The Communications Market Report 2016 4 August 2016 Agenda - - PowerPoint PPT Presentation

Ofcom analyst briefing

The Communications Market Report 2016

4 August 2016

1

Agenda

Market overview Jessica Rees, Researcher, Market Research The telecoms industries Max Fernando, Telecoms Analyst, Market Intelligence The audio-visual industries Stefan Webster, Media Analyst, Market Intelligence Internet and online content Post Steven Cape, Senior Analyst, Market Intelligence Introduction Jane Rumble, Director of Market Intelligence

2

Market overview

Jessica Rees, Researcher, Market Research

3

Source: Ofcom/ operators 40.6 39.5 39.4 38.2 37.3 37.5 11.8 12.4 12.5 12.8 13.2 13.6 4.1 4.1 4.2 4.2 4.3 4.2 57.6 57.1 57.3 56.5 56.1 56.5 20 40 60 80 2010 2011 2012 2013 2014 2015 Total Post Radio TV Telecoms £bn Annual change 5 year CAGR 0.9%

• 0.4%
• 2.0%

0.4% 0.0% N/A 2.8% 2.9% 0.5%

• 1.5%

Page 9 Figure 1.1

2015 UK communications revenues £56.5bn

4

Source: Ofcom / operators/ ONS 25.28 23.69 22.94 22.49 22.14 22.66 49.64 48.93 48.37 45.68 44.08 44.47 11.15 11.51 11.85 12.26 13.44 15.05 30.34 31.87 29.39 30.31 31.10 31.44 121.15 121.30 117.41 116.02 116.07 118.90 4.8% 4.9% 5.3% 5.1% 5.0% 5.1% 0% 1% 2% 3% 4% 5% 6% 50 100 150 2010 2011 2012 2013 2014 2015 Post Radio Television Fixed internet Mobile voice & data Fixed voice % of total spend £ per month (2015 prices) Page 10 Figure 1.2

Average household spend grew in 2015

5

Proportion of individuals (%)

61% 71% 27% 59% 5%

0% 20% 40% 60% 80%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

DVR Smartphone Smart TV Tablet Smart Watch Internet- connected dongle

• r set-top box*

Source: Ofcom Technology Tracker

Increase in take-up of tablets, smartphones and smart TVs continues

Page 13 Figure 1.5

6

Source: Ofcom Technology Tracker Proportion of households/ adults (%)

95 86 86 81 79 66 4

20 40 60 80 100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mobile telephony Fixed telephony Internet connection Total broadband Fixed broadband Internet on mobile (personal) Mobile broadband dongle or datacard

Two-thirds of adults access the internet on their phone

Page 12 Figure 1.4

Surge in IM and on-demand viewing

7

Source: Ofcom Digital Day 2016 Page 16

16-24s prefer recorded, on demand and

• nline content to live broadcast TV

8

Source: Ofcom Digital Day 2016 Proportion of time spent watching by activity (%) 63% 36% 48% 83% 17% 12% 20% 12% 6% 13% 10% 2% 6% 20% 12% 4% 6% 6% 2% 3% 14% 3% 0% 20% 40% 60% 80% 100% Adults 16+ 16-24 25-34 65+ Short online video clips Physical video Paid On-Demand TV or films Free On-Demand TV or films Recorded TV Live TV Page 58 Figure 2.4

9

The audio-visual industries

Stefan Webster, Media Analyst, Market Intelligence

Broadcast TV revenues up 3% YoY

10

Source: Ofcom/broadcasters. Note: Figures expressed in nominal terms.

Page 67 Figure 2.12

£5.0bn £5.4bn £5.5bn £5.9bn £6.0bn £6.2bn £3.5bn £3.6bn £3.5bn £3.7bn £3.8bn £4.1bn £2.6bn £2.6bn £2.7bn £2.6bn £2.7bn £2.6bn £0.7bn £0.7bn £0.7bn £0.7bn £0.7bn £0.7bn 1 2 3 4 5 6 7 2010 2011 2012 2013 2014 2015 Subscription revenue Net advertising revenue BBC income allocated to TV Other revenue Growth

1 year 5 year CAGR

3% 3% 3% 4% 7% 3%

• 4%

0% 3% 0% £11.8bn £12.4bn £12.5bn £12.8bn £13.2bn £13.6bn £bn

TV advertising revenues up 7% YoY

11

Source: Ofcom/broadcasters. Note: Figures expressed in nominal terms.

