In the United Kingdom Telecommunications Report for Q409 we have slightly adjusted our mobile forecasts and the historical data for mobile market leader O2 UK. O2’s parent company Telefónica has revised its historical data for O2 UK, to align the method used for counting mobile subscribers across the group’s operations. This resulted in the UK’s mobile subscriber base being higher than we had previously believed, at 126.4% at the end of 2008.

The main development in the UK telecoms market has been an end to speculation over the future of TMobile UK. In September 2009, T-Mobile’s parent company Deutsche Telekom, and France Telecom, the parent company of Orange UK, announced that they had agreed to merge their UK mobile units. If given regulatory clearance this will create a new mobile market leader with around 37% share of the market and pave the way for huge cost savings. The reduction of the number of mobile network operators from five to four will relieve some of the intense competitive pressure on the mobile operators in what is often cited as the most competitive mobile market in the region. The highly competitive nature of the market has resulted in falling ARPUs and low margins for the operators, which according to the operators, has threatened their capital expenditure requirements to develop their network infrastructure.

The UK’s fixed-line sector remains in a steady state of decline as it continues to suffer from fixed-tomobile substitution and the growing popularity of VoIP services, in line with the rest of the region.

Nevertheless, the UK is one of just three countries in the region to have fixed-line penetration still above 50% at the end of 2008. The success of the UK in holding off fixed-line decline is driven by two factors.

The first factor is the abundance of flat-rate tariffs offering inclusive minutes, which has resulted from the operators looking to compete with mobile tariffs, and intense competition between the fixed-line operators such as incumbent BT and alternative operators Virgin Media and Carphone Warehouse. The second factor which is stemming the decline in the sector is the popularity of ADSL broadband, which currently requires a fixed-line subscription. Once ‘naked’ ADSL is allowed we are expecting a sharp drop-off in the number of fixed-line subscriptions in the UK.

The major developments in the broadband sector have been the further announcements of network upgrades and expansions. The UK’s broadband speeds are relatively underdeveloped compared to some of its regional peers such as France and Germany, but commitments from incumbent BT and Virgin Media are resulting in network speeds progressing. This year has seen Virgin Media upgrade its cable network to be capable of offering download speeds of up to 50Mbps, while BT has announced that it is in the process of upgrading its ADSL network to ADSL2+ capable of offering download speeds of up to 20Mbps and accelerating its fibre-optic network development plans.