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(Edition 7 - 2 June 05)

• Summary
• Statistics
• News

In summary

Welcome to issue 7 of UK BroadBand Market Monitor.

Don’t forget, if you have not subscribed, you will only be able to access the ‘In summary’ article. If you have subscribed, you will be able to read profiles of 42 retail ISPs and download UK market statistics including UK ISP market shares (Q1 05 is published this month) and broadband take-up by local authority area (a new version of which will be published next week).

Full year results have continued to dominate the news this month, with BT, Cable & Wireless and THUS, all reporting in the second half of May. This had significance for understanding the overall size of the UK broadband market and for attempting to understand the direction of LLU, through the comments on Bulldog published in the Cable & Wireless results, the progress being made by mid-tier ISPs like Demon Internet, revealed in the THUS results. Point Topic has tried to disentangle the subscriber numbers from the financials and these are shown and discussed in the ‘Statistics’ piece below.

The assumption which we made in UKBBM 6, that the ‘Other ISP’ share of the overall UK market has grown sharply in Q1, appears to have been correct. Even though it looks like AOL and Tiscali have grown at rates well above the market average of 17%, other large ISPs such as NTL and Wanadoo, which can make a difference to the overall trend, had disappointing first quarters, relative to their competitors and to their own previous quarters.

Other numbers of note were the continued decline, albeit it slower than in previous quarters, of BT Retail’s market share, despite having grown at a rate commensurate with the market average and the steady progress now being made by LLU, which stood at around 41,000 at the end of Q1, according to the Office of the Telecoms Adjudicator and at around 50,000 at the end of May. This is hardly meteoric, but a fair start and a number which is expected to be boosted by Bulldog’s continued marketing of 8Mb services, coupled with a doubling of the number of exchanges it will have unbundled by the end of 2006.

Telefonica announced its withdrawal from the UK market, by selling its UK operation, largely concerned with IPVPN and wholesale business broadband provision, to NetServices Plc for an undisclosed sum. Telefonica had been notable for its silence on all the issues facing the UK broadband market, since announcing its intention to withdraw from narrowband service provision in November 2004. This is further evidence of the slow trickle of consolidations which are continuing to take place on the UK market.

Statistics 

UK ISPs: Q1 2005 subscribers and market shares

The table below shows Point Topic’s best estimate at 30th May, of the subscriber bases of known UK ISPs. The figures quoted are best estimates, based on incomplete data. The spreadsheet from which this document is generated and to which all UK Plus subscribers have access, has been and will continue to be updated on a rolling basis as new information becomes available.

There are over 200 ISPs which buy lines on a wholesale basis from BT Wholesale and a further 100 to 200 which buy through wholesale ISPs such as Telefonica, Griffin, Netservices and Brightview. Some higher profile ISPs (Virgin, UK Online) are wholly owned brands operated by companies in the list below (NTL and EasyNet, in these two cases respectively), so they do not appear separately below.

As we commented in issue 6 of UKBBMM, the Other ISPs’ total of something around 400,000, includes fixed wireless access, satellite broadband and the many smaller ISPs which are served by BT Wholesale or wholesale ISPs, themselves supplied by BT Wholesale. A very small number to date will also be customers of EasyNet’s wholesale unbundling offering, LLUStream, and some will be unbundlers in their own right (Updata, Trilogy Telecom and Node4).

The two main unbundlers in this list, Bulldog and EasyNet are all thought to have significantly increased LLU lines as a proportion of their subscriber bases, but the LLU share of individual subscriber bases is simply unknown. VideoNetworks (Homechoice) is the other major LLU proponent but it is not offering fully unbundled lines. Both Bulldog and EasyNet are thought to have grown significantly within Greater London. Total LLU lines, of which these two players have the majority, reached 41,000 at the end of March and 59,000 at the end of May. Bulldog, as the major ‘full-unbundler’ must have the lion’s share of the 18,000 fully unbundled lines at the end of March and some share of the 22,000 shared LLU lines.

The share of BT’s Wholesale subscriber base represented by BT Retail continues to decline, dropping from 36% to 34% between Q4 2004 and Q1 2005. This rate of decline has slowed slightly and probably reflects the impact of price cuts and bandwidth increases announced in early February.