Page 70 Figure 2.15

£2.1bn £2.2bn £2.1bn £2.1bn £2.1bn £2.2bn £0.5bn £0.5bn £0.6bn £0.6bn £0.7bn £0.7bn £0.8bn £0.9bn £0.9bn £1.0bn £1.0bn £1.2bn £3.5bn £3.6bn £3.5bn £3.7bn £3.8bn £4.1bn

1 2 3 4 5 2010 2011 2012 2013 2014 2015

Commercial multichannels Commercial PSB portfolio channels Commercial PSB channels Total

£bn

1 year 5 year CAGR 7% 3% 15% 8% 12% 7% 2% 0%

Growth

12

Source: IHS

Online TV revenues grew 23% YoY

Page 68 Figure 2.13

£66m £75m £92m £121m £156m £159m £38m £57m £81m £83m £104m £207m £318m £451m £74m £113m £145m £190m £241m £283m £180m £238m £379m £574m £795m £976m

200 400 600 800 1,000 2010 2011 2012 2013 2014 2015

FTV Ad revenues Subscriptions PPV transactions DTO transactions Total

£m

Annual Growth

23% 18% 42% 3% 2%

13

Sports rights boost programme spend

Source: Ofcom/broadcasters. Note: Figures expressed in nominal prices

Page 73 Figure 2.19

£2,448m £2,601m £813m £763m £818m £820m £800m £819m £492m £507m £311m £316m £236m £215m £269m £299m £181m £188m

£6,368m £6,528m

1,000 2,000 3,000 4,000 5,000 6,000 7,000 2014 2015

Channel 5 Commercial PSB portfolio channels BBC portfolio channels BBC Two Channel 4 Other multichannels ITV ITV/Breakfast BBC One Film/sport channels

£m

1 year change 3% 4% 11%

• 9%

2% 3% 2% 0%

• 6%

6%

14

Source: BARB 50 100 150 200 250 2010 2011 2012 2013 2014 2015

Average minutes per person per day of broadcast TV viewing: Total TV, individuals 4+

242 242 241 232 220 216

Broadcast TV viewing fell for the third consecutive year

Page 93 Figure 2.38

15

Source: BARB

Average minutes of viewing per day by activity: Total TV, Individuals 4+

225 219 216 206 193 188 17 22 24 26 27 29

50 100 150 200 250 2010 2011 2012 2013 2014 2015 Timeshift Traditional TV viewing (Live)

Traditional live TV drives the decline

Page 94 Figure 2.40

242 242 241 232 220 216

16

Source: BARB

342 297 239 216 194 162 124 111

50 100 150 200 250 300 350 2010 2011 2012 2013 2014 2015 Adults 65+ Adults 55-64 Adults 45-54 Individuals Adults 35-44 Adults 25-34 Adults 16-24 Children Average minutes per day of broadcast TV viewing by age group: Total TV

Fall most pronounced among under-45s

Page 98 Figure 2.44

17

Source: BARB

Main five PSB share: 55% 54% 52% 51% 51% 51%

PSB channels retain half of viewing

Page 101 Figure 2.47

21% 21% 21% 21% 22% 22% 7% 7% 6% 6% 6% 6% 17% 16% 15% 15% 15% 14% 6% 6% 6% 5% 5% 5% 5% 4% 4% 4% 4% 4% 18% 20% 21% 21% 21% 20% 27% 26% 27% 28% 28% 29% 0% 20% 40% 60% 80% 100%

2010 2011 2012 2013 2014 2015

All other channels PSB portfolios Channel 5 Channel 4 ITV BBC Two BBC One

47 37 23 21 20 20 11 59 45 35 29 28 35 15 54 42 25 25 22 21 13 37 32 13 15 12 10 7 19 17 4 5 5 3 2

20 40 60 80 ANY OF THESE Broadcaster catch-up services Clips through websites (FB, YouTube) Free VOD content through TV service Browse online Online subscription services (Netflix, Amazon etc) Paid VOD content through TV (PPV) All 16-34 35-54 55-64 65+

18

Source: Ofcom Media Tracker 2015.

