genre Share of output (%) 60% 51.6%

40%

20% 17.3%

5.9% 5.7% 5.3% 3.5% 2.6% 2.0% 1.7% 1.4% 2.9% 0% Music News and Drama Sport Entertainment Current Factual Arts Children's Religion Other weather affairs

Source: BBC Annual Report and Accounts 2007/2008

BBC expenditure by station

The 2007/08 BBC financial statements show expenditure of £598.4m directly attributable to radio services (not including additional costs such as DAB radio distribution (£9.6m) and other areas such as development). Within this figure, £460m was spent on radio content, with £47m on distribution and £91m on infrastructure. Thirteen per cent of its eligible radio hours (at a cost of £17m) were independently produced in 2007/08, ahead of its 10% target.

Analysing services on a cost-per-hour basis, Radio 4, with its diverse range of programmes, was the most expensive station at £9.9k per hour in 2007/08, although this was down from £10.5k per hour in 2006/07. The BBC’s second most expensive station was 5 Live at £6.3k per hour (2006/07: £6.9k), driven by the cost of covering news and live sports events. Radio 2 and Radio 3 had similar expenses of £4.5k and £4.3k per hour respectively, while Radio 1, with its music focus, was lower at £3.5k per hour. BBC Scotland was the most expensive of the nations’ stations at £3.3k per hour, up from £2.4k in 2006/07.

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Figure 4.31 BBC radio stations: cost per hour of programmes Cost (£) per hour

BBC Radio 4 £9,900 BBC Radio 5 Live £6,300 BBC Radio 2 £4,500 BBC Radio 3 £4,300 BBC Radio 1 £3,500 BBC Scotland £3,300 BBC Wales £1,800 BBC Radio 5 Live Sports Extra £1,700 BBC Ulster / Foyle £1,700 BBC Cymru £1,600 BBC Radio Asian Network £1,300 BBC Radio nan Gaidheal £1,200 1 Xtra £800 BBC Radio 7 £600 BBC Radio 6 Music £600 BBC Local Radio England £400 0 2000 4000 6000 8000 10000 12000

Source: BBC Annual Report and Accounts 2007/2008

The commercial radio groups

Figure 4.32 illustrates the location of the UK’s local commercial analogue stations. In this section we present an overview of the financial results and commercial activities of the main radio groups over the past year.

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Figure 4.32 Analogue commercial radio stations, with population served

Virgin Radio

Classic FM Station size FM & AM <100,000 pop. TalkSport FM 100,000 – 250,000 pop. SIBC FM >250,000 pop. AM >100,000 pop. Isles FM national

AM national Lochbroom Station owners

Two Lochs Waves Global Radio GCap Media Moray Firth NECR Cuillin Bauer Radio Northsound 1 Northsound 2 Guardian Media Group Original The Local Radio Company Lincs FM Nevis Heartland RNA UTV Tay FM, Wave 102 UKRD Perth FM Tay AM Kent Messenger Group Oban Central Scotland CN Group Kingdom Central Xfm Tindle Radio Your Smooth, Clyde 1 Real Your Clyde 2 Laser Rock Kingdom FM Forth 1,Forth 2,Talk107 L107 Forward Media Borders London Media Co / Sunrise

Argyll West FM River Media West Sound Metro CanWest Magic North East Century MNA Galaxy South West Sound Town & Country Broadcasting Sun Smooth CFM Other Q97.2 Durham TFM,Magic Q102.9 Seven FM Alpha CFM Single licence with two stations

Downtown Lakeland Q101.2 Cool Minster Northallerton City Beat The Bay Fresh Yorkshire Coast Six FM U105 Abbey Yorkshire Coast Stray Pulse,Gold, Minster Yorkshire North West Wave Central 2BR Sunrise Galaxy Five FM Century Bee Rock,Magic Rev’n Aire, Magic Real Smooth Ridings Dune Tower Pennine Viking,KCFM, Magic Asian Sd. Trax Compass E Midlands RCity,CityTalk Dearne Wish Manchester Rother Manchester Juice,Magic Hallam, Magic Smooth Key 103 Buzz KCR High Peak Trax Heart Galaxy Coast Imagine Lincs Wire Silk Peak Xfm Champion Dee Mansfield Rock Radio Marcher Sound Signal1,Signal2 Trent North Norfolk Magic Gold Ram Gold Gold Beacon, KLFM Oak The Beach Rutland Severn TelfordGold,Wolf Lite Birmingham W Midlands Touch Leicester Sd Hereward Smooth Sabras Classic Gold Broadland BRMB Maldwyn Severn B’ham Gold Heart Oak Connect Gold ,Norwich Northants96 Galaxy Kerrang Ceredigion Wyre Rugby Q103,Star Sunshine Touch Gold Radio XL Town Wyvern Mercia, Gold Chiltern FM Gold Sunshine Touch Horizon Touch Chiltern FM SGR Severn Sound Touch Gold SGR Colchester Carmarthenshire Mix96 Ten 17 Sunshine Gold HertBeat Pembrokeshire Star Fox,Jack Dream Scarlet LGR Dream East Note: stations may cover different sized 107.9 Mercury LTR Southend areas, even though based in the same Valleys GWR Wilts Time Kiss The Wave Star Mix107 Essex town. As a result, stations based in the Red Dragon Gold,Brunel South Wales Swansea Sound GWR Bristol Time Choice South FM Gold same town may have different Reading,2 Ten Time proposed localness requirements. Real Swansea Bay Gold Jackie Invicta, Gold Gold Gold KMFM Nation Bridge Original County Sound KMFM Star Kick Eagle Mercury KMFM KMFM Bath Dream Severn Estuary Quay Kestrel Delta Quay Andover Gold KMFM KMFM KMFM Kiss 3TR Spire Hampshire Lantern Orchard Ocean,Power Bright Arrow Vale Splash Ivel Gold Sovereign Gemini 2CR Gold Gold Quay Spirit Southern,Gold,Juice Exeter FM Fire Isle of Wight Wessex Plymouth Sound Palm Gold Pirate Solent London-wide Stations R Plymouth South Hams Atlantic Wave Capital 95.8 Smooth Sunrise Original Gold Heart 106.2 Kismat XFM LBC 97.3 Club Asia Island Kiss 100 LBC News 1152 Spectrum Magic 105.4 Virgin FM Premier Channel

Source: Ofcom Note: Stations may cover different sized areas, even when based in the same town

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Global Radio acquires GCap

In June 2008 Global Radio acquired GCap for £375m, thereby becoming the largest commercial radio operator in the country. GCap, formed by the merging of GWR Group and Capital Radio in May 2005, incorporates 76 analogue radio stations and over 100 digital services.

Before buying GCap, Global Radio had also acquired the Chrysalis radio group for £170m, a year earlier, in June 2007. Chrysalis was the third largest commercial radio group at the time, with nine analogue and 31 DAB digital radio licences, and a share in DAB multiplex operator MXR Holdings Ltd. On purchasing Chrysalis, the Global Radio group announced that it hoped the acquisition would provide a basis for further expansion in the commercial radio market. In just one year Global has become the largest player in UK commercial radio.

Before being sold, GCap had streamlined its group operations, following a change of strategy by its former Chief Executive, Fru Hazlitt, and had announced plans to relinquish a number of its interests in digital radio. A number of GCap digital radio stations were closed, including Core, Capital Life, and theJazz, following previous closures of Capital Disney and The Storm, while others, such as Planet Rock, were sold.

GCap Media had also announced that it would reduce its investment in its AM network of ‘Gold’ stations in order to concentrate on core FM brands and invest more in online and broadband services. In December 2007, GCap announced that it had signed a partnership deal with Apple to create direct links between the GCap station websites and the Apple online music store. GCap listeners are also able to download playlists, podcasts and albums directly from station-branded areas created within the iTunes Store. In March 2008 GCap announced that it had acquired a majority stake in the local social networking website company welovelocal.com for a fee of £600k. With plans to include listings and reviews from this website on the One Network and Capital 95.8 FM sites, GCap hoped to develop online communities around station brands and create new revenue streams from classified advertising.

Following the completion of GCap’s sale to Global Radio in June 2008, Ashley Tabor became the group’s new chief executive and Charles Allen the new chairman.

The locations of the main Global Radio stations are shown in (Figure 4.33).

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Figure 4.33 Global Radio’s analogue radio stations

Source: Ofcom

Based on the Q1 2008 listening results for GCap and for Global Radio’s former Chrysalis stations, the new combined Global Radio group could have a potential weekly reach of 24 million listeners (equivalent to almost 40% of the UK population, although some stations share reach). Based on Q1 figures, the new group would have the equivalent of a 41% share of all commercial listening hours, or a 17% share of all radio hours.

The former GCap stations attracted almost 16.6 million listeners in Q1 2008, while the former Chrysalis stations had an audience of 7.7 million. In the same period, GCap’s One Network, which covers a wide range of urban areas across the UK, had an audience of 8.4 million a week, while GCap’s national station Classic FM had a weekly audience of almost 6 million. The former Chrysalis stations acquired by Global include three main brands: Heart, Galaxy and LBC, which operate in many of the main cities across the UK; the three brands attract a combined audience of over 6 million listeners per week.

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Figure 4.34 Global Radio’s main networks: reach and share of hours Annual change -4.5% -6.2% -8.6% in weekly reach - 0.7% - 7.2%

Weekly reach Q1 2008 (thousands) % share of all radio listening hours

25000 17.4% share of hours

20000 12.2% share of hours 15000 24,274 5.8% share of hours 10000 5.2 % share of hours 16,567 3.7% share of hours 5000 8,358 7,707 5,944 0 Combined GCap Global - former GCap - One Classic FM Global / GCap Chrysalis Network

Source: RAJAR Q1 2008, (all listeners 4+). Note: Total Global Radio – weekly reach based on the combined Q1 2008 listening results for GCap and Global Radio’s former Chrysalis stations. Figures may be lower as some stations may share audiences, thereby reducing weekly reach.

Bauer Radio (formerly Emap)

In July 2007, the Emap media group released a statement saying that it was undertaking a review of the group’s operations across television, radio, and magazines, including a possible sale or demerger of some or all of its constituent businesses. In January 2008, the group announced that it was to sell its radio and magazine operations to the Bauer group for £1.14bn. This fee included £422m for the UK radio stations, with the new radio operation to be called Bauer Radio. The Bauer Group is based in Hamburg in Germany, where it has a wide variety of media and publishing interests. The group is the largest privately-owned publisher in Europe and includes a portfolio of over 230 magazine titles.

In a trading statement released in January 2008, before its sale to Bauer, Emap announced that UK radio revenues for the fourth quarter of 2007 were up 6% year on year. Previous half yearly results to September 2007 showed radio revenues up by £1m on the previous year, to £82m, with operating profit of £17m. The group also announced the sale of its Republic of Ireland stations in January 2008, for £124m.

The UK radio sale included Emap’s radio portfolio of 41 local and eight national stations. Bauer thereby acquired a weekly audience of almost 12 million adults and a 10% share of the overall radio audience. The main components of the operation include the Big City Network (the original commercial local FM stations across the north of England and Scotland) and the Magic AM network, as well as the group’s national digital stations which are linked to magazine titles such as Kerrang!, Heat, Q, The Hits, and Mojo (Figure 4.35).

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Figure 4.35 Bauer’s analogue radio stations

Source: Ofcom

When the under-15 age group is included, the Bauer radio stations reached almost 14.6 million listeners each week in Q1 2008 and had an 11.2 % share of the radio audience. The Big City Network group of stations attracted a combined audience of almost 5.4 million, equivalent to a 4.1% share of all listening hours. The Magic network attracted a further 3.0 million listeners per week, with a 1.9% share of all radio listening. Emap’s Magic 105.4 retained top spot in the London market in Q1 2008, with 1.9 million adult listeners per week, giving it a 5.8% share of the capital’s audience. The station is also now the ninth most listened-to station in the UK, boosted by its availability outside London on digital platforms.

Figure 4.36 Bauer main networks: reach and share of hours Annual change -11.6% -4.4% + 3.1% in weekly reach

Weekly reach Q1 2008 (thousands) % share of all radio listening hours 11.2% share of hours 15000

12000

9000 14,578 6000 4.1% share of hours 1.9% share of hours 3000 5,391 3,019 0 Total Bauer Big City Network Magic Network

Source: RAJAR Q1 2008, (all listeners 4+).

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Guardian Media Group (GMG)

GMG Radio is part of the wider Guardian Media Group, with interests in newspapers, magazines, websites, local television and business-to-business media. The group owns 15 radio stations across the UK, comprising the Real Radio, Smooth, Century and Rock Radio brands. It holds a 24.3% stake in the MXR digital radio multiplex and a 22% share of Digital News Network, which provides a rolling news service on a number of local DAB multiplexes.

GMG won a new FM licence for Manchester and the surrounding area in 2007, and launched Rock Radio in the city in May 2008. The station is targeted at over-35 males and supplements GMG’s portfolio of interests in the North West: Century Radio and Smooth. The group also launched a digital-only Rock Radio station in the North East during April 2008, following the launch of Smooth Radio on FM and DAB in the North East in January 2008. The first Rock Radio station was launched in January 2007 on FM and DAB to serve the areas of Glasgow and Renfrewshire and also on DAB in Edinburgh, attracting a weekly audience of 46,000 by Q1 2008. Having a portfolio of stations in the same region has enabled GMG to benefit from economies of scale by housing three main brands – Smooth, Real and Rock Radio - in combined radio centres in Glasgow and Manchester.

Of the two main GMG brands, the Real Radio stations operate in three areas: South Wales, Yorkshire, and Central Scotland, while Smooth Radio now operates in six locations including London, the East and West Midlands, the North West, the North East and Glasgow. Combined, the GMG group has a potential reach of approximately 62% of the UK (Figure 4.37).

Figure 4.37 GMG’s analogue radio stations

Source: Ofcom

GMG has continued to develop its radio operations over the past year, and its latest results point to growth outstripping the wider radio market. Group profits reached £3.5m in 2007, up from £2.7m in 2006 and £1.7m in 2005. Turnover reached £35.7m in 2007, up 28% from £27.9m in 2006. In its latest annual report, the group highlighted the potential for online growth through further investment in web-based activities.

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The GMG stations attract a combined audience of almost 5.4 million listeners per week, who listen on average for 10 hours per week, generating a 4.5% share of total listening. Many GMG stations cover large regional populations and enjoy strong local share, notably Smooth Radio North West, Century FM North East, Real Radio Scotland and Real Radio Wales. The Smooth stations have a combined audience of almost 2.6 million listeners and a 2.1% share of all radio hours, while the Real Radio and Century stations reach a combined 3.1 million adult listeners per week and have a 2.4% share of radio hours.

Figure 4.38 GMG main networks: reach and share of hours

Annual change -3.3% + 42.1%-0.9% -2.7% in weekly reach

Weekly reach Q1 2008 (thousands) % share of all radio listening hours

6000 4.5% share of hours

4000

5,398 2.1% share of hours 1.6% share of hours 2000 0.8% share of hours 2,586 1,785 1,294 0 Total GMG Total Smooth Total Real Radio Total Century

Source: RAJAR Q1 2008, (all listeners 4+)

UTV Radio

UTV Radio is a subsidiary of UTV Plc which owns a range of television, radio and new media operations, including stakes in six of the UK’s local digital radio multiplexes, and a 10% stake in the 4Digital Group national digital multiplex. UTV is also a 50% shareholder in advertising sales company First Radio Sales. The sales house is jointly owned with The Local Radio Company and represents airtime sales for 134 local radio stations in the UK. In May 2005 UTV made its largest radio acquisition, purchasing the Wireless Group, including the national AM station talkSPORT, for £96.9m. Following a period of strong growth and acquisition, the group now owns 18 stations in the UK (Figure 4.39).

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Figure 4.39 UTV’s analogue radio stations

Source: Ofcom

According to UTV’s 2007 results, total radio turnover from its UK stations was up by 5% to £47.9m (2006: £45.7m, 2005: £25.1m). Total operating profit from the UK stations was up to £9.3m, an increase of £2.2m or 31% on the previous year (2006: £7.1m, 2005: £4.9m). The UK radio operations now account for 42% of overall group turnover. National station talkSPORT saw turnover rise by 12% to £21.4m in 2007 (2006: £19.1m). The station also became the first national commercial radio broadcaster of live Premiership football in 2007. The First Radio Sales venture, owned by TLRC and UTV, reported record commissions of £2m in 2007.

In the four months to April 2008, UTV’s UK radio stations increased revenues by 7% year on year; the national station talkSPORT saw 19% revenue growth for the four months, with growth rates expected to be maintained into the next quarter. However, revenue at UTV's local independent radio stations was down by 3% year on year, with the local market seeing flatter conditions.

In February 2008 UTV Media announced the acquisition of Tibus, a web development company, to assist in enhancing the online proposition of its television and radio stations and integrating its online and broadcast platforms.

The UTV group had a 3.2% share of all radio hours in Q1 2008, reaching over 4.2 million listeners. TalkSPORT increased its audience to almost 2.7 million listeners by Q1 2008, giving it a 1.8% share of total radio listening, with average hours per listener of 8 hours per week. UTV’s local stations were serving a total audience of 1.6 million per week by Q1 2008, equivalent to a 1.3% share of all radio hours.

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Figure 4.40 UTV main networks: reach and share of hours Annual change + 4.3% + 8.0% -1.0% in weekly reach

Weekly reach Q1 2008 (thousands) % share of all radio listening hours

6000

3.2% share of hours 4000 1.8% share of hours

2000 4,245 1.3% share of hours 2,680 1,624 0 Total UTV TalkSPORT UTV local radio

Source: RAJAR Q1 2008, (all listeners 4+)

Scottish Media Group sells Virgin Radio to TIML and Absolute Radio

In May 2008 the Scottish Media Group (SMG) sold its Virgin Radio portfolio of stations to the Times of India group (TIML) and the Absolute Radio group, for a fee of £53.2m. SMG had previously bought Virgin Radio in 2000 for £225m. TIML is the biggest media conglomerate in India and operates a large local commercial radio network. The Virgin purchase is the first international venture for the group, which sees it as the precursor to a planned new music entertainment brand for the UK.

The new stations will be managed by the Absolute Radio group, and will operate under a new name. TIML plans to invest £15m in rebranding and will also develop a multimedia offering incorporating an online music subscription service, online video and mobile applications. The new re-branded service is planned to be re-launched in autumn 2008.

SMG saw the sale as an opportunity to re-focus on its TV and production operations in Scotland, with around £15m from the sale going towards payment of outstanding debts and £30m being paid to shareholders. Previously, in April 2007, SMG had considered floating Virgin Radio on the stock market and had also held discussions with UTV regarding a possible sale in early 2007.

Before the sale, Virgin Radio’s financial performance showed growth, with a £2.6m increase in operating profit in 2007 to £4.9m, (2006: £2.3m). The group reported an increase in advertising revenues and also lower fees for the AM licence. Year-on-year total revenues were up by £2.3m (11%) to £24m (2006: £21.7m), and therefore outperformed the wider radio sector.

Virgin stations secured a 1.6% share of total radio listening in Q1 2008, reaching almost 3.1 million listeners each week, of which Virgin Radio on AM/FM accounted for the majority. Overall reach for the Virgin network was up by 1.6% year on year in Q1 2008. However, listening to Virgin AM was down 15% year-on-year, although this was counter-balanced by a 23% increase in listeners in London. The Virgin digital stations, Virgin Radio Classic Rock, Groove, and Xtreme saw a slight fall in share, with a combined audience of 372k in Q1 2008, down from 381k listeners a year previously.

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Figure 4.41 Virgin main stations: reach and share of hours Weekly reach Q1 2008 (thousands) % change in reach year on year 4000 + 1.6% 3000

2000 -15.1% 3,070 + 22.8% 1000 1,725 1,249 -2.3% 372 0 Total Virgin Radio Virgin Radio (AM) Virgin FM London Virgin digital stations network

Source: RAJAR Q1 2008, (All listeners 4+).

The Local Radio Company

The Local Radio Company (TRLC) was formed in May 2004 after the acquisition of Radio Investments Limited, and subsequently floated on the AIM. The company operates 21 local radio stations, mainly in northern and southern England. The group also has joint ownership with UTV of First Radio Sales, which handles advertising sales for 134 local radio stations.

Following a number of acquisitions over the past couple of years, the group recently sold a number of stations. Altogether seven of the group’s stations were sold in June 2008, including some fairly recent acquisitions. The disposals included Brunel FM, Bath FM and 3TR, which were all sold to the Laser Broadcasting group. Midwest Radio Ltd purchased Ivel FM and Vale FM, with Pennine FM now being independently owned. Also in June Southport station 107.9 Dune FM was sold to Niocom Limited. TLRC said that the primary reason behind the sales was to improve the group’s operating performance.

TRLC launched a new station in June 2007 in Minster Northallerton. The group also has a 35% stake in Abbey FM in Barrow-in-Furness, with the main analogue stations illustrated below (Figure 4.42)

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Figure 4.42 The Local Radio Company’s analogue radio stations

Source: Ofcom

The combined TRLC stations reach around 1.1 million listeners per week, including 925k adults. This equates to an average reach of 21% of the population in their local areas, with adult reach increasing last year by 18k. The stations hold an 8% listening share in their service areas, with an average of 8.2 weekly hours per listener. Many of the stations have a localised focus; the largest is Minster FM in York, which covers around 430k adults and has a reach of 133k listeners.

Total reported group turnover in 2007 was £19.1m, a fall of 5% (2006: £20.1m). However, gross profit for the year increased by 2% to £13.6m; up from £13.3m in 2006, and the gross profit margin was up to 75% in 2007.

In an interim results statement in June 2008, the group announced that first-half revenues were down from £8.7m last year to just under £8.0m, while commissions from the First Radio Sales venture with UTV generated £2.25m, up 12%. The group said that revenues from the new radio station websites were a driver of recent growth, with local advertisers taking the opportunity to advertise on TLRC stations’ websites as well as on the radio. Listening hours were up by 10% year on year, to 7.7 million hours by Q1 2008.

TLRC signed a three-year licensing deal with GMG Radio to re-launch Jazz FM on digital radio in June 2008. The new station will launch in autumn 2008 on DAB digital radio multiplexes in London, the North West, West Midlands, South Wales and Glasgow. Although Jazz FM is currently broadcasting online, the new deal with TLRC will bring presenters back to the station, and it will also be available online and via satellite television. TLRC anticipates that sales of music CDs and related merchandise from the new station may provide a majority of its revenue. TLRC jointly owns three stations with Portsmouth football club: The Quay in Portsmouth, Spirit FM in Chichester, and Isle of Wight Radio. The football club will invest a further £0.95m to increase its stake in these stations from 25% to 50% in September 2008.

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4.2.5 DAB availability and station choice DAB coverage reaches 90%

The majority of UK households are now covered by one or more digital platforms carrying digital radio services. Broadband internet is available to over 99% of UK homes; while digital television is also widely available, with satellite covering approximately 98% of homes, DTT with 73% coverage, and digital cable available to around 47% of homes. DAB digital radio coverage has increased over recent years, with the installation of further multiplexes and transmitters. By summer 2008 approximately 90% of the population was covered by at least one DAB multiplex, with most areas being covered by three or more (Figure 4.43).

Figure 4.43 UK DAB coverage

Source: Ofcom

Availability of digital radio services

The number of DAB digital radio transmitters across the UK has continued to increase over the past year. Each multiplex is licensed to cover a defined geographical area, with the aim of offering services to as many people as possible within that area. However, due to topographical and other local issues such as the location or structure of a building, there are often a number of areas within the multiplex licensed area that are unable to receive a clear DAB signal.

The BBC and Digital One operate the national DAB networks providing digital radio services across the UK, although the Digital One network is not licensed to cover Northern Ireland, where Bauer operates a local multiplex.

New transmitters have been installed by the multiplex operators over the past year and more are scheduled during 2008/09. By March 2008 the Digital One commercial DAB digital radio network was estimated to cover 90% of the UK population, and BBC coverage was also approaching this figure with the installation of new transmitters over the year.

In addition to these national networks, local DAB multiplexes operate across most of the UK. These multiplexes carry local commercial radio stations and the relevant local or nations’ BBC service.

The locations of the local and regional commercial DAB multiplexes are illustrated below (Figure 4.44)

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Figure 4.44 Commercial radio local and regional DAB multiplexes

Source: Ofcom

BBC DAB coverage developments in 2008

The BBC now has over 100 digital radio transmitters broadcasting around the country – the 105th BBC transmitter went live at Buxton in Derbyshire in June 2008. In Northern Ireland, transmitters have been installed at Strabane, Londonderry and in the Omagh and Enniskillen areas, and in North Yorkshire a new transmitter at Oliver’s Mount (Scarborough) was launched in May 2008. The BBC plans to launch further transmitters over the coming year.

Commercial DAB coverage developments in 2008

Digital One DAB digital radio network

Digital One is jointly owned by Global Radio (GCap) (67%) and Arqiva (33%). Digital One was awarded the first national commercial multiplex licence for DAB digital radio in 1998 and began broadcasting in November 1999 under a 12-year licence, for which it is entitled to apply for a 12-year extension. Radio stations currently carried on Digital One's national commercial multiplex include the three national commercial stations (Classic FM, Virgin Radio, and talkSPORT) and the rock music station Planet Rock. In the past year four of the national commercial DAB stations have closed: One Word, Capital Life, Core and theJazz.

4Digital Group to re-schedule the launch of the second national commercial multiplex

In June 2008 Ofcom agreed to a request from the 4Digital Group to delay the launch of the second national commercial DAB multiplex. The launch was originally planned for July 2008, but will now be re-scheduled, with a new timetable expected to be announced later in 2008.

Digital One reaches 90% coverage milestone

In March 2008 Digital One announced that it had reached a target of 90% coverage of the population of Great Britain through the launch of its 133rd digital transmitter at Whitby. Over

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2008/09 Digital One plans to launch three more transmitters to further extend national commercial coverage. Two new transmitters are planned for Scotland, covering the central and Borders regions, one based south of Edinburgh and another near Dumfries. In the south of England a new transmitter is planned for the Maidenhead area, with installation dates to be established by Digital One during the year.

