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Dosmetic Telecommunications Market Assessment 2005
Key Note Publications Ltd, Sep 2005
The UK domestic telecommunications market in terms of market revenue was valued at £28.27bn in 2003/2004 and we expect its value to have increased to £29.88bn in the year ending March 2005. Annual market growth is relatively slow in this mature market, with rising subscriber numbers in areas such as cellular and broadband being offset by declining prices across the industry and the shift away from fixed-line usage by some consumers.
This report looks at three main sectors: the fixed-line market; the cellular or mobile market; and other operator revenue (essentially, broadband and Internet and corporate data services). Mobile revenue has been the fastest growth sector of the market since 2001, along with areas of the market related to data rather than voice transfer, especially Internet traffic, with broadband connections growing rapidly.
Residential consumers and, to a lesser degree, businesses are switching their telecommunications needs away from fixed lines and towards mobile and data traffic, with the switch being led by a comparatively small group of high-spending individuals and businesses.
2005/2006 is seeing new areas of the market opening, including third-generation (3G) voice and data services to businesses and residential consumers, broadband (including the niche local loop unbundling [LLU] market and wireless fidelity [Wi-Fi] connectivity) and voice over Internet protocol (VoIP) networks. At the same time, new tariff structures are being introduced to make mobile and fixed-line services more competitive and to reflect changes in the market.
We expect the telecommunications market to see relatively modest and stable rates of annual revenue growth between 2005/2006 and 2009/2010. Although volumes of mobile voice calls and data traffic are expected to grow strongly, declining fixed-line voice calls will offset this. Overall, the volume of telecommunications traffic will grow between 2005/2006 and 2009/2010 but price erosion in all markets will keep revenue growth at modest levels. In this market environment, competitive pressures will be intense, with the battle on to build and retain market share: profits will be sales driven as margins shrink.
The UK telecommunications market is very competitive, although the degree of consolidation varies across the main segments of the market. Whereas the mobile market is consolidated into the hands of five main operators, the fixed-line market is very fragmented — although, in terms of revenues and market position, BT Group PLC remains larger than most of its competitors put together. In terms of revenue, BT is the largest player in the market, followed by Vodafone, France Telecom and then O2. BT leads the fixed-line segment of the market (calls, access lines and leased lines), while Vodafone, France Telecom (i.e. Orange) and O2 lead the mobile segment of the market.
The future competitive nature of the industry will depend to a large degree on the future shape of BT. The new regulatory framework established by the Office of Communications (Ofcom) for fixed (and broadband) communications in the UK will ensure that these areas are more open to competition at the retail end of the market between 2005/2006 and 2009/2010, compared with the previous 5 years. A possible merger between NTL and Telewest will only serve to make this retail competition more intense. However, although BT's rivals may aspire to take significant market share in fixed and broadband communications from BT Retail, they should also contemplate the impact of a fully commercialised BT Retail on their own business. Without the tacit and actual support of BT Wholesale, BT Retail may prove to be a more effective competitor than it has been in the past.
Over the period from 2005/2006 to 2009/2010, VoIP services are set to become firmly established, with major operators such as BT pushing these services hard. Bundled VoIP and broadband services are likely to have the greatest commercial potential and this could have significant long-term implications for the voice revenues generated from both fixed and cellular networks.
Between 2005/2006 and 2009/2010, key new market opportunities will be:
- mobile video (including video telephony)
- premium mobile content, such as sports, travel and entertainment news or features, and mobile games
- fixed-line broadband services (although profits may be hard to generate)
- video telephony
- video on demand (VoD) and broadband television.
Convergence between mobile and fixed-line services is expected to be a growing theme in the market, with companies such as BT already introducing hybrid fixed-line and mobile handsets and services. Convergence is likely to take off mainly in residential-consumer voice and data services and in small and medium-sized enterprise (SME) voice services.
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