Ofcom report backs up reality that line rental is increasing in price
The cessation of dial-up Internet (a few 1,000 remain) has meant that since annual minutes of dial-up in 2004 of 137 million minutes (dwarfing voice calls at 120 million) has dropped to nothing and the rise of e-mail, text messaging, social media and VoIP has also resulted in lower voice call volumes - just 54 million minutes in 2014.
The annual Communication Market Report from Ofcom also reveals what many have believed to be the case for some time, that operators are protecting their ARPU for fixed line by raising the line rental element to compensate for lost call revenue. The number of fixed voice lines in the UK has dropped by 300,000 in the last five years to 33.2 million, mobile subscriptions rising from 80.6 million to 83.7 million (23.6 million are 4G in Q4/2014).
While there are plenty of cries that the fixed line copper world is dead and 30% of 16 to 24 year olds are using VoIP regularly (4% voice only, 6% voice and video, 20% video) with Skype being the most popular, this has not lead to a downturn in fixed line telecoms yet, as you get older you are less likely to use VoIP with 21% of the 40 to 54 bracket being regular users. Issues such as the lack of unlimited 4G data plans mean many people rely on Wi-Fi to their fixed line broadband connection but this explosion of VoIP use is tempered when you find the figures that 13% use VoIP daily, 51% at least once a week and 22% less than once a month.
So overall summary, we are doing a lot more with our smartphones, which is no surprise given they are much more capable than five years ago and amongst younger people who are most likely to be living in short term rented accommodation the use of mobile only is the highest. Interestingly while mobile-only connectivity is highest for younger people, so is take-up of fixed line broadband at 83% (16-24 age group) compared to 72% of the 65-74 age group, and while take-up is increasing in the various groups this will in part be driven by the fact we all age as much as any policy decisions and demand exercises. In short younger people see an overriding need to have constant Internet connectivity, and this will affect business more each year as young people mature and spend more - or put another way any builder who builds a development that does not have good mobile and fixed broadband speeds available may find the age demographic skewing more than expected to those who have retired.
The question that investors will be seeking the answer to is whether 4G can deliver unlimited packages and support the same quality of service in terms of jitter and latency and not just headline speeds as fixed line broadband. If 4G can meet those needs that appear to be holding back video and some other activity then it might negate the need for continued investment in fixed line broadband. This equation does not just affect BT and its copper assets with G.Fast, but Virgin Media with DOCSIS expansion but the growing FTTH industry in the UK. The follow on question is how much will 5G live up to its promises of multi gigabit speeds and extremely low and stable latency ideal for the future Internet of Things.