1.

Introduction

The rapid growth in information technology and internet since 1990’s has changed the
way the people can access and exchange information, buy and sell goods and services
and the way they spend their time off. The increase in the adoption of Internet over
the years has forced many enterprises to go online.
In 2007 more than 15 million households had an Internet access, which was, the 7%
increase compared to 2006.

Sources: National Statistics Omnibus Survey; Northern Ireland Omnibus Survey; Survey of Internet Service Provider.

This trend is expected to persist in the future and will continue to attract the Internet
service providers across UK. This report specifically aims to provide the analysis of
the current and future state of Internet adoption and usage in the UK and the Internet
service provision market in UK. This report also looks at the extent to which people
have taken up the technology and what kind of people they are.

2. Internet usage in UK

Internet usage among the households and the businesses has grown rapidly in the last
decade and is becoming an integral part of many lives. Sending and receiving e-mails,
browsing, getting information about the brands, buying and selling, and
communication are some of the online activities performed by the customers.

The following graph shows internet usage by some of the online activities (2007
survey by statistics)

2.1 Household Internet connection by type: The total number of households having
an access to the Internet was just over 15 million in 2007, which was an increase of 1
million (7%) since 2006.
The Internet connections are categorized into two, namely as Broadband, and Dial-up
connections. The following table shows that the demand for the Broadband
connections has considerably grown from 11% to 51% from 2003 to 2007. Similarly
the dial-up connections were low in demand probably because of the shift to the
broadband connections.
Years Broadband connection Dial-up connections No internet connections
2003/04 11% 38% 49%
2004/05 22% 31% 46%
2007 51% 10% 39%
The graph above only shows the trend of these types of connections only up till 2006.

Let us look at the common Internet usage patterns with respect to socio-demographic
factors:

2.2 Gender: According to Oxford Internet survey, the usage of Internet is found to be
at higher percentage in men than women. In 2007, 70% of men use Internet
connections, which was 64% in 2003. Whereas, in 2003 only 55% of females were
using the Internet which increased to 65% in 2007. The percentage increase in the
females is higher than the increase in men for 2007. (OXIS)

2.3 Age and the Internet usage: Age has a significant relationship with the Internet
adoption and the usage. In 2006, approximately 84% of the age group between 16 and
24 had Internet in usage as compared to 50% of the people aged between 55 and 64.
Children and the young aged group people are the most frequent users of the Internet
in UK. The Internet adoption and usage was found to be positively correlated to the
presence of the children in the household. This is mainly because an Internet can be a
good source of learning and education for the children; secondly the children can play
an influential role for the parents to get acquainted with the computer and the benefits
it can offer thus developing a positive perception about the Internet (Reference). The
graph below show how the internet usage has grown over the years in the households
having dependent children as compared to the households having no dependent
children.

The proportion of usage of Internet has grown in all age groups. The significant
increase was in the age group of 55 to 64. It has grown from 30% (2001/02) to 55% in
2006.

2.4 Education: People with educational qualification are most likely to use an
Internet than unqualified. Only 55% with basic education uses the Internet whereas,
90% of the students with higher education have an access to the Internet. This is
mainly because at a higher education level students are more involved in research
work and the students can be benefited by accessing large amount of secondary
sources such as research papers, journals, published materials, available online.
Furthermore it is believed that the people who do not have a necessary skills and
knowledge to operate computers are less likely to use an Internet.

The research conducted by Didier, Lancaster University Management School

concludes that the households with no residential Internet connections tend to be
comprised of the members from less educated background. Moreover, the people
using the broadband were found to be more educated than the households using dial
up connections. This shows that there is a positive relationship of an education with
the adoption of Internet.
2.5 Life stages and the Internet usage: life stage seems to be the most prominent
factor affecting the usage of an Internet. The usage of an Internet among the students
is expected to be much higher than the retired people. For example in 2007,
approximately 90 % of the students had an access to the Internet in contrast to only
31% among the retired people. The largest increase was in the case of employed
people, from 68% in 2005 to 81% in 2006.

2.6 Internet adoption and the Income: Variations in the income is also a key factor
underlying reason for why people behave differently to the Internet adoption.

3. ISP Market:

Increased popularity of the sites like Youtube, facebbok, entertainment, gaming and
other leisure sites has forced ISP,s to introduced video based services such as IPTV
and VoD. There are currently five million IPTV subscribers in Europe. The youth
prefers to spend more time on Internet than on analogue TV. ISP’s must shift their
focus on how to deliver these new products and services in order to meet the demand
of the customers in an extremely competitive market.

UK market comprises of many small, medium and large Internet service providers.
Some of them are: BT, NTL, AOL, Telewest, Tiscali, Virgin Net, Plus Net, Sky, Pipex
and Wanadoo. NTL, Telewest and Virgin has come under one group called NTL-
Telewest, making them the UK’s largest broadband provider with a market share of
approximately 30%.

The coming out of low price broadband packages from some of the country’s largest
internet service providers have really opened up the UK’s internet access market by
making it more affordable. However the smaller ISP’s are not in favour of low cost
options as they find it difficulty for self-sustainability.

The customers expect a high quality deliverables at a low price. The problem mainly
arises from as a result of increasingly cheap packages from the ISP’s such as Tiscali
and Talk Talk. This when coupled to aggressive promotions, essentially resets the
customers’ definition of values to levels that can be almost unattainable for many
smaller rivals. In contrast the bigger players have succeeded in cornering the market.

“Consumer perception is a real issue in the connectivity market and heavy weight
marketing by the larger players that's focused on speed and price is often
criticised as misleading,” states Darren Farnden, Marketing Manager for communications
provider Entanet (www.Enta.net). “If you suggest to consumers that they can have
8Mbps broadband at little or even no cost (in the case of bundled voice and data
packages) then that is what they will expect.”

Does quality really matter?

Big players focus is to achieve economies of scale and invest in lower cost unbundled
networking. The small players in contrast have shifted their focus at providing a better
quality at more realistic pricing. Customer tends to stay loyal to those who offer as
good as or better than traditional offers and savvy channel surfers will not accept any
long channel change times or issues with the picture quality. Consumers have high
QoS expectations for IP-based television than the traditional TV services, despite the
former being a much newer technology. ISPs must therefore build innate service
quality into their own networks during the transition from typical ‘best-effort’ Internet
to multi-service models that include real-time applications. The network must be able
to reserve the required end-to-end network resources necessary to deliver the
requested service ‘on-demand’.