International Communications Market Report 2011 15 December 2011 - - PowerPoint PPT Presentation

Ofcom analyst briefing

International Communications Market Report 2011

15 December 2011

1

Agenda

Welcome and overview James Thickett, Director of Research and Market Intelligence Trends in telecoms Ian Macrae, Head of Telecoms Market Intelligence Trends in Internet and web-based consumption Jonathan Fenn, Senior Media Analyst, Market Intelligence Trends in the audio-visual industries Steve Gettings, Head of Media Market Intelligence Trends in consumer pricing Ian Macrae, Head of Telecoms Market Intelligence

2

Welcome and overview of key trends

James Thickett, Director of Research and Market Intelligence

International Communications Market Report 2011, Analyst briefing, 15 December 2011

3

One of three Communications Markets Reports

4

Methodology

• Combination of desk and bespoke research
• IDATE
• Teligen
• PricewaterhouseCoopers
• The European Commission
• WARC
• Mediametrie
• Analysis Mason
• Nielsen
• Online consumer research for supplementary take-up and

usage data across six countries

• We have used the latest data where possible and figures are nominal

unless otherwise stated

£762bn £807bn £836bn £846bn £864bn £194bn £211bn £221bn £222bn £239bn £30bn £31bn £31bn £28bn £29bn £986bn £1,049bn £1,088bn £1,095bn £1,132bn £0bn £200bn £400bn £600bn £800bn £1000bn £1200bn 2006 2007 2008 2009 2010

Radio Television Telecoms

Growth 4yr % 1yr% 14.9% 3.4%

• 4.0%

5.0% 23.2% 7.7% 13.5% 2.2%

Source: Ofcom analysis based on data taken from PricewaterhouseCoopers Global Entertainment and Media Outlook 2011-2015

Global communications revenues

Global communications revenues increased by 3.4% in 2010

Figure 1.2

£845bn £904bn £941bn £959bn £986bn £115bn £120bn £119bn £109bn £119bn £25bn £25bn £25bn £26bn £26bn

0% 20% 40% 60% 80% 100%

2006 2007 2008 2009 2010

Public licence fee Advertising Subscription

£984bn £1,049bn £1,086bn £1,094bn £1,131bn

Source: Ofcom analysis based on data taken from PricewaterhouseCoopers Global Entertainment and Media Outlook 2011-2015

Source of global revenues for telecoms, radio and TV services

Growth 4yr % 1yr% 14.9% 3.4% 6.4% 1.0% 3.4% 9.1% 16.7% 2.8%

Advertising revenues returned to 2008 levels

7

Communications sector revenues in 2010 (£bn)

66 79 188 10 29 94 9 3 12

£85bn £110bn £294bn £0bn £50bn £100bn £150bn £200bn £250bn £300bn CHN JPN USA

12 19 34 20 16 24 35 32 27 7 4 11 5 4 8 11 10 11

£19bn £23bn £45bn £26bn £20bn £33bn £49bn £44bn £39bn £0bn £10bn £20bn £30bn £40bn £50bn IND RUS BRA ESP AUS ITA GER FRA UK Telecoms Television Radio 10

Source: Ofcom analysis based on Ofcom / IDATE data for telecommunications/TV and Ofcom analysis based on data taken from PricewaterhouseCoopers

Growth in global revenues driven by BRIC countries...

Growth 1yr% 21.3 10.3 6.5 34.3 19.5 18.4

• 1.9

18.2

• 7.1
• 5.8
• 0.7

1.0

8 49 10 137 168 429 739 624 607 393 429 489 432 7 6 20 52 107 162 226 304 133 135 159 181 7 1 2 11 28 21 38 7 37 20 18

£64ph £16ph £158ph £222ph £547ph £929ph £871ph £949ph £533ph £601ph £668ph £630ph £0 £200 £400 £600 £800 £1,000

CHN IND RUS BRA ESP AUS JPN USA ITA GER FRA UK

Telecoms Television Radio

Source: Ofcom analysis based on Ofcom / IDATE data for telecommunications/TV and Ofcom analysis based on data taken from PriceWaterhouseCoopers

Communications sector revenue, per head: 2010 (£)

...although revenue per capita remains below other countries

9

Key trends in telecoms

Ian Macrae, Head of Telecoms Market Intelligence

International Communications Market Report 2011, Analyst briefing, 15 December 2011

Revenues in most European countries fell in 2010

9 9 11 7 57 7 20 5 5 2 1 1 1 15 6 2 11 15 18 19 13 103 11 49 9 12 4 2 1 4 19 13 10 55 3 5 5 4 27 4 10 2 3 2 1 1 27 32 35 24 188 21 79 16 20 8 4 2 6 34 19 12 66 UK FRA GER ITA USA CAN JPN AUS ESP NED SWE IRL POL BRA RUS IND CHN

