Recession has now hit the UK broadband market hard. Analyst Point Topic estimates that the UK added only about 200,000 broadband lines in the last quarter of 2008. This is less than half what was forecast for the period before the recession set in and 100,000 less than Point Topic’s forecasts in October when its first effects were already being felt.
Point Topic’s figures support the estimate from the National Institute for Economic and Social Research (NIESR) that the UK economy shrank by 1.5% in Q4. It shows the strength of demand for broadband that total numbers continued to grow even in the face of the worst quarter for the economy since 1990. But most if not all of the broadband growth must have come from users migrating from dial-up, so the total number of homes and businesses with internet access may well have declined in the quarter.
Overall Point Topic estimates that the total number of broadband lines in the UK rose to about 17.23 million by the end of 2008, from 17.04 million three months earlier. Within that total it looks as if BT and its resellers are suffering most. The ISPs using local loop unbundling to provide their broadband services (mainly Carphone Warehouse, Sky, Tiscali and Orange) did relatively well, adding nearly 430,000 lines between them. Point Topic estimates that Virgin Media may have added about 60,000 cable modem customers as well.
This leaves BT Wholesale’s broadband business losing upwards of 290,000 lines, a fall of over 3% on the 8.2 million lines it was supplying at the end of September. The main reason is probably the drive to save money as users churn to the low cost bundles offered by Virgin Media and the LLU operators. Point Topic’s estimates for total line numbers and additions are set out in the table below.
The results provide a striking indication of how sensitive the number of broadband lines added is to recession. In the July-September quarter the economy shrank by 0.6% and the number broadband adds was 20% below pre-recession forecasts. In Q4 a fall in GDP of 1.5% seems to have gone with a 50% shortfall in broadband adds, compared with pre-recession expectations.
To say that quarterly broadband additions are reduced by 10% for every 0.3% decline in the economy as a whole is probably simplistic but it provides one indication of what to expect in 2009. For example, if the relationship holds and the UK economy shrinks by another 3% through 2009, as many forecast, then broadband lines should still grow by about 0.9 million to pass 18 million by the end of 2009.