Broadband Benchmark Update Q1: January – March 2005

 

The UK fixed telecoms market is one of the largest in Europe. BT remains the dominant UK operator, with 74% share of the market by revenue in 2004 and 80% of the UK's total 40 million local access lines (NTL and Telewest account for 16% of the total local access lines).  

 

Due to the early liberalisation of the UK market, the market share of new entrants has historically been relatively high in comparison with other European countries. Yet, since 2000, there has been a marked slowing in the growth of alternative operator market share.

 

This slow down in growth is mainly due to lower than expected demand and the altnet model continues to suffer from intense price competition, particularly in the wholesale switched market, brought on by oversupply.

 

Consequently, the main alternative national network operators (Cable & Wireless, Energis, Fibrenet, Global Crossing [formerly Racal], Kingston, NTL, Telewest, THUS and Your Communications) have been forced to strictly limit their network expansion and capital expenditure plans. 

 

This fact has had a major impact on the number of companies planning to deploy their own xDSL infrastructure over unbundled local loops – although the significant decline in the price of providing Local Loop Unbundled (LLU) broadband lines has led to increased interest and encouraged a number of companies (including NTL, Bulldog, Easynet and Fibrenet) to actively pursue the opportunities that LLU creates. At December 2004, there were 28,000 unbundled lines in the UK.

 

One example of the progress made in LLU provision is the launch by Easynet of a wholesale DSL offer in December 2004 and the announcement by the same company that it will introduce higher speed broadband in 2005 through use of technological improvements such as ADSL2+.

 

Progress in the LLU market is also evidenced by the increasing provision of SDSL broadband as a lower-cost substitute to leased lines.

 

Another consequence of the slow growth is increased operator focus on their IP and Ethernet product portfolios in order to exploit the growth in the business telecoms market and increase the annual revenue (ARPU) generated by each customer.

 

For the major UK non-incumbent residential ISPs the strengthened focus on IP has driven two trends – the migration of substantial numbers of narrowband customers on to broadband and the upgrade of existing broadband subscribers to faster or 'broaderband' connections.

 

The UK Internet market is dominated by the top 6 ISPs in terms of estimated 'active' subscriptions i.e. Wanadoo (2.36m), BT Openworld / BT Yahoo (2.40m), AOL (2.33m), Tiscali (1.43m), NTL (2.08m) and Telewest (0.82m). The latest estimate by the Office of National Statistics (ONS) – based on supplier figures provided by an ISP panel – is that 43% of all Internet connections in February 2005 were broadband. Ofcom predicts that the broadband share of all Internet subscriptions will exceed 50% in 2005.

 

Cable companies continue to focus on a 'triple play strategy'; offering cable TV, direct access telephony and broadband Internet to increase ARPU, win more business from homes within franchise areas and to build their share of the business market (both retail and wholesale) in order to drive increasing volumes of voice and data traffic over their existing backbone networks. In line with this strategy, both NTL and Telewest have launched video on demand (VOD) products in 2005.

 

However, in the battle between the two main broadband technologies in Europe, DSL and cable-modem, the strategy seems to be changing as the distinct line between cable operators and DSL providers blurs. Increasingly cable operators such as NTL, UPC and Auna are looking at DSL as an alternative to provide broadband to end-users and DSL-based ISPs, including BT and Wanadoo, are looking at options for delivering TV (aim to offer competitive triple-play solutions).

 

With NTL and Telewest in talks about a merger, to help build a company (5 million subscribers) that is well positioned to compete head-to-head with BSkyB (7.7 million subscribers), it will be interesting to track developments over the forthcoming months and monitor the impact on the marketplace.

 

 

Broadband infrastructure deployment in the UK has centred on cable-modem and xDSL broadband; with cable-modem broadband first offered in the UK in April 1999 and ADSL since July 2000.

 

By the end of 2001, the UK market was split 60:40 to the advantage of cable-modem broadband.

  

Figure 2 - UK Broadband Market, December 2001, Ofcom / Observatory

 

However, the significant growth in the UK broadband market between 2001 and 2004 has been to the advantage of xDSL broadband; with ADSL connections outstripping cable-modem connections since December 2003.