Local DAB multiplex developments

Six local commercial DAB multiplex licences were awarded to MuxCo Ltd by Ofcom during 2008. Licences are awarded with a target to go live within two to three months after the award date. The local multiplexes also reserve capacity to carry local BBC radio services.

In July 2008 a local multiplex licence for north Wales was awarded to MuxCo Wales Ltd, to cover up to 311k people in the area, although initial coverage may cover only half of the local population. This followed a new local multiplex for Mid and West Wales, awarded in March 2008, covering a local population of 400k people. The other four licences awarded were for regions in England, including a new local multiplex for Somerset, awarded in May 2008 with a potential coverage of 481k people, Gloucestershire (460k), Lincolnshire (670k), and Surrey and northern Sussex (1.4m). These recent awards brought to a close the current round of local DAB multiplex licensing.

The table below shows the local DAB awards over the past year (see also map above Figure 4.45: Commercial stations’ local and regional DAB multiplexes).

Figure 4.45 Local DAB digital radio multiplex licence awards in 2007/08

Award date Location Multiplex operator Adult Estimated population indoor in licensed coverage area June 2007 Hertfordshire, Bedfordshire NOWdigital 1.8m 75% and Buckinghamshire July 2007 Derbyshire NOWdigital East Midlands 843k 73% July 2007 National multiplex 4 Digital Group 50.3m 79% Sept 2007 North East Wales & West MuxCo Northeast Wales and 647k 95% Cheshire West Cheshire Sept 2007 Herefordshire and MuxCo Hereford & Worcester 586k 67% Worcestershire Oct 2007 Northamptonshire NOWdigital Limited 505k 84%

Nov 2007 Oxfordshire Now Digital Oxford 494k 83% Dec 2007 North Yorkshire MuxCo North Yorkshire 695k 57% Feb 2008 Gloucestershire MuxCo Gloucestershire 460k 75%

Feb 2008 Lincolnshire MuxCo Lincolnshire 670k 74% Mar 2008 Mid and West Wales MuxCo Wales 400k 40% Apr 2008 Surrey & northern Sussex MuxCo Surrey & North Sussex 1.4m 57% May 2008 Somerset MuxCo Somerset 481k 61% June 2008 North Wales MuxCo Wales 311k 42%

Source: Ofcom

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DAB services continue to grow

Despite some station closures during the year, the number of DAB services continued to grow, aided by the addition of further local DAB multiplexes in 2007/08. By 2008, there were around 433 separate DAB services broadcasting around the UK (374 commercial and 59 BBC), compared with 359 analogue radio services. Of the DAB services, there are 171 individual brands, of which 43 are BBC and 128 commercial stations. Thirty-eight of these brands are digital-only services (34 commercial and four BBC). With 12 DAB brands broadcasting outside their analogue area, there are now 50 brands available on DAB radio only. The remaining 121 brands are simulcasts of analogue services. (Source: DRDB.)

Availability of DAB stations

Four DAB stations are available on Digital One’s national commercial multiplex, with 11 DAB stations available on the BBC national multiplex. In addition, the nations and regions have their own services on the local DAB multiplexes. The BBC DAB network offers the five UK- wide BBC stations, (BBC Radio 1,2,3,4 and 5 Live) plus six digital-only stations (1Xtra, 6 Music, BBC7, Five Live Extra, World Service and the Asian Network). The Digital One network provides four national stations across England, Scotland and Wales, including Classic FM, Virgin Radio, talkSPORT, and Planet Rock. In Northern Ireland, the Bauer DAB multiplex provides Classic FM and talkSPORT. Figure 4.46 illustrates the availability of local and national DAB services.

Figure 4.46 Availability of DAB stations, by area

60 12 50 4 12 12 40 13 4 12 12 12 4 BBC network and local 4 12 4 30 13 4 12 National commercial 12 `44 4 4 4 4 Local commercial 20 37 12 13 31 26 4 31 35 21 4 25 10 2 20 15 20 8 10 0

d d d s s t n n d on d st nd ire la a d n e a h g l n a Eas Ireland Wales g lan o n d L th Scotlan E r Engl ern rn En t Mi Midl outh West Yorks h e st st No North W S rt h e ut Eas Ea West No W So l tra n Ce

Source: Ofcom Note: This shows the maximum number of stations available in each area; local reception issues mean that some listeners may not be able to access all of these.

Within the UK nations, listeners in Northern Ireland can access up to 23 DAB stations, including the 11 national BBC stations plus BBC Radio Ulster / Foyle, two national commercial stations (Classic FM and Talk Sport), and eight local commercial stations. The Digital One DAB network does not cover Northern Ireland, so the other two national commercial DAB stations are not available there. However, the second national commercial multiplex will cover Northern Ireland.

In Scotland, listeners in the Edinburgh and Glasgow areas have the greatest DAB choice with 33 stations, including the 15 national services, plus BBC Radio Scotland and BBC nan Gaidheal, and 16 commercial stations available through local or regional multiplexes. Listeners in Ayrshire have access to around 22 DAB stations; while Aberdeen has 24, Dundee and Perth 21, and Inverness 20.

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In Wales, people living in the Cardiff and Newport areas can access up to 33 DAB stations including the 15 national stations, and BBC Radio Wales / BBC Radio Cymru, with 16 available through the local and regional multiplexes. People in the Swansea area have access to 34 DAB services.

In England, the choice of DAB stations ranges from 60 in London to 24 in Oxfordshire. Larger cities including Birmingham, Liverpool and Manchester have access to around 38 or 39 DAB services, including the 15 national stations. Medium-sized cities such as Leicester, Nottingham, Norwich and Plymouth, and counties including Cornwall and Kent have access to between 23 and 25 DAB stations.

4.2.6 Restricted service licences Short–term restricted service licences (RSLs)

Short-term restricted service licences (S-RSLs) are issued for temporary non-commercial local radio stations which usually serve a very localised coverage area, such as an education campus, sports event, or a music or religious festival site. These licences are also used for temporary trials of community stations, sometimes to gauge interest before applying for a five-year community licence. The number of S-RSLs in use is generally around 400- 500, indicating the popularity of these short-term local services. Ofcom received 496 applications for S-RSLs in 2007, issuing a total of 432 licences. This was lower than in 2006, when 553 licences were applied for, and 475 issued (Figure 4.47).

Figure 4.47 Number of short-term RSLs Number of licences issued 500

400

300 493 489 498 475 464 450 432 200 393 423 350 343 100

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Ofcom

The most popular reason for running a short-term RSL service in 2007 was to provide a trial for a potential community radio station (113 S-RSLs). Educational stations for colleges and schools accounted for around a third (34%), while religious events received 87 licences, generally being issued for key dates in the Christian, Muslim, Sikh and Hindu calendars. Music and other festivals received 55 licences, and sports events were awarded 50 temporary licences.

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Figure 4.48 Reasons for running a short-term RSL: 2007 Share of licences 30% 25% 25% 24% 20% 20%

15% 13% 12% 11% 10% 6% 5%

0% Community Student Religious Festival Sports Education Other trial

Source: Ofcom

Long-term RSLs (L-RSLs)

L-RSLs are a means of providing a non-commercial local radio service for a five-year term. This type of licence is generally used to provide long-term services for special interest groups within a defined establishment such as hospital patients and staff, students on a campus, or army personnel and their families within barracks. They are available on demand, provided they meet the licensing criteria and that a suitable frequency is available. Licences are renewable after the five-year term; and are generally not subject to competition from other applicants.

L-RSLs use broadcasting spectrum that is either unsuitable for other broadcast uses, or is in areas of low demand from other users, or is spectrally efficient. Most services are licensed on AM due to the general lack of available FM spectrum.

With 12 new licences awarded in 2007, there are currently 98 long-term RSLs in operation. The new licences awarded in 2007 included three schools in Glasgow and hospital radio services in Swansea and Leicestershire. A tourist information service was launched in the Shetland Islands, with transmitters located at six different sites across the islands, providing tourist information for each site. Of the 98 L-RSLS, 49% are used to provide services in educational establishments, 38% in hospitals and 13% for the armed forces (Figure 4.49).

Figure 4.49 Reasons for running a long term RSL: 2007 Share of licences 60%

49% 50% 38% 40%

30%

20% 13% 10% 1% 0% Educational Hospitals HM Forces Tourist site establishments

Source: Ofcom

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4.3 The radio listener

The following section looks at the changing patterns in radio listening over the past five years, using audience data to analyse listening by age group and by sector. It also draws on consumer research which monitors changing trends including the adoption and use of digital radio platforms.

4.3.1 Radio reach Around 90% listen to radio every week

The proportion of UK adults listening to radio on a weekly basis for at least five minutes has fallen slightly over the last five years, from 91% to just under 90%. Throughout 2007 BBC radio reach was stable at around 66%, but by Q1 2008 this had risen to 68% of adults. In 2007, commercial radio reach fell by 2% to 61%, but recovered some ground by Q1 2008 to 62%.

BBC network reach was stable in 2007 at 58%, while BBC local / nations’ stations fell by 1 percentage point to 20%. A similar pattern was seen in commercial radio, with the national stations’ reach remaining steady at 27%, while local commercial continued to fall, down 3 percentage points to 49% (Figure 4.50).

Figure 4.50 Reach of radio, by sector

% of population 100% 91% 91% 90% 90% 90% 90% All radio 80% 67%66% 67% 66% 66% All BBC 65%66% 64% 65% 63% 63% 61% All commercial 60% 58% 58% 58% 58% 58% 58% BBC network 56% 54% 52% 51% 52% 49% 40% Local commercial 26% 27% 27% 21% 26% 27% National commercial 20% 21% 21% 22% 21% 21% 20% BBC nations / local 0% 6% 5% 5% 6% 6% 6% Other 2002 2003 2004 2005 2006 2007

Source: RAJAR, (adult listeners 15+).

Radio reach down across most age groups over past five years

Over the past five years, radio reach has fallen across all age groups with the exception of the over-55s, whose listening was up slightly, by 0.4%, to 88% reach in 2007. The most notable fall has been in the 15-24 range, down by 2.7 percentage points on five years ago. When including children in the younger age range, the 4-24 age group is down by less, at - 0.8 percentage points. The next youngest group (the 25-34 range) is the second largest faller; down by 1.2 percentage points over the period (Figure 4.51).

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Figure 4.51 Reach falls most in 15-34 age groups, 2002 – 2007 Percentage point change All 15+ 4-24 15-24 25-34 35-44 45-54 55+ ABC1 C2DE -0.8% -0.8% -2.7% -1.2% -0.5% -0.4% 0.4% -0.6% -0.8%

2002 2007

100% 92% 91% 93% 92%92% 92% 93% 92% 91% 90% 89% 88% 89% 90% 88% 88% 88% 87% 80%

60%

40%

20%

0% All All Adults Adults Adults Adults Adults ABC1 C2DE Indiv's Indiv's 15 - 24 25 - 34 35 - 44 45 - 54 55+ 15+ 15+ 15+ 4-24

Source: RAJAR: data based on calendar years 2002 and 2007.

4.3.2 Listening hours National stations continue to rise

The past five years have seen a rise in the listening share of UK-wide radio stations. This rise has been aided by an increase in the number of national stations provided both by the BBC and commercial radio, and also by wider availability on digital formats such as DAB and DTV. The BBC’s network stations have risen by 3.4 percentage points since 2002 to a 45.4% share in 2007; higher than all commercial radio share at 42.4% in 2007. However, the national commercial stations have also grown listening share and were up by 0.8 percentage points to 11.3% in 2007. Local commercial has been the hardest hit, down 6.9 percentage points since 2002 to 31.1% in 2007. The BBC local and nations’ stations have also lost share over the five years, down by 1.0 percentage points to 10.0%, and are now 1.3 percentage points lower than national commercial (Figure 4.52).

Figure 4.52 Share of listening hours, by sector % of listening hours

60% 55.1% 54.4% 55.4% 53.0% 53.0% 54.0% All BBC 42.0% 42.0% 43.0% 44.0% 43.2% 45.4% 46.0% BBC Network 45.0% 44.2% 40% 42.8% 43.2% 42.4% BBC local / nations 38.0% 35.7% 34.2% 32.8% 32.7% 31.1% All commercial 20% National commercial 11.0%11.0% 11.0% 11.1% 10.4% 11.3% 10.0%10.0% 10.1% 10.5% 10.0% Local commercial 8.0% 0% 2.0% 2.0% 1.8% 2.1% 2.3% 2.2% Other 2002 2003 2004 2005 2006 2007

Source: RAJAR, (adult listeners 15+).

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Older age groups listen to more radio

The average time spent listening to the radio for all individuals aged 4+ was 19.0 hours per week in Q1 2008; down from 19.4 hours in Q1 2007. Average listening increases with age; children and the 15-24 age group are listening to less radio than older groups. For the 15-24 group, average listening was 16.3 hours per week in Q1 2008, compared to 22.6 hours for the over-55s. On average, men listened for 2.7 hours more than women, and people in the C2DE socio-economic group listened for 1.4 hours more than ABC1s (Figure 4.53).

Figure 4.53 Demographic profile of overall listening Weekly listening hours 30

Average listening per week (all aged 4+) 19.0 hours 20

22.6 22.6 21.9 21.3 10 21.1 19.2 19.9 16.3 17.8 12.6

0 4-24 15-24 25-34 35-44 45-54 55+ Adult Adult ABC1 C2DE Men Women Adults Adults

Source: RAJAR Q1 2008, (average weekly listening hours per head of population)

Listening hours in 25-34 age group fall furthest over five years

Over the last five years, levels of radio listening have fallen among most age groups, with all adults’ (15+) listening down by 3.1% overall by 2007. The fall is particularly apparent among the younger age groups. The 25-34 age range spent 12.2% less time listening to the radio in 2007 than five years previously, while the 15-24 group’s hours have fallen by 6.4% in the same period. When we include children in the youngest age range, the resulting 4-24 group’s listening hours have fallen by 10.6%. The only group to increase its listening over the period was the over-55s, up by 2.3% on five years ago. This suggests that while almost as many people are listening to radio, they are spending less time as radio competes with other entertainment and information media channels such as the internet.

Figure 4.54 Changes in listening hours over five years, by age group Percentage change in listening hours

All 15+ 4-24 15-24 25-34 35-44 45-54 55+ 5% 2.3%

0%

-2.4% -5% -3.1% -4.4% -6.4% -10%

-10.6% -12.2% -15%

Source: RAJAR: data based on calendar years 2002 versus 2007.

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Over-55s account for a disproportionate amount of BBC radio listeners, particularly for BBC local services. The over-55s make up 70% of the audience for the BBC local and nations’ stations, while also accounting for 40% of listening to BBC network stations. For national commercial radio, the over-55s make up a third of the audience: higher than any other group. For local commercial radio, the pattern is different; with a more even spread across the age groups. There is, however, a bias towards younger audiences, with the under-45s accounting for 64% share overall (Figure 4.55).

Figure 4.55 Profile of audience, by age, for different station types Proportion of hours 100% Adults 55+ 19% 80% 35% 33% 40% 17% Adults 45-54 70% 60% 16% 14% 22% 17% 16% Adults 35-44 40% 18% 12% 16% 17% 13% Adults 25-34 20% 13% 12% 26% 26% 8% 19% 14% 4% 0% 6% All Individuals 4-24 All radio National Local BBC UK BBC commercial commercial network local/national

Source: RAJAR 2007/08, (Q2 2007 - Q1 2008).

Over five years, total radio listening hours have seen a general fall, particularly among younger age groups, while listening among the over-55s has grown a little.

In contrast to this general trend, national commercial radio has seen large increases, as more stations have become available, with listening hours among younger age groups more than doubling over the period. A different pattern is evident in local commercial radio, with a fall across all age ranges (with the exception of the over-55s); younger audiences have fallen by more than 30%. The BBC local services have also experienced a fall in hours across all age ranges, but generally to a lesser degree, with falls ranging from -11% to -30%. The BBC network stations have fared better, will most age ranges increasing their listening hours by up to 9% (Figure 4.56).

Figure 4.56 Changes in hours 2002 – 2007, by age group and station type Percentage change in radio listening hours All radio National Local BBC UK BBC commercial commercial network local / 225% 209% national 60% 49%51% 42% 40% 35%

20% 10% 9% 6% -2% 7% 7% 2% 2% 3% 0% 0% -3% -4%-2% -6% -8% -11% -12% -11% -11% -20% -14% -12% -14% -19% -21% -25% -29% -30% -40% -33% -33%

All adults 15+ 4-24 15-24 25-34 35-44 45-54 55+ Source: RAJAR: data based on calendar years - 2002 versus 2007.

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Listening patterns vary across the UK nations

Analysis of listening patterns by nation reveals a degree of variation in the consumption of radio. In particular there is a higher preference for local radio content in Scotland and Northern Ireland than in Wales and England, where BBC network radio is more popular.

In Scotland the most popular category is local commercial, with a 43% share of all radio listening – in contrast to Wales, where local commercial accounts for only 27%. The share of BBC network listening in Scotland is 9 percentage points lower than the UK average, at 35%.

In Northern Ireland, the BBC networks’ share of listening is the lowest in the UK, at 27%, 17 percentage points below the UK average of 44%. However, listening to BBC local and nations’ services (Radio Ulster and Radio Foyle), was 15 percentage points higher, at 25%, compared to a UK average of 10% for local BBC services. Overall, BBC share in Northern Ireland was 52%, just below the UK average of 54%.

Listening patterns in Wales are similar to the UK average, although listening to BBC services for Wales (BBC Radio Wales / BBC Radio Cymru), is 5 percentage points higher than average at 15%, and local commercial listening is 5% lower than average at 27%. Overall BBC stations account for 62% of listening in Wales compared to 54% for the total UK.

In England, the BBC network stations are the most popular category, with a 45% share of all listening. Listening to BBC local services in England, at 10% share, is similar to Scotland, although local commercial listening, at 32%, is 11% lower than Scotland.

Figure 4.57 Share of listening hours, by nation % of listening hours 100% 1% Other 2% 2% 3% 10% 27% 80% 32% 32% Local 43% 31% 10% commercial 60% 11% 11% 15% 7% National 10% 10% 11% commercial 40% 9% 25%

BBC 20% 44% 45% 47% local/national 35% 27% BBC network 0% Total UK England Scotland Wales Northern Ireland England Scotland Wales Northern UK TOTAL Ireland

Average weekly 23.5 hours 22.9 hours 24.4 hours 23.1 hours 23.5 hours listening Reach 90.3% 88.6% 90.5% 89.6% 90.1% Source: RAJAR / Octagon, calendar year 2007, (all listeners 4+).

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4.3.3 Radio ownership and listening trends Listening, by platform

Although digital radio is now widely available on a number of platforms, analogue radio sets are still the most common way to listen to the radio, with 87% of respondents claiming to use an analogue set on a weekly basis. But listening to digital formats is increasing; as at Q1 2008 25% had listened via a DAB set, 36% via a digital television set, and 22% have listened online. Listening to radio via a mobile phone has now been tried at least once by 12% of people (Figure 4.58).

Figure 4.58 How often do you access the radio?: by platform Proportion of respondents Every day Once a week Once a month Have tried it once Never Do not have access to device

80% 76% 70% 63% 65% 60% 53% 54% 50% 40% 30% 24% 22% 13% 20% 14% 11% 14% 12% 6% 11% 7% 7% 10% 5% 6% 3% 4% 8% 5% 4% 5% 2% 1% 2% 3% 2% 1% 0% Analogue DAB radio set Digital radio Digital radio Radio via mobile through TV through internet phone

Source: Ofcom research, Q1 2008

Access to digital radio platforms continued to increase over the year. The 87% of homes with digital television also have access to a range of digital radio services. While domestic broadband internet access was in 57% of homes and DAB radio ownership was up to 27%, all of which can access live digital radio, as well as listen-again and downloadable radio content.

Figure 4.59 Take-up of equipment capable of receiving digital radio

Year-on-year increase (percentage points)

+ 3% + 7% + 10%

67% 87% 27% 80% Cable 12%

60% Terrestrial 40% Broadband 38% 57%

20% Satellite 37% 27% Dial-up 9% 0% Internet Digital TV DAB radio

Source: Ofcom, Q1 2008

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RAJAR research suggests that 27% of UK adults had access to a DAB digital radio set in the home by Q1 2008, up by 10 percentage points on last year. By June 2008 cumulative DAB sales had reached over 8 million, following 2.5 million sales in the past year. The majority of the growth being provided by portable sets, which now account for 5.5 million, or 75%, of total cumulative sales.

Figure 4.60 Take-up of DAB digital radio Percentage of UK homes

30% 27%

20% 17%

11% 10% 6% 2% 1% 0% Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008

Source: RAJAR /DRDB Q1 2008

DAB sets now account for a fifth of all radio sales

DAB digital radio sales account for an increasing proportion of total radio set sales. In the year to April 2008, DAB sets made up just over a fifth of all radio sales (20.2%), with around 2.4 million units sold in the year to April 2008. This was up by 17% from around 2.0 million sales last year. Total radio set sales reached 10.4 million for the year to April 2008, up from 9.7 million the previous year, with analogue set sales also increasing year on year.

Figure 4.61 Number of analogue and digital radio sets sold

Percentage of sales

87.1% 12.9% 81.4% 18.6% 79.8% 20.2%

Radio set sales (millions) 10.1 10 7.9 8.3 8 analogue sets 6 DAB sets 4 2.1 1.5 1.8 2 0 Year to April 2006 Year to April 2007 Year to April 2008

Source: GfK / DRDB, Q1 2008

The value of DAB radio set sales reached £170m in the year to April 2008, up 9.7% from £155m last year. This represented over a quarter (26.1%) of the value of all radio set sales of £652m.

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Figure 4.62 Value of analogue and digital radio set sales

Proportion of sales

80.5% 19.5% 75.9% 24.1% 73.9% 26.1%

Value of radio sales (£ millions) £598 £600 £489 £482 £500 £400 Analogue sets £300 DAB sets £200 £145 £155 £170 £100 £0 Q1 2006 Q1 2007 Q1 2008

Source: GfK / DRDB Q1 2008

The average price of a DAB digital radio set was down by £15 to £75 by Q1 2008, with the lowest-priced sets now available for around £15. Portable sets cost an average of £53, down by 24% from £70 last year, while car audio sets fell by 45%, from £174 to £95. In-home and DAB hi-fi prices fell by £12, on average, to £149 in Q1 2008 (Figure 4.63).

Figure 4.63 Average price of DAB digital radio receivers

£500

£400

£300

All £200 In-home

£100 Car audio Portable £0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2003 2004 2005 2006 2007 2008

Source: GfK Q1 2008

More than 320 different DAB models now available

A broader product range and enhanced functionality have also increased the appeal of DAB, with over 320 models available by 2008, according to the Digital Radio Development Bureau (DRDB). This is up from just over 300 a year ago and from just under 30 models in 2003 (Figure 4.64). Many sets now include features such as the ability to record and pause live radio and also play MP3 tracks.

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Figure 4.64 Number of DAB models available in the UK

Number of models 350 304 320 300 250 230 200 165 150

100 64 27 50 15 0 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008

Source: DRDB

4.3.4 Digital listening Almost a third of adults listening via digital radio platforms every week

On a weekly basis, 31% of adults listened to radio via at least one of the digital platforms, according to a RAJAR survey in Q1 2008; DAB accounted for 18%, DTV for 11% and the internet for 6%. The increasing use of digital radio platforms increased the digital share of all radio listening hours to 18% by Q1 2008.

Figure 4.65 Digital listening by platform Listening to digital radio by platform, Q1 2008 Year-on-year increase (percentage points)

+ 5%+ 5% + 1% + 1% 0% Percentage of adults listening via digital formats on a weekly basis 40%

31% 30%

20% 18%

11% 10% 6% 7%

0% All Digital DAB DTV Internet Digital unspecified

Source: RAJAR, (adults 15+), Q1 2008

Almost half of all web users have listened to radio while online

Radio listening via the internet is becoming more widespread as broadband take-up increases. According to Ofcom research, 13% of internet users frequently listen to the radio while online, with 21% saying they ‘sometimes listened’. Overall, 48% of web users had listened while online as some point, up from 22% a year ago.

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Figure 4.66 Radio listening while online All who use the internet at home 51% 50%

40%

30% 21% 20% 13% 14% 10% 1% 0% Frequently Sometimes Rarely Never Don't have

Source: Ofcom consumer research, Q1 2008

Listening hours to radio have reduced in recent years; this can partly be attributed to consumers spending more time on other activities. One key change over the past five years is the amount of time spent on the internet, with all age groups spending more time online. Radio may not have been displaced as much as some other media in this respect, as users can listen to the radio while using the internet, and in some cases this has led to consumers accessing more radio content since getting online. The 15-24s are the most affected, with 11% claiming to listen to less radio since acquiring the internet, while in the 25-64 age ranges 7-8% of people say they listen to less radio since getting internet access. The over- 65s were least affected, with only 2% listening to less radio.

Figure 4.67 Levels of radio listening since getting internet access Since using the internet which activities do you undertake less? – listening to the radio

15% 11% 12% 8% 9% 7% 6% 2% 3%

0% 15-24 25-44 45-64 65+

Source: Ofcom consumer research, Q1 2008 Base: All who use the internet at home

Majority of people aware of digital radio

Awareness of digital radio appears to be increasing; a majority of people (84% - 96%) had heard of the term, with awareness highest among the 25-44 age group.