Younger viewers most likely to use their connected TV

Respondents (%) Page 91 Figure 2.37

BBC iPlayer remains the most popular VoD service

19

Source: Kantar Media – TGI Base: GB adults 15+, all devices.

2 3 6 10 13 14 16 32 1 2 7 10 15 15 16 30

5 10 15 20 25 30 35 TalkTalk TV BT TV Virgin (all) My5 ITV Hub All4 Sky (all) BBC iPlayer H1 2014 H2 2014 H1 2015 H2 2015 Proportion watching VoD services in past 12 months (%) Page 60 Figure 2.6

20

Source: Ofcom Digital Day 2016

Proportion watching paid-for services in the last week (%)

Netflix is the most used paid-for VoD service

Page 62 Figure 2.8 18% 13% 5% 1% 5% 26% 23% 7% 4% 4% 0% 5% 10% 15% 20% 25% 30%

All paid-for services Netflix Amazon Instant Video Now TV iTunes

2014 2016

Subscribers most interested in back catalogue

21

Source: GfK SVoD Tracker. Base: All Amazon / Netflix / Now TV subscribers

Reasons for using Amazon Prime Instant Video / Netflix

Page 63 Figure 2.9

39% 38% 31% 27% 15% 28% 27% 19% 20% 12% 23% 23% 9% 18% 22% To access back catalogue of TV programmes To access back catalogue of movies To watch original series made by provider To watch at a time that suits Cheaper than Pay TV subscription

Netflix Amazon Prime Video Now TV

22

The telecoms industries

Max Fernando, Telecoms Analyst, Market Intelligence

Fixed voice

Fixed voice call volumes fell by 9% in 2015

24

Source: Ofcom / operators Page 146 Figure 4.10

82.8 74.6 69.0 61.7 55.0 49.5 6.7 6.5 5.9 5.0 4.4 4.0 11.8 10.3 9.4 8.6 7.6 7.2 21.7 19.7 17.9 17.2 14.6 13.4

123.0 111.1 102.2 92.5 81.6 74.2 50 100 150 2010 2011 2012 2013 2014 2015 Other calls Calls to mobiles International calls UK geographic calls Billions of minutes

Usage of non-traditional communication services continues to increase

25

83% 78% 53% 35% 32% 14% 82% 80% 55% 40% 37% 17% 83% 79% 58% 42% 44% 22%

0% 20% 40% 60% 80% 100% Mobile messaging Email Social networking sites VoIP (voice call

• nly)

Mobile instant messaging Video calls 2014 2015 2016 Source: Ofcom Technology Tracker Proportion of respondents Page 167 Figure 4.36

Business VoIP minutes up 19% in 2015

26

Source: IDC 6.4 8.1 10.1 12.5 15.1 17.9 5 10 15 20 2010 2011 2012 2013 2014 2015 Billions of minutes Page 159 Figure 4.27

The total number of fixed lines fell by 1%, due to falling business lines

27

Page 147 Figure 4.11 Source: Ofcom / operators 23.8 23.9 24.5 25.0 25.5 25.6 9.7 9.4 8.9 8.5 8.0 7.6 33.4 33.3 33.4 33.4 33.5 33.2 10 20 30 40 2010 2011 2012 2013 2014 2015 Business Residential Millions

Stable fixed line retail voice revenue

28

Source: Ofcom / operators Note: Figures exclude VAT Page 145 Figure 4.9 12.55 13.24 13.79 14.26 14.44 15.03 3.10 2.72 2.47 2.26 1.95 1.72 1.11 0.95 0.82 0.68 0.58 0.54 3.63 3.07 2.58 2.24 1.90 1.65 2.82 2.44 2.22 2.19 2.13 2.04 23.22 22.42 21.89 21.63 20.99 20.97 5 10 15 20 25 2010 2011 2012 2013 2014 2015 Total Other calls Calls to mobiles International calls UK geographic calls Line rental & bundled calls