Figure 3 - UK Broadband Market 2001-2005, Ofcom / Observatory

 

During the same period, both wireless and satellite broadband have not achieved mass market volumes, whilst Local Loop Unbundling (LLU) has also failed to gain a strong presence.

 

The current regulatory environment - fuelled by the Strategic Telecoms Framework Review undertaken by Ofcom – has recently led to aggressive price reductions in LLU. As a result, it is predicted that the next wave of growth and momentum in the UK market will be driven by increasing numbers of LLU broadband providers entering the marketplace.

Figure 4 - UK Broadband Market, March 2005, Ofcom / Observatory

 

At the end of December 2004 the UK market had changed dramatically; with cable-modem share having declined to just 31% whilst xDSL share of the market had increased to 69%. The success of DSL-based products is good news for BT Wholesale, with the number of xDSL broadband connections confirming its dominant position as the main wholesale delivery mechanism.

 

In contrast, market statistics suggest that BT Retail is losing market share; with BT ISPs accounting for less than 4 in 10 DSL-based broadband connections (subscriptions).

 

Similarly the total number of fixed lines has fallen significantly (at least half a million), probably reflecting a reduction in the number of second lines for internet access as migration to ADSL broadband allows a single line for both voice and internet.

 

Cable networks pass 50% of UK households; with NTL having upgraded 87% and Telewest 94% of their networks to be able to offer cable-modem services. In terms of coverage, this means that cable-modem broadband was available to approximately 45% of households in the UK.

 

In contrast, at the end of December 2004, 512kbps ADSL broadband was available to approximately 95% of UK households and businesses.

 

Figures from the Office of National Statistics suggest that there were 16 million households on-line by December 2004 – up from 12.1 million in March 2004. The data confirms the decline in dial-up or narrowband subscriptions to the advantage of broadband; with 'permanent, always-on' connections accounting for 43% of all subscriptions in February 2005.

 

Based on this information, Ofcom forecasts that over 50% of the households with Internet access will have a broadband connection before the end of 2005.

 

Time spent on-line in UK households with dial-up connections increased from an average of 2 hours a week in 1999 to 8 hours in 2004, while households with broadband connection spent an average of 16 hours a week online in 2004.

 

 

The growth in the broadband market in Wales has been relatively slow in comparison to the UK as a whole. The Observatory notes that this is due, in part, to the limited availability of mass market broadband during the period.

 

Since September 2004, broadband coverage in Wales has exceeded 80% of the population and, it is estimated, between 4-5% of all ADSL connections in the UK were for sites in Wales. In light of the fact that Wales accounts for less than 5% of the UK population, the market data is encouraging. Whilst it is too early to identify a trend, the Observatory will monitor progress over the forthcoming months and update this report on a quarterly basis.

Figure 5 – Growth in ADSL Connections (UK & Wales), 2001-2005, Observatory

 

There is no market data available to show that cable-modem broadband is experiencing equal levels of growth to DSL in the South Wales franchise area. However, the Observatory estimates that NTL has over 100,000 connections (around 9% of all households) and is experiencing growth in Wales that is in line with, or exceeds, what is being achieved in other cable franchise areas. Moreover, within the franchise areas of cable companies, there is evidence that cablecos continue to sign-up more customers than DSL-based ISPs.

 

NTL strategy for Wales is to increase its focus on differentiating its products and services from those available from BT – rather than competing head to head on price.

 

Differentiation is being achieved through the promotion of a range of cable-modem services that range from low-speed narrowband (128kbps) services to high-speed second generation (i.e. 3Mbps) broadband connections.

 

In addition, NTL has announced its plans to 'unbundle' up to 300 exchanges across the UK; which is expected to further enhance the company's ability to offer differentiated services. Video on demand (VOD) is already available and the company has confirmed plans to launch personal video recorders (PVRs) in 2005.

In response to increasing competition, BT automatically upgraded – at no extra cost to the customer - the speed of ADSL broadband. For example, where possible, subscribers to BT Yahoo were upgraded from the standard 512kbps download speed to a 2Mbps service. Upload speeds remained unchanged.

