Will the 4G Auction exceed £3.5bn? You bet!

Although Chancellor George Osborne is unlikely to raise anywhere near to Gordon Brown’s £21bn for 3G licences, I believe he may do rather better than is being reported.  Recent auctions in Europe have raised £3bn which suggests that the UK 4G licences will achieve £3.5bn.  However, it is suggested that Private equity firms, retail groups and banks as well as international telecom players have entered the fray alongside the UK’s Big Four mobile operators, EE, Vodafone, O2 and Three to win a slice of these 4G licences.

Ed Richards, chief executive of Ofcom, the telecoms watchdog, said that it had “fired the starting gun” on an auction process that would “release crucial capacity to support future growth, helping to boost UK productivity”.  Even in these recessionary times, the total U.K. Internet traffic is currently projected to increase by an average of 37 per cent each year until 2015. Although the majority of traffic remains on fixed networks, traffic on mobile networks is growing at a faster rate of 84% year-over-year and is expected to account for 11% of total traffic by 2015. 

Mobile access to the Internet accounts for even more time spent browsing, communicating, and transacting than this traffic data suggests, with fixed lines being used to consume bandwidth-intensive services such as video and mobile used more for social media. Indeed, the Internet is increasingly being accessed on mobile devices, whether through mobile connections or Wi-Fi networks, and the next generation of mobile communications of 4G will continue to shift this dynamic and economists have suggested could add as much as 0.5% to GDP in infrastructure investment alone not to mention the enhanced capability of the mobile web usage.

The superior quality of coverage and speed of performance offered by 4G’s 800MHz network offers significant improvement over the current 3G licences.  This superior system will add significantly to the opportunity for both network providers and service providers to make significant revenue.  The UK is one the largest mobile internet markets and consequently the opportunity  to own a slice of this market will in my opinion drive the value of these licences far beyond the projected £3.5bn and along with the additional impact 4G will have on the UK economy, the auction could bring a welcome additional windfall for Mr Osborne.

UK ISP, Cable and Dongle User Numbers - March 2009

Here is an update of the UK ISP market covering DSL and Cable Access market as well as the the Mobile Dongle market in the UK. I have used ITU published data for Broadband usage numbers and Neilson Ratings to get an accurate picture as well all the reports and disclosures for each of the companies shown below. I believe these figures represent a reasonably accurate representation of the genuine adoption of broadband either via DSL, Cable or mobile dongle. Broadband connections included in this data cover download speeds equal to or faster than 256kbit/s.

ISP Total % of UK Accts. BT (inc Plusnet) 4,700,000 26.20% Virgin Media (inc Virgin.net) 3,934,800 21.93% CPW (inc AOL) 2,700,000 15.05% Sky 1,955,000 10.90% Tiscali UK 1,774,000 9.89% Orange 1,023,000 5.70% Royal Mail 560,000 3.12% O2 (Be & Dongles) 340,866 1.61% 3 (Mobile Dongles) 255,000 1.42% Kingston 195,255 1.09% T-Mobile (Dongle) 161,000 0.90% Vodafone (Dongle) 132,000 0.74% Thus 126,000 0.70% Entanet 92,000 0.51% Clara.net UK 72,000 0.40% Breathe 12,000 0.07% Supanet 6,000 0.03% Others 28,000 0.16% Total 17,940,121 100.00%

Unlike some of the largest UK ISPs, which have seen a decline or slowdown in high-speed services uptake, O2 has actually reported yet another growth increase from Q3-2008's +72,870 net additions to +73,776 for Q4. They're still some way behind 6th place Royal Mail but gaining fast.
Overall O2 outperformed the UK market in difficult economic times with over 10% growth and O2 is also working to increase broadband capacity at several locations around the UK. O2 has benefitted from the development of the growing “Internet Dongle” market. T-Mobile, 3 and Vodafone are also enjoying continued growth. BT is responding to the mobile challenge through BT Openzone (Wi-Fi Hotspots). BT has reported an increase in usage of 13% on Q3, with nearly double the amount of surfing minutes being used. BT Openzone is now available at more than 50,000 worldwide locations through roaming partners. BT FON membership also continued to climb and members now total 163,000.

As BT starts to roll out its 21st Century Network (21CN), they are seeking to work with a whole range of ISP partners such as Royal Mail to offer new services. BT Group has reported 8.1m wholesale broadband DSL connections at 31 December 2008. BT Broadband net additions of 83,000 in the quarter in the maturing broadband market, with a customer base of 4.7m including both BT Broadband and Plusnet.

