UK broadband hits the dial-up crunch

UK broadband hits the dial-up crunch

This week will confirm that the third quarter of 2007 was a bad one for the UK broadband industry. With Virgin Media reporting on Wednesday (7 November) and BT on Thursday (8 November) their results are expected to show that the summer of 2007 showed the lowest broadband gains since early 2003 – when the whole industry was much smaller.

Point Topic estimates that UK ISPs added no more than 470,000 new subscribers in the July-to-September period to reach a total of 14,980,000. This is down from 510,000 net adds in the second quarter, which itself showed a sharp slowdown in growth from previous quarters.

“The reason for the sudden drop is largely the shrinking size of the remaining pool of dial-up users,” says Tim Johnson, Chief Analyst at Point Topic. “Not only are there fewer of them but the ones that are left are also more resistant to change. On top of that, the industry has been failing to bring enough new homes on line.”

Dial-up users generally have low levels of internet usage, often for email only, and see no reason to pay extra for broadband. They are also put off by the widely reported problems in getting a broadband connection up and running and controversy over the gap between speeds promised and actually delivered.

Broadband ISPs have relied on shifting users from dial-up for almost all their subscriber growth in the last 12 months.

The decline is not only bad for business but it also shows a deeply entrenched social divide. On the one hand, the few remaining dial-up users, now under 2 million homes, are proving increasingly resistant to making the leap to broadband. On the other, the 10 million British homes which are still without internet access are not being won over at anything like the rate needed to sustain growth.

“We believe this sends a danger signal for broadband Britain. With almost 40% of British households on the wrong side of the digital divide the social and economic progress of the UK will be stalled unless the great majority of these homes can be brought on to the internet,” says Johnson.

As far as the individual operators go it seems that in spite of difficult market conditions both Sky and Carphone Warehouse have significantly increased their market shares. Even these gains are below target, at least as far as Carphone Warehouse is concerned.

Broadband in UK should still be close to 15.5 million lines by the end of the year, showing at least 17% growth for the year overall. While growth is slowing throughout Western Europe it is likely that France will once again overtake the UK as the fifth largest broadband country in the world.