Ofcom Reports on UK Market

The range of services and devices now available to children (8-15 yearolds) in the UK is rapidly changing what they do with their time. Over 75%of 11 year olds now have their own television, games console and mobilephone. Some 15% of 13 to15 year olds and 7% of 10 year olds also have theirown webcam.

Fewer children are playing console and computer games (61% regularly didso in 2005 down to 53% in 2007), watching videos and DVDs (59% did soregularly in 2005 and 38% in 2007) and listening to radio (40% listenedregularly in 2005 and 20% in 2007). Instead, they are using their mobilephones more often (50% regularly did so in 2005 compared with 53% in 2007),surfing the internet (47% regularly in 2005 to 52% in 2007) and using MP3players (20% regularly in 2005 to 28% in 2007).

Older people are also consuming more media. The over 55s was the only agegroup to increase its average radio listening between 2002 and 2007 (up5.5%). And older people are not just increasing their use of traditionalmedia. Some 16% of over-65s use the web. These silver surfers spend anaverage of 42 hours online every month, more than any other age group.Indeed, far from being just a young person's technology, one quarter of allUK internet users are over 50 and the over-50s account for 30% of total timespent online.

Among 25-34 year olds women spend more time using the internet than men.In this age group, 2.18m young women users account for 55% of total timespent online. By comparison, just 1.83m 25-34 year old men in the UK use theinternet.

There is now an even greater range of 'bundled' communications servicesproviding landline, broadband, digital television and mobile in a singlepackage. As a result, the number of consumers taking services in bundlesrose to 40% of the population by April 2007, up by a third over 12 months.

Consumers are increasingly using telephone services over the internetoffered by so-called VoIP providers. At the end of 2006 20% of respondentsto Ofcom's survey said they were phoning online, up from 14% at the end of2005.

And in the UK we are increasingly relying on our mobile phones. The reportshows that by the end of 2006 there were more than double the number ofmobile connections (69.7m) than landline connections (33.6m). More UKhouseholds now rely just on a mobile phone (9%) than rely just on a landline(7%) and for the first time, total mobile call minutes (82bn) accounted forover one third of all call minutes (234bn).

Today's consumers are using their mobiles for much more than just makingphone calls. Some 41% of mobile phone users regularly use their phone as adigital camera, 13% use it for internet access, 10% listen to FM radiobroadcasts, and 21% use it as a mini games console. And in 2006 mobile usersin the UK sent 20% more texts than the previous year with an average of 12text messages per mobile per week.

Wireless networks are allowing more people to access the interneton-the-move. Some 11.2% (7.8m) of mobile phones now connect to a 3G network(70% up on 2005 at 4.6m). The report also shows the number of Wi-Fi hotspotsin the UK, which enable broadband speed wireless internet access, is alsoincreasing. By April 2007 there were 11,447 hotspots compared to 10,339 ayear previously.

Digital television - in 80.5% per cent of UK homes by April 2007 - ischanging what, when and how we watch. One of the new services being used byviewers in the 11.5 million subscription television households ishigh-definition (HD) television. The report finds that, in the 450,000 homesthat have it, 33% of viewing time is spent watching in HD and 43% of thosesurveyed said that they watch more television - especially premium contentsuch as films and sport - as a result of having HD.

And by April 2007, 15% of respondents said they had a digital videorecorder (DVR), almost double the number at the end of 2006. DVRs allowusers to record whole television series and to pause and rewind liveprogrammes.

Radio listeners have a much wider choice of stations and ways of listeningdue to the growth of digital radio. In 2006 the total number of DAB digitalradio sets sold broke through the 5 million mark and 17.2% of UK homes nowhave a DAB digital radio. DAB sets accounted for 18.6% of all radio sales in2006 (1.8m sets) compared to 12.9% in 2005 (1.5m sets).

DAB is not the only way that consumers listen to digital radio. The reportfinds that 33% of consumers have listened to the radio via digitaltelevision (15% do so at least weekly), 21-22% listen online (12% at leastweekly) and 10-12% listen via their mobile phone (6% at least weekly).