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Figure 4.68 Awareness of digital radio Have you ever heard of the term ‘digital radio’? Yes No

96% 100% 93% 84% 86% 80% 60% 40% 15% 20% 13% 4% 7% 0% 15-24 25-44 45-64 65+

Source: Ofcom consumer research, Q1 2008 Base: All who listen to radio

BBC online listening hours growing

The BBC Radioplayer was launched in 2002, and in the last five years the usage of the BBC’s listen-again and live streaming services have seen a steady increase. Radio 1, with its younger audience profile, has been the leading BBC station in this area. In Q4 2007 4.6 million hours of live content were streamed from the Radio 1 website, up by 31% on last year. In addition 1.6 million hours of on-demand content was accessed from the site in the form of listen-again programmes or podcasts, with the Chris Moyles show the most popular download. This was followed by Radio 2 with 3.8 million hours of streamed listening and 1.1 million on-demand hours. Radio 4 matched Radio 1’s on-demand usage of 1.6 million hours, aided by the popularity of podcasts such as the Today programme.

Figure 4.69 BBC network radio: hours of streaming and on-demand content, Q4 2007

% change +31% -3% +22% +5% +6% -5% +45% + 14% +37% -9% +11% +11% year on year

Hours (millions) Streamed hours On demand 5 4.6

4 3.8

3 2.5 1.9 2 1.6 1.6 1.1 1.3 1 0.5 0.4 0.1 0.3 0 BBC Radio BBC Radio BBC Radio BBC Radio BBC Radio BBC 7 1 2 3 4 5 Live

Source: Sage / BBC, Q4 2007

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4.3.5 Listening patterns and satisfaction with radio Listening highest at breakfast, falling over the day

The pattern of radio listening over the course of the day shows a gradual fall following the breakfast peak. In Q1 2008, the total radio breakfast audience averaged 14.0 million (down from 14.3 million last year). Listening then falls to 11.0 million by mid-morning, and to 9.2 million by the afternoon. The afternoon drive / commute time attracts an 8.8 million audience, with BBC network showing a small rise from the afternoon. By the evening 4.0 million are listening to the radio, with 2.7 million listening overnight (Figure 4.70).

Figure 4.70 Patterns of listening across the day Listeners (millions)

7 6.9 BBC network 6 4.9 5 4.4 4.2 4.3 Local commercial 4 3.7 3.1 3 2.7 National commercial 2 1.5 1.7 1.1 1.21.2 1.3 1.2 1.00.8 1.0 0.9 BBC local / regional 1 0.7 0.6 0.3 0.40.2 0 Breakfast Mid Afternoon PM drive Evening Overnight peak morning

Source: RAJAR Q1 2008, (adult listeners 4+)

Breakfast time is the peak time for radio listening and a key time for the national radio stations. Their share at breakfast largely reflects their overall share in the radio market. In the year to the end of March 2008, BBC Radio 1 saw the largest gain, with the Chris Moyles Show attracting an audience of 7.7 million, up by 0.5 million. However, BBC Radio 2 was the still the leading breakfast station overall, with an audience of 8.1 million for Terry Wogan’s show, up by 0.2 million on the previous year. Radio 4’s Today programme had 6.4 million listeners, stable since last year. Classic FM was the largest commercial national operator at breakfast-time, with a reach of 2.8 million for the Simon Bates show, although this was down by 0.2 million on last year. This was followed by the combined listening to Virgin AM/FM stations with 1.2 million tuning into the Christian O’Connell breakfast show. This was matched by talkSPORT’s Alan Brazil Sports Breakfast Show, whose audience increased by 0.2 million to almost 1.2 million in Q1 2008 (Figure 4.71).

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Figure 4.71 Breakfast-time reach of national stations Breakfast reach (millions)

10 9 8.1 7.9 8.1 7.7 7.8 8 7.2 7 6.3 6.2 6.46.4 6.2 6.1 ` Q1 2005 6 Q1 2006 5 Q1 2007 4 3.0 Q1 2008 3.02.9 2.8 3 2.4 2.3 2.32.3 2 1.2 1.2 1.21.21.21.2 0.80.8 1.01.0 1 0.80.8 0 BBC Radio BBC Radio BBC Radio BBC Radio BBC Radio Classic FM talkSPORT Total Virgin 1 2 3 4 5 Live (AM/FM)

Source: RAJAR Q1 2008, adult listeners 15+.

The location of radio listening showed indications of a changing pattern over the past year, with a higher ratio of listening now taking place outdoors or at work. Outdoors and work- based listening accounted for 16% of radio listening in Q1 2008, up from 13% last year. This increase might have been helped by the growth in listening to podcasts or on mobile phones while on the move or commuting. In-car listening also increased, up by 3% to 20% over the year. As a result, home listening share was down by 7% to 63% overall.

Figure 4.72 Location of listening Other 1% Work / outdoors Car 16% 20%

Home 63%

Source: RAJAR Q1 2008, all listeners

With a growing choice of radio stations over recent years, satisfaction with radio choice is increasingly high; 88% of respondents said they were ‘very’ or ‘fairly’ satisfied with the choice and range of radio stations. The number of people who were ‘very satisfied’ was up to 48%, an increase of 10% from 38% last year, while only 4% said they were dissatisfied with station choice (Figure 4.73).

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Figure 4.73 Satisfaction with choice of radio stations % of respondents 50% 48% 40% 40%

30%

20%

10% 7% 3% 1% 0% Very satisfied Fairly satisfied Neither Fairly dissatisfied Very dissatisfied

Source: Ofcom research, Q1 2008

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The Communications Market 2008

5

5 Telecoms

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Contents

5.1 Key market developments in telecoms 293 5.1.1 UK telecoms industry: key metrics 293 5.1.2 Introduction 293 5.1.3 Mobiles in the home: the relationship between fixed and mobile voice 294 5.1.4 The value of flat-rate pricing: the rise of ‘all-you-can-eat’ tariffs 296 5.1.5 Broadband on the move 300 5.1.6 UK moves towards super-fast broadband network 303 5.1.7 More UK consumers use text messaging than use the internet 305 5.2 The telecoms industry 307 5.2.1 Introduction 307 5.2.2 Industry overview 307 5.2.3 Fixed-line access 310 5.2.4 Mobile access 316 5.2.5 Internet access 320 5.2.6 Business sectors 323 5.3 The telecoms user 327 5.3.1 Introduction 327 5.3.2 Household spend and pricing 327 5.3.3 Take-up of services 332 5.3.4 Fixed-line and mobile use 338 5.3.5 Customer satisfaction and switching 340 5.3.6 Children’s use of telecoms services 344

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5.1 Key market developments in telecoms

5.1.1 UK telecoms industry: key metrics

UK telecoms industry 2002 2003 2004 2005 2006 2007

Operator-reported retail revenue (£bn) 24.7 26.2 27.5 28.0 28.8 29.9

Operator-reported wholesale revenue (£bn) 8.4 8.5 8.6 8.3 8.5 8.9

Fixed voice call minutes (billions) 165 167 164 160 151 148

Mobile voice call minutes (billions) 52 59 64 71 82 99

Average monthly household spend on telecoms 62.80 66.77 69.60 68.08 66.48 64.74 services (£)

Fixed access and call revenues (£bn) 11.7 11.2 10.6 9.8 9.4 9.3

BT share of fixed revenues (%) 71.6 71.1 68.9 66.5 63.6 62.8

Proportion of unbundled exchanges (%) 12.4 23.3 31.0

Fixed lines (millions) 35.2 35.0 34.6 34.1 33.6 33.7

Mobile retail revenues (£bn) 9.0 10.5 12.0 13.0 13.8 15.1

Active mobile connections per 100 population 82.6 88.0 99.5 109.1 116.3 122.6

Active 3G mobile connections per 100 0.0 0.4 4.3 7.7 13.0 20.9 population

Internet connections per 100 population 19.3 22.9 25.8 27.2 28.9 30.4

Broadband connections per 100 population 2.3 5.2 10.2 16.5 21.7 26.0 Source: Ofcom / operators

5.1.2 Introduction

As the data above indicate, the size of the UK telecoms industry, in terms of revenues, connections and usage, has continued to increase, despite high mobile penetration and a decreasing number of fixed lines.

In this section, we focus on five key themes that highlight how industry developments may be affecting user behaviour and re-defining the relationship between fixed and mobile markets.

• Mobiles in the home. We look at the relationship between fixed and mobile consumption in the voice market, and find that although 70% of mobile users use their mobile phone to make calls within the home, fixed-line use remains resilient; 60% of outbound call volumes were from fixed lines in 2007, and 88% of households have a fixed line.

• The value of flat-rate pricing. We examine the rise of ‘all-you-can-eat’ tariffs in fixed-line and mobile. We find that only 16% of pay-monthly mobile users claim to usually exceed their inclusive minutes, and that this ‘flat rate pricing’ has enabled operators to maintain average revenues per user.

• Broadband on the move. In the past year mobile operators have focused on the broadband supply market with USB dongle-based consumer services. We find that two-thirds of mobile broadband users also have a fixed-line connection, and look at the relationship between fixed and mobile broadband.

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• UK moves towards super-fast broadband network. Virgin Media is in the process of upgrading most of its cable network to offer speeds of up to 50 Mbit/s, and in July 2008 BT announced plans for the roll-out of fibre-based broadband to up to 10 million homes by 2012. We review these developments and other next-generation access initiatives.

• The continued growth of text messaging. We identify some of the factors behind the increasing use of SMS, which is used by more UK consumers than the internet.

The two following sections combine data sourced from operators with consumer research to examine trends in the sector, first from an industry, and then from a user perspective.

5.1.3 Mobiles in the home: the relationship between fixed and mobile voice The rise and rise of mobile…

In 2007, 99 billion minutes of outbound calls were made from the UK’s 74 million mobile connections – a rise of 91% in the number of minutes and 48% in the number of connections since 2002. Total outbound use across mobile and fixed lines rose by 14 billion minutes in 2007 as British consumers spent 6% longer on phone calls than in the previous year. However, some mobile usage appears to be in place of using fixed lines, with fixed-line call volumes falling every year since 2003 - albeit slowly - despite the increasing availability of flat-rate fixed-line tariffs (Figure 5.1).

Figure 5.1 Total outbound voice call volumes

300 247 ) 228 231 233 217 226

200 52 59 64 71 82 99 Mobile originated

Fixed line 100 originated 165 167 164 160 151 148 Call minutes (billions minutes Call

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Excludes dial-up internet access

…as seven in ten mobile users make calls from the home…

With 86% of UK adults now owning a mobile phone and the overall number of connections exceeding the population, mobile operators have looked to increase use from existing users in order to continue to increase revenues. One possible target for achieving this is in-home use, if the mobile can be an alternative to a fixed-line phone. Our research finds that 70% of people with a mobile and a fixed-line phone say they use their mobile to make some calls even when they are in the home. In addition, ten per cent of people with a fixed line at home say they never use it, claiming that they always use their mobile (Figure 5.2).

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Figure 5.2 Frequency of using a mobile phone in the home

Proportion of respondents (%) 0 20406080

Summary - ever use mobile 74 at home 70

"I never make calls on my 26 mobile" 30 All with mobile "I make some of my calls on 39 my mobile" 45 Landline "I make most of my calls on 14 and mobile my mobile" 16

"I make all of my calls on my 21 mobile" 10

Source: Ofcom research, February / March 2008 Base: All who use a mobile phone

There are a number of reasons why a mobile phone is often preferred in the home, but mobile tariffs are the most important driver. Of those using a mobile in the home, 29% said that one reason was to use up inclusive bundled minutes in a mobile contract, while a similar proportion said that some calls from a mobile were cheaper than the equivalent fixed-line call (Figure 5.3). (It is often the case, for example, that calls from mobile to mobile are less expensive than calls from fixed-line to mobile.)

Figure 5.3 Reasons for using mobile phone while at home

Proportion of respondents using a mobile phone at home (%) 0 102030

To use my inclusive minutes 29 Some calls are cheaper 28 More convenient 25 Easier to find number 21 Landline in use by someone else 11 For privacy 9 Work phone 2 Landline tied to internet 1 Other 7 Don't know 3 Don't like being contactable/ lack of privacy 1 No reception where I live 1 Other 3

Source: Ofcom research, February / March 2008 Base: All who use a mobile phone at home Note: Multiple responses permitted

… but fixed-line voice remains resilient

Against the backdrop of rising mobile take-up and use, and its reach into consumers’ homes, the resilience of fixed-line voice is a noteworthy characteristic of the UK market. In 2007, 60% of voice minutes originated on fixed lines, with the average residential voice line making 267 outbound minutes a month, compared to 116 outgoing minutes on the average mobile connection.

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Most notable is that the proportion of mobile-only households has hardly changed in the past three years, as shown in Figure 5.4, and at the end of 2007 four in five households had both a fixed and a mobile connection.55

Figure 5.4 Household penetration of fixed and mobile telephony

100% 1 2 1 11 7 8 91010 9 11 None 80%

Mobile only 60% 73 70 80 80 80 84 81 40% Fixed and mobile 20% Fixed only Proportion of adults (%) 19 20 10 9 10 0% 77 Q4 2002 Q4 2003 Q4 2004 Q1 2006 2006 Q1 2007 Q1 2008

Source: Ofcom research, Q1 2008 Base: All adults

The number of mobile-only households in the UK is considerably lower than in many other European countries, with a survey commissioned by the European Commission finding, for example, that 37% of Italian households had only a mobile connection at the end of 2007.56 The recent resilience of the fixed-line voice market to the threat of mobile may partly be explained by two key characteristics within the UK consumer market, which we will explore in the next two sections:

• flat-rate tariffs are the norm for all the largest fixed-line operators, who typically offer unlimited off-peak calls to UK geographic numbers within standard line access charges, and other unlimited calls for additional monthly fees; and

• over 75% of broadband connections are via DSL, which requires a home phone line.

5.1.4 The value of flat-rate pricing: the rise of ‘all-you-can-eat’ tariffs ‘Unlimited’ calls are a key component of fixed-line voice pricing

Pricing may be a key tool in operators’ efforts to constrain the substitution of fixed-line calls and lines for mobile, and many UK fixed-line operators now include unlimited weekend calls to UK fixed lines within their standard access charges, with ‘add-ons’ and alternative tariffs typically available to provide unlimited calls for peak time and international calls (Figure 5.5).

As the largest fixed-line operator, with a 66% retail market share of fixed voice connections at the end of 2007, BT’s pricing strategy is more influential than that of any other operator in defining the prices consumers pay. BT is also the only European incumbent fixed-line operator which does not have its own mobile network57, and is more vulnerable to fixed- mobile substitution than integrated operators, whose mobile divisions can attempt to

55 It should be noted, however, that there are a much higher proportion of mobile-only households in some cities and regions. Our research finds that 28% of households in Greater Manchester were mobile-only in 2007, 23% in Belfast, 21% in Liverpool and 19% in Wales as a whole (Ofcom, The Nations & Regions Communications Market Report 2008, http://www.ofcom.org.uk/research/cm/cmrnr08/ ) 56 European Commission, Special Eurobarometer, 293 (June 2008, based on fieldwork in November- December 2006) 57 BT does operate as a mobile virtual network operator (MVNO)

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recapture lost traffic and revenue. It is in this context that BT migrated its entire retail customer base to its ‘Together’ packages in 2004 which offered a fixed price for all calls to UK geographic numbers of up to an hour in length, plus inclusive calls (on some options). In April 2008, BT offered free evening calls on all of its tariff options, although only to customers opting in to a 12-month contract which automatically renews unless, following notice, the customer opts not to renew.

Figure 5.5 Unlimited call tariffs from leading fixed-line voice operators

Provider Basic line UK weekend UK weekend UK anytime UK anytime rental calls and evening calls calls and calls international calls1

BT £10.50 £10.50 £10.502 £16.45 £21.45

Sky Talk £10.503 £10.50 £10.50 £15.50 £15.50

TalkTalk £10.50 £10.50 £10.504 £14.995 £14.996

7 Virgin Media £11.00 £11.00 £14.45 £18.95 n/a Source: Ofcom, June 2008 Notes: (1) Number of countries international calls are available to varies (all include at least 20); (2) requires a 12-month automatically which on prior notice enables the customer to opt out and if not, automatically renews; (3) line rental payable to BT; (4) increases to £13.15 after 12 months; (5) increases to £19.99 after 18 months; (6) offer available for a limited period of time; (7) includes basic TV package. Additional note: This table is indicative of inclusive-call offers only and should not be used to compare overall pricing as many additional factors, including calls to mobile, friends & family tariffs, contract lengths and multi- service bundling, are not included.

High-end mobile packages move towards ‘flat-rate’ pricing

While the ‘unlimited’ tariffs of fixed-line operators can in part be seen as a defensive strategy designed to limit fixed-to-mobile substitution, the movement of mobile tariffs to offer ever- increasing numbers of inclusive minutes could be said to be an attempt to increase use and generate greater revenues from a market which is now approaching saturation. As Figure 5.6 indicates, there has been a marked increase in the number of minutes available within standard £30 contracts from all five mobile network operators over the past three years.

Figure 5.6 Inclusive any-network, any-time allowances in £30 per month mobile contracts

t 1500

1000 Texts 150

500 500 Minutes 100 100 100

500 1100 100 100 250 750 700 50 75 100 500 500 500 450 450 400 400 400 400 300 200 200 200 200 200 0 200 200 Any-network, any-time inclusive any-time calls/tex Any-network, 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 Vodafone O2 T-Mobile Orange 3UK Source: Ofcom / tariff data from Pure Pricing Notes: Data based on tariffs available in June of each year; standard tariff selected which offers highest number of any-time, any-network minutes for £30 or less on an 18-month or 12-month contract; excludes tariffs only available online or direct; excludes specific promotions; excludes SIM-only deals; some variation between 2006 and 2007 is caused by greater availability of 18-month contracts; this table is indicative of inclusive any time, any

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network minutes only (and texts when they are additional to the maximum number of minutes) and should not be used to compare overall pricing as many additional factors are excluded, such as handset, on-net calls, off-peak calls, data bundles and metered pricing.

While the cost of mobile termination rates means that any-time, any-network mobile calls are never genuinely unlimited, the trend towards higher inclusive minutes means that many consumers are effectively on flat-rate tariffs (for the consumer who does not use the inclusive allocation of minutes, the cost of each incremental minute is effectively zero).

It appears that this trend will continue; earlier this year, new propositions from mobile operators have included T-Mobile launching its new SIM-only tariff Solo with 1400 minutes and unlimited texts for £30 a month, and Vodafone offering free any-network weekend calls to existing customers renewing on a £40+ plan with an 18-month contract.

Only 14% of mobile contract users usually exceed their inclusive minutes

Our research indicates that around 40% of pay-monthly mobile consumers claim that they have more inclusive minutes than they use every month, and 41% have more texts than they use, while few in comparison (14%) claim to usually exceed their inclusive minutes, and 11% usually exceed their inclusive texts (Figure 5.7).

Figure 5.7 Use of inclusive minutes and texts Do you generally use all your inclusive minutes / texts or do you tend to have some left over at the end of each month? 100% 9% 11% 14% 80% 11% Unsure 14% 11% 60% My usage varies a lot - some months I 23% 26% use all, some months I don't 40% I usually exceed my monthly allowance 20% 40% 41% The amount I have is about right Proportionof contracts (%)

0% I have more than I use each month Minutes Texts

Source: Ofcom research, July 2008 Base: Adults 16+ who have a post-pay mobile contract. Excludes 9% of users who did not know whether they exceeded their minutes allowance and 21% who did not know whether they exceeded their texts allowance.

So, in terms of usage, a large proportion of pay-monthly consumers are effectively on ‘flat- rate’ tariffs, and this is backed up by research that finds that the majority of pay-monthly mobile consumers believe that their total monthly bill is usually the same as their standard monthly line rental payment (Figure 5.8). Of course, many consumers who do not exceed their inclusive minutes allowance receive bills higher than their standard monthly rental because there are many types of calls, including special rate calls and international calls, that are not included within inclusive allowances.

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Figure 5.8 The relationship between monthly bill and monthly line rental for pay- monthly mobile consumers Would you say that your total monthly bill is usually the same, a bit higher or a lot higher than your fixed monthly payment? Unsure, 7% A lot higher, 7%

A bit higher, 25%

The same, 61%

Source: Ofcom research, July 2008 Base: Adults 16+ who have a post-pay mobile contract. Note: The ’fixed monthly payment’ was defined to respondents as “the amount you would have to pay for line rental even if you did not make any calls or receive any texts”.

‘Inclusive’ tariffs offer greater value... but overall spend remains steady

The prevalence of unused minutes within inclusive allocations provides a caveat to the greater ‘value’ that mobile contract consumers are getting, in terms of the number of minutes available for a fixed price. Average cost per minute used has fallen, but an overall fall of 17% in the five years since 2002 is not as much as might be expected, given the rise in inclusive minutes. Despite prices apparently falling between 2006 and 2007, mobile operators have been able to maintain average revenue per connection (Figure 5.9).

Figure 5.9 Voice revenue per contract connection and revenue per minute

20 Voice 14.57 14.65 15.16 14.47 revenue per 15 12.98 connection 11.50 per month (£) 10 Revenue 13.39 14.05 14.37 13.71 13.15 13.29 5 per voice minute (pence)

£ per month / pence per minute 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Notes: Includes line rental and additional voice revenue; based on network operator-reported figures; includes estimates where Ofcom does not receive data from the operators.

The implications of the trend towards fixed-rate mobile pricing are, therefore, higher average use and lower average prices per minute, but little impact on average spend. Other implications of the trend towards fixed-rate mobile pricing include:

• Because consumers often have more inclusive minutes than they need each month, they change their behaviour; they are likely to spend more time on their mobiles, and may use their mobile phone in the home in preference to a fixed line.

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• The overall trend towards increasing the number of minutes available within high- value contracts favours high users, with fewer benefits for lower users.

• In order to drive incremental revenue, operators have focused on the pricing of calls and messaging that is not typically included within the ‘any time, any network’ headline proposition. For example, T-Mobile significantly increased the price of calling 0870, 0871, 0844 and 0845 numbers in June 2008.

• A focus on the headline proposition of number of minutes / texts per month has led to operators increasingly highlighting, or separating out, the cost of the mobile handset. This has led to SIM-only deals having much higher prominence in marketing communications to both existing and potential customer bases, while 3UK’s Mix & Match tariffs make explicit the different monthly fees associated with each model of handset.

5.1.5 Broadband on the move Mobile broadband is the new, new thing

In previous years, the Communications Market Report has examined how mobile operators have looked to drive additional revenues through offering data services, including internet browsing, on mobile phones. The past year has seen some significant advances, including continuing falling prices for internet access on mobile phones and the launch of Apple’s iPhone, including the 3G version in July 2008, which has been heralded as marking a step change in usability of the internet via mobile58; iPhone users’ data consumption is reported to be up to 30 times that of other users59.

But perhaps the most significant change in the past year has been the growth of 3G mobile USB modems, or ‘dongles’, which enable consumers to access the internet using a cellular network by plugging the dongle into their laptop. The roll-out of High Speed Packet Access (HSPA) technology across 3G networks has enabled mobile operators to offer broadband access at headline speeds comparable to low-end fixed broadband offers. The three mobile operators without their own fixed-line broadband network have made the biggest play in mobile broadband: Vodafone was first to upgrade sections of its HSPA network to 7.2 Mbit/s in late 2007, while 3UK and T-Mobile have targeted subscribers with sub-£15 a month offers (these two networks also announced a 3G network sharing deal in December 2007).

In Q1 2008, research by GfK found that around 6% of UK internet users aged 16 or over were using mobile broadband (around 4% of all over 16s). The take-up of mobile broadband from a consumer perspective is covered in Section 2.1.4 of this report, while the following section explores two key questions facing telecoms operators:

• Does mobile broadband offer the potential for mobile operators to continue to increase their revenue? (Many commentators are predicting that revenues from voice and text will flatten in a saturated market.)

• Do the mobile network operators represent a serious threat to fixed-line ISPs?

58 For example, IDATE states that “2007 may well be remembered as the year of the iPhone, whose influence is comparable to that of the iPod when it first hit the market”, IDATE, DigiWorld Yearbook 2008, p63. 59 Informa, ‘Mobile broadband is opening new doors for FMC’, Mobile Communications Europe, 24 June 2008

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Mobile broadband – a significant new revenue stream for mobile network operators?

In the five months from February 2008 (the first month for which data are available), an estimated 510k mobile broadband connections were sold by the UK’s five mobile network operators, 425k of which were contract connections (an average of 85k contract subscribers a month) (Figure 5.10). This compares to an estimated 491k mobile handsets sold with post- pay mobile contracts per month in Q1 200860 (plus an unknown number of SIM-only connections).

Figure 5.10 New consumer mobile broadband connections

150 133 125 32 98 28 Pre-pay 100 86 10 69 9 6 Contract 50 96 101 77 88 63

0 Feb-08 Mar-08 Apr-08 May-08 Jun-08

Source: GfK retail data (includes only consumer channels)

Revenue from mobile broadband contracts is typically between £10 and £20 per month, while nearly half of all mobile contract connections sold with a handset in Q1 2008 were in the £30-£40 bracket (Figure 5.11), and average revenue per connection for mobile contract customers in 2007 was £33.06 (see Section 5.2.4). Clearly, therefore, although mobile broadband may come to represent a significant new revenue stream for mobile operators, in terms of both volumes of subscribers and revenue per subscriber it is dwarfed by current voice and text revenues from mobile phones. A projection of three million subscribers accessing broadband via a mobile dongle in the next couple of years at an average of £15 a month per subscriber would generate a total of £540m per year – or just over 3.5% of the £15.1bn total retail revenue generated by the UK’s mobile operators in 2007.

It is also worth noting that, compared to voice, the revenues from mobile broadband are massively disproportionate to the network capacity required; T-Mobile announced in April 2008 that data traffic already exceeded voice traffic on its network (Informa, Mobile Entertainment, April 2008).

