The UK communications market was worth in excess of £50bn in 2006 and more than half of households now have a high-speed internet connection, according to the latest official figures.

But as communications converge and the traditional distinctions between telecoms and media become blurred, business models in the sector are being forced to change.

The rise in broadband take-up is largely down to competition. After a patchy start, local loop unbundling (LLU) ­ the process which has forced BT to let other operators use its network ­ has led to an explosion in broadband provision, says the latest telecoms market report from communications regulator Ofcom.

By the end of March, 72 per cent of UK premises were connected to an unbundled exchange network. And it is not only new firms that have been attracted into the market. Non-telcos are also increasingly offering broadband services ­ Sky and the Post Office, for example.

Competitive pressure has driven up average connection speeds from 1.6 Mbit/s to 4.6 Mbit/s in just 12 months. It is also behind the growing promotion and take-up of ‘bundled’ services deals that provide consumers with a single package covering internet access, fixed or mobile telephone services, TV channels and interactive content.

Bundles are having a major impact on broadband pricing in particular, as providers such as Orange and TalkTalk offer ‘free’ high-speed internet as a sweetener to sell voice telephony deals.

More than 40 per cent of households now take a package of more than one communication service, said Stefano Nicoletti, principal analyst at research firm Ovum.

‘The UK figures are more than double the EU average of about 15 per cent,’ said Nicoletti.

‘The different platforms offer competing services, with digital TV, satellite, cable and internet operators all eating into each other’s space, to the benefit of users who are lured by increasingly attractive bundles,’ he said.

Average household spending on telecoms services now stands at £64.73 a month ­ roughly a pound less than in 2005. And monthly mobile expenditure has dropped by 70p to £31.72.

Advertising gets ahead
In the short term, online advertising will be a crucial route for providers to recoup the revenue they have lost to price wars. Television advertising sales may be slipping ­ down by 2.2 per cent to £3.5bn, according to Ofcom ­ but web ads are worth £2bn and rising.
Spending on internet advertising is running at about 44 per cent of the TV market, and will continue to grow as investors spread their budgets across a wide variety of media.
But in the long term, the emerging converged communications sector will need more than advertising capital, according to Antony Walker, chief executive of government advisory body the Broadband Stakeholder Group.
‘Advertising has always funded broadcasting, but I think you have to question whether there is enough advertising revenue to support the telecoms market,’ said Walker.
‘I can’t see a converged market being supported by advertising alone.’
The telecoms sector needs to learn from other markets which have been forced to evolve their business models, said Walker.
‘The music industry, for example, has had problems but it has also been quite good at exploiting such things as online promotion and diversifying away from recorded music,’ he said.
‘There is change taking place, and telecoms players will have to adapt to that change.’
Prices for broadband services are unlikely to rise. But next-generation technologies such as fibre to the premises (FTTP) will shake up the market all over again.

Fibre is good for you
FTTP is not only faster than current broadband technology, but also enables users to upload information at the same speed as it is downloaded.
Most of today’s web users see download speeds as a priority, so poor upload capability is not regarded as a problem. But as high-traffic activity such as teleworking grows in popularity, so too will demand for FTTP.
The result will be that suppliers can again raise their service charges, according to Taylor Reynolds, communications analyst at the Organisation for Economic Co-operation and Development.
‘As long as there is a downward pressure on prices, companies will have a hard time persuading people to pay more for the same service,’ said Reynolds.
‘But sooner or later there will be a reckoning point at which people realise that they do need a fibre connection, and that they are going to have to pay for it,’ he said.

Post Office to deliver broadband
www.computing.co.uk/2190551
The changing face of UK communications
z The UK communications sector was worth £50bn last year.

z More than half of UK households have a broadband connection.

z On average, people living in the UK consume seven hours’ worth of communications services per day.

z Mobile phones with 3G technology are becoming more popular: up by 70 per cent in 2006 to 7.8 million users.
z The UK’s most frequently visited web site is eBay. The social networking sites Facebook and MySpace also feature highly among the nation’s favourites.

z Women aged 25 to 34 spend 20 per cent more time online than men in the same age bracket.

z Revenue from interactive TV rose to £123m in 2006, an increase of £19m over the previous year.