Fixed Mobile Fixed broadband

Revenue (£bn) Annual change

Telecoms service retail revenue, 2010

• 1.6%

+1.2%

• 1.2%
• 2.3%
• 0.1%

+3.4%

• 3.7%

+1.2%

• 4.5%
• 5.1%

+7.4% +3.2% +3.0% +3.7% +9.4% +0.4% +5.6% Source: IDATE / industry data / Ofcom

Data accounts for a third of telecoms revenues in many countries

11

29% 28% 32% 39% 29% 36% 43% 33% 33% 32% 29% 31% 27% 12% 15% 19% 22% 17% 12% 22% 17% 12% 18% 16% 14% 18%

POL IRL SWE NED ESP AUS JPN CAN USA ITA GER FRA UK

2010 2005

Source: IDATE / industry data / Ofcom

Data revenue as a proportion of total telecoms revenues, 2005 and 2010

12

14 17 20 23 24 25 21 26 33 42 52 65 35 33 43 43 53 50 64 56 76 61 89 67 20 40 60 80 100 Revenue (£bn) Fixed broadband Non-SMS mobile data SMS 5 year CAGR +14.7% +25.7% +11.4% Source: IDATE / industry data / Ofcom Note: Revenues in the following countries: UK, France, Germany, Italy, USA, Canada, Japan, Australia, Spain, Netherlands, Sweden, Ireland Poland

2005 2008 2006 2010 2009 2007

Non-SMS mobile data now delivers almost as much revenue as fixed broadband

Fixed broadband and mobile data revenues in 12 comparator countries

1 year change +8.4% +24.3% +4.0%

51% 52% 51% 52% 46% 39% 61% 48% 55% 49% 38% 52% 56% 55% 56% 54% 54% 55% 51% 61% 56% 60% 52% 52% 49% 69%

0% 20% 40% 60% UK FRA GER ITA USA CAN JPN AUS ESP NED SWE IRL POL 2005 2010

Mobile now accounts for more than 50% of revenues in all comparator countries except Ireland

13

Source: IDATE / industry data / Ofcom Note: Analysis excludes the BRIC countries 5 year percentage point change +4 +4 +3 +2 +9 +12 +1 +9 +5 +3 +14

• 3

+13

Mobile as a proportion of total telecoms revenues

Decline in UK fixed connections lower than in other countries

14

53 33 52 29 48 50 131 99 133 148 98 130

UK FRA GER ITA USA AUS UK FRA GER ITA USA AUS Fixed -line Mobile

Change -1

• 4 -5 -2 -2 -1

+1 +4 +1 +3 +5 +10 since 2009

Fixed-line (PSTN) voice and mobile connections per 100 population, 2010

Source: IDATE / industry data / Ofcom

Change -3

• 19 -15 -12 -11 -5

+18 +23 +37 +27 +28 +34 since 2005

• 2.4%

2.1%

• 0.2%
• 4.9%
• 10.4%
• 1.2%

1.1% 4.6% 2.3% 7.9% 9.1%

• 1.5%

7.0% 15.1%

UK FRA GER ITA USA JPN AUS

Fixed Mobile

15

Levels of fixed-mobile call substitution vary between countries

Change in fixed and mobile voice call volumes, 2010

Source: IDATE / industry data / Ofcom

Wide variations in mobile’s share of call volumes… and little sign of convergence between countries

16

Proportion of voice calls originating on mobile networks, 2005 to 2010

20 40 60 80 100 2005 2006 2007 2008 2009 2010 Per cent JPN ITA AUS UK FRA GER 5 year pp change +16.9 +19.3 +29.7 +17.9 +4.1 +15.4 2010 pp change +1.9 +3.4 +3.2 +1.7 +0.0 +1.7 Source: IDATE / industry data / Ofcom

In Germany fixed voice minutes are

• ver twice the cost of mobile minutes

17

100 200 300 400 500 2005 2006 2007 2008 2009 2010 Per cent GER FRA ESP UK SWE ITA AUS NED JPN 5-yr pp change 2010 value 238 116 96 88 82 82 172 167

• 192
• 93
• 138
• 70
• 131

N/A +28

• 19

Average cost of a mobile voice minute as a proportion of the cost of a fixed voice minute, 2005 to 2010

Source: IDATE / industry data / Ofcom 72

• 90

Different drivers for fixed-mobile substitution of broadband services

18

82% 84% 69% 69% 87% 64% 11% 13% 13% 15% 4% 14% 5% 2% 9% 14% 6% 19% 2% 1% 9% 2% 3% 3% 0% 20% 40% 60% 80% 100% UK FRA GER ITA USA AUS Proportion of respondents (per cent) Fixed only Fixed and mobile Mobile only No broadband Source: Ofcom consumer research, October 2011 Base sizes: UK=1015, France=1014, Germany=1014, Italy=1045, USA=1002, Japan=1015, Australia=1012.

