UK voice in decline but SMS stays strong in the face of OTT competition
Telecom revenues in the UK market declined in 2011 for the third consecutive year, although mobile retail revenues rose for the first time since 2008. And, while 44 per cent of British adults have now embraced over the top (OTT) messaging services such as WhatsApp and the messaging applications within social networking services, SMS remains the most popular form of communication for mobile users in the UK. These are some of the headline findings from UK regulator Ofcom’s Communications Market Report 2012.
Traditional voice communication is on the decline, Ofcom found, with minutes of use across both fixed and mobile networks dropping for the first time to 240 billion from 254 billion in 2010. Because the decline in usage is slower on mobile networks than fixed, however, 2011 was the first year that the number of mobile voice minutes – 124 billion – was greater than the fixed total, at 116 billion.
Ofcom pointed out that its figures for voice minutes do not include VoIP services, usage data for which are not available. The regulator estimates that VoIP penetration among adults has increased over the past two years from 16 per cent to 22 per cent, suggesting that the decline in traditional voice is being offset somewhat.
There was some positive news for fixed operators, with fixed internet connections and revenues, and fixed broadband connections all increasing year on year. Superfast broadband services (delivered by BT and Virgin Media, and defined by Ofcom as providing headline speeds of 30Mbits/s or more) were available to 60 per cent of UK households at the end of the first quarter of 2012. These services typically command a price premium of between £5 and £10/month, Ofcom said.
On mobile networks, growth in mobile broadband (defined by Ofcom as PC-based, so restricted to dongles, data cards and tethered smartphones) slowed to just 4.9 per cent year on year, having nearly doubled over the previous years. But growth in the use of smartphones to access the internet increased by almost 50 per cent year on year, with 32.6 million customers reporting this behaviour in 2011.
The increasing popularity of smartphones is also driving a shift in payment demographics for the mobile sector, with just under half of all UK mobile subscribers on postpay contracts in 2011. The opposite is true with mobile broadband, where users are increasingly opting for prepaid tariffs because they are not convinced they will use enough data to justify a regular monthly payment.
More than two thirds of new mobile contracts in the UK during Q1 2012 had a minimum period of two years, with operators managing to eke out the lifecycle of high end devices. The trade-off now is in monthly contract charges. Almost half of new contracts during the same period were priced at less than £20/month. Just six per cent of new contracts were in this price bracket in 2007, with the number growing to 36 per cent for 2011.
Despite enthusiasm for smartphones and the OTT application usage they enable, SMS remains extremely popular. UK mobile users sent 151 billion SMS text messages in 2011, an increase of 17.3 per cent year on year. While SMS was once more popular among prepaid users than postpaid, there was a greater increase in usage in 2011 from consumers on contract tariffs. This is partly explained by the shift in favour of postpay contracts for smartphones and – Ofcom suggested – the greater ease with which smartphone users are able to send text messages.
Pamela Clark-Dickson, senior analyst for content and applications at Informa Telecoms & Media, said that UK mobile operators had “successfully used pricing to combat the OTTs and to stabilise and grow their SMS traffic and revenue.” She added that the UK market could offer a model for operators in other countries where SMS usage is declining in the face of increased usage of OTT messaging applications.
“The continued growth of SMS traffic in the UK owes a great deal to the mobile operators’ ability to recognize the extent to which OTT messaging applications and services threaten their SMS traffic and revenues, and to their ability to successful execute an appropriate neutralizing strategy,” Clark-Dickson added.
“According to Informa’s own SMS traffic data, three of the four UK mobile operators have experienced increasing year-on-year growth in their quarterly SMS traffic between 3Q10 and 3Q11; for example Vodafone UK saw its year-on-year SMS traffic growth rate increase from 28 per cent in 3Q10 to 55 per cent in 3Q11, while O2 UK saw its year-on-year SMS traffic growth rate increase from 18 per cent in 3Q10 to 47 per cent in 3Q11.”