Is the 3G Dongle the best broadband option for you?

With the 3G Mobile Dongle you no longer need to be tethered to a fixed line or a long term commitment to BT or Talk Talk.  Today there are almost 1 million dongle users in the UK and demand is growing so much so that, for the past two quarters that the number of fixed-line broadband connections in the UK has started to fall for the first time ever, according to the Office of National Statistics. 

With near saturation of mobile phone ownership, the option to go with a mobile dongle is winning over many new users with the promise of broadband that goes with them and it doesn't require them to pay twice: once for the broadband and once for the phone line.

What is the best dongle broadband option for you?  The answer to this question depends why you surf the net, whether for business or leisure or indeed a combination of both.  Equally is you usage occasional or regular usage.  In some cases, the mobile companies are offering laptops or notebooks as part of the tariff options.   However, the two primary options are Pay-as-you-go or Contract in the same way mobile phone service is offered.  So what are the options:-

Pay-as-you-go Dongles

Pay As You Go dongles are growing very rapidly in popularity as they do not require a long-term contract to enable a PC, laptop or notebook user to connect to the internet. The customer simply buys a dongle which has a set amount of time and data download capabilities.

The dongle is then plugged in to the computer as a plug-and-play device allowing for instant broadband access to the internet without a contract. The customer just uses the connection until they have used up the available amount of cash they originally purchased.

They can then just repeat the process thus avoiding a contract commitment of 12, 18 or 24 months to a mobile broadband operator. This system works very well for many users, providing them with access to the Internet, albeit with a limit in the time and the amount of available download before the credit is exhausted.

Customers who make use of their computer for longer periods of time each month very often opt to sign up for a contract with one of the big operators such as Vodafone, 3, Carphone Warehouse or Orange.

Contract Dongle

Although the same operators also offer pay-as-you-go deals, many people prefer the added convenience of long-term contract connection. The two systems basically operate in the same way making use of a broadband dongle to connect the computer to the Internet.

A contract connection offers the advantage of being simpler and cheaper to run on a month-to-month basis than pay-as-you-go wireless Dongles. The savings can actually be quite considerable if you make a large amount of use of your internet connection each month.

Downloading can be far more practical financially with a long-term contract. Many people feel that 18 or 24 month commitments can be outpaced by developments in the mobile broadband connection field. Therefore the most popular contract is one for 12 months giving a good degree of flexibility to move with the ever-changing broadband times.

In this way should you find a deal that suits your needs better, or there is a new technological developments with connection capabilities it is not a prohibitively long period until your contract comes up for renewal.

Both Pay As You Go and contract connections offer advantages and disadvantages. It is wise to consider which best suits your personal broadband Internet needs. As a rule of thumb longer hours spent surfing the web each month or large amounts of data download requirements favour a long-term contract.

Less time spent surfing and little need for major amounts of data download are best suited to be more flexible Pay As You Go dongle connections. 

Network Issues

However, not everyone is convinced that mobile broadband is up to the job.  3G Mobile network availability is clearly an issue in much the same way it is for some mobile operators.   There are also issues with the network when too many people are online and services drop off.  As an alternative, there are a couple of firms offering satellite broadband which has been touted as a solution for rural areas, but it is comparatively expensive with Avanti offers a 2Mb service for £45 a month.

UK Mobile Dongle User Numbers – Feb/March 2009

I have been researching the number of users now using 3G mobile dongles to link to the Internet in order to offer some insight into this largely hidden phenomenon.

Globally the market for 3G dongles is set to grow from 20 million units in 2008 to 26 million units in 2009 despite the downturn.

In Europe, some of the strongest growth has been recorded mainly due to the near saturation level of mobile usage compared to other parts of the world due to aggressive marketing push from the operators and the handset manufacturers.  This has resulted in an interesting development amongst Generation Y, those users born between 1978-2000.  This group have led the way in not bothering with fixed access telephony and are consequently adopting the 3G Dongle as their preferred method of Internet access.  Much of this growth is based on competitive all-you-can-eat tariffs and ease of use.

In the UK, which makes up approximately 3.5% of worldwide dongle sales, the mobile dongle user community now makes up over 4% of the overall broadband market.  These figures may not seem very impressive; however, with overall dongle sales set in 2009 to see 15% growth over 2008 and with the traditional broadband market at a standstill, the dongle market is likely to continue to make significant in-roads into the broadband market in 2009.  With increasing choice of low cost tariffs and user numbers in the UK could easily top one million by the end of 2009.