Household penetration of fixed and mobile broadband, 2011

After a slow start, super-fast availability in UK compares well with that in other European countries

19

15% 48% 3% 1% 2% 16% 25% 1% 8% 2% 2% 13% 23% 39% 6% 6% 4% 16% 17% 92% 29% 3% 12% 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012 2015 2015 2015 2015 2018 2020 2020 56% by 2015 11% by 2015 50% by 2012 54% by 2020 14% by 2011 36% by 2015 10% by 2012 18% by 2011 50% by 2018 15% by 2013 25% by 2011 43% by 2011 39% by 2012 93% by 2020

BT BT Virgin Media France Telecom Iliad SFR-NEUF Numericable Deutsche Telekom Deutsche Telekom Kabel Deutschland Fastweb Telecom Italia Telecom Italia NGN Committee Verizon AT&T Comcast Time Warner Charter Comms Cablevision Telus Bell NTT KDDI NBN Telstra

} 67% by 2015 } 35% by 2012 } 3%

UK BT BT Virgin Media FRA France Telecom Iliad SFR-NEUF Numericable GER Deutsche Telekom Deutsche Telekom Kabel Deutschland ITA Fastweb Telecom Italia Telecom Italia NGN Committee USA Verizon AT&T Comcast Time Warner Charter Comms Cablevision CAN Telus Bell JPN NTT KDDI AUS NBN Telstra

FTTC FTTH/P DOCSIS3.0/FTTLA

Proportion of households with NGA deployment, and planned NGA deployment, end 2010

Source: Ofcom, based on operator announcements and third-party data including IDATE Notes: Includes announcements from the largest operators only; estimates have been used where there is lack

• f clarity on timelines; deployments

are typically gradual and incremental – the year given marks the end of a planned deployment phase

Household take-up of superfast broadband, June 2011

Source: Ofcom, based on operator announcements and third-party data including Cullen International and IDATE

Take-up of super-fast broadband less than 4% in large European countries

0.8% 0.0% (FTTH/B 3.5% 2.0% 1.1% 0.3% 1.6% 0.1% 1.4% 3.5% 6.2% 7.7% 0.2% 39.0 0.4% 0.6% 1.6% 0% 5% 10% 15% 20%

UK FRA GER ITA USA CAN JPN AUS ESP

Proportion of households (%)

Use of mobile phones to access the internet more than doubled between 2008 and 2011

21

21% 14% 14% 18% 15% 37% 37% 27% 31% 36% 46% 39% 38% 40% 41% 43% 0% 10% 20% 30% 40% 50%

UK FRA GER ITA US AUS 2008 2010 2011 Source: Ofcom research, October 2008, 2010 and 2011. Base: All adults aged 18+ who use the internet (UK=929, France=914, Germany=945, Italy=989, USA=902, Australia=957). Which, if any, of the following activities do you use your smartphone / mobile phone for? Mobile subscribers (%)

N/A

Use of mobile phone to access the internet among fixed-line internet users

3% 13% 25% 29% 29% 6% 16% 23% 26% 33% 4% 13% 19% 26% 29% 4% 13% 18% 23% 29% 11% 18% 17% 25% 31% 5% 15% 23% 29% 32%

0% 10% 20% 30%

Watching TV programmes Watching video clips Downloading Apps Social Networks Emails (not SMS)

UK FRA GER ITA USA AUS

Growth in use of mobile internet primarily for ‘low bandwidth’ services

22

Use of selected internet/data services on mobile phones

Source: Ofcom research, October 2011; Base: All adults aged 18+ who use the internet.

+8pp +8pp +9pp +9pp +6pp N/A +6pp +12pp +5pp +8pp +1pp N/A +6pp +1pp +6pp +9pp +6pp N/A

• 1pp

+2pp +5pp

• 1pp
• 4pp

N/A No change +1pp +1pp No change No change N/A

Growth in internet on mobile driven by smartphone take-up

23

Proportion of mobile subscribers with smartphones

24 16 18 33 30 24 46 35 32 40 45 39 10 20 30 40 50 UK FRA GER ITA ESP EU5 Feb-10 Aug-11 Source: comScore MobiLens , 3 month averages ending February 2010 and August 2011, mobile subscribers ages 13+, . Mobile subscribers (%)

Mobile data traffic more than doubled in many countries in 2010

24

Mobile data traffic per mobile connection: 2009, 2010 and 2015

Source: Cisco Systems’ Visual Networking Index Figures given are for December in each year stated. Precise figures are not available: the 2009 and 2010 figures are Cisco estimated actuals, and the 2015 figure is a Cisco forecast. .

