Mapping broadband in the UK Q2 2012:

Mapping broadband in the UK Q2 2012: Broadband take-up estimates for every UK postcode Prepared by: Laura Kell Date: 24 November 2012 Version: 1.1 Point Topic Ltd 73 Farringdon Road London EC1M 3JQ, UK Tel. +44 (0) 20 3301 3305 Email laura.kell@point-topic.com

Contents 1. Introduction 3 2. The broadband market at the end of June 2012 3 2.1 Standard versus superfast lines 3 2.2 Consumer versus business lines 4 2.3 Standard broadband lines 5 3. Ofcom take-up figures for UK counties 5 4. Measuring the availability of services across the UK 7 5. Calculating take-up in every UK postcode 9 6. Broadband take-up in the UK 10 7. Operator market share across the UK 12 8. Who takes up broadband? 13 9. Where would we expect higher take-up? 14 10. Conclusions 16 Page 2 of 16

1. Introduction Every six months, Point Topic estimates broadband take-up in every postcode in the UK. We look at the expected market share of every major operator for consumers and businesses. We estimate take-up of different fixed broadband technologies, and include estimates of DSL lines sold through BT Wholesale and through LLU operators. We understand patterns in broadband take-up across the country. This allows us to identify areas where take-up is lower than we would expect, and where operators should expect to see significant headroom. This document describes our model of broadband take-up at the end of June 2012 and some of the key outputs. If you have any questions, or if you would like to access our full database of broadband availability and take-up in every UK postcode, please get in touch. 2. The broadband market at the end of June 2012 At the end of June 2012, Point Topic reported 21.27 million broadband lines across the UK. This included 19.39 million consumer lines and 1.88 million business lines. The full market statistics are published within Point Topic s UK Plus service and are available for subscribers to download. 2.1 Standard versus superfast lines At the end of June 2012, Point Topic estimated that just over two million UK broadband lines were superfast connections, offering download speeds of 25Mbps or above. This represents 9.4% of the total broadband customer base. Figure 1: superfast broadband lines as a percentage of all UK broadband lines, 30 June 2012 Page 3 of 16

The combined total of BT Retail and Virgin Media s superfast broadband lines stood at around 1,947,500 at the end of Q2 2012. Adding in an estimated 43,000 lines on the Openreach network resold by ISPs other than BT Retail, plus an estimated 12,300 FTTx lines provided by alternative network operators and Kingston upon Hull s incumbent operator KC, takes the grand superfast total to over two million. Figure 2: superfast broadband lines market share, 30 June 2012 2.2 Consumer versus business lines Sourcing accurate numbers for the split of residential and business subscriber lines is very difficult, as operators rarely report these figures. At the end of June 2012, Point Topic estimated that 8.8% of the total broadband market served businesses. Business market share for major operators is shown below. Figure 3: consumer and business split for UK operators, 30 June 2012 Page 4 of 16

Broadband business lines are defined as broadband lines to business premises. Broadband lines to home-based businesses are included as consumer lines, not as business ones. 2.3 Standard broadband lines At the end of June 2012, Point Topic estimated that there were a total of 19.24 million standard broadband lines in the UK, with 9.1% of these lines serving the business market. Focusing on consumer standard broadband lines, Point Topic estimates that at the end of June 2012 BT Retail had 28% of the consumer standard broadband market. Full market shares for the major operators are shown below. Figure 4: standard broadband retail market share, 30 June 2012 Totals for Sky, TalkTalk, Virgin Media and other operators include both on-net and off-net services provided. 3. Ofcom take-up figures for UK counties In November 2012, Ofcom published its new analysis of the UK broadband market in June 2012 The UK Communications Infrastructure Report. This report and the accompanying datasets provided the most comprehensive view of broadband take-up ever published by the regulator. Ofcom reported take-up of standard and superfast broadband in every county within the UK. The fixed broadband take-up data was based on the total number of LLU/DSL lines and Virgin Docsis lines. It does not include business lines that have bought a dedicated business service, but it does include any business that uses a service on a DSL line. The take-up percentages were calculated over a denominator of the total number of households, which came from the Post Office database of postcodes and delivery points. Page 5 of 16

Figure 5: Ofcom total broadband take-up including superfast by UK county Page 6 of 16

Our objective now is to estimate a more detailed map of broadband take-up within the UK, including operator splits and estimates for consumer and business lines. Since our UK Plus statistics include a more comprehensive review of subscriber lines for all minor operators (as well as the major operators tracked by Ofcom) and estimates for business lines, we have weighted the published Ofcom figures so that they reflect our UK totals. 4. Measuring the availability of services across the UK Of course, broadband take-up is influenced by the availability of services within an area. To produce our detailed maps of broadband take-up across the UK, we consider the availability of services within every postcode in the UK. Operator subscriber lines are only allocated to areas where services are available. BT Exchange locations To map the availability of broadband across the UK, it is essential to have an understanding of the locations and boundaries of BT s exchanges. Whilst the location of the exchanges is published, BT is yet to provide a publically available source of data for the boundaries of exchanges across the UK. Point Topic has therefore modelled the likely boundary of exchanges. Our estimates have been shown to be 87% accurate, with the greatest inaccuracy lying on the boundaries of exchanges and with the greatest accuracy in rural areas. Our approach assumes that: An imaginary line connecting any two neighbouring exchanges will be bisected at a right angle by an exchange boundary. The exchange boundary will be exactly midway between the two exchanges. Figure 6: Voronoi tessellation is used to estimate the KCOM and BT exchange boundaries Page 7 of 16