 

BT and its ISP partners are also undertaking trials to enable 8Mbps and more connectivity over an ADSL broadband connection during 2005.

 

Other signs of mass market competition include the availability of SDSL broadband from 19 exchanges located in urban areas of Wales and 4Mbps ADSL broadband (from LLU broadband provider, Bulldog) from Cardiff exchanges in densely populated areas.

 

 

 

World-wide broadband lines grew to 100 million by the end of 2004. This represents over 60% growth since December 2002 when there were estimated to be 62 million broadband connections. In 2002, broadband take-up represented 1 in 10 of all internet users. By the end of 2004, take-up represented 1 in 10 of the UK population as a whole.

 

Of all the top broadband countries, the USA and Canada are still the only two that have clearly more cable-modems than DSL lines. DSL is well ahead in the other major economies.

 

Asia Pacific dominated the total market (53.8 million lines end June 2004), with China, Japan and South Korea accounting for a significant number of these broadband connections.

 

China continued to drive significant growth for the region; whilst South Korea is considered to have reached saturating penetration levels at around 24 broadband lines per 100 people. Hong Kong is forecast to achieve similar penetration levels during the first half of 2005.

 

Nevertheless, the USA continued to be the largest broadband market, with growth and momentum in the market sustained through DSL providers successfully competing to win market share from the cable-modem operators. The Americas accounted for 30% (37.3 million lines end June 2004) of the total market.

EMEA accounted for the remaining 26% (32.2 million lines end June 2004) of the total broadband market. Absolute growth in Western Europe has been strong; with IDC estimates showing 40 million connections by the end of December 2004. In addition the Eastern European countries, in particular Poland, experienced high growth.

 

The growth in the UK during the fourth quarter of 2004 was close to 20%, above the average growth experienced by the countries selected for the chart below and in line with the growth experienced in the broadband market in both France and Norway.

 

France witnessed the highest level of additions in the fourth quarter of 2004 (1.1 million), ahead of the UK (1.0 million) and Germany (0.9 million). Nevertheless Germany remained the biggest EMEA country market with 7.0 million broadband lines, just ahead of France with 6.8 million. The UK also surpassed the 6 million mark. The charts overleaf show that broadband also achieved mass market levels in Italy, Netherlands and Spain.

 

It is not surprising that Greece, Ireland and Italy have experienced the greatest growth during the quarter – as this report highlights the fact that these countries are experiencing accelerated growth after having achieved relatively low levels of broadband connectivity between 2001 and 2004.

 

Figure 6 - Growth in Broadband Market Q4 2004, Analysys Consulting Limited

 

The growth in the Western European market can be compared with the overall number of broadband connections in each country. It appears that most developed broadband markets are experiencing a slow down in growth whilst less developed markets are experiencing accelerated growth as the number of broadband connections per country increases quarter on quarter.

 

 

Growth in technologies during 2004 confirms that there is a decline in the relative share of cable-modem connections to the advantage of xDSL technologies; with Fixed Wireless Access (FWA) and other alternative technologies having limited impact on the market as a whole.

 

The dominance of DSL increased during the fourth quarter of 2004, accounting for 88% of all additions during the quarter. IDC estimates that DSL share had grown to 79% of all broadband connections world-wide at the end of 2004 and that cable-modem accounted for 19%.

 

However,during the final quarter, the greatest growth experienced was in FWA - due to the growth in take-up of wireless broadband connections in Ireland, Denmark and Finland. Ethernet accounted for a significant proportion of the growth in both Austria and Norway. Growth in France was predominantly due to DSL.

 

Of note is the continued strength of cable in Germany, Ireland and Denmark where DSL connections do not appear to be outstripping growth in cable quarter on quarter (in contrast to the other countries studied).

 

 

 

[1] The ordnance survey data estimates that there are approximately 1.4 million sites in Wales. This figure includes business premises as well as households.

 

 

 

In March 2005, BT announced that customers were to be upgraded automatically to faster speeds at no extra cost. This means that users can access BT Broadband 500 for £9.99 per month (512kbps); BT Broadband Basic for £17.99 per month (1Mbps) and BT Yahoo for £19.99 per month (2Mbps). As a result broadband users in Wales can now get four times the speed (2Mbps) for half the price (£20) that they would have paid in 2002.