UK television advertising revenue in 2006 fell by 2.2% on the previousyear to £3.5bn, the first fall since 2002. The decline in advertisingrevenues coincides with greater availability and use of television-stylecontent online and the growth of digital video recorders (DVRs) that allowusers to skip adverts, putting even greater pressure on advertisingrevenues. The report found that up to 78% of DVR owners regularly used themto skip through adverts.

Declining advertising revenue is, however, increasingly being supplementedby alternative sources of income. In 2006 subscription revenues increased to£4bn (approximately £350 per subscription), up from £3.3bn in 2005.Similarly, revenues from interactive services, such as quiz televisionchannels and participative voting in programmes, increased by 18.3% during2006 to £123m, although this new source of income may be affected in thefuture as broadcasters review their approach to interactive TV.

While television advertising overall is declining, revenues fordigital-only free-to-air channels, such as ITV2, More4 and Five Life, isrising and for the first time broke though the £1bn mark in 2006, a 21%increase over 2005. Revenue for the three commercial terrestrial channels -ITV1, Channel 4 and Channel 5 - stood at £2.4bn in 2006, 9.6% lower than in2005.

As television advertising revenue declines, online advertising spendingcontinues to surge, up 47% during 2006 and just breaking the £2bn mark.Internet advertising spend is now equivalent to almost half (44%) that spenton all TV advertising, to 83% of advertising spend on ITV1, Channel 4 andFive and to one quarter (24.2%) of all press advertising.

By April 2007 53% of UK households had a broadband connection. Headlinebroadband speeds - the maximum advertised speed of a service - have doubledover the last 12 months. The average blended headline broadband speed stoodat 3.6Mbit/s at the end of 2006 compared to 1.6Mbit/s in the previous year.By June 2007 this had risen to 4.6Mbit/s.

The increase in headline speeds is due in part to continued investment andgrowth in local loop unbundling which enables operators to install their ownequipment in BT's exchanges and offer broadband services direct toconsumers. There has been a threefold increase in the proportion ofproperties connected to an unbundled telephone exchange which are actuallytaking an unbundled service, from 3% in March 2006 to 9% in March 2007.Average headline speeds are also being boosted by ongoing investment ininfrastructure on both the BT and cable networks.

Competition in the provision of phone services is also increasing. WhilstBT is diversifying its revenue streams in other areas, its share of fixedvoice call volumes fell below 50% for the first time in 2006 (48%) and thecompany's share of all telecoms connections (including mobile) fell belowone in four (23%, down from 26% a year ago).

Increased competition is driving down prices for consumers. Ofcom'sanalysis of the cost of a typical basket of residential telecoms services(including a fixed line, two mobiles and a broadband connection perhousehold, all at 2006 usage levels) shows that consumers would have paid£6.51 (9%) more for the same bundle of services in 2005 than in 2006. In thefive years to 2006 the cost saving on the same bundle was £34.97 in realterms.

While the total number of radio stations in the UK has increased throughthe expansion of DAB (in June 2007 there were 389 radio stations in the UK,169 of which were available on DAB), the report shows that the total numberof radio listening hours declined to an average of 19.8 hours per week perlistener in 2006. This fell further to 19.4 hours in Q1 2007. This declinehas been felt most in the commercial local radio sector. Between April 2005and April 2006, average listening to local commercial radio fell by 4.1%.

As listening has declined, so has commercial radio advertising revenue.Between 2001 and 2006, radio's share of total advertising revenue in the UKfell by 14.3% and in 2006 stood at £480m. Total revenue for local commercialstations fell by 9.5% from £169m in 2005 to £153m in 2006.

By contrast, the report finds that people are increasingly tuning-in toBBC radio. In the first three months of 2007, four out of the five mostlistened to stations were all BBC. The top five were: BBC Radio 2, Radio 1,Radio 4, Classic FM and Five Live.

The report also estimates that the BBC's expenditure on radio, at £637m in2006, is at its highest level in five years. This compares to £512m for thecommercial radio sector, at its lowest level since 2002.