£ per month, per fixed line

Fixed broadband services

Fixed broadband lines up 0.9 million in 2015

30

Source: Ofcom / operators Page 148 Figure 4.13 Connections (millions) 8.0 8.2 7.7 7.1 6.6 5.9 7.5 7.9 8.7 8.9 8.9 8.6 4.0 4.1 4.3 4.4 4.5 4.7 1.1 2.3 3.6 5.4 19.6 20.7 21.8 22.8 23.7 24.7 5 10 15 20 25 2010 2011 2012 2013 2014 2015 Fibre Cable LLU-ADSL Non-LLU ADSL

37% of fixed lines were superfast in 2015…

31

Source: Ofcom / operators Page 150 Figure 4.15 1.0 3.1 5.3 7.1 9.2 0.9 5.0 14.3 23.2 30.0 37.1 10 20 30 40 2 4 6 8 10 2010 2011 2012 2013 2014 2015 Connections ≥ 30Mbit/s As a proportion of all connections As a proportion of all connections (%) Connections (millions)

32

… driving higher ARPU

Source: Ofcom, using data provided by SamKnows Page 151 Figure 4.16

Speed (Mbit/s) ARPU (£)

6.2 7.6 12.0 17.8 22.8 28.9 16.6 16.6 16.5 16.4 17.2 18.6 5 10 15 20 10 20 30 40 2010 2011 2012 2013 2014 2015 All connections including 'up to' 2Mbit/s and less Average revenue per user

Superfast take-up driving fixed internet revenue growth

33

Source: Ofcom / operators Page 147 Figure 4.12 £0.1bn £3.2bn £3.5bn £3.7bn £4.0bn £4.6bn £5.1bn £3.3bn £3.5bn £3.7bn £4.0bn £4.6bn £5.1bn 1 2 3 4 5 6 2010 2011 2012 2013 2014 2015 Broadband Narrowband Revenue (£bn)

34

28 30 30 31 32 32 15 18 19 21 22 23 22 21 21 20 20 19 20 18 17 16 14 13 4 3 3 3 4 4 10 10 10 9 8 8 20 40 60 80 100 2010 2011 2012 2013 2014 2015 Others EE TalkTalk Virgin Media Sky BT Source: Ofcom / operator data Retail fixed broadband market share (%) Page 151 Figure 4.17

Small shifts in fixed broadband market shares

Mobile telecoms

36

Use of mobile data services is increasing

Source: Ofcom Technology Tracker Page 175 Figure 4.45

52% 45% 39% 35% 34% 29% 25% 56% 51% 43% 41% 40% 32% 26% 61% 57% 49% 44% 47% 38% 33% 8%

0% 10% 20% 30% 40% 50% 60% 70%

Web browsing Emailing Social networking Downloading apps Instant messaging Watch AV content Watching video clips Contactless mobile payment

2014 2015 2016 Proportion of mobile users using service

Almost 98% of premises have outdoor 4G mobile coverage from at least one operator

37

Source: Ofcom 4% 5% 18% 71% 2%

One operator Two operators Three operators All operators No coverage

Proportion of premises with outdoor 4G coverage Page 157 Figure 4.25 Coverage of at least one network – 97.8%

UK 4G subscribers near 40 million

38

Source: Ofcom / operators Page 157 Figure 4.24 2.7 12.9 15.8 19.2 23.7 27.0 30.8 34.5 39.4 2% 3% 16% 19% 23% 28% 32% 36% 41% 46% 0% 10% 20% 30% 40% 50% 10 20 30 40 50 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 4G subscription numbers (millions) 4G subscriptions as % of total % of all subscriptions that are 4G 4G subscriptions (millions)

Total mobile subscriptions pass 90m mark

76.7 77 78.1 77.8 78.5 79.3 4.9 5.2 5.1 4.9 5.2 5.6 3.2 4.1 5 5.7 6.3 6.7 84.7 86.3 88.2 88.4 89.9 91.5 20 40 60 80 100 2010 2011 2012 2013 2014 2015 M2M Dedicated mobile data Mobile handset