60 According to GfK retail data, 1.473 million mobile handsets were sold with post-pay mobile contracts in Q1 2008.

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Figure 5.11 Monthly line rentals for mobile broadband contracts and mobile phone contracts, January – May 2008

100% 7 3 3 13 £50.00+ 80% 19 £40-49.99 60% 49 £30-39.99 40% 71 £20-29.99 20 20%

Proportion of contracts (%) 15 £0-19.99 0% Mobile broadband Mobile phone

Source: GfK retail data (includes only consumer channels) Notes: Mobile broadband data based on new contracts in February-June 2008; mobile phone data based on new contracts (excluding SIM-only) in January-March 2008

Some evidence of mobile broadband being substituted for fixed broadband

With similar price points to fixed-line broadband, and with headline speeds similar to low-end fixed-line packages (see below), mobile broadband providers have increasingly targeted the same consumers as fixed-line broadband. However, research indicates that most mobile broadband users take the service in addition to fixed-line broadband, with over two-thirds of all mobile broadband subscribers also having a fixed-line broadband connection (although this may partly be caused by some consumers being tied in to minimum contract periods) (Figure 5.12).

Figure 5.12 Use of mobile and fixed-line broadband Is your mobile broadband in addition to, or instead of, a fixed connection? 100% 26 25 19 32 30 33 80% 47 Instead of a fixed internet 60% connection

40% 75 81 In addition to a 68 70 74 67 53 fixed internet 20% connection % of mobile broadband users 0% Total 16-24 25-34 35-44 45-54 55-64 65+

Source: GfK consumer tracking panel Notes: multi-code question; caution: low sample for 16-24 and over 65 – use as a guide only

Need for speed and capacity favours fixed-line broadband

In the medium term at least, two key trends in the mobile broadband market are likely to constrain it emerging as a viable alternative to a fixed-line connection for the majority of users. Firstly, increasing take-up of video services such as the BBC iPlayer means that some consumers will require speeds that are higher than those typically experienced via mobile broadband. Secondly, the use of these data-hungry services means that the monthly capacity constraints associated with most mobile broadband offers are likely to be insufficient for an increasing number of broadband users.

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• In terms of speed, mobile broadband is significantly slower than fixed-line broadband, offering headline speeds of 3.6 Mbit/s or 7.2 Mbit/s, but with actual speeds reported as being around 1 Mbit/s61; insufficient, for example, to stream standard-definition video at full screen size. The Long Term Evolution technology path of cellular networks (see Section 2.3.4) means that in the next decade there may be the capability for much higher speeds, although there are a number of uncertainties about how and when this might happen. In the long term. WiMAX technology is also an alternative to LTE for the delivery of wireless broadband.

• In terms of capacity, all mobile broadband offers put a cap of 1-3GB per month on their basic services and typically have high charges for any use above this cap.62 This compares to fixed-line offers which frequently offer ‘unlimited’ usage, often subject to a fair use policy (for example, in June 2008, BT Retail’s Option 1 offered 10GB per month, while Virgin Media has no download limits associated with any of its packages).

Limited capacity, both in the radio network and in backhaul to the core network, combined with the need to prioritise voice traffic, means that as take-up of mobile broadband grows contention problems are likely to increase (in the short term at least, until network investment is made). Therefore, mobile operators are at a competitive disadvantage to fixed-line operators as demand for higher capacity increases.

5.1.6 UK moves towards super-fast broadband network BT plans to offer fibre-based access to 10 million homes by 2012

In July 2008 BT announced plans to roll out fibre-based, super-fast broadband to up to 10 million homes by 2012, predominantly based on fibre-to-the-cabinet (FTTC). BT claims that initial headline speeds will be up to 40 Mbit/s, although in new-build sites fibre-to-the-home (FTTH) will enable speeds of up to 100 Mbit/s. These fibre-based next-generation access (NGA) networks allow consumers to run multiple high-bandwidth applications; for example, enabling one member of a family to watch a high-definition film, while another plays an interactive high-definition game and yet another has a video conference call. BT plans to invest £1.5 billion in this deployment, with initial investment of £100m in each of the 2008/9 and 2009/10 financial years.

We expect BT to offer wholesale access to its proposed NGA network, similar to the way that it wholesales its existing copper-based ADSL network. This supports consumer choice of suppliers by enabling other operators to retail the service and offer ‘bundled’ services (for example, high-definition television, broadband and voice) over BT’s fibre network.

No details are yet available on where BT’s fibre networks will first be deployed. While the higher population density in large cities provides incentives for investment, BT has stated its

61 Research commissioned by Vodafone and conducted by LCC International in March-May 2008 found that average speeds for Vodafone were 1.2 Mbit/s with average speeds for other networks varying between 683kbit/s and 993kbit/s, http://www.vodafone.com/start/media_relations/news/local_press_releases/uk_press_releases/2007/i ndependent_trials.html 62 In June 2008, Vodafone and Orange charged £15 per GB for use above the cap, 3UK charged 10p per MB (equivalent to £100 per GB), O2 charged 20p per MB (equivalent to £200 per GB with charges waived until November 2008) and T-Mobile did not charge extra but instead have a fair use policy which Applies speed controls if use is in excess of the fair use limit; international roaming charges are also currently very high, with typical rates of around £3 per MB, equivalent to £3,000 per GB.

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hope that both rural and urban areas will benefit, and will be working with government and regional and local authorities to identify areas where there is demand for these services.

Virgin Media upgrades two thirds of its cable network to offer speeds up to 50 Mbit/s

Perhaps the best indication of investment in next generation access in order to offer speed as a competitive differentiator is Virgin Media’s announced upgrade of two-thirds of its cable network to a DOCSIS 3 standard, offering speeds of up to 50 Mbit/s to 9 million premises by the end of 2008. This investment comes in the context of a 71% increase in broadband traffic on the Virgin Media network between February 2007 and April 200863, and the company has used speed as a key market differentiator in its marketing of the cable network as ‘the mother of all broadband’.

As an upgrade to an existing network, which requires investment in backhaul network infrastructure but no large-sale physical work, the Virgin Media upgrade has features in common with mobile network upgrades from 3G to HSPA, and potentially, in the future, through Long Term Evolution.

Other NGA plans indicate range of incentives for investment

The announcements by Virgin and BT (the UK’s largest two ISPs) that they are investing in large-scale NGA deployments have had the highest profile, but three other NGA initiatives provide insights into the market incentives for investment in high-speed access networks that are relevant to the future development of next-generation fixed and wireless broadband networks.

• BT’s first deployment of a next generation access network is to newly-built homes in Ebbsfleet Valley in the Thames estuary. Aiming eventually to offer fibre-to-the-home to all 10,000 homes in the development, the first customers are expected to get connected during 2008. As a greenfield site, Ebbsfleet is acting as a trial which will inform decision-making on the investment criteria for further fibre deployments, both for BT as it develops its plans for rolling out a wider fibre-based network, and for other operators, fixed and mobile, as they assess the demand for, and scalability of, high-speed access networks.

• H2O Networks Ltd has announced plans to build fibre networks in Bournemouth from September 2008 and in Dundee from January 2009, using municipal sewers, with ‘six to ten’ more projects to follow. The use of the sewerage system illustrates how accidents of urban design can provide supply-side incentives for localised investment (some cities have sewerage systems appropriate for carrying fibre cables; some cities do not). It also indicated the potential limitations that fixed-line operators have in installing new network infrastructure, compared to mobile operators for whom carriage over the airwaves depends less on physical geography. Wireless technologies may be particularly suited to rural or low-rise areas where the per-capita cost of fixed-line investment may be prohibitive and where there is less potential for wireless signals to be obstructed by buildings.

• The Digital Region project in South Yorkshire has begun implementing the roll-out of fibre-to-the-cabinet services, which will offer broadband speeds of up to 25 Mbit/s to approximately 600,000 premises. Backed by four local authorities and with some EU funding, its objectives are to spur economic regeneration by providing high- bandwidth services to consumers, businesses and the public sector. As such, it will

63 Virgin Media, Q1 2008 presentation, http://library.corporate- ir.net/library/13/135/135485/items/292674/VMED_Q12008_presentation.pdf

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form a useful case study for the benefits of high-speed networks to previously economically disadvantaged regions, which will be of interest both to fixed-line operators seeking public support for infrastructure works in areas where it may not be commercially viable, and mobile operators looking to utilise sections of the radio spectrum for high-speed access networks.

5.1.7 More UK consumers use text messaging than use the internet While mobile operators and fixed-line operators may increasingly be competing for the provision of internet services, the most widely-used data application in the UK remains the 160-character Short Message Service (SMS). Our research in Q1 2008 found that 44% of UK adults use text messaging on a daily basis, compared to 36% who use the internet. Only 25% of adults never use text messaging, compared to 28% who never use the internet (Figure 5.13).

Figure 5.13 Use of SMS and use of the internet

100% 2% Unsure 25% 80% 28% Never 5% Less than once a year 60% 8% 4% 8% A few times a year 15% 18% 40% At least once a month At least once a week 20% 44% Proportion of UK adults 36% Several times a week

0% Every day SMS Internet

Source: Ofcom research Q1 2008 Base: All UK adults

Despite technological advances which have made multimedia messaging, email and instant messaging available on most handsets, the use of SMS has accelerated in the past year. As Figure 5.14 below indicates, the growth in numbers of SMS increased by 32% in 2007 (compared to a compound annual growth rate of 27% in the five years from 2002).

This increase is in part related to the increasing numbers of SMS included with monthly tariffs (due both to the growth of tariffs such as T-Mobile’s Flext tariffs which allow users to ‘spend’ their inclusive allocation on either text or voice, and the growth of tariffs which are targeted specifically at heavy text users, such as Orange’s Dolphin tariffs). However, as indicated in Section 5.3.2, out-of-bundle text messaging now accounts for a larger element of the total cost of services than out-of-bundle on-net and off-net mobile-to-mobile calls combined.

The reasons for the continuing rise of SMS are complex, and include cultural drivers as well as operator initiatives; text messaging is far more popular in the UK than in other European countries, with UK consumers sending an average of 67 text messages every month per mobile connection in 2007, compared to German users sending an average of 22.8 and French consumers sending an average of 20.4 text messages in 2006 (the most recent year for which data are available).64

However, text messaging’s continuing popularity with mobile users is indicative of two qualities which other communications technologies are struggling to match: its ubiquity (nearly every mobile phone has the functionality and inter-connection is available through all

64 IDATE / national regulators

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operators) and its simplicity (sent to a mobile phone number, with no separate ‘SMS address’ as is usually necessary for email).

In Section 5.2.4, we highlight how increases in SMS messaging were behind much of the mobile operators’ revenue growth in 2007, while in Section 5.3.6 we highlight research which indicates that children who use a mobile phone are more likely to send a text message than make a call.

Figure 5.14 Outbound SMS volumes

100

82 SMS volumes 80 (millions) 67 60 Monthly SMS (millions) SMS outbound SMS 40 per connection 58.8 Monthly 20 43.3 33.4 outbound SMS 26.2 17.6 22.1 per capita 0 Monthly outbound 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

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5.2 The telecoms industry

5.2.1 Introduction This section of the report examines recent major trends in the UK telecommunications market from an industry and operator viewpoint, while the subsequent section looks at the same trends from an end-user perspective.

5.2.2 Industry overview According to the ONS, the UK telecommunications industry (including network operators, equipment manufacturers and infrastructure providers) generated £61.5bn in turnover during 2007, an 8% increase on 2007 (Figure 5.15). To put this into perspective, the ONS estimated combined turnover from restaurants and bars at £48.7bn in the same year, and from the retail sale of automotive fuel at £20.7bn.

Ofcom’s own regular data collection exercise estimates total wholesale and retail telecoms revenue to be £38.8bn in 2007, 4% higher than in 2006. There are a number of reasons for the large discrepancy between the ONS turnover and the Ofcom revenue figures. Our figures exclude revenue from a number of services which the ONS include, such as the sale and manufacture of telecoms network equipment, revenues from value-added mobile services such as the downloading of mobile ringtones, and handset sales in operator-owned stores.

Figure 5.15 UK telecoms industry turnover

61.5 56.4 56.7 60 53.3 50.8 Other 47.8 22.6 revenue 20.1 19.5 16.1 17.2 40 14.8

Operator-

Turnover (£bn) 20 38.8 reported 33.0 34.7 36.1 36.3 37.3 service revenues 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / ONS / operators Note: Includes estimates where Ofcom does not receive data from operators; total turnover figures are not comparable with those published in the 2007 Communications Market Report as they no longer include an estimate for other retail revenue.

It is difficult to ascertain the size of the telecoms market in revenue terms due to large-scale wholesale turnover in the form of intra-industry revenue transfer. However, we estimate that these transactions amounted to £8.9bn in 2007, or 23% of the £38.8 billion total known service revenues (Figure 5.16). Operator-reported revenue from retail services grew by 4% in 2007 as a result of increasing take-up and use of mobile phones.

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Figure 5.16 Operator-reported UK telecoms revenue

38.8 40 36.1 36.3 37.3 33.0 34.7 8.9 Wholesale 8.6 8.3 8.5 revenue 30 8.4 8.5

20 Operator- 29.9

Turnover (£bn) 28.8 reported 24.7 26.2 27.5 28.0 10 retail service revenues

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

Mobile accounts for over 50% of retail revenue

In 2007 revenues from mobile telephony services were for the first time greater than those from fixed telephony, internet and corporate data services combined. Total known retail telecoms revenue was £29.9bn in 2007, 4% higher than in the previous year (Figure 5.17). Revenue from fixed-voice telephony continued to fall, as mobile voice and data continued to increase their share of both use and revenue. Revenue from internet and broadband were stable, as the effect of increasing broadband take-up was offset by falling retail prices.

Figure 5.17 UK telecoms industry retail revenue

29.9 Corporate data 27.5 28.0 28.8 ) 30 26.2 2.8 services 24.7 2.7 2.5 2.6 2.8 2.3 2.5 2.8 2.2 2.5 Internet & 1.8 2.2 20 broadband 9.0 10.5 12.0 13.1 13.8 15.1 Mobile voice & 10 data Retail revenue (£bn 11.7 11.2 10.6 9.8 9.4 9.3 Fixed calls & access 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

The proportion of operator-reported retail telecoms revenue generated by fixed-voice telephony fell by two percentage points to 31% of the market total in 2007, while internet and broadband revenues made up 9% of revenues, a one percentage point decrease on 2006. The proportion of total telecoms revenue that was generated by mobile voice and data services increased by two percentage points, to 51%.

Of the three main retail consumer telecoms services (fixed telephony, mobile telephony and internet services), only mobile telephony saw an increase in revenue, as growth in the number of connections continued despite high penetration levels (Figure 5.18).

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Figure 5.18 Telecoms revenue growth between 2006 and 2007 Key drivers

Subscription Ethernet and IP Falling line Migration to growth & VPN Networking numbers & broadband & increasing usage services declining usage falling prices

£0.1bn -£0.2bn -£0.1bn

£1.3bn £1.1bn

Mobile Corporate data Fixed voice Internet & Total growth services broadband

Source: Ofcom / operators

At the end of 2007 there were 73.5 million active UK mobile subscriptions65 equating to approximately 1.25 connections per head of population (Figure 5.19), with growth being driven by take-up of devices for business purposes (including mobile data cards and 3G dongles) and many consumers having more than one phone to take advantage of call rates from different suppliers.

Against this trend, there was a slight increase in the number of fixed lines in 2007, to 33.7 million, as a result of growth in the number of business lines. The number of residential and SME internet connections also increased to 18.3 million during the period as broadband penetration grew, while the number of broadband connections (excluding corporate connections) grew to 15.6 million.

Figure 5.19 Total telecoms connections

80 73.5 69.8 65.5 Fixed lines 59.7 60 52.8 49.6 Mobile subscriptions 40 35.2 35.0 34.6 34.1 33.6 33.7 Total internet subscriptions 18.3 13.7 15.5 16.3 17.3 20 11.6 Of which broadband 13.0 15.6 1.4 3.1 9.9 0 6.1

Connections / subscriptions (millions / subscriptions Connections 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators; broadband excludes corporate connections

Mobile sector’s share of total connections continues to increase

The continued growth of mobile meant that by the end of 2007, mobile connections accounted for 69% of total telecoms connections. BT continued to have the largest number of connections, but its share of total connections fell from 22.8% to 20.7% during 2007

65 Based on operator-reported figures. Most operators define a mobile connection as active if it has been used to make or receive a call or text message within the last three months.

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(Figure 5.20). Connections to ‘other’ operators accounted for 6.5% of total connections by the end of the year. The majority of these are the connections of MVNOs such as Virgin Mobile and Tesco Mobile.

Figure 5.20 Share of total UK fixed and mobile telecoms connections

100% 1.6 1.9 2.3 3.7 2.7 3.5 5.5 6.5 Other 15.7 15.6 3.7 3.7 15.1 14.9 80% 14.8 14.7 3UK 14.2 14.9 15.5 15.4 16.4 16.1 Orange 60% 14.1 15.0 15.6 17.1 T-Mobile 14.4 18.4 18.7 14.4 14.5 40% 5.5 14.9 O2 5.3 14.2 15.4 5.0 4.5 4.2 4.2 Vodafone 20% 34.4 32.7 29.4 26.0 22.8 20.7 Cable Proportion of connections (%) 0% BT 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators; ‘other’ includes CPS, WLR, mobile ISP and MVNO subscribers in additional to fixed other licensed operators

The growing importance of mobile telephony to the UK telecoms industry is reflected in its share of outbound voice call volumes (Figure 5.21). In 2007 over 40% of voice call minutes were made from mobile phones, compared to less than 25% five years before, while BT’s share of originating voice call volumes fell to under 30% for the first time. Non-BT fixed-line services saw a 2.5 percentage point fall in their share of outgoing voice volumes in 2007, despite an increase in the number of lines during the period, although non-BT fixed operator’s share of fixed voice volumes was unchanged at just over 50%.

Figure 5.21 Share of outbound voice call volumes

100%

31.7 29.3 80% 39.6 35.1 47.1 42.9 BT

60% 33.0 30.5 34.2 Other fixed 32.2 40% 28.9 31.1 Mobile 20% 35.2 40.2 24.0 26.1 28.1 30.8 Proportion of connections (%) 0% 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

5.2.3 Fixed-line access Fixed revenues

While fixed voice telephony revenues continued to fall during 2007, the rate of decline slowed (Figure 5.22). Fixed voice revenue in 2007 was £9.3bn, 2% lower than in 2006, as a result of falling revenues for all call types, as call volumes continued to decline. Line rental revenue increased by 3% during the year to £4.7bn as take-up of tariffs offering inclusive calls in return for a higher monthly access fee increased. For example, at the end of 2007,

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BT’s Option 2 landline tariff offered bundled off-peak calls for an additional £3.45 a month and its Option 3 tariff offered free landline calls at any time of the day for £7.95.

Figure 5.22 Fixed voice telecoms revenue

15 Other voice 11.7 11.2 calls 10.6 1.4 1.4 9.8 9.4 Calls to 10 1.4 9.3 2.1 2.1 1.2 1.0 0.9 mobiles 0.9 2.0 1.8 0.8 1.7 1.7 International 0.7 0.6 0.6 0.6 2.7 2.4 2.0 calls 5 1.7 1.6 1.5 Revenue (£bn) UK geographic 4.6 4.6 4.6 4.5 4.5 4.7 calls

0 Access 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

Average spend continues to decline

Average monthly revenue per fixed line continued to fall during 2007 as a result of declining call volumes per line (Figure 5.23). Average revenue per fixed line was £23.32, a fall of 3% from 2006. This continues a long-term trend which has seen call revenues fall significantly; only partially offset by increasing access revenues, as consumers pay higher monthly fees in return for inclusive calls. In 2007, average monthly access revenues increased by 3% to £11.51, while monthly call spend fell by 8% to £11.81.

Figure 5.23 Average monthly voice revenue per fixed line

£29.58 ) £28.46 30 £26.80 £24.95 £24.05 £23.32

18.76 Calls 20 17.50 15.81 13.91 12.88 11.81 Access 10

Revenue per month (£ 10.82 10.96 10.99 11.03 11.17 11.51

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes spend on non-geographic voice calls

Fixed voice and narrowband call volumes are falling

Fixed call volumes continued to decline during 2007, partly as a result of narrowband internet users migrating to broadband services (Figure 5.24). Total fixed call volumes fell by 16% during the year to 162 billion minutes, with most of the fall due to a reduction in narrowband internet call volumes, which fell by 66% to 15 billion minutes. Fixed voice call volumes (including non-geographic voice calls) decreased by 2% during the year, to 148 billion minutes.

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Figure 5.24 Fixed telecoms call volumes

400 333 335 304 s 300 242 168 168 Narrowband 141 194 internet calls 200 82 162 42 15 Voice calls

Billions of minute 100 165 167 164 160 151 148

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

Non-geographic voice call volumes continued to decline in 2007, as shown in Figure 5.25. Falling narrow-band internet call volumes (which are categorised as ‘basic rate special services’ and ‘freephone calls’ for metered and unmetered calls respectively) were reflected in a 30% decrease in total non-geographic call volumes from 57 billion minutes in 2006 to 40 billion minutes in 2007.

Figure 5.25 Non-geographic fixed call volumes from fixed lines

200 179 182 Directory enquiries calls 1 4 1 4 155 (inc. international) s 44 38 4 1 150 Calls to premium rate 31 services 95 100 4 1 Special services: higher 23 hate 138 57 131 119

Billions of minute of Billions 1 40 50 5 Special services: basic 19 5 1 67 14 rate 32 20 0 Freephone calls 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

Decline in BT’s share of fixed voice calls slows

BT’s share of fixed voice call volumes continued to fall for all types of geographic calls during 2007 (Figure 5.26). However, after five years of steady decline, its share of UK geographic call volumes steadied, falling by just 0.2%. This may be the consequence of take-up of tariffs which offer customers unlimited calls for certain call types. The greatest decline was in international calls, where BT’s share fell by two percentage points to 41.6%, while its share of calls to mobiles fell by 1.4 percentage points.

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Figure 5.26 BT share of residential voice call volumes, by type

80 74.1 72.7 66.2 UK 73.8 61.1 70.9 57.7 56.3 geographic 60 64.4 calls 58.8 53.7 53.5 52.9 51.7 47.9 International 40 44.8 43.6 41.6 calls

20 Calls to Market share (per cent) mobiles 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

The number of fixed lines stabilises

The total number of UK fixed lines increased by 0.1 million to 33.7 million during 2007, as a result of growth in the number of business lines (Figure 5.27). This came after a five-year period during which the number of fixed lines fell and mobile penetration grew. The downward trend in the number of residential fixed lines continued in 2007, although there was evidence that the rate of decline was slowing and in two quarters there was growth in the number of lines.

The number of ISDN channels increased to 5.0 million during 2007, again following a sustained period of decline, driving growth in the number of business lines. The number of DSL and cable modem broadband connections continued to grow in 2007 as broadband penetration increased, with growth in DSL connections outstripping that of cable broadband connections.

Figure 5.27 Fixed telecoms lines

20 40

) 35.2 34.6 35.0 34.1 33.6 33.7 ISDN channels ) 15 30 12.2 DSL 9.9 10 20 7.2 Cable modem 5.1 5.1 4.9 4.7 5.0 5 4.7 10 Fixed lines (millions 1.7 4.2 Fixed lines 1.4 3.4 Connections / channels (m 0.8 3.1 2.0 2.7 (right hand 0 0.6 0 axis) 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators; broadband excludes corporate connections

Increasing competition has been fuelled by LLU operators

Carrier pre-selection (CPS) allows customers with BT lines to route their calls via an alternative operator, while continuing to pay line rental to BT (or another provider, if the line is also WLR-enabled). Over the last few years CPS and WLR (where an operator buys a wholesale access product from BT and bills the end-user for line rental) have enabled providers to compete in the fixed market without the requirement for expensive network

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infrastructure investment. In 2007 the number of CPS-enabled lines declined for the first time (Figure 5.28).

The fall in the total number of CPS-enabled lines is a reflection of CPS operators switching their customers to local-loop unbundled (LLU)-based services and BT’s Wholesale Calls products (a BT-managed calls-only service which allow operators to provide call packages using their own brand). LLU involves an operator locating its own equipment in the local exchange and taking over the connection from the exchange to a customer’s premises. With partial LLU the operator provides only DSL broadband service over the line, while full LLU also allows the operator to provide fixed access and call services without being bound to BT’s wholesale products. This enables operators with a large enough number of customers in each local exchange to reduce their costs, while consumers have access to a wider range of services and tariffs from a larger number of suppliers. Data from Sam Knows66 suggest that almost half of all unbundled exchanges have been unbundled by four or more LLU operators.

Figure 5.28 Carrier pre-selection, wholesale line rental and full LLU lines

8 6.9 6.6 Fully unbundled 5.9 0.3 1.0 lines ) 6 4.6 2.1 1.4 CPS-only lines 4 3.5 2.6 WLR and CPS 3.8 Lines (millions Lines lines 2 4.2 4.5 0.6 2.3 Total CPS lines 0.8 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

While BT’s share of fixed lines remains high (66% at the end of 2007), a growing proportion of consumers are taking retail voice services from an operator other than BT, using an alternative network provider (including those using cable networks and LLU) or CPS and WLR-based services. At the end of 2007, 38% of UK fixed lines were taking a fixed-voice service from an operator other than BT, an increase of two percentage points on a year before (Figure 5.29). It should be noted that these figures will be understated as they exclude BT’s Wholesale Calls packages, which were being used by over 350,000 lines at the end of 2007.

Figure 5.29 Share of fixed lines taking non-BT voice services

) 38.0 40 36.3 Full LLU 34.2 3.1 30.7 0.3 0.8 30 CPS lines 25.4 17.0 18.8 17.5 13.2 19.1 Other direct 20 7.4 1.8 access 4.0 4.6 3.7 3.8 3.7 4.1 Cable 10 13.1 13.3 13.3 13.7 13.0 13.4 WLR lines Proportion of totallines (% (RHS) 0 2002 2003 2004 2005 2006 2007 Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators; excludes lines using BT’s Wholesale Call products

66 http://www.samknows.com/broadband/

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The proportion of premises connected to an unbundled local exchange increased by 14 percentage points to 80.2% during 2007, as the proportion of unbundled exchanges increased from 23.3% to 31.0% (Figure 5.30). Premises connected to an unbundled exchange have access to both partial LLU (DSL broadband only) and full LLU (DSL and fixed voice) services.