 

Simultaneously, Cable & Wireless announced that existing and new broadband users could subscribe to Bulldog and access up to 4Mbps ADSL broadband for £19.50 (via an introductory / promotional offer). The service will be made available in the Cardiff area from June 2005.

Figure 26 – Broadband Affordability, Price / Technology Platform, March 2005, Observatory

 

The table above shows a sample of the prices currently charged for products available in the marketplace, with prices ranging from under £10 to £42.99; whilst the table below highlights the additional bandwidth available to broadband users living or working in cable franchise or LLU areas.

Figure 27 – Broadband Affordability, Price / Bandwidth, March 2005, Observatory

 

Also worthy of note is the announcement by UK Online, the ISP brand of Local Loop Unbundler (LLUB) Easynet, to offer 512kbps service for under £10 per month and up to 8Mbps for £39.99 per month. Easynet has not announced any plans to unbundle any exchanges in Wales and, as a result, this offer is not available to consumers in Wales.  

 

In future reports it will be interesting to track the increasing availability of 8Mbps broadband – which provides access speeds of up to 16 times faster than mass market '512kbps ADSL broadband' and about 150 times faster than traditional 'narrowband' dial-up access.

 

Similarly, with speeds of up to 20Mbps feasible via improved technologies such as ADSL2, it will be useful to track the availability of higher bandwidth products in Wales, UK, Europe and world-wide.

 

 

 

 

Third party surveys have been analysed and, where possible, broadband penetration levels for Wales have been compared with those of other countries and regions.

 

Take-up of Broadband in Wales

Market data is shared with the Welsh Assembly Government and Observatory under non-disclosure agreements signed with broadband providers. As such, this report relies on market estimates and approximations calculated via analysis of residential and business surveys commissioned by the Broadband Wales Unit and interested third parties.

 

Towards the end of 2002, the Observatory estimates that around 3% of all homes and businesses in Wales that could access ADSL broadband had subscribed to a service. This compares with a 4% take-up across the UK.

 

By the end of 2003, take-up is estimated to have increased by just one percentage point to 4%, whilst take-up levels across the UK as a whole had increased by two percentage points to around 6%. The lower than average penetration levels in Wales are thought to be due to the fact that Wales had a lower than average use of the Internet at that time – which led to lower than average interest in, or demand for, the features (always on, faster speeds etc) promoted by the broadband providers.

 

However, the subsequent growth in the number of ADSL broadband connections in Wales demonstrates that people living and working in Wales have realised the potential benefits to be gained from a broadband connection.

 

	ADSL Wales	ADSL UK	Percentage of UK ADSL Broadband Connections in Wales
Nov-02	4,000	0.5m	0.8%
Jan-04	50,000	2.0m	2.5%
Sep-04	140,000	3.0m	4.7%
Dec-04	208,000	4.0m	5.2%
Mar-05	TBC	5.0m	TBC

 

By the end of 2004, BT Wholesale claims 208,000 customers had subscribed to ADSL broadband in Wales. This figure suggests that Wales accounted for more than 5% of the 4 million ADSL broadband connections in the UK. Similarly, based on 1.4 million households and businesses, Wales had a broadband penetration level of 14.8%.

 

There are currently a small number of SDSL broadband connections in Wales; representing less than 1% of the broadband market. Similarly, there are currently no LLU broadband connections in Wales. Once data becomes available, both xDSL-based product offerings will be tracked and included in future benchmark reports.

 

The Observatory estimates that the market in Wales is shared between DSL and cable-modem (2:1), with ADSL accounting for over 200,000 broadband connections and cable-modem estimated to account for approximately 100,000 connections within the South Wales cable franchise area.

 

This calculation suggests that broadband penetration levels are significantly higher in the areas where cable-modem is available (equates to around 29% of all households and businesses able to access a cable-modem broadband). It should be noted that cable-modem broadband is defined, by necessity, as any speed over 128kbps.

 

There is currently no data available showing take-up of satellite broadband in Wales. However, the Observatory estimates that the technology accounts for less than 1% of the broadband market.

