According to Ofcom’s recently published Communications Market Report 2011, the UK communications industry has undergone some dramatic changes over the past decade. The report suggests that the UK is now a nation addicted to smartphones. The prevalence of smartphones (along with mobile broadband dongles) has led to rapid growth in demand for mobile data traffic, which has increased almost 40-fold in the last four years. Conversely, mobile operators have seen little increase in revenues over the same period, suggesting consumers are reaping the benefits from a contestable mobile industry.

 

In the broadband market, consumer satisfaction from next-generation access (NGA) services appears to be high, suggesting a willingness among customers to pay more for a super-fast broadband connection. Growth in the rollout of such services has been steadily increasing, with almost 60% of UK houses having access to super-fast services in July 2011. However, a quarter of households still have no access to the Internet, which will be of some concern to policy-makers who have been trying to get the UK online.

 

Despite growth in broadband penetration, primarily driven by the emergence of mobile broadband (9.5% of all ‘broadband accessing’ households are mobile broadband only), 26% of households are still without broadband access. This is largely the result of a generational gap, with many older people not understanding how to use the Internet or even a computer; only 25% of those aged 75 or above have fixed broadband (compared to the national average of 67%). The government’s aspirations to achieve the rollout of super-fast broadband to 90% of the UK by the end of 2015 is one thing, but encouraging uptake, particularly among some parts of society, is a different matter.

 

The prevalence of smartphones (as well as mobile broadband dongles) has led to huge growth in mobile data usage, which has increased almost 40-fold (4000%) since the fourth quarter of 2007. Smartphone users will nevertheless need to be aware that costs for data usage abroad are significantly higher than at home. A lack of competition in the international roaming market is to blame, as customers are reliant on how well their host operator has negotiated with partners in a particular country. The EC has proposed allowing customers to separate roaming services from their contracts, allowing them to pre-select a cheaper roaming contract. This would see pan-European roaming operators competing on price. To achieve this, the EC is mandating wholesale national roaming access to facilitate entry of competitors (in particular MVNOs).

 

An interesting observation from the research relates to bundles. More than half of UK consumers now purchase two or more communication services from the same supplier. The relevance of bundles in many national markets has increased significantly over the last few years, as convergence makes bundling more likely. In general, bundling is welfare-enhancing. It is usually a pro-competitive, customer-friendly strategy, and as such does not normally call for regulatory intervention. However, there are instances when the opposite can be the case. For instance, the ability for consumers to switch bundles is something that deserves attention, and will become more important as the practice of bundling increases. These will require careful monitoring by national regulators.