The high upfront cost associated with unbundling an exchange means that providers have tended to unbundle those local exchanges which serve a large number of customer premises. The rate at which exchanges are being unbundled slowed during 2007, an indication that most of the larger, and therefore more commercially appealing, exchanges have already been unbundled. However, the rate at which lines are being unbundled has accelerated as more people living in unbundled areas take up LLU services.

Figure 5.30 Proportion of unbundled exchanges and connected premises

100 Proportion of 82.6 78.7 80.2 premises connected 71.6 75.6 80 66.6 to unbundled BT 57.2 exchange 60 50.0 45.3 39.6 Proportion of BT 33.2 exchanges that have Per cent 40 27.7 30.2 31.0 23.3 25.0 been unbundled 18.5 12.4 14.3 16.3 15.6 20 11.4 13.4 4.7 6.7 8.5 0.7 1.3 2.0 3.1 Total proportion of 0 lines that have been Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 unbundled 2006 2007 2008

Source: Ofcom / operators

Use of LLU-based services continued to increase in 2007, and at the end of Q1 2008 there were 4.3 million fully or partially unbundled lines, a 125% increase on the previous year (Figure 5.31). Growth in LLU has been fuelled to a great extent by the ‘free’ broadband services offered to consumers taking other communications services, by operators such as BSkyB and TalkTalk. At the end of Q1 2008 15.6% of premises were taking LLU services compared to 4.7% at the end of 2006.

Figure 5.31 Fully and partially unbundled fixed lines

5

) 4.3 4 3.7 illions Partially 3 unbundled 3.1 2.7 2 Fully unbundled 1

Unbundled lines (m 1.0 1.0 1.2 0 0.3 2004 2005 2006 2007 Q1 2008

Source: Ofcom / operators

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5.2.4 Mobile access Mobile revenue shows strong growth in 2007

Total mobile voice and data revenues increased by 9% to £15.1 billion in 2007, despite high penetration rates (Figure 5.32). The majority of this growth came from voice and access revenues, which grew by £0.8 billion (7%) during the year, although the strongest growth rate in reported revenues was from SMS messaging, which increased by 25%. Following strong growth in 2006, non-SMS data revenues were unchanged in 2007, partly a reflection of the increased availability and popularity of ‘all you can eat’ data tariff ‘bolt-ons’.

Figure 5.32 Estimated mobile retail revenue, by service

15.1 15 13.8 13.1 1.0 Data 12.0 0.7 1.0 2.7 revenue 10.5 0.4 2.1 2.2 10 0.2 1.8 8.7 1.7 SMS 0.1 1.1 revenue 11.4

Revenue (£bn) 10.3 10.7 5 9.7 Voice and 7.6 8.6 access revenue 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

During 2007, O2 (including Tesco Mobile) overtook Vodafone to become the largest UK network in terms of retail revenue, having been the biggest network in terms of active subscribers since 2004. Despite losing its top spot, Vodafone’s share of retail revenue continued to grow during 2007, while the shares of Orange, 3UK and T-Mobile (including Virgin Mobile) all declined slightly (Figure 5.33).

Figure 5.33 Estimated mobile retail revenue, by network operator

15.1 15 13.8 1.1 13.1 3UK ) 12.0 1.0 0.9 3.2 10.5 0.3 3.0 3.0 3.1 Orange 10 8.7 2.7 2.7 2.5 2.4 2.2 2.1 2.0 T-Mobile (including 4.1 1.6 3.3 3.7 Virgin Mobile) 5 2.4 3.0 1.9 Retail revenue (£bn O2 (including 2.9 3.4 3.6 3.7 3.7 4.1 Tesco Mobile) 0 Vodafone 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

Increasing use leads to growth in revenue per subscription

During 2007 average revenue per active mobile subscription increased by 3% a month to £17.59. This followed two successive years during which average revenue per subscription declined (Figure 5.34). The majority of the increase was due to a 17% increase in average SMS revenue per connection, although voice call and access revenue per connection also

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increased by 1%, possibly a reflection of the continuing migration of pre-pay customers to monthly contracts.

Average revenue per subscriber for non-SMS data services declined during 2007, partly as a result of increasing take-up of unlimited data add-on packages. This is likely to change in 2008 due to the increasing popularity of mobile broadband USB modems (or ‘dongles’), which launched in the second half of 2007 and have experienced rapid take-up during the first half of 2008. Mobile broadband is covered in more depth in Section 5.1.5.

Figure 5.34 Average monthly retail revenue per mobile subscription

20 £17.13 £17.74 £17.38 £17.05 £17.59

) 0.64 £15.39 0.35 0.87 1.22 1.14 Data 0.13 2.73 2.72 2.79 15 1.88 2.68 3.15 services SMS 10 messages

13.39 14.05 14.37 13.71 13.15 13.29 Voice 5 calls and

Revenue (£per month access

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

Average revenue per mobile connection increased slowly both for contract and pre-pay customers during 2007, as shown in Figure 5.35. Although growth in average revenue per pre-pay connection was slightly higher than that for contract customers, the average contract subscription continues to generate more than three times the monthly revenue of a pre-pay connection.

Figure 5.35 Average monthly retail revenue per mobile subscription, by subscription type

r 40 £35.81 £33.94 £35.27 £34.25 £32.54 £33.06

30 Contract 20

£8.84 £8.83 £8.91 £9.10 Pre-pay subscription (£) £8.57 10 £7.73 Average monthly revenue pe 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

Average revenue per minute continues to fall

The average cost of a voice call minute continued to decline for both contract and pre-pay subscribers in 2007 (Figure 5.36). The rate of decline was far greater for pre-pay calls (23%) than for contract calls (7%) in 2007, when the average cost of a prepay voice minute was 19% lower than the equivalent contract call minute. The rapid decline in the average pence- per-minute cost of a pre-pay call was partly a result of the introduction of unlimited offers on

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certain pre-pay top-ups. Before 2006 the average contract voice call minute had been less expensive than the average pre-pay voice call minute.

Although pre-pay calls are, on average, less expensive that the contract equivalent, this analysis does not take into account handset subsidies and the differing call patterns of pre- pay and contract users. For example, the popular Nokia N95 handset is available free of charge on certain monthly contracts; a pre-pay customer would have to pay more than £200 for the same handset. The analysis of price per minute for contract calls includes the monthly line rental fee, which often includes a number of inclusive SMS messages and sometimes a data allowance.

Figure 5.36 Average mobile cost per voice minute, by customer type

20 16.6 15.8 14.6 14.9 15 13.1 12.1 14.3 14.3 14.7 14.3 Contract 12.7 10 9.8 Pre-pay

Pence per minute 5

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators; contract includes rental element; analysis of price per minute for contract calls incorporates monthly line rental which often includes a number of inclusive SMS messages (and sometimes a data allowance); figures are calculated using actual minutes of usage.

Nearly 100 billion outbound mobile call minutes in 2007

Increasing mobile penetration and use per connection contributed to continued strong growth in call volumes during 2007, with outbound mobile call volumes up by 21% to 99.4 billion minutes (Figure 5.37). The strongest growth came from pre-pay call volumes, which increased by 30% over the year, compared to 18% growth in contract call volumes. This contributed to a fall in the proportion of mobile calls made by contract customers, from 74% to 73% during the year, despite an increase in the proportion of total mobile subscriptions which are contract. Again, this was partly a result of the introduction of unlimited call and text offers on certain pre-pay top-ups.

Figure 5.37 Mobile voice call volumes

99.4 100

s 82.2 80 71.1 64.0 58.9 Contract 60 52.0 72.1 61.1 53.9 40 49.1 Pre-pay 37.9 44.3 Billions of minute 20 27.3 14.1 14.6 14.9 17.2 21.1 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

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There was also strong growth in messaging volumes over the year, with the total number of outgoing SMS and MMS messages increasing by 36% to 59.1 billion messages (Figure 5.38). Over 99% of these messages (58.8 billion) were SMS text messages in 2007, equivalent to just under 70 messages per active connection per month.

Figure 5.38 Mobile messaging volumes

59.1 60 0.3 s 43.5 0.2 MMS 40 33.6 0.2 26.3 58.8 22.1 0.1 SMS 20 17.6 43.3 33.4 Billions of message 26.2 17.6 22.1 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

Mobile subscriptions growing, despite high penetration

During 2007 the number of active UK mobile subscriptions increased to 73.5 million, an increase of 5% during the year and equivalent to 1.23 mobile connections per person at the end of the year (Figure 5.39). O2 remained the largest network operator during 2007, with 20.0 million active subscriptions, but Vodafone had the strongest subscription growth at 12%, with 1.8 million net additions during the year, around half of which were contract connections.

Consumers’ use of multiple SIM cards is studied in more depth in Section 5.3.3 of this report.

Figure 5.39 Mobile subscriptions, by network operator

80 73.5 3UK 69.8 65.5 4.0 59.7 3.8 3.5 15.7 Orange 60 52.8 2.5 15.3 49.6 14.9 14.2 13.7 13.3 17.3 T-Mobile 40 15.3 16.9 14.6 (including Virgin 13.1 12.1 Mobile) 19.0 20.0 O2 (including 14.7 17.0 20 12.0 13.2 Tesco Mobile) Subscriptions (millions) 16.5 12.2 12.7 13.7 14.8 14.7 Vodafone 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators

The numbers of both pre-pay and contract mobile subscriptions increased during 2007 (Figure 5.40). Contract subscriptions grew by 8%, twice the growth rate of pre-pay subscriptions (4%) and as a result contract subscriptions as a proportion of total subscriptions increased by one percentage point, to 35.9%. This was partly due to networks trying to migrate pre-pay customers to monthly contracts by introducing low-value contracts, including SIM-only tariffs.

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Figure 5.40 Pre-pay and contract mobile subscriptions

100 34.9 35.9 40 32.6 33.3 34.0 ) 31.4 73.5 Contract 80 69.8 65.4 30 59.7 60 52.8 26.4 49.6 22.2 24.4 19.9 20 Pre-pay 17.2 40 15.6

43.2 45.4 47.2 10 Proportion 20 35.6 39.8 Proportion contract (%) Subscriptions (millions Subscriptions 34.0 contract (RHS) 0 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Notes: Based on network operator reported figures; likely to overstate activity in reference quarter; includes estimates where Ofcom does not receive data from the operators

3G connections grow by 60% in 2007

There was strong growth in the number of 3G mobile subscriptions during 2007 as operators continued to migrate customers onto their 3G networks, and as a new generation of 3G handsets, which were more appealing to consumers than previous models, became available. The number of 3G subscriptions grew by 4.7 million (60%) during the year and at the end of 2007 17% of mobile users were using 3G compared to 11% a year previously (Figure 5.41).

Strong growth in 3G subscriptions is likely to continue in 2007 as migration from 2G and 2.5G continues and as a result of rapid take-up of mobile broadband ‘dongles’.

Figure 5.41 3G mobile subscriptions, by network operator

20 17.0 3UK )

15 Orange 12.5 11.2 T-Mobile 10 7.8 7.0 O2 4.3 4.6 5 Vodafone Subscriptions (millions 0.4 2.6 As a % of all 0 0.2 subscriptions 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators / Informa Note: 3G connections defined as connections sold with 3G-capable handsets

5.2.5 Internet access Revenues decline slightly as falling prices counter take-up growth

We estimate that during 2007 revenues from residential and SME internet connections declined slightly to £2.9bn (Figure 5.42). This 2% decrease in overall internet revenue is the result of increasing migration from narrowband to broadband internet services, coupled with falling broadband prices. During 2007 the estimated average cost of a residential broadband connection fell by 8% to £14.11 a month, while the average cost of an SME broadband connection fell by 12%, to £18.04 a month (both excluding VAT).

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Falling broadband prices are partly the result of increasing levels of bundling, which often enable consumers to obtain discounts by buying more than one communications service from a single provider. Ofcom research, conducted in Q1 2008, showed that 58% of people with a home broadband connection bought it in conjunction with another communications service. Bundling of services is studied in more depth in Section 2.4.4 of this report.

Figure 5.42 Estimated UK internet and broadband retail revenue

2.9 2.9 SME 3 2.7 2.7 2.4 0.5 0.4 ) 2.1 0.8 0.6 Residential illion 2 0.9 broadband 0.9 1.0 1.9 1.4 2.2 0.6 Residential 0.2 1 unmetered Revenue (£b narrowband 0.7 0.7 0.8 0.5 0.4 Residential 0.3 0.3 0.2 0 0.2 0.2 0.1 metered narrowband 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Dial-up metered revenue figure is based on revenue paid to the telecoms provider, not the element retained by the ISP

Internet connections continue to increase

At the end of 2007 there were an estimated 18.3 million UK internet connections. Of these 15.6 million (85%) were broadband, a 10 percentage point increase on a year earlier (Figure 5.43).

The strongest growth in connections was for residential broadband services, where the number of lines increased by 22% during the year, while the number of SME broadband connections increased only slightly during the year. This indicates that a large majority of small businesses now have broadband connections, although it should be noted that some SMEs may be using broadband tariffs intended for the consumer market. The estimated number of residential and business narrowband internet connections fell by 40% and 16% respectively during 2007.

Figure 5.43 UK residential and small business internet connections

20 18.3 17.3

) 16.3 1.3 15.5 1.3 0.2 SME 1.1 0.2 broadband 15 13.7 0.80.4 0.3 illions 0.5 11.6 0.5 SME 0.3 2.7 5.4 0.5 8.8 narrowband 10 1.1 11.7 14.3 Residential broadband 5 9.7 10.1 9.0 Connections (m 6.1 Residential 4.1 2.5 narrowband 0 200220032004200520062007

Source: Ofcom / operators Note: SME broadband includes some connections over leased lines.

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LLU is facilitating broadband growth

During 2007 the number of LLU broadband connections almost trebled to 3.7 million as consumers took advantage of attractive broadband offers and LLU operators migrated existing customers from BT’s wholesale broadband products onto their own LLU networks (Figure 5.44).

The scale of migration to LLU networks is clearly indicated by the 23% fall in non-LLU DSL connections in 2007, the majority of which are provided using BT’s wholesale products. Service bundling has also been a major driver of LLU take-up, with a number of major LLU operators offering free or reduced-price broadband to consumers who also take the service with other fixed, mobile or pay-TV services.

During 2007 the number of BT retail DSL subscribers increased by 33% to 4.1 million, while Virgin Media’s cable modem subscriber base increased by 12% to 3.4 million. BT remained the largest retail provider during 2007 and its market share increased by three percentage points to 26.5%, with most of this increase being due to its acquisition of two smaller ISPs, PlusNet and Brightview.

Figure 5.44 UK residential and small business broadband connections

20 Other

) 15.6 0.1 15 13.0 LLU DSL illions 3.7 1.3 9.9 10 0.2 3.1 3.4 Virgin Media cable 2.7 modem 6.1 4.2 5.5 Other non-LLU DSL 5 3.1 2.0 4.7 Connections (m 1.4 2.7 1.4 4.1 0.8 0.9 2.3 3.1 0 0.3 0.8 1.4 BT retail DSL 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Excludes connections made over cellular networks

ISP consolidation continues as scale becomes more important

Recent broadband connection market share changes have been driven by two main factors: the introduction of ‘free’ broadband offers and market consolidation. TalkTalk and BSkyB both introduced ‘free’ broadband services to customers taking other communications services from them in 2006 and have since captured significant market share.

The rate of consolidation has increased over the past few years as operators have deployed their LLU networks; the LLU cost structure means that the more customers an operator has at an exchange, the greater the opportunity for them to reduce per-user costs and increase profitability. Recent market consolidation has seen TalkTalk / Carphone Warehouse buy AOL, and Pipex buy Bulldog and then in turn be bought by Tiscali. Tiscali, in turn, was recently put up for sale.

The result of ISP consolidation, and of TalkTalk and BSkyB’s entry into the market, is shown in Figure 5.45; since 2005 the share of ‘other’ operators has declined from 22.8% to 16.6%. During the same period BT’s market share has increased (partly due to its acquisitions noted above), while Virgin Media’s share has continued to decline, albeit more slowly.

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Figure 5.45 Estimated UK broadband service provision: retail connection share

100% Other 16.6 16.6 20.1 24.3 27.0 22.8 80% Orange Home

60% BSkyB 56.7 43.7 Tiscali 40% 34.0 28.7 25.4 23.7 TalkTalk / AOL 20% 23.7 25.8 24.4 23.4 23.8 26.5 Virgin Media Proportion of connections (%) 0% BT 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: TalkTalk / AOL, Tiscali, BSkyB, and Orange Home shares are indicative only.

5.2.6 Business sectors Business revenues continue to grow

Total telecoms revenue from UK business customers increased by 6% during 2007 as a result of growth in revenue from mobile and corporate data services (CDS). Mobile contributed the majority of the increase in total revenue, increasing by £0.9 billion (15%) during the year, while CDS revenues increased by 3% to £2.8 billion (Figure 5.46).

The downward trend in revenue from fixed voice services continued during the year, with revenue from business customers declining by 3% to £3.4bn. Over the same period, revenue from SME internet connections fell slightly as a result of falling broadband prices and slowing growth in connections. Non-corporate internet revenue is likely to be understated, as some SMEs use a residential connection to access the internet.

Figure 5.46 UK business telecoms services revenue

15 13.2 12.0 12.4 Corporate Data 11.3 11.6 11.8 ) 2.8 Services 2.5 2.7 2.2 2.3 2.6 0.3 illion 10 0.4 0.6 0.6 0.6 0.5 SME internet

3.6 4.0 4.6 5.1 5.8 6.7 5 Mobile Revenue (£b 5.0 4.6 4.2 3.8 3.5 3.4 Fixed voice 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators / IDC

Average monthly revenue per business fixed line (excluding revenue from non-geographic calls) fell by 3% during 2007 to £26.73 (Figure 5.47). Average revenue per line fell for all call types except international calls, which increased by 5% as a result of 6% growth in call volumes. Average monthly line rental revenue increased by 3% during the year to £14.15, partly as a result of increasing take-up of ISDN services.

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Figure 5.47 Average voice revenue per business fixed line

40 £35.04 £33.66 £30.51 7.59 £28.46 Calls to mobiles 30 7.59 £27.51 £26.73 3.05 7.01 2.54 6.53 6.35 5.63 International 5.37 4.53 2.30 20 3.53 2.14 1.99 2.09 3.79 3.39 2.84 2.61 2.35 National 2.94 2.70 2.86 2.50 £ per month 10 Local 15.23 15.61 14.73 14.25 13.68 14.15 Line rental 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Excludes revenues from non-geographic voice calls

The majority of revenue growth from business mobile services was generated by voice calls and rental, with estimated revenue increasing by 14% to £5.8bn during the year (Figure 5.48). Growth in revenue from data services (which includes SMS revenue) was, at 22%, greater that that of voice calls, although during 2007 these made up only 14% of total business mobile revenue.

Growth in data revenue (including SMS) was partly a result of increasing take-up of devices such as PDAs and BlackBerrys by business users, although growth in 2007 was much lower than the 44% reported in 2006.

Figure 5.48 Breakdown of business mobile revenue

8 6.7 5.8 6 0.9 5.1 0.8 4.6 Data (inc. 4.0 0.5 0.4 SMS) 4 3.6 0.3 0.2 5.8 4.5 5.1 Voice calls and

Revenue (£billion) Revenue 4.2 2 3.4 3.8 rental

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Figures have been restated from the 2007 Communications Market Report to reflect more accurate data

Business call volumes declining

Total business voice call volumes (excluding non-geographic voice calls) continued to decline during 2007 and were 2.6 billion minutes (6%) lower than in 2006 (Figure 5.49). Business fixed voice call volumes have been declining since 2001 as a result of increasing use of mobiles, VoIP and other forms of communication such as email. Business voice call volumes were 26% lower in 2007 than they had been five years previously.

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Figure 5.49 Business fixed voice call volumes

57.5 60 54.1 ) 50.0 45.7 44.9 42.4 40

20 Call minutes (billions minutes Call

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

Average voice call volumes per business fixed line (excluding non-geographic voice calls) fell by 6% to 80 minutes per week during 2007, continuing the downward trend evident in every year since 1997, with the exception of 2006. Average business call volumes per line fell for all call types except international calls in 2007, with the largest proportional fall in national calls, which fell by 9% (Figure 5.50).

Figure 5.50 Average weekly outbound voice call volumes per business fixed line

120 99.9 95.4 100 89.7 k 11.7 84.9 Calls to mobiles 12.3 84.0 80.0 5.8 12.4 80 5.8 12.6 14.0 5.7 13.2 5.3 5.8 International calls 60 45.3 6.1 42.3 38.6 35.5 35.3 40 32.1 National calls Minutes per wee 20 Local calls 37.1 35.1 33.1 30.7 29.9 28.6 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Excludes non-geographic voice call volumes

Business lines increase during 2007

The total number of business fixed lines and ISDN channels increased in 2007 after a sustained period of decline (Figure 5.51). This was due to growth in the number of ISDN30 channels, which are typically used by larger business customers to route voice calls.

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Figure 5.51 Business fixed lines, by type

12 11.0 10.8

) 10.6 10.3 10.1 10.3 10 ISDN30 3.2 3.2 3.2 3.1 3.6 channels 8 3.2 1.6 1.7 1.6 1.5 6 1.5 1.4 ISDN2 channels 4 6.2 6.0 5.9 5.7 5.4 5.3 2 PSTN lines Lines / channels (millions / channels Lines 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Figures may be overstated due to an element of double-counting of WLR lines

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5.3 The telecoms user

5.3.1 Introduction This section looks at trends in consumer take-up of telecoms services to provide a ‘bottom- up’ approach which relates consumer behaviour to the wider industry trends discussed in the previous section.

We define ‘consumer’ as any user of telecoms services. These may be separated into two main categories: residential and business.

• We focus in this section on the residential sector, both in order to provide continuity with the rest of this report (as the broadcasting section is also focused very much on the residential sector), and because we believe that the residential sector benefits most from this type of analysis and guidance.

• We do not address business users in any detail for two reasons; firstly, general information about large business organisations is well served by companies’ own IT/telecoms departments and relevant industry bodies; secondly, primary data about business behaviour are difficult to obtain, being considered too commercially sensitive for service providers to make publicly available.

The analysis that follows is based on operators’ data and Ofcom’s own consumer research. Third-party research is used to supplement this primary data where appropriate.

5.3.2 Household spend and pricing Mobile takes over half of household spend

For the third consecutive year, household expenditure on telecoms services fell, both in actual terms and, marginally, as a proportion of average total household monthly spend (Figure 5.52).

Figure 5.52 Real average household spend on telecoms services

120 4% 3.3% 3.4% 3.3% 3.3% 3.3%

100 3.1% e Internet & 3% broadband 80 £69.60 £68.08 £62.80 £66.77 £66.48 £64.74 Mobile voice & text 8.49 60 5.72 7.07 8.85 9.87 9.45 2% 25.04 29.55 33.00 40 33.65 32.58 32.73 Fixed voice 1% 20 32.05 £ per month (2007 prices) 30.15 28.10 25.58 24.03 22.56 As a % of total 0 0% As a % of total expenditur household spend 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators / ONS Notes: Includes estimates where Ofcom does not receive data from operators; adjusted to RPI; includes VAT

Fixed-line voice spend fell by 6.1% during 2007, driven by a fall in the total number of lines and lower use per line, as consumers increasingly substitute voice services over mobile and the internet for fixed-line calls.

Spend on mobile services increased in real terms during 2007, and for the first time mobile accounted for over half of household telecoms expenditure. As highlighted in Section 5.3.2,

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the average price per minute on mobile is falling as more minutes are included in tariff plans, although overall spend on mobile services per household is rising as mobile use increases.

Average household spend on internet and broadband access fell for the first time in 2007 as falling prices offset increasing broadband take-up. Falling average prices are in part driven by the increasing take-up of ‘bundled’ services where broadband is included (sometimes as a ‘free’ offer) with fixed-line voice services (for example, by Talk-Talk), mobile services (for example, by Orange), or TV services (for example, by BSkyB).

An additional factor in reducing overall average prices is the increasing prevalence of lower- priced broadband tariffs (with lower data speeds and download allowances) aimed at lighter users of the internet. The figures are based on operators’ own allocation of revenue and should be treated with some caution, as the increased take-up of bundled offerings makes it difficult to precisely apportion spending.

Cost of fixed voice declines

We use analysis of the cost of a basket of telecoms services as a means of comparing costs over time. This analysis derives the ‘real cost’ to the consumer by identifying the average price per minute for access and calls (and price per message for mobile) in a year, and then defining the ‘basket’ as the average number of minutes (and messages) used in 2007. Costs are then adjusted for changes in RPI in order to provide a year-on-year comparison.

As Figure 5.53 illustrates, the real cost of a basket of residential fixed voice services increased in 2007, albeit only by 0.3% or 7p per month. The average cost of residential fixed access has remained fairly static over the last five years, while the cost of calls has declined over the same period.

The cost of fixed calls to mobile phones rose by 10% in 2007, suggesting price increases to call charges outside the inclusive tariff offerings, while the increase in the cost of local calls (by 5%) comes as few operators now have differential charging between UK national and local calls, meaning that peak-time local calls are priced the same as peak-time national calls.

Figure 5.53 Real cost of a basket of residential fixed voice services

30 £25.43 Calls to £23.70 £22.19 mobiles 4.87 £21.16 £21.09 £21.16 4.52 International 20 2.22 4.08 3.71 1.94 3.70 4.08 calls 2.01 1.64 1.47 1.49 1.67 1.20 0.93 0.92 0.871.28 4.19 3.70 3.20 2.88 2.62 2.76 National calls 10 Local calls 12.14 11.87 12.07 12.17 12.36 12.18 £ per month (2007 prices) Fixed access 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes VAT; excludes non-geographic voice calls

Overall costs of mobile fall – but fixed cost element increases

As in previous years, the cost of mobile services fell significantly in 2007, with the average cost of calls to the same network (on-net), calls to other networks (off-net) and the average cost of messaging continuing to decrease (Figure 5.54). Over the five year period as a

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whole, the cost of the basket of mobile services has fallen by 45%, from £32.68 to £17.93. The inclusion of higher numbers of minutes and text messages within monthly allowances for contract customers (see Section 5.1.4), combined with ‘bonus minutes’ for pre-pay contracts, have led to significantly reduced costs of metered calls. However, as a corollary to this, the average cost of combined line rental and calls to fixed numbers has increased, due to an increase in the number of contract mobile subscriptions, which accounted for 36% of the total subscription base at the end of 2007, a one percentage point increase since 2006.