129 39 59 86 65 92 156 98 268 106 139 199 162 212 349 228 50 100 150 200 250 300 350 UK FRA GER ITA US CAN JPN AUS MB per mobile connection per month 2009 2010

25

Key trends in Internet and web-based consumption

Jonathan Fenn, Senior Media Analyst, Market Intelligence

International Communications Market Report 2011, Analyst briefing, 15 December 2011

32 89 63 66 66 70 51 67 77 74 10 58 34 29 45 41 29 27 36 40

20 40 60 80 100 CHN NED ESP AUS JPN USA ITA GER FRA UK 2005 2010

Broadband penetration reaches three quarters of UK households

26

Source: IDATE / Industry Data / Ofcom .

Connections per 100 households

27

Source: Ofcom Consumer Research October 2011. 70% 71% 65% 80% 78% 75% 79% 78% 75% 91% 83% 82%

10 20 30 40 50 60 70 80 90 100 UK FRA GER ITA USA AUS Visited a social networking site Set up a page or profile on a social networking site

The majority of internet users have a profile on a Social Networking Site

Frequency of visiting SNS / Set-up SNS profile page (%) 92% of 18-24s ever visited a SNS

20% 19% 17% 24% 20% 18% 28% 24% 28% 30% 29% 26% 23% 27% 28% 29% 23% 25% 16% 19% 17% 10% 18% 19% 4% 4% 4% 3% 4% 5% 9% 8% 7% 4% 6% 8%

0% 20% 40% 60% 80% 100% UK FRA GER ITA USA AUS

Don’t know Once a month or less Once every two weeks Weekly Once a day 2-4 times a day 5 or more times a day

With almost three quarters (71%) visiting it on a daily basis

Source: Ofcom Consumer Research October 2011. Base: All those who have ever visited a social networking site.

Frequency of visiting social networking sites (%) 83% of 18-24s visit

• n a daily basis

29

UK consumers more likely to access Social Networking Sites via their mobile

68% 48% 43% 5% 3% 2% 2% 62% 56% 34% 6% 4% 4% 2% 65% 58% 30% 5% 2% 1% 3% 72% 55% 30% 5% 3% 1% 2% 66% 56% 33% 8% 4% 2% 2% 66% 51% 41% 6% 2% 2% 3%

20 40 60 80 100 Laptop Desktop Mobile phone Tablet Games console Connected or Smart TV Other UK FRA GER ITA USA AUS

Devices used to access social networking profile (%)

Source: Ofcom Consumer Research October 2011.

30

35% 51% 37% 23% 45% 61% 44% 33% 22% 30% 23% 13% 47% 61% 47% 36% 38% 53% 42% 22% 33% 51% 34% 20%

0% 20% 40% 60% 80% All 18-24s 25-44s 45-64s UK FRA GER ITA USA AUS

Source: Ofcom Consumer Research October 2011. Statement: I often find out about new breaking stories first via social networking sites”.

Consumers using Social Networking Sites for breaking news stories...

All those who agreed with statement (scoring 4 or 5 from a scale of 1-5)

31

...and increasingly on their mobile phones

15 10 9 11 7 11 25 17 15 16 15 18 10 20 30 UK FRA GER ITA ESP EU5 Feb-10 Aug-11

Source: comScore MobiLens , 3 month averages ending February 2010 and August 2011, mobile subscribers ages 13+

Proportion of Mobile subscribers that have accessed news on their mobile (%)

32

More UK consumers use their home internet connection for shopping

82 72 79 68 78 67 20 40 60 80 100 UK FRA GER ITA USA AUS

Source: Ofcom Consumer Research

Proportion using home internet connection for shopping (%)

33

11% 4% 7% 6% 4% 6% 9% 3% 7% 6% 3% 6% 0% 2% 4% 6% 8% 10% 12% UK FRA GER ITA ESP EU5 Accessed Auction Sites Accessed Online Retail Sites

Source: comScore MobiLens , 3 month average ending May 2011, mobile subscribers ages 13+

Mobile retail activity among total mobile subscribers, May 2011 (%)

UK consumers also more likely to shop

• nline via their mobile phones

34 28% 29% 20% 29% 16% 16% 17% 34% 19% 23% 21%

2% 14% 7% 7% 7% 11% 11% 14% 15% 8% 9%

42% 22% 42% 32% 43% 40% 52% 24% 32% 30% 41%

7% 6% 9% 8% 3% 10% 5% 4% 7% 4% 7% 7% 4% 7% 4% 15% 4% 3% 5% 11% 6% 6%

13% 25% 14% 19% 16% 18% 11% 20% 16% 29% 15%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CHN NED ESP AUS JPN USA ITA GER FRA UK Global Newspapers Magazines TV Radio Cinema Outdoor Internet