39

Source: Ofcom / operators . Subscriptions (millions) Page 156 Figure 4.23

Total outgoing mobile call minutes increased by 3.9% in 2015

40

32 32 31 32 32 33 46 43 42 40 39 40 38 42 43 47 52 56 6 7 8 8 7 7 8 8 8 7 7 7

131 131 132 134 137 143 50 100 150

2010 2011 2012 2013 2014 2015

Other calls International Off-net mobile On-net mobile UK geographic Source: Ofcom / operators Billions Page 154 Figure 4.21

41

19% 27% 29% 11% 15% Vodafone (inc. Talkmobile) O2 (inc. GiffGaff) EE (inc. Orange and T-Mobile) Three Others Source: Ofcom / operators Note: Excludes M2M subscriptions

Retail mobile subscription shares, Q4 2015

42

Source: Ofcom / operators Page 153 Figure 4.19

Average revenue per mobile subscription has fallen

28.15 27.50 26.71 24.38 23.12 22.11 15.60 15.74 16.14 15.60 15.37 14.97 6.23 5.91 5.81 5.38 5.00 4.75 10 20 30 2010 2011 2012 2013 2014 2015 Post-pay Blended Pre-pay

Average monthly retail revenue per mobile subscription (£)

Summary

44 9% 12% 19% 17% 20% 22% 24% 27% 27% 28% 27% 29% 3% 5% 7% 12% 16% 17% 16% 19% 21% 23% 25% 28% 7% 5% 5% 4% 4% 3% 3% 2% 2% 2% 2% 3% 2% 2% 1% 2% 2% 4% 3% 5% 5% 6% 9% 8% 6% 7% 8% 6% 7%

29% 29% 40% 39% 46% 50% 53% 57% 60% 63% 63% 68%

0% 10% 20% 30% 40% 50% 60% 70% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Other Mobile and broadband Fixed voice, broadband, mobile and TV Fixed voice, dial-up and TV Fixed voice and TV Fixed voice and dial-up Fixed voice, broadband and TV Fixed voice and broadband

Proportion of households (%) Source: Ofcom Technology Tracker

44

Reported use of bundled services increased

Page 13 Figure 1.6

Total telecoms revenues rose 0.5% in 2015

45

Source: Ofcom / operators / IDC Page 143 Figure 4.6

£10.1bn £8.9bn £8.3bn £7.5bn £6.5bn £6.2bn £12.6bn £12.5bn £12.5bn £12.6bn £13.0bn £13.5bn £15.1bn £15.4bn £15.9bn £15.5bn £15.2bn £15.2bn £2.7bn £2.8bn £2.7bn £2.7bn £2.6bn £2.6bn

£40.6bn £39.5bn £39.4bn £38.2bn £37.3bn £37.5bn 10 20 30 40 50 2010 2011 2012 2013 2014 2015 Corporate data services Retail mobile Retail fixed Wholesale services Revenue (£bn)

46

Internet and online content

Steven Cape, Senior Analyst, Market Intelligence

Smartphones more popular than laptops

47

39% 71% 61% 64% 11% 59% 44% 31% 0% 20% 40% 60% 80% 2012 2013 2014 2015 2016 Smartphone Laptop Tablet PC Household take-up Page 190 Figure 5.10 Source: Ofcom research

And the most important for internet access

48

Source: Ofcom research Internet users (%)

36 56 56 35 12 28 37 40 42 29 23 21 31 36 35 28 24 28 20 11 15 24 25 20 20 24 17 12 7 4 9 23 14 12 9 10

3 3 3 2 4 3 2 3 3 0% 20% 40% 60% 80% 100% UK 16-24 25-34 35-54 55+ AB C1 C2 DE Age group Social group

Other Desktop Tablet Laptop Smartphone

Page 193 Figure 5.13

Reflected in the time spent online

49

Page 200 Figure 5.18 Average time spent online in March 2016 (hours) Source: comScore 81.8 59.6 30.7 20 40 60 80 100 Total digital audience All smartphones (browser & app combined) Laptop and desktops