Figure 5.54 Real cost of a basket of mobile services

40 £32.68 £30.18 Messaging 30 £28.23 9.04 £24.70 8.82 8.12 £21.04 Off-net 20 7.05 £17.93 5.75 11.85 8.75 7.02 5.33 4.56 On-net £ per month 4.13 2.80 2.72 10 2.93 2.99 2.28 1.88 1.24 UK fixed calls 10.29 10.05 8.85 9.62 9.27 9.41 and rental 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes VAT; excludes non-geographic voice calls

Growing popularity of low-cost contract tariffs

Operators have achieved some success in encouraging pre-pay users, particularly those spending less than £20 a month, to switch to contract plans, by offering more inclusive minutes and texts and free or low-priced handsets. Figure 5.55 highlights how the proportion of customers buying a handset with a contract plan below £20 nearly tripled in the year to March 2008. At the other end of the scale, it is also noteworthy that the proportion of mobile contracts costing over £50 a month has more than halved (from 7% to 3%), as the growth in numbers of inclusive minutes at lower prices has made these higher cost contracts unnecessary for many consumers. The most common price points for monthly contracts are between £30 and £39.99 a month, although the share of new contracts in this price range fell below 50% in Q1 2008 for the first time in the three years for which data are available.

Figure 5.55 Monthly line rental for new mobile contract connections

100% 7 8 8889 6 447 6 5 3 13 9 13 9 9 12 12 13 12 14 11 10 13 £50.00+ 80% £40-£49.99 60% 47 52 54 49 55 50 51 54 62 62 56 53 59 £30-£39.99 40% £20-£29.99 31 17 20 20% 22 19 23 24 21 21 17 19 19 22

Proportion of contracts (%) 9 13 15 £0-£19.99 0% 6 77554 3 6 5 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2008

Source: GfK retail data Note: Based on new contracts with handsets, covers 94% of sales

Since 2005 the majority of contract users have moved from 12 to 18-month contracts. Operators are able to recoup any costs incurred by subsidising ‘free’ or low-cost handsets

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over this longer period, in addition to either including more inclusive minutes and/or texts for the same value, or reducing the monthly contract cost. But for the first time the proportion of 12-month contracts increased in Q1 2008, suggesting that more consumers are willing to pay extra (in comparison to a similar 18-month contract) in order to have the flexibility of a shorter tie-in period (Figure 5.56). At the other end of the scale, the proportion of new contracts of 24-month duration doubled, revealing that some users value, and are prepared to take advantage of, lower monthly charges. For example, in March 2008 an Orange user wanting 100 any-network, any-time minutes, plus 300 texts, paid £20 a month on a 24-month contract, compared to £25 a month on an 18-month contract and £30 a month on a 12- month contract.

Figure 5.56 Length of new mobile contract connections

) 100% 111 111112 12 12 24 27 80% 41 24 months 55 66 60% 74 80 84 84 87 84 18 months 88 88 40% 76 72 58 12 months 20% 44 34 25 19 16 15 12 14 Proportion of sales (per cent 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2005 2006 2007 Q1

Source: GfK retail data Note: Based on new contracts with handsets, covers 94% of sales

Difference in cost between fixed and mobile calls continues to narrow

The average cost of a mobile minute fell to 11.5p in 2007, 38% more than the cost of average fixed-line call minute in 2007 (Figure 5.57). It should be noted that the cost-per- minute for a mobile is over-stated as it does not include the value of the handset subsidy which mobile operators recoup over the course of the contract.

The average cost of a fixed voice call minute increased in 2007, despite the inclusion of more minutes in fixed-line tariff packages, as overall use fell. By contrast, mobile call charges continued to fall from a peak of 15.2 pence per minute in 2004 to 11.5 pence in 2007. This is the consequence of contract users taking advantage of more inclusive minutes, while more ‘bonus’ minutes have become available on pre-pay plans. For example, in June 2008, Vodafone pre-pay users spending £5 between Monday and Friday received free weekend calls from midnight Friday in the same week.

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Figure 5.57 Comparison of average fixed and mobile voice call charges

20

14.6 14.7 15.2 14.5 15 13.0 11.5 Mobile 10 7.1 6.9 6.6 6.5 6.6 7.1 Fixed

Pence per minute 5

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators

Consumers seek value by purchasing broadband with other services

Unlike fixed and mobile services, which can be purchased separately, broadband services are often purchased as part of a bundle alongside other communications services (58% of households with broadband take it in conjunction with another service from the same provider), making it difficult to calculate the average cost of a broadband service. Some of the leading broadband providers, including BSkyB and TalkTalk, do not offer broadband as a standalone service, but only as part of a double-play (fixed-line voice and broadband), or triple-play (fixed-line voice, broadband and TV) package. A basic broadband service is sometimes offered ‘free’ in association with another service, while other operators offer substantial discounts when broadband is taken in conjunction with another service; for example, O2’s lowest priced basic broadband package costs £7.50 per month to an O2 mobile user and £12.50 to a non-O2 mobile user. Figure 5.58 illustrates the savings that are available by purchasing broadband alongside another service.

Some providers vary the cost of a broadband package, depending on whether LLU is installed at the local exchange. AOL, for example, charges (subject to a BT line) £14.99 a month for broadband access in LLU areas and £19.99 a month in non-LLU areas. Virgin Media charges a higher price for broadband services in areas falling outside its cable network coverage.

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Figure 5.58 Lowest-cost broadband options from major suppliers, June 2008 (£ per month)

Provider Broadband Broadband, fixed Broadband, fixed Broadband, fixed, and fixed line and mobile and TV mobile, and TV

AOL 25.49 - - -

Be 24.50 - - -

BSkyB - - 26.00 -

BT 26.49 38.99 26.49 38.99

O2 23.00 38.00 - -

Orange 22.50 37.00 - -

PlusNet 19.98 - - -

TalkTalk 16.39 - - -

Tiscali 14.99 - 19.99 -

Virgin Media 20.00 30.00 30.00 40.00

Vodafone 35.00 40.00 - -

Source: Pure Pricing UK Broadband, Bundling and Convergence Update, June 2008 Notes: Includes £10.50 BT line rental as relevant; lowest cost option / lowest price combination is shown; activation charges and promotional discounts are excluded; mobile options may be SIM-only; allowances for fixed-line and mobile calls, plus availability of TV channels included within packages may differ by operator and option

5.3.3 Take-up of services Residential users drive broadband penetration

Household broadband penetration increased from 52% in Q1 2007 to 58% in Q1 2008, representing a slowdown in growth from previous years, as internet penetration (67%) approaches PC penetration (72%) and the majority of narrowband users have already migrated to broadband (Figure 5.59).

The proportion of households with a fixed connection remained steady at 88% by Q1 2008, a small decrease on the previous year. The higher penetration of mobile (93%) indicates that more households are choosing not to subscribe to a fixed-line service but rely solely on mobile services for their communication needs. The requirement of a fixed phone line for DSL broadband may limit the number of users who chose to subscribe only to mobile for their households.

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Figure 5.59 Household penetration of key telecoms technologies

100 92 93 90 90 93 93

89 90 90 88 80 85 Fixed 80 67 telephony 60 64 60 57 Mobile 50 telephony 42 58 40 52 41 Internet 27 connection 20 Broadband

Proportion ofadults (%) 11 4 internet 0 Q4 2002 Q4 2003 Q4 2004 Q1 2006 Q1 2007 Q1 2008

Source: Ofcom research, Q1 2008

Figure 5.60 illustrates that there are significant differences in the household penetration of communications services by socio-economic group. The cost of a broadband connection, combined with the cost of a PC, means that ABC1 households are nearly twice as likely to have a broadband connection as are DE households. However, while just one in twenty ABC1 households are mobile-only, nearly one in four DE households rely exclusively on mobile for their communications needs. A number of factors drive this:

• pre-pay mobile offers those with less disposable income greater control over their spending;

• people in lower socio-economic groups are more likely to live in shared accommodation where a personal device such as a mobile is more appropriate than a fixed line; and

• where a personal device such as a mobile is more appropriate than a fixed line, and the low penetration of broadband means that fixed lines are not needed for internet access.

Figure 5.60 Household telecoms connections, by socio-economic group

80 71

60 48 ABC1 38 40 C2 23 DE 20 12 9 Proportion of adults (%) 555 0 Fixed line only Mobile only Broadband

Source: Ofcom research, Q1 2008 Base: All respondents

Mobile-only households are particularly prevalent in urban areas such as Greater Manchester and Londonderry/Derry, among low income and younger consumers (Figure 5.61). These households particularly rely on pre-pay mobile tariffs, allowing users to control spend and top up with credit when available.

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Figure 5.61 Household telecoms connections in urban areas

100% 12 Neither fixed 22 28 21 20 23 27 nor mobile 80% 8 11 8 10 10 10 6 60% Mobile only

40% 79 70 67 62 69 65 67 Fixed only 20%

0% Fixed and mobile Proportion of households (%) Belfast Glasgow Derry Liverpool Gtr M'cster UK average Birmingham Londonderry/ Source: Ofcom research, Q1 2008 Base: All respondents

Growth in mobile connections driven by multiple SIM users

As detailed in Section 5.2.4, since 2005 the number of active mobile connections has exceeded the UK population. At the end of 2007 there were 122.6 active mobile connections in the UK, and with 86% of UK adults owning a mobile phone in Q1 2008, it is clear that growth in the market is coming through some people using more than one SIM. Our research in July 2008 found that 11% of adult mobile users use more than one SIM card (see Figure 5.62), with younger users more likely to own multiple SIMs.

Figure 5.62 Use of more than one SIM by UK mobile users How many mobile phones or SIM cards with different telephone numbers do you currently use? 20% s

15% 1 2 1 Four or more 2 1 1 10% 1 2 1 Three 1 13 5% 11 9 9 8 Two % of adult mobile user 7 4 0% Total 16-24 25-34 35-44 45-54 55-64 65+

Source: Ofcom research, July 2008

Based on research in April 2008, Enders Analysis estimated that 49 million people in the UK used a mobile phone, and a total of 75.1 million SIM cards. Figure 5.63 details Enders’ estimate of the breakdown of these additional 26.1 million connections. Nine million were completely inactive, and waiting to be removed from operators’ books (only SIMs which have been used in the last 90 days are classified as active) and a further 7.7 million are barely used but are defined as active because they occasionally receive incoming calls or text messages. This leaves 9.4 million genuine second SIMs in use, consisting of 1.0 million datacards / dongles, 0.7 million handheld business email devices used as additional devices, and 7.7 million second handsets.

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Figure 5.63 Breakdown of the difference between mobile users and reported mobile connections

80 75.1 7.7 1.0 0.7 60 7.7 26.1 9.0

40 Millions

49.0 49.0 20

0 Mobile users Inactive SIMs Barely active Datacards Additional Additional Reported (adults and SIMs email devices mobile connections children) phones

Source: Based on Enders Analysis, UK mobile user survey, April 2008

It is also apparent that the large majority of multiple-SIM users make and receive the majority of calls on one of their SIMs, with over 80% of multiple-SIM users agreeing that they have one SIM on which they make and receive the majority of calls / texts (Figure 5.64).

Figure 5.64 Tendency to use one main SIM, among multiple-SIM users

100% 111 5 4 7 6 11 7 Strongly 80% disagree 44 40 60% 40 Disagree

40% Neither agree nor disagree 20% 43 43 44 Agree 0% I have one SIM card / I have one SIM card / The SIM card on which I number on which I make the number on which I receive make most of my calls / Strongly agree majority of calls / texts the majority of calls / texts texts is the same as that on which I receive most of my calls / texts Source: CAPI OmniBus, July 2008 Base: Adults 16+ who personally use more than one SIM card

It therefore appears that despite there being around 26 million more mobile connections than there are mobile users in the UK, relatively few consumers are using multiple SIMs on a daily basis. Around 11% of mobile users claim to use more than one SIM, and of these only 13% do not have a single SIM on which they make the majority of calls / texts. This implies that around 1.4% of UK mobile phone users (around 700,000 people) are frequent users of more than one SIM.

There are many reasons why users have more than one SIM (Figure 5.65). The most common reason is to separate work and personal calls, with over a third of those with more than one SIM card claiming that this is the main reason. However, there is only limited evidence of SIM-swapping to take advantage of cheaper calls (on-net calls are typically cheaper than off-net calls): 6% of those with multiple SIMs claim this as a main reason, with a further 4% claiming that their main reason is so that friends can call or text them at lower cost.

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Figure 5.65 Reasons for multiple SIM ownership

0% 10% 20% 30% 40%

To separate numbers for work and personal calls 35%

It's useful to have more than one personal mobile number 13%

Many of my contacts still use an old number 12%

I have a back-up in case I run out of credit 10%

To take advantage of lower prices available from different operators 6%

So my friends can call / text the number which offers them the lowest price 4%

So I can separate calls I make in the UK with calls I make while overseas 3%

So I can separate calls to numbers in the UK from calls to abroad 3%

I have a separate phone or SIM card for emails / using the internet 2%

Unsure 13%

Source: CAPI OmniBus, July 2008 Base: Adults 16+ who personally use more than one SIM card

Internet penetration level approaches PC ownership

By Q1 2008, household internet penetration was within five percentage points of household PC ownership (Figure 5.66). This suggests two things: firstly, that PC owners increasingly regard internet access as an integral part of the use they get from a PC, and secondly, that a higher level of PC ownership is needed before there can be any significant growth in overall internet penetration.

Figure 5.66 Household PC and internet penetration

80 71 72 67 69 64 65 67 60 64 PC 63 57 57 58 ownership 53 52 40 Internet 41 connection Broadband 20 27 connection 4 11 Proportion of households (%) 0 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q1 2007 Q1 2008

Source: Ofcom / operators

2.5 million households still use narrowband

Despite the continuing growth of broadband, there is still a significant minority of UK households (2.5 million) which still rely on a dial-up narrowband connection to access the internet, although 45% of narrowband consumers claim they are likely to subscribe to broadband within 12 months (Figure 5.67). Perceived cost appears to be the main barrier preventing consumers upgrading to broadband, with 23% saying that broadband is too expensive, and a further 45% claiming that they don’t use the internet enough (presumably to justify the additional expenditure). However, a significant number of narrowband users believe that a narrowband connection meets their needs (16% claim they are satisfied with their current connection and 11% say they do not need faster speeds), while 4% of those

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using dial-up claim it is because broadband is not available in their area (this conflicts with BT’s claims that 99.6% of BT lines can support speeds of more than 512kbit/s).

Figure 5.67 Reasons for not taking up broadband

d 50

40

30 45 20 23 10 16 11 11 5 0 4 Don't use Too expensive Satisfied with Don't need Too much Not available Other internet current faster speeds hassle to in my area

% of those unlikely to get broadban enough connection change

Source: Ofcom research 2007 Note: Multi code question Base: All without broadband

Only one in 20 UK adults access the internet on a portable device

Overall, 71% of UK adults claimed to use the internet in Q1 2008, with 61% of UK adults accessing it in their homes (compared to 64% in 2007). Outside the home and work, consumers are most likely to access the internet in someone else’s home or in a library or educational institution (Figure 5.68). Just 6% of UK adults ever use internet cafes or kiosks to access the web, while the proportion accessing the internet via a portable device remained unchanged between Q1 2007 and Q1 2008 at 5%, despite growth in the number of 3G connections and in mobile broadband, as highlighted in Section 5.1.5.

Figure 5.68 Location of internet access

Proportion of internet users 15+ (%) 0204060 61 At home 64 25 At work 27 15 In someone else's home 13 71% of UK 14 In library or educational institution 13 adults use 7 the internet In internet café, shop or kiosk 6 Anywhere via a portable device 5 5 Q1 2008 2 At other locations Q1 2007 3 Source: Ofcom research, January 2008

VoIP user base declines

A significant gap remains between the awareness of Voice over Internet Protocol (VoIP) and its actual use, with the number of users actually falling in 2008. This indicates that while there remains a core group of consumers of VoIP services, the majority of broadband users are still choosing not to use VoIP, perhaps because of issues over VoIP quality of service or because of competition from low-priced fixed and mobile telecoms services. For example, VoIP is often marketed as a cheap way to make international calls, but as highlighted in Figure 5.69, the cost per minute of making international calls over fixed and mobile connections continues to decline, while use continues to grow. With flat rate tariffs and add-

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ons becoming an increasingly prevalent component of both fixed and mobile tariffs (see Section 5.1.4), the incentives to use VoIP services are decreasing.

Figure 5.69 Awareness and use of VoIP

80

Q4 2005 60 Q4 2006 40 77 68 72 73 Q1 2007 20 Q1 2008 % of broadband users 15+ 14 20 18 14 0 Awareness of VoIP Currently using

Source: Ofcom research, January 2008 Base: All adults with broadband

5.3.4 Fixed-line and mobile use Average voice call volumes per residential fixed line fell by nearly 9% in 2007 as mobile took an increasing share of call volumes (Figure 5.70). All types of fixed-line calls declined, with the exception of international call volumes. These are less likely to be substituted by mobile, as international calls from mobiles generally cost more than from a fixed line, and international call minutes are generally not included in call allowances within monthly mobile contracts.

Figure 5.70 Average monthly voice call volumes per residential fixed line

350 303.3 303.8 305.9 300.2 292.2 300 28.1 29.4 30.4 30.3 29.3 266.8 10.0 10.2 10.5 10.1 250 9.6 26.4 Calls to mobiles 10.2 81.1 77.9 77.6 76.2 74.5 200 68.1 International calls 150 National calls 100 186.2 187.4 Minutes per week 184.2 183.7 178.8 162.1 Local calls 50 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Excludes non-geographic voice calls

Calls between mobiles drive up volumes

Calls from fixed lines still account for the largest proportion of voice calls made within the UK, although the proportion fell by four percentage points to 60% in 2007 as more calls were made from mobiles (see Section 5.1.3 above) The increasing volume of mobile-to-mobile calls is the main driver of growth in mobile call volumes (Figure 5.71), due to the increasing number of inclusive any-network minutes in mobile contract tariffs. International call volumes increased significantly through 2007, driven by lower prices caused by the introduction of the Eurotariff in August 2007, the greater take-up of special bundles such as O2’s International

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Caller ‘bolt-on’ and the launch of low-cost international call rate service providers such as Lebara Mobile.

Figure 5.71 Average monthly outbound voice minutes per mobile connection

120 115.6 101.4 13.7 91.9 95.9 94.8 94.8 1.6 Other 12.4

k 8.3 90 8.1 1.3 9.3 11.7 1.3 1.3 1.2 1.2 31.7 International 13.4 16.9 19.4 21.3 25.7 60 Off-net 29.6 31.4 36.4 30.1 28.4 30.3 On-net Minutes wee per 30 39.5 38.0 34.9 32.3 31.8 32.3 UK fixed 0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Excludes 3UK; ‘Other calls’ include roaming, premium rate calls, WAP calls and all other call types

Average voice use per contract and per pre-pay connection increased throughout 2007. Contract users used nearly five times as many call minutes on average as pre-pay users, as they took advantage of inclusive allowances within their monthly line rental fees (Figure 5.72). However, there was a greater proportional increase in pre-pay use per connection, with voice minutes increasing by over 20% in 2007 as a result of reduced pricing, including the rise of tariffs incorporating ‘bonus’ minutes for high-end users, such as O2 giving 200 bonus minutes to pre-pay users crediting their account with £30 or more in the previous month.

Figure 5.72 Average outbound mobile minutes, by customer type

250 225 237 214 220 213 219

h 200

150 Contract

100 49 Pre-pay

Minutes per mont 40 50 36 35 33 35

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators; excludes 3UK

A nation of texters: SMS rises by 28% per user

Despite the increased availability of alternative messaging services (such as email and instant messaging) on internet-enabled mobile handsets, the volume of outgoing text messages grew by 28% in 2007, twice the growth rate of voice minutes (Figure 5.73). In 2007 an average of 68 text messages per month were sent from every UK mobile

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connection; this compares with an average of 20.4 SMS sent per mobile connection in France and 22.8 in Germany in 2006 (the most recent year for which data are available)67.

And despite the almost universal availability of cameras on new mobile phones, picture messaging has had very low take-up, with just 0.37 multimedia messages (MMS) sent per mobile connection in 2007.

As with voice minutes, the inclusion of more text messages, or even unlimited texts on some tariff plans, such as T-Mobile’s Combi plans at £30 and above, is contributing to this growth. However, out-of-bundle text messaging now accounts for a larger element of the total cost of services than out-of-bundle on-net and off-net mobile-to-mobile calls combined.

Figure 5.73 Monthly outbound messages per mobile connection

80 h 60 Picture messages 40 68 53 Text 44 20 36 39 messages Messages per mont 31

0 2002 2003 2004 2005 2006 2007

Source: Ofcom / operators Note: Excludes 3UK

5.3.5 Customer satisfaction and switching Nine in ten fixed and mobile customers satisfied with their service

Overall, the large majority of fixed and mobile users are satisfied with the service they receive (Figure 5.74). Satisfaction with mobile services increased between Q4 2006 and Q1 2008, while satisfaction with fixed services declined slightly (although the proportion of consumers who were ‘very satisfied’ increased significantly).

This reflects the dynamic nature of the market. Mobile users have also benefited from operators’ focus on improving the overall customer experience, loyalty rewards and retention processes, all designed to reduce churn among existing users in what is largely a saturated market.

Mobile customers have benefited from falling prices as more inclusive minutes are typically included within monthly contracts, and have enjoyed better network coverage as 3G roll-out has neared completion and as technical issues relating to the handover between 2G and 3G networks have largely been resolved. By contrast, there has been more flux in the fixed-line markets, as alternative networks offering services through LLU or WLR have gained market share from BT.

The rise in the number of fixed customers who are ‘very satisfied’ is likely to be a reflection of the wider range of tariffs available, the better value offered by double-play and triple-play offers, and the wider availability of inclusive calls within standard monthly access fees. The

67IDATE / national regulators

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increase in the proportion of consumers who are ‘not satisfied’ is likely to be a comment on the raised expectations created by these new services, and perceived disadvantages such as longer contract commitments, raised monthly access fees in return for inclusive calls, and for some, frustration that a fixed line is required in order to have a phone line for DSL broadband.

Figure 5.74 Residential consumer satisfaction with fixed and mobile services

Fixed Mobile 92 91 9392 94

e 100 88 86 86 83 88 78 77 80 41 48 40 32 29 48 59 33 60 56 32 54 58 Very satisfied 40 Satisfied 51 52 54 20 49 46 43 45 50 32 35 32 30

% of adults 15+ with servic 0 Q1 2006 Q1 2008 Q1 2006 Q1 2008 Q1 2006 Q4 2007 Q1 2006 Q1 2008 Q1 2006 Q1 2008 Q1 2006 Q1 2008 Overall Value for Reliability Overall Value for Accessing money money the network Source: Ofcom research Note: Includes only those who expressed an opinion

Overall satisfaction with broadband service was similar to that for fixed-voice services, with nine in ten consumers saying that they were either ‘very’ or ‘fairly’ satisfied and five in ten ‘very satisfied’. Satisfaction levels, both with value for money and with connection speed, were slightly lower than overall satisfaction levels, at 83% for each, and satisfaction with speed has fallen from 90% two years ago (Figure 5.75).

Figure 5.75 Residential customer satisfaction with aspects of broadband service

92 e 100 89 84 90 88 83 84 83 78 80 44 38 33 26 43 34 60 55 50 49 Very satisfied 40 Satisfied 48 50 51 52 47 50 20 34 33 34

% of adults 15+ with servic 0 Q1 2006 Q1 2007 Q1 2008 Q1 2006 Q1 2007 Q1 2008 Q1 2006 Q1 2007 Q1 2008 Overall Value for Speed of service money Source: Ofcom research Note: Includes only those who expressed an opinion

Broadband speeds meet most customers’ expectations

The issue of broadband speeds has received significant attention in the consumer and industry press in the past year, both in the context of the debate as to when investment should be made in ultra-high-speed next generation access networks, and also in the context of the differences between the ‘headline’ speed of a broadband package and the

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actual speed experienced. Actual speeds are frequently significantly lower than headline speeds because of a number of factors, including degradation caused by the distance of the premises from the exchange (for DSL connections) and contention ratio (speeds decrease when backhaul bandwidth is shared by simultaneous users).

Against this background, it is not surprising that satisfaction with broadband speed fell between Q1 2006 (90%) and Q1 2008 (83%), although the proportion of consumers dissatisfied with the speed of their broadband connection was only 8% (with 9% of consumers being neither satisfied nor dissatisfied). It also appears that consumers are largely getting the broadband speeds that they expect, with just 6% of them claiming that speeds are “a lot slower” than they expect, and 74% claiming that speeds are as expected or faster (Figure 5.76).

However, the increasing use of high-bandwidth services such as the BBC’s iPlayer, which benefit from faster connection speeds to help maintain the quality of the programme being watched, may have a negative effect on levels of satisfaction in the future, especially among users of lower-speed connections.

In order to better understand actual broadband speeds across the UK and how they vary by location, choice of ISP, distance from exchange and time of day, Ofcom is conducting a major research programme into broadband service quality. A report will be published in the first half of 2009.

Figure 5.76 Are broadband speeds meeting expectations?