UK internet advertising twice that of global figure and at parity with TV advertising

Proportion of total advertising expenditure

Source: Warc Data

289 14 10 16 8 93 28 8 5 3 15 £bn

35

Key trends in the audio-visual industries

Steve Gettings, Head of Media Market Intelligence

International Communications Market Report 2011, Analyst briefing, 15 December 2011

Global TV industry revenues bounced back in 2010

36

£83bn £96bn £105bn £113bn £121bn £18bn £18bn £18bn £19bn £19bn £93bn £97bn £97bn £90bn £99bn 0% 20% 40% 60% 80% 100% 2006 2007 2008 2009 2010 Advertising Public funds Subscriptions £194bn £211bn 1.6% 2.2% 9.8% CAGR (4yr) £239bn £222bn £221bn YOY 9.9% 1.3% 7.1% 5.4% 7.7% Proportion of revenues

Broad-based recovery among comparator countries

37

£68 £73 £79 £86 £89 £89 £94 £45 £48 £50 £52 £54 £54 £57 £31 £32 £32 £33 £32 £31 £33 £14 £16 £18 £21 £25 £27 £31 £0bn £10bn £20bn £30bn £40bn £50bn £60bn £70bn £80bn £90bn £100bn 2004 2005 2006 2007 2008 2009 2010 USA Europe / Canada Japan / Australia BRIC 6.7% 6.2% 6.3% 0.9% 3.5% 5.3% 16.2% 14.3% CAGR (5 yr) YOY Growth (%) Total revenues (£bn) £158bn £168bn £179bn £192bn £200bn £200bn 7.7% 6.4% £215bn

For many, all three funding sources rose year on year...

38

0.60 0.15 2.68 5.36 0.66

• 5.73

7.87

• 0.86
• 3.46

12.47 5.86

• 0.45

10.14 3.25 2.73 8.20 8.18 0.25 0.48 1.00 1.21 5.34 10.19 1.13 0.41

• 0.65

2.85 6.08 3.29 6.21 3.56 2.09 4.23 3.69 0.16 0.79

• 0.44

0.93 0.12 0.40 14.15 1.93 1.81

• 2.75
• 0.16

0.55

• 1.94
• 0.29

1.37

• £6.00
• £4.00
• £2.00

£0.00 £2.00 £4.00 £6.00 £8.00 £10.00 £12.00 £14.00 £16.00 £18.00 CHN IND RUS BRA POL IRL SWE NED ESP AUS JPN CAN USA ITA GER FRA UK

Advertising Subscription Public funding Change (£)

Changes in components of TV revenues per head: 2009 to 2010

...with revenue mix varying substantially by country

39

£59 £46 £41 £65 £116 £63 £105 £109 £40 £39 £51 £52 £21 £32 £20 £1 £4 £78 £82 £46 £44 £187 £42 £81 £78 £25 £63 £84 £99 £36 £19 £5 £4 £3 £44 £31 £48 £24 £1 £15 £39 £31 £41 £37 £35 £38 £1 £1

0% 20% 40% 60% 80% 100% UK FRA GER ITA USA CAN JPN AUS ESP NED SWE IRL POL BRA RUS IND CHN

Public funding Subscription Advertising

6 90.4

Revs per cap (£) Change YOY (%)

25 25.9 7 6.4 181 7.2 160

• 0.2

135

• 1.8

133

• 1.7

119 14.6 57 8.4 226 15.1 304 14.8 139 2.1 106 23.6 53 31.6 218 29.8 189

• 0.5

170 13.4

Digital television take-up rising across the board

40

97% 93% 62% 78% 87% 78% 66% 75% 98% 68% 63% 83% 56% 59% 34% 29% 33%

3% 7% 38% 22% 13% 22% 34% 25% 2% 32% 37% 17% 44% 41% 66% 71% 67%

0% 20% 40% 60% 80% 100% UK FRA GER ITA US CAN JPN AUS ESP NED SWE IRE POL BRA RUS IND CHI Analogue Digital Proportion of TV homes (%)

Year-on-year change (pp) +3

+13 +12 +7 +4 +9 +2 +14 +14 +10 +6 +18 +8 +20 +9 +6 +8

Take-up of digital and analogue television, 2010

For many, two platforms account for over 80% of homes…

41

Terrestrial Terrestrial Cable Terrestrial Cable Cable Cable Terrestrial Terrestrial Cable Cable Satellite Satellite Terrestrial Cable Cable Cable Satellite IPTV Satellite Satellite Satellite Satellite Terrestrial Satellite Satellite Satellite Satellite Cable Cable Satellite Terrestrial Satellite Terrestrial