Internet ad spend has reached £8.6bn

50

Source: AA/WARC Expenditure Report, April 2016 Advertising expenditure (£ millions) 592 1,059 1,861 2,636 5,095 702 175 238 592 1,059 1,861 3,338 5,270 8,606 5000 10000 Cinema Radio Out of home Direct mail Press brands TV Internet Non-digital Digital Page 211 Figure 5.30

Half of digital ad spend was paid for search

51

Source: IAB/PwC Digital Adspend 2009 - 2016 Expenditure (£ millions) 772 1,051 1,280 1,479 1,825 2,421 3,033 658 718 759 818 882 1,050 1,115 2,097 2,245 2,708 3,087 3,471 3,768 4,355 3,559 4,097 4,822 5,448 6,258 7,335 8,606 2000 4000 6000 8000 10000 2009 2010 2011 2012 2013 2014 2015 Other Paid for search Classifieds Display Page 212 Figure 5.31

Mobile display ad spend grew 59%

52

Source: IAB/PwC Digital Adspend 2011 - 2015 Expenditure (£ millions) 137 365 581 800 1,306 60 153 424 812 1,297 203 529 1,021 1,631 2,627 500 1000 1500 2000 2500 3000 2011 2012 2013 2014 2015 Other Display Search Page 213 Figure 5.33

53

Post

Steven Cape, Senior Analyst, Market Intelligence

54

£4,084m £4,059m £4,156m £4,233m £4,252m £4,168m £3,936m £3,905m £3,993m £4,062m £4,055m £3,989m £2,856m £2,635m £2,552m £2,568m £2,543m £2,449m £1,080m £1,270m £1,441m £1,494m £1,512m £1,540m £142m £150m £157m £160m £161m £173m £6m £4m £5m £11m £35m £7m

£0,000m £1,000m £2,000m £3,000m £4,000m £5,000m 2010 2011 2012 2013 2014 2015

Total market Royal Mail total Royal Mail end-to-end* Royal Mail access Access

• perators

End-to-end

• perators

Revenue Source: Ofcom / operators Page 229 Figure 6.7

Slight fall in addressed letter revenues …

55

15,567 14,598 13,482 12,874 12,681 12,211 8,650 7,423 6,236 5,633 5,455 5,075 6,906 7,166 7,228 7,185 7,068 7,069 11 9 18 56 159 68 6,000 12,000 18,000 2010 2011 2012 2013 2014 2015 Total mail Royal Mail end- to-end* Royal Mail access Other operators end-to-end letters Volume (million items) Source: Ofcom / operators Page 228 Figure 6.6

… and an increase in volume decline

56

Access now a higher share of letter mail

Proportion of access in total letter volume Page 230 Figure 6.8 Source: Ofcom / operators 44% 49% 54% 56% 56% 58% 0% 10% 20% 30% 40% 50% 60% 2010 2011 2012 2013 2014 2015 Year on year growth rate of access volumes 13.1% 3.8% 0.9%

• 0.6%
• 1.6%

0.0%

Online shoppers prefer home delivery

57

% of respondents stating each feature Page 224 Figure 6.4 Source: YouGov Reports, Innovations in Retailing 2016 1% 1% 2% 3% 5% 12% 68% 0% 20% 40% 60% 80% Other Delivery to Post Office Delivery to relatives/friends/partner’s home Delivery to parcel locker or parcel shop Delivery to where you work Click and Collect Home delivery

58

Many have heard of faster delivery services

Source: YouGov Reports, Innovations in Retailing 2016 Page 225 Figure 6.5 Proportion of respondents (%) 17% 28% 24% 50% 38% 37% 42% 29% 34% 25% 24% 13% 11% 9% 10% 9% 0% 20% 40% 60% 80% 100% Within the hour delivery Sunday delivery Same day delivery Next day delivery Don’t know No, and I’m not interested in using this No – but I’d be interested in using this Yes (I have used this)

59

Questions?