A lot faster, Unsure, 8% A lot slower, 10% 6%

A little faster, 20%

A little slower, 14%

About the same, 44%

Source: Ofcom research, Q1 2008 Base: All with broadband

Most fixed-line voice, mobile and broadband consumers have never switched supplier

The proportion of fixed-line voice users that have switched provider remained steady between Q4 2006 and Q1 2008. This is perhaps surprising, given the growth in users of WLR and LLU services offered by providers other than BT. It suggests that repeated switching is occurring among a core group of value-seeking users, while the majority of consumers have maintained their BT service.

Mobile has historically had very high churn rates, but 59% of mobile users have never switched providers, indicating that a large proportion of mobile users are loyal to their first mobile provider (Figure 5.77).

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Given that broadband is a relatively new technology with most users only having connected within the last three years, it is significant that 27% of users have already switched provider. This is evidence of a dynamic market, characterised by price competition and the availability of double-play and triple-play tariffs.

Figure 5.77 Proportion of consumers who have ever switched provider

40 e

30 Q2 2006

40 41 Q2 2007 20 37 38 34 35 26 27 Q1 2008 10 21 % of adults 15+ with servic 0 Fixed line Mobile Internet / Broadband*

Source: Ofcom research * Note: 2008 data is the proportion of broadband consumers who had ever changed broadband provider, and is not directly comparable with 2006 and 2007 data which is the proportion of internet consumers who had ever changed internet provider

Ease of switching supplier

There continues to be significant differences between the different telecoms services in consumers’ experience of switching supplier, with 79% of mobile users finding it easy compared to 71% of fixed-line users and 61% of internet users (Figure 5.78). The mobile figure is slightly down on 2006 (82%), perhaps because of the increasing proportion of pay- monthly customers tied into 18-month rather than 12-month contracts. In April 2007 Ofcom reduced the maximum time within which mobile operators are required to transfer a number (when a user is switching providers) from five to two days, and there are plans to reduce this to two hours. Previously the time taken to port a number had been seen as a barrier to consumers switching network.

Switching internet provider continues to be perceived as difficult for a greater proportion of users. This is likely to be related to the high proportion of broadband connections that are taken in association with another service (in Q1 2008, 58% of households with broadband took it in a ‘bundle’ with another service), while it may also reflect the more complex back- end processes that operators need to undertake in order to switch connections, due to the multiple wholesale and LLU broadband products on offer. Alongside this, there have been a number of specific problems around switching broadband services, leading to Ofcom introducing a new General Condition to address these difficulties in February 2007. These problems included difficulties for consumers in obtaining a Migration Authorisation Code (MAC) necessary for seamless switching between internet providers, as well as the presence of ‘tags68 on the line’ which prevent the supply of broadband services to a consumer.

68 ‘Tag’ on a line is a marker or tag left by a broadband provider on a line which delays a customer taking a service with another provider

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Figure 5.78 Ease of switching supplier

100% 13 15 9 11 11 15 16 2 2 17 15 Unsure 3 6 6 3 80% 5 7 5 7 4 8 6 9 9 8 14 15 Very difficult 35 35 60% 38 36 42 39 41 Fairly difficult 40% 43 41 Fairly easy 48 20% 47 41 37 34 32 31 18 20 Very easy

% of those have switched who 0% Q4 Q4 Q4 Q4 Q4 Q4 Q1 Q1 Q3 2005 2006 2007 2005 2006 2007 2006 2007 2007 Fixed line Mobile Internet

Source: Ofcom research, Q2 2008 Base: All adults who have ever switched

5.3.6 Children’s use of telecoms services The majority of 8-11 year-olds use a mobile phone

As Figure 5.79 below illustrates, mobile phones and the internet are part of everyday life for children of all ages. The majority of children aged 5-7 have access to the internet; most children aged 8-11 have access to a mobile phone and the majority of children aged 12-15 use both almost every day. While one PC can serve an entire household, mobile phones tend to be owned and used by one person, which may explain why children of all ages have greater access to the internet than to a mobile.

The research also highlights significant differences in the use of communications services by boys and girls: a higher proportion of boys use the internet than girls, but this trend is reversed for mobile use; with nearly twice as many girls aged 8-11 using a mobile almost every day as boys in the same age group.

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Figure 5.79 Children’s ownership and use of the internet and mobile phones

Owned or able to access by child Child uses almost every day 100% 95% 89% Boys aged 5-7 81% 80% 74% 77% 74% Girls aged 5-7 70% 66% 65% 65% 59% 61% 61% 60% 57% Boys aged 8-11

45% Girls aged 8-11 40% 40% 35%

26% 22% Boys aged 12-15 22% 18% 20% 13% Girls aged 12-15 4% 4% 0% Internet Mobile phone Use the internet Use a mobile phone

Source: Ofcom research, fieldwork carried out by Saville Rossiter-Base in April to May 2008 Base: Children aged 5-15 (132 Boys aged 5-7, 150 Girls aged 5-7, 189 Boys aged 8-11, 178 Girls aged 8-11, 187 Boys aged 12-15, 189 Girls aged 12-15)

Children use instant messaging more than email

Instant messaging is more popular across all children’s age groups than email, indicating a major difference between the behaviour of children and adults on the internet; our research found that 80% of adult broadband users use email, and 34% use instant messaging or chat rooms (Figure 5.80).

The educational benefits of the internet are highlighted by the finding that 63% of 8-11 year- olds (55% in 2006) and 80% of 12-15 year-olds claim to use the internet for schoolwork, while among 5-7 year-olds, playing online games is the most common activity. The majority of 12-15 year-olds use social networking sites, as do one in five of 8-11 year-olds.

A significant decline in downloading music over the internet by 12-15 year olds in 2007 suggests older children are using alternative services such as their mobile phones. All five of the UK’s mobile operators offer a dedicated music download service either via unlimited subscription such as the Vodafone MusicStation or on a pay per download. Device manufacturers such as Nokia, Sony Ericsson and Apple are also offering music services through their own mobile portals.

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Figure 5.80 Uses of the internet by children

100% +8 80% 5-7 year-olds 8-11 year-olds 12-15 year-olds 80% 65% -10 63% 62% 60% 52% 49% 54% 49% 47% 47% 43% -9 38% 40% 28% 28% 25% 24% 21% 20% 19% 20% 21% 19% 19% 20% 19% 16% 11% 7% 7% 9% 11% 7% 4% 3% 3% 2% 0% School Look for Play games Ins tant Go o Go to sites Emails Dow nload or Go to TV Go to sites Go to Go to sites Listen to work/ information online Messaging w ebsites like w here you play music pr ogr amme about new s w ebsites like w here… radio online homew ork MySpace or watch video, websites Habbo (blogs/ Bebo pictures and Hotel….. Wikis) mus ic significant differences between 2007 and 2008 Source: Ofcom research, fieldwork carried out by Saville Rossiter-Base in April to May 2008 Note: Yellow arrows indicate statistically significant differences from Q2 2007. Base: Children aged 5-15 who use the internet at home (157 aged 5-7, 253 aged 8-11, 304 aged 12-15)

Children are more likely to send a text than make a call

If the UK is a nation of texters (see Section 5.1.7 above), the trend seems set to continue, with children more likely to send a text than make a voice call (Figure 5.81). A 7% decline in the regular use of voice calls suggests that older children are increasingly relying on text as the main way to communicate on their mobile. While part of this may be the additional features of text messaging compared to voice communications (the ability to send one-to- many text messages, and the privacy compared to voice calls which may be overheard), pricing is also likely to be a factor. Unlimited inclusive text messages are an increasing feature of both contract and pre-pay tariffs, while the fixed price of a text message (compared to a voice call which varies with duration), enables children and parents to control the amount spent using a mobile and prevent ‘bill shock’ where a user receives an unexpectedly high bill.

In contrast to average adult behaviour (see Section 2.4.4), older children are more likely to take photos and listen to music on mobile phones, indicating that children regard mobile phones as converged devices, offering more than basic voice and text services. The increasing popularity of sending or receiving photo messages and video clips on mobile phones by children may be an extension of the popularity of sharing images on social networking sites, while a decline in playing games on a mobile phone may be due to the popularity of dedicated handheld gaming devices such as the Nintendo DS.

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Figure 5.81 Children’s use of mobile phones

8-11 year-olds 12-15 year-olds

100% -7 86%

80% 71%

60% -11 -15 60% 55% 52% +7 +11 48% +4 +9 40% 35% 32% 33% 30% 30% 24%

20% 16% 14% 12% 12% 8% 6% 6% 2% 0% Send or Make voice Take photos Listen to Take videos Play games Send or Send or Access the Other receive text call music receive photo receive video internet message messages clips significant differences between 2007 and 2008

Source: Ofcom research, fieldwork carried out by Saville Rossiter-Base in April to May 2008 Note: Yellow arrows indicate statistically significant differences from Q2 2007. Base: Children aged 8-15 with their own mobile phone (213 aged 8-11, 347 aged 12-15). NB Base too small for 5-7 year olds.

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The Communications Market 2008

6

6 Glossary & Table of Figures

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Glossary

2G Second generation of mobile telephony systems. Uses digital transmission to support voice, low-speed data communications, and short messaging services.

2.5G In mobile telephony, 2.5G protocols extend 2G systems to provide additional features such as packet-switched connections (GPRS) and higher-speed data communications.

3G Third generation of mobile systems. Provides high-speed data transmission and supports multimedia applications such as full-motion video, video-conferencing and internet access, alongside conventional voice services.

3.5G 3.5G refers to evolutionary upgrades to 3G services starting in 2005-2006 that provide significantly enhanced performance. High Speed Downlink Packet Access is expected to become the most popular 3.5G technology (see HSDPA).

3G LTE See LTE

802.11 see Wireless LANs (WiFi)

Access network Electronic Communications Network which connects end-users to a service provider; running from the end-user’s premise to a Local Access Node and supporting the provision of access based services. It is sometimes referred to as the local loop or last mile.

ADSL Asymmetric Digital Subscriber Line. A digital technology that allows the use of a standard telephone line to provide high-speed data communications. Allows higher speeds in one direction (towards the customer) than the other.

AM Amplitude Modulation. Type of modulation produced by varying the strength of a radio signal. This type of modulation is used by broadcasters in three frequency bands: medium frequency (MF, also known as medium wave: MW); low frequency (LF, also known as long wave: LW), and high frequency (HF, also known as short wave: SW). The term AM is often used to refer to the medium frequency band (see MF below).

ATT Analogue Terrestrial Television. The television broadcast standard that all television industries launched with. Most countries in this study are planning to phase out ATT in the next ten years.

BARB Broadcasters Audience Research Board. The pan-industry body which measures television viewing.

Bit-rates The rate at which digital information is carried within a specified communication channel.

Blog Short for weblog. A weblog is a journal (or newsletter) that is frequently updated and intended for general public consumption. Blogs generally represent the personality of the author or the website.

Bluetooth Wireless standard for short-range radio communications between a variety of devices such as PCs, headsets, printers, mobile phones, and PDAs.

Broadband A service or connection generally defined as being ‘always on’ and providing a bandwidth greater than narrowband.

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CAGR Compound Annual Growth Rate. The average annual growth rate over a specified period of time. It is used to indicate the investment yield at the end of a specified period of time. The mathematical formula used to calculate CAGR = (present value/base value) (1/#of years) – 1

Communications Act Communications Act 2003, which came into force in July 2003.

Contention ratio An indication of the number of customers who share the capacity available in an ISP’s broadband network. Figures of 50:1 for residential broadband connections and 20:1 for business are typical).

CPS Carrier Pre-selection. The facility offered to customers which allows them to opt for certain defined classes of call to be carried by an operator that has been selected in advance and has a contract with the customer. CPS does not require the customer to dial a routing prefix or use a dialler box.

DAB Digital Audio Broadcasting. A set of internationally accepted standards for the technology by which terrestrial Digital Radio multiplex services are broadcast in the UK.

Data packet In networking, the smallest unit of information transmitted as a discrete entity from one node on the network to another.

DCMS Department for Culture, Media and Sport

Digital switchover The process of switching over the current analogue television broadcasting system to digital, as well as ensuring that people have adapted or upgraded their televisions and recording equipment to receive digital TV.

DMB Digital Mobile Broadcasting. A variant of the DAB digital radio standard for mobile TV services, and an alternative to DVB-H (see DVB, below).

Dongle A physical device, attached to a PC's USB port, which adds hardware capabilities.

DSL Digital Subscriber Line. A family of technologies generally referred to as DSL, or xDSL, capable of transforming ordinary phone lines (also known as 'twisted copper pairs') into high- speed digital lines, capable of supporting advanced services such as fast Internet access and video-on-demand. ADSL, HDSL (high data rate digital subscriber line) and VDSL (very high data rate digital subscriber line) are all variants of xDSL).

DTR See DVR

DTT Digital Terrestrial Television, currently most commonly delivered through the Freeview service.

DVB Digital Video Broadcasting. A set of internationally accepted open standards for digital broadcasting, including standards for distribution by satellite, cable, radio and handheld devices (the latter known as DVB-H).

DVD Digital Versatile Disc. A high capacity CD-size disc for carrying audio-visual content. Initially available read-only, but recordable formats are now available.

DVR Digital Video Recorder (also known as Personal Video Recorder and Digital Television Recorder). A digital TV set-top box including a hard disk drive which allows the user to record, pause and rewind live TV.

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EPG Electronic Programme Guide. A programme schedule, typically broadcast alongside digital television or radio services, to provide information on the content and scheduling of current and future programmes.

Fibre-to-the-cabinet Access network consisting of optical fibre extending from the access node to the street cabinet. The street cabinet is usually located only a few hundred metres from the subscriber premises. The remaining segment of the access network from the cabinet to the customer is usually a copper pair but could use another technology, such as wireless.

Fibre-to-the-home A form of fibre optic communication delivery in which the optical signal reaches the end user's living or office space.

Fibre-to-the-building A form of fibre-optic communication delivery in which an optical fibre is run directly onto the customers' premises.

FM Frequency Modulation. Type of modulation produced by varying the frequency of a radio carrier in response to the signal to be transmitted. This is the type of modulation used by broadcasters in part of the VHF (Very High Frequency) band, known as VHF Band 2.

Format The type of programme service broadcast by radio stations. Also, the part of a radio station’s licence which describes the programme service.

Free-to-air Broadcast content that people can watch or listen to without having to pay a subscription.

GDP Gross Domestic Product.

GPRS General Packet Radio Service, a packet data service provided over so-called 2.5G mobile networks.

GPS The GPS (Global Positioning System) is a ‘constellation’ of 24 well-spaced satellites that orbit the Earth and make it possible for people with ground receivers to pinpoint their geographic location.

GSM Global Standard for Mobile Telephony, the standard used for 2G mobile systems.

HDTV High-Definition Television. A technology that provides viewers with better quality, high-resolution pictures.

Headline connection speed The theoretical maximum data speed that can be achieved by a given broadband. A number of factors, such as the quality and length of the physical line from the exchange to the customer, mean that a given customer may not experience this headline speed in practice.

HSPA Jointly, downlink and uplink mobile broadband technologies are referred to as HSPA (High Speed Packet Access) services.

International roaming A service offered by mobile operators that allows customers to use their phone abroad. The home operator has agreements with foreign operators that allows customers to make and receive calls, send and pick up text messages, and use some of the other mobile services (such as access to voicemail or topping-up credit on pre-pay phones). The exact services available and the charges for their use vary between operators.

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Internet A global network of networks, using a common set of standards (e.g. the Internet Protocol), accessed by users with a computer via a service provider.

Internet-enabled mobile phone A mobile phone which allows its user to access the internet via in-built access technology such as GPRS or WCDMA.

IP (Internet Protocol) The packet data protocol used for routing and carriage of messages across the Internet and similar networks.

IPTV Internet Protocol Television. The term used for television and/or video signals that are delivered to subscribers or viewers using Internet Protocol (IP), the technology that is also used to access the Internet. Typically used in the context of streamed linear and on-demand content, but also sometimes for downloaded video clips.

ISDN Integrated Services Digital Networks. A standard developed to cover a range of voice, data, and image services intended to provide end-to-end, simultaneous handling of voice and data on a single link and network.

ISP Internet Service Provider. A company that provides access to the internet.

ITC Independent Television Commission, one of the regulators replaced by Ofcom in 2003

LAN (Local area network) A network for communication between computers covering a local area, like a home or an office.

L-Band A range of frequencies within which an allocation has been made in much of the world for broadcasting (1452 to 1492 MHz), generally by satellite, but in Europe for terrestrial digital sound broadcasting in the range 1452 to 1480 MHz. Some DAB digital radio receivers can tune to this range.

Leased Line A transmission facility which is leased by an end user from a public carrier, and which is dedicated to that user's traffic.

LLU (Local Loop Unbundling) LLU is the process where the incumbent operators (in the UK it is BT and Kingston Communications) make their local network (the lines that run from customers premises to the telephone exchange) available to other communications providers. The process requires the competitor to deploy its own equipment in the incumbent’s local exchange and to establish a backhaul connection between this equipment and its core network.

Local Loop The access network connection between the customer's premises and the local PSTN exchange, usually a loop comprised of two copper wires.

LTE (Long Term Evolution). Part of the development of 4G mobile systems that started with 2G and 3G networks.

MMS Multimedia Messaging Service. The next generation of mobile messaging services, adding photos, pictures and audio to text messages.

Mobile Broadband Various types of wireless high-speed internet access through a portable modem, telephone or other device.

MP3 (MPEG-1 Audio Layer-3) A standard technology and format for compressing a sound sequence into a very small file (about one-twelfth the size of the original file) while preserving the original level of sound quality when it is played.

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MP3 Player A device that is able to store and play back MP3 files.

MPEG Moving Picture Experts Group. A set of international standards for compression and transmission of digital audio-visual content. Most digital television services in the UK use MPEG2, but MPEG4 offers greater efficiency and is likely to be used for new services including TV over DSL and High-Definition TV.

Multichannel In the UK, this refers to the provision or receipt of television services other than the main five channels (BBC ONE & TWO, ITV1, Channel 4/S4C, Five) plus local analogue services. ‘Multichannel homes’ comprise all those with digital terrestrial TV, satellite TV, digital cable or analogue cable, or TV over broadband. Also used as a noun to refer to a channel only available on digital platforms (or analogue cable).

Multiplex A device that sends multiple signals or streams of information on a carrier at the same time in the form of a single, complex signal. The separate signals are then recovered at the receiving end.

MVNO An organisation which provides mobile telephony services to its customers, but does not have allocation of spectrum or its own wireless network.

MW See AM above.

Narrowband A service or connection providing data speeds up to 128kbit/s, such as via an analogue telephone line, or via ISD.

Next generation core networks (NGN) Internet Protocol based core networks which can support a variety of existing and new services, typically replacing multiple, single service legacy networks

Next generation access networks (NGA) Broadband access networks that connect the end-user to the core network capable of with a bandwidth quantity and quality significantly in excess of current levels (a benchmark of 20 Mbit/s or more is often used).

Oftel Office of Telecommunications, whose functions transferred to Ofcom on 29th December 2003.

PACT Producers Alliance for Cinema and Television, the UK trade association for independent film, television, animation and interactive media companies.

Pay-per-view A service offering single viewings of a specific film, programme or event, provided to consumers for a one-off fee.

PDA Personal Digital Assistant .

Peak time The period during which: a radio station broadcasts its breakfast show and, on weekdays only, also its afternoon drive-time show; a television station broadcasts its early- and mid-evening schedule, typically used by Ofcom to refer to the period between 18:00 and 22:30 each day (including weekends).

Peer-to-peer distribution The process of directly transferring information, services or products between users or devices that operate on the same hierarchical level.

Podcasting Away for digital audio files to be published on the internet, which can then be downloaded onto computers and be transferred to portable digital audio players.

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PSB Public Service Broadcasting, or Public Service Broadcaster. The Communications Act in the UK defines the PSBs to include the BBC, ITV1, Channel 4, Five and S4C.

PVR See DVR

RAJAR Radio Joint Audience Research – the pan-industry body which measures radio listening.

RSL Restricted Service Licence A radio licence serving a single site (e.g. a hospital or university campus) or serving a wider area on a temporary basis (e.g. for festivals and events).

Service bundling (or multi-play) A marketing term describing the packaging together of different communications services by organisations that traditionally only offered one or two of those services.

Service provider A provider of electronic communications services to third parties whether over its own network or otherwise.

SIM-only a monthly mobile contract which is sold without a handset.

Share (radio) Proportion of total listener hours, expressed as a percentage, attributable to one station within that station’s Total Survey Area.

Share (TV) Proportion of total TV viewing to a particular channel over a specified time, expressed as a percentage of total hours of viewing.

Simulcasting The broadcasting of a television or radio programme service on more than one transmission technology (e.g. FM and MW, DAB and FM, analogue and digital terrestrial television, digital terrestrial and satellite).

SME Small to Medium sized Enterprise. A company with fewer than 250 employees.

Streaming content Audio or video files sent in compressed form over the internet and consumed by the user as they arrive. Streaming is different to downloading, where content is saved on the user’s hard disk before the user accesses it.

Telecommunications, or 'Telecoms' Conveyance over distance of speech, music and other sounds, visual images or signals by electric, magnetic or electro-magnetic means.

Timeshifting The broadcasting of a television service on more than one channel with a specified delay (typically an hour), to provide more than one opportunity for viewers to watch the service. Alternatively, the recording of programmes by viewers (using PVRs, recordable DVDs or VCRs) to watch at another time.

Transmitter A device which amplifies an electrical signal at a frequency to be converted, by means of an aerial, into an electromagnetic wave (or radio wave). The term is commonly used to include other, attached devices, which impose a more simple signal onto the frequency, which is then sent as a radio wave. The term is sometimes also used to include the cable and aerial system referred to above, and indeed the whole electrical, electronic and physical system at the site of the transmitter.

TSA Total Survey Area. The coverage area within which a radio station’s audience is measured by RAJAR.

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TV over DSL/TV over Broadband A technology that allows viewers to access TV content – either in a linear programme schedule, or on-demand – using Internet Protocol via broadband services, either on a PC or (via a set-top box) on a TV set.

TVWF Television Without Frontiers. A range of provisions designed to achieve coordination of the legal, regulatory and administrative frameworks of European Union member states with respect to television broadcasting, adopted by the European Council in 1989 and amended in 1997.

UMTS Universal Mobile Telecommunications System. The 3G mobile technologies most commonly used in the UK and Europe.

Usage caps Monthly limits on the amount of data which broadband users can download, imposed by some ISPs.

UWB Ultra-wideband A technology developed to transfer large amounts of data wirelessly over short distances, typically less than ten metres

VCR Video Cassette Recorder.

VHF Very High Frequency The part of the spectrum between 30 MHz and 300 MHz. FM radio is broadcast on part of this band (87.6 MHz to 107.9 MHz) and DAB digital radio is broadcast on another (Band III: 217.5 MHz to 230 MHz in the UK, and over a wider range, but shared with TV services, elsewhere in Europe).

VoD Video on Demand A service or technology that enables TV viewers to watch programmes or films whenever they choose to, not restricted by a linear schedule. Also Near Video on Demand (NVoD), a service based on a linear schedule that is regularly repeated on multiple channels, usually at 15-minute intervals, so that viewers are never more than 15 minutes away from the start of the next transmission.

VoIP Voice over Internet Protocol. A technology that allows users to send calls using Internet Protocol, using either the public Internet or private IP networks.

WAP Wireless Application Protocol.

Web 2.0 A perceived second generation of web-based communities and hosted services - such as social-networking sites and wikis, which facilitate collaboration and sharing between users.

WiFi hotspot A public location which provides access to the internet using WiFi technology.

WiMAX A wireless MAN (metropolitan area network) technology, based on the 802.16 standard. Available for both fixed and mobile data applications.

Widget Widgets are small chunks of code embedded on desktops, web pages and mobile phones to enable content to be distributed.

Wireless LAN or WiFi (Wireless Fidelity) Short range wireless technologies using any type of 802.11 standard such as 802.11b or 802.11a. These technologies allow an over-the-air connection between a wireless client and a base station, or between two wireless clients.

WLR Wholesale Line Rental A regulatory instrument requiring the operator of local access lines to make this service available to competing providers at a wholesale price.

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XHTML (EXtensible HTML) A markup language for Web pages from the W3C. XHTML combines HTML and XML into a single format (HTML 4.0 and XML 1.0).