0% 20% 40% 60% 80% 100%

UK FRA GER ITA USA CAN JPN AUS ESP NED SWE IRL POL BRA RUS IND CHN

Second largest platform Largest platform Proportion of TV households (%)

50%

The two most popular DTV platforms, by country, 2010

..though the appetite for pay television varies substantially…

42

48% 43% 37% 74% 12% 9% 40% 69% 72% 7% 23% 24% 82% 45% 18% 48% 52% 57% 63% 26% 88% 91% 60% 31% 28% 98% 93% 77% 76% 18% 55% 82% 52%

0% 20% 40% 60% 80% 100% UK FRA GER ITA USA CAN JPN AUS ESP NED SWE IRL POL BRA RUS IND CHN Pay Free Proportion of households (%)

Take-up of pay and free-to-air television, end 2010

...but across many countries, take up is rising

43 2.2 0.8 0.1 1.8 0.2 1.3 2.5 1.3

• 0.6
• 1.5
• 1.4
• 1.6

5.1 2.0 4.0 5.5 4.2 0.5 4.6

• 2.2

1.1

• 0.6

1.5 3.8 0.8 1.8 0.5

• 0.6

5.0 1.8 3.4 6.4 3.9 4.4

• 3
• 2
• 1

1 2 3 4 5 6 7 UK FRA GER ITA USA CAN JPN AUS ESP NED SWE IRL POL BRA RUS IND CHN Percentage point change

2009 2010 2 year change 2.6 5.4 -2.1 2.9 -0.4 2.8 6.3 2.1 1.2 -1.1 -1.9 3.3 6.9 5.4 10.4 9.4 8.6

Percentage point increases in pay television take-up, 2009 - 2010

Among value-added services, HD take-up is rising....

44

Growth in the number of HD television homes

7% 42% 60% 20% 29% 45% 54% 39% 40% 40% 13% 28% 3% 5% 14% 21% 7% 14% 0% 10% 20% 30% 40% 50% 60% 2007 2008 2009 2010 FRA US JPN ITA UK GER 1 yr 3 CAGR 44% 326% 21% 39%

• 2%

0% 122% 358% 52% 95% 94% 264% Growth Take-up (% of TV homes)

...while DVRs are available in a significant proportion of homes

45

Take-up of digital video recorders, connected TVs and 3D-ready TVs

36% 21% 22% 22% 41% 28% 7% 13% 6% 6% 7% 9% 6% 7% 8% 10% 4% 6% 0% 10% 20% 30% 40% 50% UK FRA GER ITA USA AUS DVR Connected or smart TV 3D-ready TV Take-up (%)

Widening broadband access is influencing how AV content is viewed...

46

44% 33% 24% 31% 36% 29% 27% 17% 11% 17% 23% 17% 0% 10% 20% 30% 40% 50% 60% UK FRA GER ITA USA AUS Ever Weekly Proportion of respondents that access online TV (%)

Accessing TV content over the internet

+3

• 1
• 4

+2 +1

• 1
• 2

+1 +2 +2

...but linear TV viewing remains robust

47

Daily TV viewing per head, 2009 - 2010

242 212 223 246 283 230 188 234 191 166 196 245 222 226 119 158 50 100 150 200 250 300 UK FRA GER ITA USA CAN AUS ESP NED SWE IRL POL BRA RUS IND CHN

Change in minutes of viewing per person per day, 2009 - 2010 7.6% 3.4% 5.2% 3.4% 1.1% 6.0% 2.7% 3.5% 3.8% 0.6% 5.9% 2.1% -2.2%

• 0.9% -13.8%

0%

Minutes per person per day

2010 average 211 mins

48

Trends in consumer pricing

Ian Macrae, Head of Telecoms Market Intelligence

International Communications Market Report 2011, Analyst briefing, 15 December 2011

49

Our international report focuses on comparative pricing and we have also recently published analysis of UK prices

Consumer Experience Report

• Trends in UK pricing in fixed,

mobile and television

• Wide range of sources

including Teligen pricing model, tariff analysis and revenues and take-up data provided by Ofcom, Published 7 December 2011

http://stakeholders.ofcom.org.uk/binaries/rese arch/consumer-experience/tce-11/ce- research-2011.pdf

International Communications Market Report

• Comparison of prices of

communications services in UK, France, Germany, Italy, Spain and the USA

• Based on a pricing model

provided by Teligen and data collected in July 2011

50

Despite increase in take-up and quality of telecoms services, average spend has been broadly stable…