UK Market – February 2009

No	Operator	Number of Users	% Share	Comment
1	3	255,000	34%	The established leader of the dongle market, 3 has led the pack with its innovative pricing packages.
2	T-Mobile	161,000	22%	T-Mobile has used the UK as its primary test market for their dongle strategy and their innovative “webNwalk” service.
3	Vodafone	132,000	18%	Vodafone is the fastest growing of the major networks aggressively promoting and subsidising dongles because they are viewed as a secondary device that provides additional revenues for carriers beyond a traditional handset.
4	O2 (Dongles only)	122,000	16%	02 were the first major mobile network to enter the broadband market in the UK following its acquisition of Be, however, this seems to have been a distraction which has slowed their adoption of a dongle strategy.
5	Orange	57,000	7.7%	Orange seem to stumble from drama to crisis.  Their 3G Dongle strategy is little better.  They are seeing declining share of the broadband market and have been slow to put together a competitive offering for the dongle market.
6	Virgin Mobile	15,000	2%	Somewhat off the pace with their 3G dongle priced at £15 per month running over T-Mobiles network as MVNO.
	Total	742,000

To get an accurate picture, a number of published and unpublished sources have been used.  One needs to guard against the marketing hype that is put about regarding sales of individual networks, but the 3G dongle market is viewed as an area of vital importance by the mobile networks.  It will be interesting to see how the traditional ISPs respond.  Late in 2008, BT Broadband started to offer a WiFi dongle that connected to their network hotspots, BT Openzone, to their customers as an extension of their standard contract.  Neither  Sky or Tiscali have a competitive offering as yet, although Tiscali could still make a good fit for Vodafone.

UK ISP, Cable and Dongle User Numbers - Jan 2009

Here is an update of the UK ISP market covering DSL and Cable Access market as well as the first inclusion of the Mobile Dongle market in the UK. I have used ITU published data for Broadband usage numbers and Neilson Ratings to get an accurate picture as well all the reports and disclosures for each of the companies shown below. I believe these figures represent a reasonably accurate representation of the genuine adoption of broadband either via DSL, Cable or mobile dongle. Broadband connections included in this data cover download speeds equal to or faster than 256kbit/s.

ISP     Total    % of   UK Accts. BT 4,600,000 25.87% Virgin Media 3,885,800 21.86% CPW (inc AOL) 2,700,000 15.19% Sky 1,955,000 11.00% Tiscali UK 1,774,000 9.98% Orange 1,023,000 5.75% Royal Mail 560,000 3.15% O2 (Be & Dongles) 287,090 1.61% 3 (Mobile Dongles) 215,000 1.21% Kingston      195,255 1.10% T-Mobile (Dongle) 132,000 0.74% Thus 126,000 0.71% Vodafone (Dongle) 116,000 0.65% Entanet 92,000 0.52% Clara.net UK 72,000 0.40% Breathe 12,000 0.07% Supanet 6,000 0.03% Others 28,000 0.16% Total    17,779,145   100.00%

Following on from C&W acquisition of Thus, Kingston still look very vulnerable and would make a good fit for C&W or for Sky as they continue to make their play to achieve 3 million broadband users.  The Tiscali saga seems to have no end in sight and given the current economic climate the allure to perspective buyers of plain utility broadband (PUB) is looking increasingly unattractive.

One exciting area of development has been the inclusion of the growing “Internet Dongle” market.  T-Mobile, 3 and Vodafone are all significant players in this growing market and I have decided it is worth including them in the list as their business takes share from the PUB operators.

BT is beginning to roll out its 21st Century Network (21CN) and they are seeking to work with a whole range of ISP partners to offer new services.  The investment in 21CN must deliver much slicker broadband to ensure BT maintains top slot as Virgin and notably O2 are making great play of the 20 Meg plus services.  The rise of 3G Mobile Dongle market is beginning to mop up the rest of the available UK broadband demand and the only way to retain users will be through increased speed and extended range of services many of them bundle into the basic price.

This begs the question, where will future revenues come from?  PPC rates are declining across the board and Google is eating everyone’s lunch.  CPA continues to prosper, but it is a long way from the major sources of new media advertising revenue.  Let’s hope that it isn’t to the likes of Phorm that BT come to rely on from value added income from user activity.