United Kingdom Telecommunications Report Q3 2008

The UK broadband market continues to exhibit strong growth as operators lower prices and competition increases. Several studies have shown that advertised broadband speeds are not being achieved by a large proportion of UK subscribers prompting the regulator, Ofcom, to launch a voluntary code of practice asking operators to be clearer about the speeds customers may in fact receive. At the time of writing 37 operators had signed up to the code covering 90% of UK broadband connections but there were calls for mobile broadband operators to be included. Ofcom has also launched an investigation into broadband speeds as fears that the UK is falling behind its regional peers. Although a number of projects have been launched to increase the deployment of fibre-optic cable the cost of deployment has become an issues as well as BT's 21st Century Network (21CN) failing to meet its roll out target in South Wales. Regardless BMI continues to forecasts strong growth for the broadband market with operators starting to focus on additional services such as IPTV to differentiate their offerings.

The addition of eight markets into our Business Environment Rankings has done little to change the position of the UK in the market, remaining in second place behind France having lost its first ranked position in the previous quarter. The UK retained its place despite several countries recording stronger country risk scores following turbulence in the financial markets which have a huge impact on the UK economy as well as the UK's falling telecoms market score. Although operators are reporting strong increases in postpaid contract subscribers this has yet to translate into any increase in ARPU with declines recorded for all operators with the exception of Orange.

The mobile market continues to see growth albeit vastly slower than before. The market expanded by just 4.3% y-o-y in Q108, slower than any quarter's growth in 2007, a definitive sign of a significant slowdown in the market. Operators have turned their focus to increasing the number of postpaid subscribers on their networks with all five operators reporting increases throughout 2007 and into 2008.

BMI expects this trend to continue and eventually translate into an increase in ARPUs.

With broadband subscriptions increasing fixed-lines have been falling although the requirement for a fixed-line in order to gain a broadband connection has undoubtedly helped to maintain the market. VoIP is becoming more and more popular which has severely impacted the revenues reported by fixed-line operators. BMI forecasts the market will continue to experience declines as mobile substitution and the popularity of VoIP make their impact felt in the market. BMI anticipates the market will have declined to less than 50% penetration by 2012 and could decline faster if the need for a fixed-line in order to obtain broadband becomes obsolete.