 

It is estimated that despite the lack of mass-market broadband in Wales between 2002 and 2004, only 4% of all the businesses that applied to the Business Broadband Support Scheme, administered by the Welsh Development Agency, selected a satellite broadband service.

 

There is currently no data available showing take-up of wireless broadband in Wales. However, the Observatory estimates that the technology accounts for less than 1% of the broadband market.

 

It is estimated that despite the lack of mass-market broadband in Wales between 2002 and 2004, only 4% of all the businesses that applied to the Business Broadband Support Scheme, administered by the Welsh Development Agency, selected a wireless broadband service.

 

There is currently no data available showing take-up of leased-lines (fibre) or other high-speed products such as Ethernet.

 

The Observatory notes that the penetration level is likely to be lower than average due to the lower than average proportion of corporate businesses located in the region.

 

In addition ISDN, which is recognised as delivering 'narrowband' connectivity, has historically experienced lower than average penetration levels across Wales. This is of importance when considering the potential to migrate ISDN users to more cost effective broadband solutions.

 

During 2002, Ofcom estimates that the total UK broadband market was growing at between 12,000 and 15,000 connections per week. By the end of 2003 it was estimated to be growing at 40,000 a week. And at the end of 2004, ADSL broadband connections were increasing at a rate of 60,000 per week ensuring that total UK broadband penetration levels are now comparable with Western European economies and higher than Germany and Italy.

 

As the table below illustrates, the increased penetration levels have been to the advantage of DSL. However, BT share of the retail market is in decline; with only 3 out of 10 or 36% of subscribers signing up to a BT branded ISP.

 

	2001	2002	2003	2004
DSL	140,000	590,000	1,800,000	4,000,000
Cable	208,000	783,000	1,400,000	2,200,000
Satellite	0	4100	6000	8500
Wireless	0	2500	2500	5000
LLU	0	2300	8200	28,000
Total	348,000	1,381,900	3,216,700	6,241,500

Figure 28 - Estimated broadband connections - Ofcom / Dti / Observatory

 

Figure 29 – Broadband - Connections Per Technology, Analysys / Country Report, March 2005

 

The Observatory estimates that the UK market will have achieved increased growth and momentum over the Christmas period - as households purchase new PCs and select a broadband connection to access the Internet.

 

The increasing level of competition and choice in the UK broadband market has had a significant impact on the incumbent, BT; with share of the retail market falling from just over 60% at the end of 2001 to 36% by the end of 2004. France and Greece have experienced similar levels of decline.

 

On the whole there is a decline in the market share of the incumbent telcos in most of the countries selected. However, most retain over 70% share of the retail broadband market in their respective countries.

Figure 30 – Incumbent Share of Broadband Market (Retail) December 2004, Analysys Consulting

 

For commercial reasons, BT Wholesale is unwilling to publish take-up figures for ADSL broadband in each of the countries and regions of the UK. However, anecdotal evidence suggests that outside of London and the South East of England there is currently little difference in broadband penetration levels across regions.

 

 

Once data is made available, future benchmark reports will also include comment on the penetration levels of SDSL broadband in the UK.

 

Of the 5 million cable subscribers in the UK, 2.2 million are estimated to have a cable-modem broadband connection. The figures highlight the success of the cablecos triple play strategy (TV, Internet / broadband and telephone).

 

The Observatory estimates that cable-modem accounted for 37% of the UK broadband market at the end of 2005. This equates to a penetration level of 8.5% of all UK households or 20% of homes able to access a cable-modem broadband servive (based on Ofcom data that suggests 26 million homes in the UK; 11 million of which are passed by a cable network.

 

Ofcom data suggests that there are 8,500 satellite broadband connections in the UK.

 

Ofcom data suggests that there are 2,500 wireless broadband connections in the UK.

 

Future benchmark reports will analyse the degree to which other broadband technologies are being deployed. In addition, the Observatory will explore the extent to which traditional business services – such as leased lines - are being switched to mass market broadband products promoted as lower cost alternatives.