Source: IDATE / industry data / Ofcom 200 400 600 800 2005 2006 2007 2008 2009 2010 £ per capita AUS JPN CAN USA FRA GER UK ITA

Total telecoms service retail revenue per capita, 2005 to 2010

5 year CAGR 1 year change +£16 +£1 +£13 +£15 +£3

• £4
• £9
• £12

+4.0%

• 1.6%

+4.0% +2.4% +1.6%

• 1.8%

+0.6 %

• 1.4%

51

… and in the UK average spend on communications services has fallen in real terms year-on-year

Source: Ofcom / operators Note: RPI adjusted

Average household spend on communications services

27.97 26.13 24.76 23.48 22.52 22.27 37.20 36.63 36.26 34.87 33.02 31.34 10.39 11.01 9.91 10.22 10.38 9.48 28.24 27.75 27.85 27.28 27.95 27.97 2.69 2.70 2.72 2.57 2.54 2.54 £106.50 £104.22 £101.49 £98.41 £96.42 £93.61 4.78% 4.77% 4.74% 4.66% 4.63% 4.66%

0% 2% 4% 6% 50 100 150 2005 2006 2007 2008 2009 2010 As % of total spend £ per month (2010 prices) Radio Television Fixed internet Mobile services Fixed voice As a %age of total household spend

52

Source: ONS

• 15
• 10
• 5

5 10 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Telephone and Telefax equipment and services CPI Overall CPI

Annual percentage change (%)

But after more than a decade of deflation, some signs that telecoms prices are increasing

Year-on-year changes in CPI

6.9 7.1 7.8 8.0 7.7 8.0 16.9 15.2 13.1 11.7 10.2 9.9 5 10 15 20 2005 2006 2007 2008 2009 2010 Fixed Mobile Pence per minute Source: Ofcom / operators Note: Includes estimates where Ofcom does not receive data from operators; fixed calculation excludes non-geographic voice calls; mobile calculation includes business calls; adjusted for RPI

Cost per minute for mobile has fallen rapidly – fixed has been steady despite falling call volumes

Comparison of average residential fixed and mobile voice call charges

£19.29 £18.29 £19.30 £18.27 £20.57 £23.05 £21.11 £21.97 £20.94 £23.23 £25.10 £19.17 £23.25 £22.12 £24.42 £22.10 £20.34 £22.61 £21.67 £23.96

£0 £20 £40 £60 £80

2008 2009 2010 2011 2011* Price per month

Basket 4 Basket 3 Basket 2 Basket 1

* Excluding Line Saver 12- month pre-payment tariff

Source: Ofcom / Teligen Note: Tariff data collected in July each year; nominal prices; full details of methodology, basket composition and in-depth analysis will be provided in Ofcom’s International Communications Market Report (14 December 2011)

Fixed voice tariffs have risen – although lower prices are available for payment of line rental in advance

Comparison of average residential fixed and mobile voice call charges - ‘Weighted average’ of best prices available from three largest operators

Avg annual % change (nominal) Avg annual % change (RPI adjusted)

• 10.6

+5.4

• 9.2

+0.8

• 11.9

+10.4

• 4.7

+5.8

Basket 1 Basket 2 Basket 3 Basket 4 ‘Typical’ household type

A retired low- income couple A couple of late adopters A ‘networked’ family Affluent couple with sophisticated comms use

Outbound calls

225mins 430mins 600mins 250mins

Type of calls

97% UK geog 3% to UK mobile 94% UK geog 3% to UK mobile 3% international 91% UK geog 2% to UK mobile 7% international 80% UK geog 12% to UK mobile 8% international

Time of day

58% daytime 25% evening 17% weekend 58% daytime 25% evening 17% weekend 59% daytime 25% evening 16% weekend 59% daytime 25% evening 16% weekend

£19.58 £23.16 £24.05 £24.86

£0 £5 £10 £15 £20 £25 2008 2009 2010 2011

Price per month Best price available for a basket of voice calls and a basic broadband service

Source: Ofcom / Teligen Notes: Based on tariffs available in July of each year. Basket includes 430 voice minutes (95% UK geog, 3% to UK mobile, 3% international), 58% of calls in daytime, 25% in evening, 16% at weekend. Basket of services includes special offers available such as discounted line rental for an introductory period; Tarif prices from BT, Virgin Media, TalkTalk do not include any special offers.