News

BT releases annual results and BT Retail numbers to end March

19th May 2005: BT released its results for the full year to end March 2005. The results included subscriber numbers and revenue figures for BT Retail. In UKBBMM 6 it was assumed that BT Retail had grown at a rate comparable to the overall national rate and this assumption appears to be correct. A cumulative total of 1,752,000 equates to growth in the quarter of 17.51%, compared to the overall national figure of 17.79%. It also shows a further, though very slight, drop in BT Retail’s share of BT Wholesale’s total, which stood at just under 5 million at end March (the 5 million figure was not announced until 4th April). Points of note for broadband were:

• Broadband is counted as ‘New Wave’ revenue along with ICT and Mobility, as opposed to ‘Traditional’ (mainly voice). Revenue for the New Wave sector of BT Retail reached £1.367 billion, which was 27% higher than last year and it accounted for 28% of the group’s total revenues.
• Of BT Retail’s New Wave sector, annual broadband revenue accounted for £292 million or 19.5%, or an increase of 77% over 2004. A note to BT Wholesale’s sector results reads “growth [for the quarter] continues to be driven by new wave services, mainly broadband and managed services, up 80% to £207 million”.
• It is notable that quarterly revenue for broadband and managed services for Wholesale (which accounts for 5 million broadband lines) is only £44 million higher than the revenue figure for BT Retail’s 1.752 million broadband lines. Interestingly a note in the Group Results statement indicates that 24% of BT Retail’s subscriber base is counted as business lines – “Residential broadband connections almost doubled to 1,330,000”.
• BT Retail had 261,000 net broadband additions in the quarter and these “included the impact of BT Yahoo!’s successful narrowband upgrade programme and results in a 29% share of the broadband DSL market additions in the full year and 32% in the quarter”. This also translated to a 35% decline in dial-up internet minutes for the quarter.

NetServices Plc acquires Telefonica UK

23rd May 2005: NetServices Plc announced the acquisition of Telefonica UK Ltd. According to the press release, the acquisition adds significantly to the client base of NetServices. The deal will add an estimated £20 million to NetServices’ annual turnover in the next fifteen months. The sale of Telefonica UK follows the announcement in November 2004 that it was withdrawing from the narrowband market to concentrate exclusively on the wholesale of broadband services and IP VPN network services for the SME, corporate and ISP markets. The acquisition took place with immediate effect and a landing page appeared on the Telefonica UK website, redirecting visitors to the NetServices Plc website. Telefonica UK had a handful of retail ISP customers including V21; NetServices’s retail ISP customer base includes Fast24 which recently announced the purchase of fellow Suffolk-based ISP Central Point ADSL, F1 Internet and, until a dispute led to a suspension of service by NetServices Plc, Gio Internet.

Broadband accounts for 10% of Thus revenue in year to end March

23rd May 2005: Thus Plc published its results for the full year to the end of March. Internet turnover, under the Demon brand, grew 9% to £93.1 million for the year, with second half turnover up 6% to £48.0 million compared to the first half. Of the total, UK broadband turnover increased strongly, up 48% to £30.2 million as the customer base climbed 59% to 92,000. This was offset by a decline in narrowband customers by 24% to 79,000 and turnover decreased by 33% to £19.2 million. £8.3 million turnover was recorded in the second half (H1 05 £10.9 million), reflecting faster than planned migration of high usage narrowband customers to broadband services. Thus claims to be further off-setting this decline by pursuing business broadband customers and indeed, Thus had relaunched its business broadband offering with SDSL as ‘Demon Premier’ in April.

C&W results reveal continued investments in Bulldog

26th May 2005: C&W’s results for the full year to 31st March 2005 do not give too much away about Bulldog’s growth in subscriber volumes. What is clear is that C&W sees the current period as one in which to invest for future growth. Bulldog now covers “30% of the UK broadband market” with 400 exchanges unbundled by the end of May and C&W announced an extension programme, with a total of 800 exchanges unbundled by September 2006. This investment will give estimated EBITDA losses of £75 million in full year 2005/06. This compares to £27 million for the ten months between acquisition and the year-end. Revenue for this same period was £11 million, including sales of the Super@ctive product which has both broadband and telephony components and the Inter@ctive broadband product. Assuming a monthly ARPU of between £20 and £25 for the period, the closing subscriber base for the period would be something around 50,000 (point Topic estimate). C&W also announced that Bulldog will be launching a new SoHo offering this summer, providing up to 8 VoIP lines, data and fast internet access over a single line.

Bulldog launches 8Mb service as standard across the UK

1st June 2005: Bulldog announced the launch of its 8Mb broadband service to almost a third of homes across the UK. The service offers 8Mb internet access, no download caps, a selection of price plans and telephony services. New customers will be able to buy the 8Mb service for the price of the current 4Mb service, starting from just £15.50 per month, with the first month’s broadband service for only £1. Existing Bulldog customers will automatically get a free upgrade to up to 8Mb. The advertised line speed of 8Mb comes on a ‘best available rate’ basis and is dependent on network traffic and distance from the exchange.

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