 

 

Take-up of broadband as a percentage of the total population is a useful indicator when comparing developments in the broadband market in different countries over time. The following table provides a snapshot in June 2004 of this key indicator for OECD countries. The UK was ranked 15^th out of the 30 countries at that time with 7.4 broadband connections per 100 inhabitants– which was just below the OECD average of 8.6 broadband connections per 100 inhabitants.

 

	DSL	Cable Modem	Other Platforms	Total
Korea	14.0	8.4	2.0	24.4
Denmark	10.5	5.0	1.6	17.0
Canada	7.9	8.7	0.2	16.7
Netherlands	8.5	7.0	0.0	15.6
Iceland	14.6	0.2	0.7	15.5
Switzerland	8.9	5.6	0.0	14.5
Belgium	8.6	5.4	0.3	14.3
Japan	9.5	2.1	1.1	12.7
Sweden	7.7	2.4	2.2	12.3
Norway	9.1	1.8	0.5	11.4
United States	4.0	6.3	0.9	11.2
Finland	9.0	1.9	0.1	11.0
Austria	4.4	4.4	0.0	8.8
OECD	5.1	3.0	0.5	8.6
France	7.3	0.7	0.0	8.0
United Kingdom	4.7	2.8	0.0	7.4
Spain	5.2	1.6	0.0	6.8
Germany	6.4	0.1	0.1	6.6
Portugal	2.9	3.5	0.0	6.4
Italy	5.6	0.0	0.5	6.0
Luxembourg	5.0	0.7	0.1	5.7
Australia	3.6	1.6	0.1	5.3
New Zealand	3.0	0.2	0.3	3.6
Hungary	1.5	0.9	0.9	3.3
Ireland	1.4	0.1	0.1	1.7
Poland	0.5	0.7	0.0	1.2
Czech Republic	0.4	0.4	0.0	0.8
Slovak Republic	0.3	0.1	0.2	0.6
Mexico	0.3	0.2	0.1	0.5
Turkey	0.2	0.1	0.0	0.3
Greece	0.2	0.0	0.0	0.2

Figure 31 - Broadband subscribers per 100 inhabitants in OECD countries, June 2004

 

During the 6 months between June and December 2004, the UK broadband market experienced significant growth. IDC figures ranked the UK 9^th out of the 16 Western European countries studied - with 10 broadband connections per 100 inhabitants in the UK at the end of 2004.

 

Based on the ORC survey findings, 25% or 350,000 of the 1.4 million households in Wales had a broadband connection at the end of December 2004 – which also equates to around 10 broadband lines per 100 inhabitants. This calculation suggests that the market in Wales was larger than Ireland and Greece at that time – but smaller than both Poland and Mexico[1].

 

Point Topic calculates that the market saturation level, such as those achieved to date in South Korea, is around 24 broadband connections per 100 head of population.

 

The Netherlands, Denmark, Switzerland and Belgium had achieved penetration levels of between 15% and 20%; whilst Sweden, Norway, Finland and France had achieved take-up levels of between 10% and 15% of the population. Austria, Germany, Spain, Portugal and Italy all achieved take-up levels of between 5% and 10%. The graph below illustrates.

Figure 32 - Broadband Connections per 100 Inhabitants, European Quarterly Broadband Barometer, IDC April 2005

 

The Netherlands had the highest penetration level in Western Europe with 20 broadband lines per 100 head of population. Ireland lagged towards the bottom of the league with 3 broadband lines per 100 head of population.

 

Figure 33 – Penetration of Broadband by Country, 2001-2004, Analysys Consulting Limited

 

When compared with take-up levels in 2001, broadband penetration levels at the end of 2004 are impressive. Nevertheless, the figures suggest that there is a huge potential for the market to grow significantly during 2005 and beyond.[2]

Figure 34 - Growth in Broadband Connections Q4 2004, Analysys Consulting

 

Greece, Ireland and Italy experienced rapid growth during the fourth quarter of 2004 as the broadband market developed in those countries. Growth in the more mature country markets slowed. However, the largest country markets are currently France, Germany and the UK – with France and the UK continuing to experience above average growth in the region of 20% quarter on quarter.