Broadband

• nly

Broadband plus line rental BT 2008 £15.99 £27.74 2009 £15.65 £28.15 2010 £15.99 £27.28 2011 £16.40 £25.60 Virgin Media 2008 £18.00 £21.00 2009 £21.25 £26.25 2010 £21.25 £25.74 2011 £21.00 £27.40 TalkTalk 2008 £14.99 £17.00 2009 £14.99 £18.99 2010 £14.99 £21.24 2011 £15.31 £19.10

Best price available for a basic voice and broadband bundle from the UK’s three largest providers

Broadband tariffs fairly steady – both for standalone broadband and in a bundle with voice…

Annual % change (nominal) Annual % change (RPI adjusted)

+18.1 +0.1

• 1.6

+18.3 +3.9 +3.4

21.84 18.77 18.10 16.13 14.24 14.02 5 10 15 20 25 2005 2006 2007 2008 2009 2010 Source: Ofcom / operators Notes: Nominal prices; Includes VAT; Includes estimates where Ofcom does not receive data from operators £ per month Average headline speed (Mbit/s) 3.6 5.3 6.9 9.3 15.5 1.6

… However the average cost of broadband has fallen as consumers take LLU and bundled services

Average monthly cost of a residential broadband connection (excluding line rental)

£10.22 £10.15 £8.94 £8.81 £11.48 £10.48 £9.32 £10.25 £13.45 £11.63 £10.39 £10.56 £20.95 £19.41 £16.23 £14.90 £19.94 £17.17 £13.81 £14.43 £36.94 £34.42 £29.73 £24.27 £43.43 £34.40 £35.65 £28.35 £41.99 £36.01 £35.36 £33.23

2008 2009 2010 2011

Price per month

Connection 8 Connection 7 Connection 6 Connection 5 Connection 4 Connection 3 Connection 2 Connection 1 Source: Ofcom / Teligen Note: Calculated from lowest tariff available from each of the three largest mobile operators by retail market share in July of each year; nominal prices; full details of methodology, basket composition and in-depth analysis will be provided in Ofcom’s International Communications Market Report (scheduled for publication on 14 December 2011)

Mobile prices have fallen significantly – but some low use (pre-pay) tariffs have increased since 2010

Prices for typical baskets of mobile phone services, 2008-2011 Weighted average’ of best prices available from three largest operators

Avg annual % change (nominal) Avg annual % change (RPI adjusted)

• 11.2
• 12.4
• 13.5
• 12.5
• 8.2
• 9.2

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Source: Ofcom / Teligen Note: Based on tariffs available from the three largest operators for each service in each country in July 2011; PPP adjusted; TV excludes license fee, but includes price of set-top box/decoder and installation

Comparative ‘weighted average’ pricing of ‘single services’ for baskets of communications services typical of five household types

Prices in UK compare favourably to other countries for single services…

Monthly cost (£) 36 45 56 52 56 71 58 7310095107 115 82 117 177 117 151 165 125 166 258 236 242 264 170 204 269 233 306 350 100 200 300 400 UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA TV Mobile broadband Fixed broadband Mobile Fixed voice Basket 1 Basket 2 Basket 3 Basket 4 Basket 5

59

Source: Ofcom / Teligen Note: Based on tariffs available from the three largest operators for each service in each country in July 2011; PPP adjusted; TV excludes license fee, but includes price of set-top box/decoder and installation.

Comparative ‘weighted average’ pricing of ‘single services’ for baskets of communications services typical of five household types

… and also compare favourably when including bundled services

Monthly cost (£) 27 42 45 37 39 57 42 55 58 59 66 93 68 104 152 96 132 136 102 70 170 135 175 219 143 182 219 170 244 294 100 200 300 UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA UK FRA GER ITA ESP USA TV Mobile Broadband Fixed broadband Mobile Fixed voice Fixed voice & broadband Triple-pay Basket 1 Basket 2 Basket 3 Basket 4 Basket 5

Lower comparative costs in the UK are primarily driven by lower mobile prices

60

Source: Ofcom, using data supplied by Teligen Note: Weighted average of best-value tariff from each of the three largest operators by market share in each country; July 2010 and July 2011; PPP adjusted

Comparative single service ‘weighted average’ mobile pricing

Monthly cost (£)

9 9 11 12 10 11 9 13 16 15 29 24 9 10 12 14 14 16 12 16 20 17 34 28 9 10 12 14 14 24 12 22 20 19 34 20 10 11 12 15 19 26 14 23 25 14 38 17 15 17 23 21 50 50 34 37 24 37 44 43 21 19 32 24 44 45 28 38 39 35 56 49 35 31 55 48 71 71 59 56 78 79 95 84 44 34 81 68 105 101 76 73 124 109 125 106 55 48 103 74 132 129 92 81 171 114 105 92

200 400 600

2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011

Connection 1 Connection 2 Connection 3 Connection 4 Connection 5 Connection 6 Connection 7 Connection 8 Connection 9 UK GER FRA ESP ITA USA

Questions?

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