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Table of Figures

Figure 1.1 Digital communications service availability, 2006 and 2007...... 25 Figure 1.2 Digital technology adoption, Q1 2007 and Q1 2008...... 26 Figure 1.3 Communications industry revenue ...... 26 Figure 1.4 Household spend on communications services, 2007 ...... 27 Figure 1.5 Time spent using communications services...... 28 Figure 1.6 Overall satisfaction with communications services...... 29 Figure 1.7 Agreement with statements on environmental issues ...... 32 Figure 1.8 Agreement with statements on environment and energy saving...... 33 Figure 1.9 What would encourage consideration of power consumption when making a purchase?...... 33 Figure 1.10 Awareness of ‘eco’ labels...... 34 Figure 1.11 Level of power consumption of household devices 2006-2008...... 35 Figure 1.12 Reason for increase in the level of power consumption...... 35 Figure 1.13 Which devices use the most energy?...... 36 Figure 1.14 Power consumption of average and ‘best-practice’ devices...... 37 Figure 1.15 Frequency of switching off a device ...... 38 Figure 1.16 Main methods of charging mobile phone ...... 39 Figure 1.17 Proportion who charge their phone overnight, by age...... 39 Figure 1.18 Ways consumers dispose of devices they no longer use...... 40 Figure 1.19 Awareness of retail outlets’ obligation to take back old devices...... 41 Figure 1.20 Take-up of communications services, by age ...... 43 Figure 1.21 Growth in take-up of communications services, Q1 2005 to Q1 2008 ...... 44 Figure 1.22 Intention to get the internet at home...... 44 Figure 1.23 Time spent using communications services, by age, 2007 ...... 45 Figure 1.24 Frequency of mobile telephony use, by age...... 45 Figure 1.25 Which media activity would you miss the most? ...... 46 Figure 1.26 Television viewing, by genre and viewer age...... 46 Figure 1.27 Radio listening viewing by station type and age...... 47 Figure 1.28 Interest in internet / PC / laptop functions by age...... 47 Figure 1.29 Breadth of use of the internet, by age ...... 48 Figure 1.30 Internet users’ experience of online creative activities, by age ...... 48 Figure 1.31 Top web brands in terms of unique audience, by age...... 49 Figure 1.32 Trust in television content...... 49 Figure 1.33 Belief in news and factual programmes...... 50 Figure 1.34 Trust in website content ...... 50 Figure 1.35 Advertising spend, by medium ...... 52 Figure 1.36 Share of advertising spend, by medium ...... 53 Figure 1.37 Total advertising spend per head by nation and % of spend on the internet, 2007 ...... 53 Figure 1.38 Distribution and growth of internet advertising spend (£m) ...... 54 Figure 1.39 Online revenues generated from television services...... 54 Figure 1.40 Television advertising revenue, by broadcaster ...... 55 Figure 1.41 Share of television advertising revenue ...... 55 Figure 1.42 UK real GDP and advertising growth...... 56 Figure 1.43 Advertising vs. total revenue for selected commercial broadcasters, 2006- 2007 ...... 56 Figure 2.1 The 20 most-viewed BBC programmes, April 2008 ...... 63 Figure 2.2 Difference in the profile of the BBC’s broadcast and iPlayer audiences ...... 64 Figure 2.3 Proportion of households who use the internet for the following activities .... 65 Figure 2.4 Viewing of user-generated video content ...... 65 Figure 2.5 Consumer value placed on professional and user-generated content ...... 66 Figure 2.6 DVR take-up, by platform ...... 67

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Figure 2.7 Proportions of people who choose live TV or fast-forward...... 68 Figure 2.8 Methods of accessing the internet away from home or work ...... 69 Figure 2.9 New mobile broadband connections ...... 70 Figure 2.10 Monthly rental for new mobile broadband connections ...... 70 Figure 2.11 Age profile of mobile broadband users, Q1 2008...... 71 Figure 2.12 Location of mobile broadband use ...... 72 Figure 2.13 Use of mobile and fixed-line broadband...... 72 Figure 2.14 Frequency of use of mobile broadband...... 73 Figure 2.15 Access to games devices in the home ...... 74 Figure 2.16 Activities undertaken by consumers using games consoles ...... 74 Figure 2.17 Value of music sales in the UK...... 78 Figure 2.18 Music sales in 2007...... 79 Figure 2.19 Music downloads during 2007...... 79 Figure 2.20 Use of unauthorised media content...... 80 Figure 2.21 Claimed downloads of unauthorised music, 2006 - 2007...... 81 Figure 2.22 Independent producers’ TV and non-broadcast revenue ...... 83 Figure 2.23 Independent producers’ breakdown of new media revenue...... 83 Figure 2.24 Unit sales of key games franchises...... 84 Figure 2.25 Top five genres of purchased mobile games (millions of subscribers)...... 84 Figure 2.26 Mobile content: pricing ...... 85 Figure 2.27 SMS and MMS: call volumes...... 86 Figure 2.28 Trends in call volumes...... 86 Figure 2.29 Levels of interest in, or engagement with, user-generated content types ..... 87 Figure 2.30 Experience of creative activities, by age ...... 87 Figure 2.31 Visitors to user-generated content websites...... 88 Figure 2.32 Percentage of parents and children saying they have a profile on a SNS .... 89 Figure 2.33 Advertising spend, by medium ...... 90 Figure 2.34 Share of advertising spend, by medium ...... 90 Figure 2.35 Net advertising revenue on television...... 91 Figure 2.36 Share of PSB portfolio channels in multichannel homes...... 91 Figure 2.37 Online music revenues...... 92 Figure 2.38 Commercial radio’s share of listener hours ...... 93 Figure 2.39 Commercial radio advertising revenue...... 93 Figure 2.40 Digital listening, by platform ...... 94 Figure 2.41 National and regional newspaper advertising revenue...... 94 Figure 2.42 Components of newspaper advertising revenue ...... 95 Figure 2.43 Changes in components of newspaper advertising revenue...... 95 Figure 2.44 Circulation of national newspapers ...... 96 Figure 2.45 National newspaper websites: unique audiences...... 97 Figure 2.46 Internet advertising revenue, by category ...... 97 Figure 2.47 Total online TV revenue ...... 98 Figure 2.48 Websites or utilities used by consumers who download music/film from the internet ...... 99 Figure 2.49 Attitudes towards behaviourally targeted advertising ...... 100 Figure 2.50 Unique visitors to selected video-sharing sites...... 102 Figure 2.51 The popularity of YouTube channels...... 102 Figure 2.52 Availability of Virgin Media cable broadband...... 103 Figure 2.53 Location and distribution networks across the radio spectrum...... 104 Figure 2.54 Revised timetable for the introduction of market mechanisms to spectrum 105 Figure 2.55 Value generated by use of spectrum in the UK...... 106 Figure 2.56 Weighted use of spectrum, 2007...... 107 Figure 2.57 2G and 3G availability ...... 108 Figure 2.58 DAB coverage by at least one multiplex...... 108 Figure 2.59 The footprints of SES-Astra’s satellites that carry services targeting the UK ...... 109

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Figure 2.60 UK WiFi hotspots, by operator ...... 110 Figure 2.61 Audio-visual devices: penetration...... 114 Figure 2.62 Take-up of DTV, mobile phones and the internet, by age...... 114 Figure 2.63 Take-up of digital technologies, by age: 2005 – 2007...... 115 Figure 2.64 Television sets: quarterly sales ...... 115 Figure 2.65 Average price of a TV set...... 116 Figure 2.66 HD-ready sets: sales, volumes and % of total sales ...... 116 Figure 2.67 TV set sales, by screen size...... 117 Figure 2.68 DAB set sold, by quarter ...... 117 Figure 2.69 Average price of a DAB digital radio set...... 118 Figure 2.70 DAB set penetration, by local multiplex area: Q4 2007...... 118 Figure 2.71 Use of mobile phone functions ...... 119 Figure 2.72 Devices used to store content ...... 120 Figure 2.73 Frequency of backing up files...... 120 Figure 2.74 How consumers find out what to watch on TV ...... 122 Figure 2.75 Listings magazines’ circulation...... 123 Figure 2.76 Users of listings magazine websites: 2007 - 2008 ...... 123 Figure 2.77 Channel shares in satellite and cable homes, 2007...... 124 Figure 2.78 Average channel share by platform, genre and page number, 2007 ...... 125 Figure 2.79 Visitors to search sites...... 126 Figure 2.80 Broadband and internet penetration...... 128 Figure 2.81 Use of services among dial-up subscribers, and impact of broadband on consumers’ propensity to use those services...... 129 Figure 2.82 Internet unique audience and time spent online, by age...... 129 Figure 2.83 Share of time spent online, by age group and gender...... 130 Figure 2.84 Audiences, and time spent, on websites with the highest unique audiences ...... 130 Figure 2.85 Awareness and use of VOIP ...... 131 Figure 2.86 Frequency of using DVR functions...... 132 Figure 2.87 Consumers’ levels of interest in DVR functionalities, by age ...... 132 Figure 2.88 Reasons for recording a programme on a DVR ...... 133 Figure 2.89 Bundled service offers from major suppliers ...... 133 Figure 2.90 Bundled services by consumer, by type...... 134 Figure 2.91 Frequency of consuming other media while watching TV ...... 135 Figure 2.92 Frequency of using other media while watching TV, by age ...... 135 Figure 2.93 Frequency of using other media while browsing the internet ...... 136 Figure 2.94 Communications activities undertaken while using the internet, by age ..... 136 Figure 2.95 Most-missed media activity ...... 137 Figure 2.96 Most-missed media activity, by age...... 138 Figure 2.97 Proportion of children who use devices at home...... 138 Figure 2.98 Percentage of children who own/use devices, by age...... 139 Figure 2.99 Media activities regularly performed by children, by age...... 139 Figure 2.100 Media devices used by 8-15s while using the internet/ watching TV ...... 140 Figure 2.101 Use of more than one media device, by age...... 141 Figure 2.102 Claimed use of the internet for different activities, by age...... 141 Figure 2.103 Ways watch TV programmes/ films/ clips apart from on TV, by age ...... 142 Figure 2.104 Use of mobile phones for different activities, by age...... 142 Figure 2.105 Media activity children would miss the most...... 143 Figure 3.1 Multichannel television take-up ...... 148 Figure 3.2 Number of HDTV subscribers: Sky and Virgin Media...... 149 Figure 3.3 Subscription and net advertising revenue ...... 150 Figure 3.4 Net advertising revenue, by sector...... 151 Figure 3.5 Multichannel audience winners and losers, 2006 to 2007...... 152 Figure 3.6 PSB and portfolio channel shares in multichannel homes ...... 152 Figure 3.7 16-24s TV viewing hours and weekly reach in all homes...... 153

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Figure 3.8 Audience share of the most popular channels: 16-24s ...... 154 Figure 3.9 Age profile of channels targeted at younger viewers: May 2008...... 154 Figure 3.10 Channel shares in satellite homes and the timings of EPG changes...... 156 Figure 3.11 Licences issued by Ofcom and the ITC...... 158 Figure 3.12 UK television licences awarded, by genre: 2007...... 159 Figure 3.13 Total TV industry revenue, by source...... 162 Figure 3.14 Total TV industry revenue, by sector...... 163 Figure 3.15 Net advertising revenue, by sector...... 164 Figure 3.16 TV advertising market share: 2007 ...... 164 Figure 3.17 Breakdown of non-broadcast revenue: 2007 ...... 165 Figure 3.18 Multichannel operators’ revenue in the key channel genres, 2007 ...... 166 Figure 3.19 Simplified flow of funds in the TV industry, 2007 (2006 in italics)...... 167 Figure 3.20 Total and first-run originated hours of output, 2007...... 175 Figure 3.21 Spend on programmes...... 175 Figure 3.22 Hours of first-run originated output on the five main channels ...... 176 Figure 3.23 Spend on first-run originated output on the five main networks ...... 176 Figure 3.24 CPH for first-run originated content on the five main networks ...... 177 Figure 3.25 First-run originated output by the PSBs in peak time and all-day...... 177 Figure 3.26 PSB genre mix in peak time ...... 178 Figure 3.27 PSB genre mix in day-time...... 179 Figure 3.28 The BBC’s digital channels genre mix (all-day)...... 180 Figure 3.29 Hours of output on channels available on multichannel platforms ...... 180 Figure 3.30 Multichannel first-run originations and acquisitions...... 181 Figure 3.31 Content spend by multichannel operators in key channel genres...... 182 Figure 3.32 Multichannels’ CPH for content spend and revenue, by genre: 2007 ...... 183 Figure 3.33 Spend on first-run commissions by PSBs: 2006 and 2007 ...... 184 Figure 3.34 Sector revenue by TV and non-TV activities ...... 185 Figure 3.35 Independent producers’ sources of UK television revenue ...... 185 Figure 3.36 Value of UK commissions, by broadcaster...... 186 Figure 3.37 Percentage and number of independent production companies, by broadcaster ...... 186 Figure 3.38 Top ten holding companies and independents by revenue: 2007...... 187 Figure 3.39 Continued consolidation in the independent production sector...... 188 Figure 3.40 PSB independent commissions by genre, 2007...... 189 Figure 3.41 PSBs’ external commissioning patterns: 2006 & 2007...... 190 Figure 3.42 Independent production: 2005 to 2007...... 190 Figure 3.43 Independent network productions, by day part: 2007...... 191 Figure 3.44 Location of Independents’ bases...... 192 Figure 3.45 Breakdown of expenditure on production in the nations and regions...... 192 Figure 3.46 Breakdown of volume of production in the nations and regions...... 193 Figure 3.47 Broadcasters’ performance against original production quotas...... 195 Figure 3.48 Performance against the out-of-London production quotas ...... 196 Figure 3.49 Breakdown of expenditure on production, by broadcaster ...... 197 Figure 3.50 Breakdown of production volume, by broadcaster ...... 197 Figure 3.51 Qualifying hours commissioned from independent producers...... 198 Figure 3.52 Qualifying independent commissions, by genre...... 199 Figure 3.53 Peak-time qualifying hours commissioned from independents ...... 200 Figure 3.54 Performance against national and international News quotas, all-day and peak time...... 201 Figure 3.55 Performance against Current Affairs quotas, all-day and peak time ...... 201 Figure 3.56 England ITV1 licensees’ performance against non-network programming quotas...... 202 Figure 3.57 Nations ITV1 licensees’ performance against non-network programme ..... 203 quotas 203 Figure 3.58 The BBC’s performance against nations and regions programming quotas 203

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Figure 3.59 Proportion of repeats: 2007...... 204 Figure 3.60 Performance against European programming requirements, 2007...... 205 Figure 3.61 Availability of television platforms...... 209 Figure 3.62 Take-up of multichannel television on main sets...... 210 Figure 3.63 DTT, satellite and cable net additions, year to Q1 2008...... 211 Figure 3.64 Platform share among main TV sets Q1 2008 ...... 211 Figure 3.65 Platform share among all TV sets Q1 2008...... 212 Figure 3.66 Platform shares by platform, TV sets 1 – 4 ...... 212 Figure 3.67 DTT on primary and secondary sets ...... 213 Figure 3.68 DTT quarterly and cumulative sales since launch of Freeview ...... 213 Figure 3.69 Average 2007 audiences, weekdays / weekends: by day part, all homes .. 214 Figure 3.70 Average 2007 weekday audiences by day part and age, all homes ...... 215 Figure 3.71 Average 2007 weekend audiences, by day part and age, all homes ...... 215 Figure 3.72 Average weekly TV reach in all homes by channel, all homes...... 216 Figure 3.73 Average weekly total TV reach in all homes, by age...... 216 Figure 3.74 Average weekly TV reach in multichannel homes, by channel ...... 217 Figure 3.75 Average weekly total TV reach in multichannel homes, by age ...... 217 Figure 3.76 Channel shares in all homes since 1982...... 218 Figure 3.77 Five main networks’ shares, by platform ...... 219 Figure 3.78 PSBs’ audience share, all homes...... 220 Figure 3.79 Channel share by platform, 2007 ...... 221 Figure 3.80 Broadcaster portfolio shares in multichannel homes...... 222 Figure 3.81 BBC portfolio share in multichannel homes...... 222 Figure 3.82 ITV portfolio share in multichannel homes ...... 223 Figure 3.83 Channel 4 portfolio share in multichannel homes...... 224 Figure 3.84 Five portfolio share in multichannel homes ...... 224 Figure 3.85 BSkyB portfolio share in multichannel homes ...... 225 Figure 3.86 UKTV portfolio share in multichannel homes ...... 226 Figure 3.87 Aggregate share of channel genres in multichannel homes...... 227 Figure 3.88 The top channels by share in multichannel homes – 2002 to 2007 ...... 227 Figure 3.89 Platform demographics by age, social grade and viewing hours, 2007 ...... 228 Figure 3.90 Age and demographic profile of Entertainment channels in multichannel homes...... 229 Figure 3.91 TV is the main source for most media interests ...... 229 Figure 3.92 TV is the medium people would find it hardest to live without...... 230 Figure 3.93 Concerns about television, by age ...... 231 Figure 3.94 PIN/password protected TV – comparison with 2005...... 231 Figure 4.1 BBC and commercial radio share of listening and funding...... 236 Figure 4.2 Change in listening hours 2006-2007, by sector ...... 236 Figure 4.3 Changes in listening hours, 2006-2007, by age group...... 237 Figure 4.4 Most listened-to radio stations, Q1 2008...... 237 Figure 4.5 Digital radio’s share of total radio audience...... 238 Figure 4.6 Listening to the radio while online, by age group ...... 238 Figure 4.7 Listening to radio via the internet ...... 239 Figure 4.8 Listening to podcasts...... 239 Figure 4.9 Most listened-to digital-only stations, Q1 2008...... 240 Figure 4.10 UK radio stations broadcasting on analogue and DAB digital radio July 2008 (excluding community radio) ...... 243 Figure 4.11 Number of analogue radio station licences awarded...... 244 Figure 4.12 Local commercial radio stations going on air in 2007/08...... 245 Figure 4.13 Location of the UK’s community radio stations...... 246 Figure 4.14 Community radio licence awards in 2008...... 247 Figure 4.15 Community radio licences to be awarded...... 248 Figure 4.16 UK commercial radio revenue and BBC radio spending ...... 248 Figure 4.17 Commercial net broadcasting revenue share...... 249

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Figure 4.18 UK radio advertising spend and share of display advertising 2002 - 2007.. 250 Figure 4.19 Commercial radio revenue per listener...... 250 Figure 4.20 Average revenue per listener, by population coverage of local station (TSA) ...... 251 Figure 4.21 Number of commercial analogue stations owned, by group...... 252 Figure 4.22 Share of commercial listening hours ...... 252 Figure 4.23 Share of all radio listening hours ...... 253 Figure 4.24 Commercial radio: weekly audience reach...... 254 Figure 4.25 National commercial stations: reach and share...... 254 Figure 4.26 The BBC’s analogue radio stations ...... 255 Figure 4.27 BBC radio audience share ...... 255 Figure 4.28 All BBC radio listening across the day (weekday)...... 256 Figure 4.29 Weekly reach of BBC stations...... 256 Figure 4.30 BBC network radio broadcast hours, by genre...... 257 Figure 4.31 BBC radio stations: cost per hour of programmes...... 258 Figure 4.32 Analogue commercial radio stations, with population served...... 259 Figure 4.33 Global Radio’s analogue radio stations...... 261 Figure 4.34 Global Radio’s main networks: reach and share of hours...... 262 Figure 4.35 Bauer’s analogue radio stations ...... 263 Figure 4.36 Bauer main networks: reach and share of hours...... 263 Figure 4.37 GMG’s analogue radio stations ...... 264 Figure 4.38 GMG main networks: reach and share of hours...... 265 Figure 4.39 UTV’s analogue radio stations ...... 266 Figure 4.40 UTV main networks: reach and share of hours ...... 267 Figure 4.41 Virgin main stations: reach and share of hours ...... 268 Figure 4.42 The Local Radio Company’s analogue radio stations ...... 269 Figure 4.43 UK DAB coverage ...... 270 Figure 4.44 Commercial radio local and regional DAB multiplexes...... 271 Figure 4.45 Local DAB digital radio multiplex licence awards in 2007/08 ...... 272 Figure 4.46 Availability of DAB stations, by area...... 273 Figure 4.47 Number of short-term RSLs...... 274 Figure 4.48 Reasons for running a short-term RSL: 2007...... 275 Figure 4.49 Reasons for running a long term RSL: 2007 ...... 275 Figure 4.50 Reach of radio, by sector ...... 277 Figure 4.51 Reach falls most in 15-34 age groups, 2002 – 2007...... 278 Figure 4.52 Share of listening hours, by sector ...... 278 Figure 4.53 Demographic profile of overall listening ...... 279 Figure 4.54 Changes in listening hours over five years, by age group...... 279 Figure 4.55 Profile of audience, by age, for different station types...... 280 Figure 4.56 Changes in hours 2002 – 2007, by age group and station type...... 280 Figure 4.57 Share of listening hours, by nation ...... 281 Figure 4.58 How often do you access the radio?: by platform...... 282 Figure 4.59 Take-up of equipment capable of receiving digital radio ...... 282 Figure 4.60 Take-up of DAB digital radio ...... 283 Figure 4.61 Number of analogue and digital radio sets sold ...... 283 Figure 4.62 Value of analogue and digital radio set sales...... 284 Figure 4.63 Average price of DAB digital radio receivers...... 284 Figure 4.64 Number of DAB models available in the UK...... 285 Figure 4.65 Digital listening by platform ...... 285 Figure 4.66 Radio listening while online ...... 286 Figure 4.67 Levels of radio listening since getting internet access...... 286 Figure 4.68 Awareness of digital radio ...... 287 Figure 4.69 BBC network radio: hours of streaming and on-demand content, Q4 2007 287 Figure 4.70 Patterns of listening across the day ...... 288 Figure 4.71 Breakfast-time reach of national stations ...... 289

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Figure 4.72 Location of listening...... 289 Figure 4.73 Satisfaction with choice of radio stations...... 290 Figure 5.1 Total outbound voice call volumes ...... 294 Figure 5.2 Frequency of using a mobile phone in the home...... 295 Figure 5.3 Reasons for using mobile phone while at home...... 295 Figure 5.4 Household penetration of fixed and mobile telephony...... 296 Figure 5.5 Unlimited call tariffs from leading fixed-line voice operators...... 297 Figure 5.6 Inclusive any-network, any-time allowances in £30 per month mobile contracts...... 297 Figure 5.7 Use of inclusive minutes and texts ...... 298 Figure 5.8 The relationship between monthly bill and monthly line rental for pay-monthly mobile consumers ...... 299 Figure 5.9 Voice revenue per contract connection and revenue per minute ...... 299 Figure 5.10 New consumer mobile broadband connections...... 301 Figure 5.11 Monthly line rentals for mobile broadband contracts and mobile phone contracts, January – May 2008 ...... 302 Figure 5.12 Use of mobile and fixed-line broadband...... 302 Figure 5.13 Use of SMS and use of the internet...... 305 Figure 5.14 Outbound SMS volumes ...... 306 Figure 5.15 UK telecoms industry turnover ...... 307 Figure 5.16 Operator-reported UK telecoms revenue ...... 308 Figure 5.17 UK telecoms industry retail revenue...... 308 Figure 5.18 Telecoms revenue growth between 2006 and 2007...... 309 Figure 5.19 Total telecoms connections...... 309 Figure 5.20 Share of total UK fixed and mobile telecoms connections ...... 310 Figure 5.21 Share of outbound voice call volumes...... 310 Figure 5.22 Fixed voice telecoms revenue...... 311 Figure 5.23 Average monthly voice revenue per fixed line...... 311 Figure 5.24 Fixed telecoms call volumes...... 312 Figure 5.25 Non-geographic fixed call volumes from fixed lines ...... 312 Figure 5.26 BT share of residential voice call volumes, by type...... 313 Figure 5.27 Fixed telecoms lines...... 313 Figure 5.28 Carrier pre-selection, wholesale line rental and full LLU lines...... 314 Figure 5.29 Share of fixed lines taking non-BT voice services...... 314 Figure 5.30 Proportion of unbundled exchanges and connected premises...... 315 Figure 5.31 Fully and partially unbundled fixed lines...... 315 Figure 5.32 Estimated mobile retail revenue, by service...... 316 Figure 5.33 Estimated mobile retail revenue, by network operator ...... 316 Figure 5.34 Average monthly retail revenue per mobile subscription...... 317 Figure 5.35 Average monthly retail revenue per mobile subscription, by subscription type ...... 317 Figure 5.36 Average mobile cost per voice minute, by customer type ...... 318 Figure 5.37 Mobile voice call volumes...... 318 Figure 5.38 Mobile messaging volumes ...... 319 Figure 5.39 Mobile subscriptions, by network operator ...... 319 Figure 5.40 Pre-pay and contract mobile subscriptions...... 320 Figure 5.41 3G mobile subscriptions, by network operator ...... 320 Figure 5.42 Estimated UK internet and broadband retail revenue...... 321 Figure 5.43 UK residential and small business internet connections ...... 321 Figure 5.44 UK residential and small business broadband connections ...... 322 Figure 5.45 Estimated UK broadband service provision: retail connection share ...... 323 Figure 5.46 UK business telecoms services revenue...... 323 Figure 5.47 Average voice revenue per business fixed line ...... 324 Figure 5.48 Breakdown of business mobile revenue...... 324 Figure 5.49 Business fixed voice call volumes ...... 325

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Figure 5.50 Average weekly outbound voice call volumes per business fixed line ...... 325 Figure 5.51 Business fixed lines, by type ...... 326 Figure 5.52 Real average household spend on telecoms services ...... 327 Figure 5.53 Real cost of a basket of residential fixed voice services ...... 328 Figure 5.54 Real cost of a basket of mobile services ...... 329 Figure 5.55 Monthly line rental for new mobile contract connections...... 329 Figure 5.56 Length of new mobile contract connections ...... 330 Figure 5.57 Comparison of average fixed and mobile voice call charges ...... 331 Figure 5.58 Lowest-cost broadband options from major suppliers, June 2008 (£ per month) ...... 332 Figure 5.59 Household penetration of key telecoms technologies ...... 333 Figure 5.60 Household telecoms connections, by socio-economic group...... 333 Figure 5.61 Household telecoms connections in urban areas...... 334 Figure 5.62 Use of more than one SIM by UK mobile users ...... 334 Figure 5.63 Breakdown of the difference between mobile users and reported mobile connections ...... 335 Figure 5.64 Tendency to use one main SIM, among multiple-SIM users...... 335 Figure 5.65 Reasons for multiple SIM ownership...... 336 Figure 5.66 Household PC and internet penetration ...... 336 Figure 5.67 Reasons for not taking up broadband ...... 337 Figure 5.68 Location of internet access...... 337 Figure 5.69 Awareness and use of VoIP ...... 338 Figure 5.70 Average monthly voice call volumes per residential fixed line...... 338 Figure 5.71 Average monthly outbound voice minutes per mobile connection ...... 339 Figure 5.72 Average outbound mobile minutes, by customer type...... 339 Figure 5.73 Monthly outbound messages per mobile connection ...... 340 Figure 5.74 Residential consumer satisfaction with fixed and mobile services ...... 341 Figure 5.75 Residential customer satisfaction with aspects of broadband service...... 341 Figure 5.76 Are broadband speeds meeting expectations? ...... 342 Figure 5.77 Proportion of consumers who have ever switched provider...... 343 Figure 5.78 Ease of switching supplier...... 344 Figure 5.79 Children’s ownership and use of the internet and mobile phones...... 345 Figure 5.80 Uses of the internet by children...... 346 Figure 5.81 Children’s use of mobile phones ...... 347

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