 

Figure 35 - Broadband Connections per Country Market, 2004, Analys

 

It will be interesting to track market growth over time to monitor the degree to which Wales is able to maintain or exceed the phenomenal growth forecast for individual countries as well as for EMEA, Americas and Asia Pacific regions.

 

 

Figure 36 - Broadband Market by Technology Type, as at December 2003, Analysys Consulting

 

At the end of 2003, the largest volume of broadband connections was in Germany. The UK ranked 3^rd in terms of market size; and cable accounted for approximately 40% of the UK market.

 

 

 

By the end of 2004, the UK had held its position as the 3^rd largest broadband market in Western Europe. However, cable had lost market share to the advantage of DSL.

 

 

Figure 38 - Broadband Penetration Per Head of Population, December 2004, Analysys Consulting

 

During the fourth quarter of 2004, it can be seen that the race to win market share was between DSL and cable-modem providers. DSL continued to drive most of the growth witnessed in the Western European marketplace.

 

Figure 39 - Broadband Growth Q4 2004, Analysys Consulting

 

The increased take-up of Fixed Wireless Broadband (BFWA) in Ireland and Denmark is striking; with Ireland accounting for the largest number of Fixed wireless broadband connections (11,000).

 

Figure 40 - Share of Broadband Market by Technology Platform, Analysys Consulting

 

It can be seen that competing technologies are having a greater degree of success in some of the countries illustrated than they are in others. The series of pie charts overleaf highlight the market share of the main broadband providers on a country by country basis. As a rule of thumb, the more 'splintered' the market, the more competitive the marketplace.

 

For example, the first graph shows that BT Wholesale dominates the DSL share of the UK market with 68% of all broadband connections. The cable companies have a combined share accounting for 30% of the total market – highlighting the fact that providers of alternative technologies have had limited success in winning significant share of the UK broadband market.

 

Whilst there is no market data available specifically for Wales, the Observatory estimates that NTL share of the market will be similar (at around 20%)to its share of the UK broadband market. However, BT Wholesale is likely to hold a far more dominant position in Wales than in the UK as a whole (at around 75%); due to the lack of competitive choice in the marketplace (e.g. Kingston Communications and Telewest do not offer mass market broadband services in Wales). 

 

In Germany, DSL is even more dominant - with Deutsche Telekom accounting for 86% of the total market and other DSL providers accounting for a further 12%.

 

As such the pie charts also help to further illustrate the impact that increased competition in the broadband market has had on the incumbent telcos share of the retail market (See figure 33, page 34) in each of their respective countries.
 

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[1] Point Topic World Broadband Statistics report estimates that Poland had 300,000 connections and Mexico 339,000 connections by June 2004. This represented an 80% and 78% growth respectively during the first half of 2004.

[2] Market data sourced from UK-based research surveys tends to focus on take-up levels as a percentage of the total number of households whilst broadband suppliers in the UK tend to focus on take-up levels as a percentage of households and businesses (sites) that can access broadband in the targeted geographical area at a given point of time. Both of these methodologies tend to create a higher penetration level than that calculated using per head of population as utilised by OECD, ITU, IDC, Point Topic and other world-wide research bodies.

 

Broadband Usage

 

 

 

The way people use the Internet is constantly changing and evolving as confidence levels increase and greater benefits are gained. With the required network infrastructure largely in place, there is a wide range of choice for those seeking some form of broadband Internet service.

 

For the industry to address user needs, further differentiation of broadband offerings is anticipated over the forthcoming months. High speed ADSL services and video on demand (VOD) services are already available in the first quarter of 2005 and both BT and Wanadoo are investigating the possibilities of delivering TV over xDSL broadband.

 

The arrival of a plethora of voice over IP or voice over broadband (VOIP / VOBB) application providers, ranging from the infrastructure companies to the software-based VOIP players such as Skype, will add another dimension to the competition as consumers take advantage of cheaper calls and, because VOIP is digital, experience new features and services that are not available with a traditional phone.

 

As the VOIP market gathers momentum, the trend is expected to put further pressure on prices – with ISPs beginning to see VOIP as a vital tool in growing their subscriber base.

 

 

People are demanding broadband to help them take full advantage of the latest gadgets designed to improve their social lives.