We use the same approach to estimate the boundaries of KCOM Group exchanges within the UK. In this way, every postcode in the UK is allocated to a BT or KCOM exchange. LLU presence within exchanges Data is available to say which exchanges have been unbundled for LLU operators. Operators release data on which exchanges have been unbundled for LLU operators. We can use this data to calculate the number of premises passed by operators within the UK. We use this approach to calculate the on-net presence of Sky, TalkTalk, O2, Entanet, NowNet and Zen Internet (the latter three operators are grouped together within a category Other). Off-net lines sold by each of these operators are then assumed to fall outside of their LLU footprint. Note that Orange (now providing broadband services through EE) subscribers are distributed across the whole of the BT exchange footprint. Virgin Media coverage area Point Topic s Broadband Layer also includes an estimate for the Virgin Media coverage area. From published data, we know the overall franchise area for Virgin Media and the total number of UK homes passed by their deployment (13.2m). Our first model for the Virgin Media deployment area looks at the most likely distribution of these homes within the franchise area, based on a commercial deployment model which selects the most revenue dense areas within the franchise area. This first model is then refined with actual speed test data supplied by Point Topic s partner, Thinkbroadband. This data is used to re-calibrate our commercial deployment model and estimate the likely coverage area of Virgin Media s cable services. This model has been shown to be 85% accurate when compared to unpublished sources for their actual deployment. Figure 7: modelling the Virgin Media coverage area Page 8 of 16

BT Fibre enabled exchanges BT publishes their fibre enabled exchanges on their website. Using our exchange boundaries, we can therefore estimate the coverage area of BT s fibre services. We also include FTTx services offered by Sky, TalkTalk and other operators through the BT fibre network. Alternative network FTTx coverage Through our UK Plus service, Point Topic has established strong contacts with smaller providers of FTTx services. Using this research, we are also able to map the coverage of these operators within the UK. 5. Calculating take-up in every UK postcode From the Ofcom published datasets, we know the take-up of standard and superfast broadband services across the counties in the UK. From Point Topic s own research programmes, we understand the total consumer and business subscriber numbers for all major and smaller operators within the UK and their coverage areas. From our surveys, we understand the likely take-up of broadband by different types of households and businesses within the UK. We use these inputs to estimate the number of consumer and business subscribers for each operator in every UK county. The process for estimating operator market share in each county is as follows: 1. Calculate the number of premises passed by each operator within a county; 2. Estimate the expected number of broadband lines within the coverage area of each operator within the county; 3. Model One distribute county lines according to the expected distribution by operator (based on availability of services and the profile of the area only); 4. Model Two adjust the distribution of operator lines so that the total number of subscribers for each operator is as close as possible to the reported UK total and county take-up matches published figures. We use this methodology to estimate the numbers of consumer and business, standard and superfast lines for every operator in every UK county. Operator subscriber lines are then distributed across every postcode within a county, based on the expected take-up of broadband within the coverage area for that operator (see Section 8). Page 9 of 16

6. Broadband take-up in the UK Point Topic provides its subscribers with full databases of broadband availability and take-up across the UK. Data is not restricted by NDA, and can therefore be used much more freely than other data sources. Below we show a map of broadband take-up in every lower super output area (LSOA) across the UK on the next page we map superfast broadband take-up at the same level of geography. Figure 8: total broadband take-up (lines over total premises, LSOA). Source Point Topic Page 10 of 16

Figure 9: superfast broadband take-up (lines over total premises, LSOA). Source Point Topic Take-up of superfast broadband reflects the deployment to date. Whilst focused primarily on dense urban areas it reveals in particular that where it has been available for some time, specifically in Northern Ireland, that adoption rates are encouraging for the operators. It also highlights just how far there is to go. A significant proportion of the population now has superfast available to them. The large semi-urban and rural areas of the UK without any current access to high speeds are being addressed in part by the BDUK projects. Whilst delays in achieving sign-off for the funding have been disappointing we expect to see much less red in the UK by 2015. Point Topic will be releasing our analysis of the impact of BDUK funding on superfast availability in the coming weeks. Page 11 of 16