 

With over two thirds (around 70%) of Internet households owning a digital camera and 40% or so owning an iPod or another type of MP3 player, it is no surprise to find that there is an increased interest in using broadband to upload photo albums and download music to and from the Internet.

 

With compression techniques it is now possible to run a DVD-quality video over a 3Mbps broadband connection. With LLU broadband providers offering 8Mbps in niche geographical areas, it is clear that broadband homes will have plenty of bandwidth in the future to make phone calls whilst other members of the household simultaneously watch a film, download music, play games, shop or carry out other on-line activities over the same high-speed connection.

 

No doubt this will have a major impact on the telecommunications industry but other industries will be affected too. For instance, major retailers such as WH Smith have already stopped selling CD singles and the traditional Music Charts now include online music sales.

 

Despite strong evidence of continued growth in the use of broadband, the UK Government is concerned about the 'digital divide' created through some groups being excluded from benefiting from broadband access to the Internet as a result of cost, lack of confidence or skills.

 

To address this issue, the Prime Minister and Secretary of State announced in April 2005 that the Department of Trade and Industry had created a seven-point action plan. The plan includes a 'digital challenge' for all regions to give universal online access to local public services by 2008.

 

In addition, the plan calls on the regulator, Ofcom, to provide regular updates on broadband take-up with particular focus on uptake amongst the more disadvantaged in the UK. Once available, such data will be included in future broadband benchmark reports produced by the Observatory.

 

 

The eCIC eCommerce in Welsh SMEs State of the Nation Report, found that businesses with broadband experience the same benefits from eCommerce, but to a greater degree, than those businesses with ISDN or standard PSTN dial-up connections.

 

Figure 57 – eCommerce in Welsh SMEs: The State of the Nation Report, 2003/04, eCIC

 

As a result, users are beginning to demand more bandwidth to support the activities that they want to undertake and businesses are using broadband to help them experience eCommerce benefits to a greater degree than was previously possible.

 

 

 

Competing broadband technologies such as FTTx ('fibre to the kerb' and 'fibre to the home') realised an acceleration of growth in 2004. The most important example is China, where there were 2.7 million FTTx connections by June 2004; whilst Japan is one of a handful of countries where fibre connections have already been successfully deployed and adopted on a significant scale.

 

The recent Digital Divide report from the Countryside agency suggests that in the UK fibre (lit and unlit) currently reaches to within 2Km of 85% of all buildings. However, the report also highlights the fact that 80% of the cost of providing fibre connections is associated with civil works i.e. digging up the ground.

 

Ofcom has estimated that it would cost £3bn to extend fibre to within 0.5 miles of every building and £10bn for FTTC ('fibre to the cabinet') with last mile by wireless or VDSL for every home. The cost for FTTH ('fibre to the home') is estimated to be in the region of £18bn for every home in the UK.

 

The success of both existing and emerging broadband technologies, including fibre, will be tracked by the Observatory. Significant developments and their impact on the broadband market in Wales will be included in future benchmark reports.

 

 

A major development in the UK telecoms marketplace during the first quarter of 2005 has been the proposals made by BT to establish an access services division, to reduce wholesale and Local Loop Unbundling (LLU) prices; to improve the Wholesale Line Rental (WLR) product and to ensure fair access to BT 21^st Century Network [1] i.e. its' next generation network (NGN).

 

The proposals represent a pre-emptive response to the findings of the second phase of the Strategic Telecoms Review undertaken by Ofcom, which mandate that BT has until June 2005 to demonstrate that it can provide equal access to its network competitors. Should Ofcom believe that equivalence was not being provided by this time, the issue would be referred to the Competition Commission which could lead to the eventual break-up of BT.

 

The outcome of the actions taken by BT, and the subsequent decisions made by Ofcom, will be pivotal to the way the UK telecoms market evolves in the years ahead and, therefore, to the development of the broadband market in Wales and the rest of the UK.    

 

In the meantime, the majority of households and businesses across Wales are already able to access broadband. The market is moving fast. The race to win market share is helping to drive growth and increase broadband penetration levels – both at home and at work.

 

LLU broadband p