Whist superfast in Northern Ireland is doing well relative to the rest of the UK the picture isn t so good when it comes to total broadband take-up. Still under 60% in many areas it is a concern for BDUK, the DCMS but most of all for the populations in those areas. Wales paints a similar picture but has much less superfast availability than Northern Ireland. Accessibility isn t just about the physical availability of a network but the desire and financial ability of local populations to adopt broadband. This isn t an issue just in remote rural areas but affects take-up in poorer inner cities too with parts of Southwark in London, Handsworth in Birmingham and Tuebrook in Liverpool all examples of relatively low take-up in comparison to their surrounds. The digital divide isn t just urban versus rural it is becoming more and more another case of rich versus poor. 7. Operator market share across the UK Our maps allow us to evaluate the expected market share of operators within any UK postcode. We have reported national and regional market share below but our analysis allows us to estimate market share in any area down to postcodes. National and regional trends reflect the availability of services within an area. Some key trends across the countries and regions: 85% of all UK broadband lines are within England. Retail market share for the UK therefore reflects the market share for England. In Northern Ireland, BT Retail has nearly half of the consumer market share. BT Retail s market share in Scotland and Wales is also higher than the UK average. Sky has a comparable market share in England and Wales, and Virign Media has a much lower market share in Northern Ireland and Wales, reflecting its coverage. There is the smallest variation in TalkTalk s market share across the regions, which may suggest that it has the most national approach or national appeal in terms of its marketing. Other operators have the highest market share in Yorkshire and the Humber. There may be more of a tradition of choosing smaller, regionally or locally based suppliers in these areas (not just in telecoms) as opposed to national companies. Sky has the highest market share in the North East and North West of England. It will be interesting to see what difference, if any, Sky Broadband s Ireland launch may have on the market in Northern Ireland. Marketing campaigns for the Ireland launch may filter across in terms of the profile for the Northern Ireland market. Page 12 of 16

Figure 10: retail market share for operators by country. Source Point Topic Figure 11: retail market share for operators by region. Source Point Topic 8. Who takes up broadband? Point Topic has commissioned extensive surveys of the UK consumer and business broadband markets. These surveys have allowed us to identify seven different household types and five business types that have a different propensity to take-up broadband services. These results allow us to establish the expected take-up of broadband within any area in the UK, as long as we know the demographic and business profile of the area. The overall results for the UK at Page 13 of 16

the end of June 2012 are shown below, based on 2001 census data for UK households. This data will be updated once the 2011 census outputs are released. The expected number of broadband lines is calculated by examining the profile of UK households and businesses, and applying the likely take-up of broadband to each group. The profile of broadband lines therefore reflects the overall profile of households and businesses in the UK so for example the high number of older people with broadband connections reflects the high number of older people in the UK this group actually has a lower propensity to take-up broadband services. Figure 12: broadband lines by household type and business type. Source Point Topic 9. Where would we expect higher take-up? We can make an initial comparison between the (adjusted) OFCOM take-up figures and our estimates for the expected number of broadband lines within each UK county. These estimates are based on the number of broadband lines we would expect within a county, given the demographic profile and types of businesses within the area. Profiles are based on 2001 census data, and will be updated with 2011 estimates when they are available. We use our take-up index to compare the expected number of lines in an area with the actual number of lines. An index of 3% indicates that the actual number of lines in an area is 3% higher than we would have expected. An index of -3% indicates that the actual number of lines is 3% lower than we would have expected. Page 14 of 16

Comparing actual and expected take-up at a national level, we can see that we would expect more lines in Northern Ireland, Scotland and Wales. In England, we would expect fewer people to take-up broadband than actually do. Country OFCOM - Take-Up Adjusted take-up Take-Up Index England 72.5% 74.0% 1.5% Northern Ireland 63.9% 65.0% -12.2% Scotland 66.9% 68.3% -6.3% Wales 65.5% 66.8% -8.1% Figure 13: comparison of the expected and actual take-up by country. Source Point Topic At a regional level, take-up is higher than expected within London, the South East and the East of England. All other regions have a lower take-up than we would expect to see. No English region has a lower take-up index than Scotland, Wales and Northern Ireland. Of the English regions, we believe that there is the greatest headroom for broadband services in Yorkshire we would expect to see 6.1% more broadband lines in this region, given the profile of people and businesses in the area. Government region Adjusted take-up Take-Up Index Northern Ireland 65.0% -12.2% Wales 66.8% -8.1% Scotland 68.3% -6.3% Yorkshire and The Humber 68.5% -6.1% North East 68.7% -5.2% West Midlands 70.2% -4.1% East Midlands 70.7% -3.3% North West 70.9% -2.7% South West 71.9% -0.5% East of England 74.6% 2.1% South East 77.6% 6.3% London 84.0% 14.9% Figure 14: comparison of the expected and actual take-up by region. Source Point Topic Note at this stage, we are not taking into account the availability of services. Rather, we are calculating how many broadband lines we would expect to see, given the profile of the people and businesses in the area. The relative disparities at can be attributed to a number of causes, including availability. Page 15 of 16

Competition for subscribers in the England is in general far more intense than the other members of the union. With a larger proportion covered by cable and LLU operators the marketing pressure on consumers will account for some additional take-up After simple availability the biggest barriers to adoption are age, income and education. In this adoption pattern we see all these elements represented and all take some of the blame (or credit) for England achieving a higher adoption rate than Wales, Scotland or Northern Ireland. Note at this stage, we are not taking into account the availability of services. Rather, we are calculating how many broadband lines we would expect to see, given the profile of the people and businesses in the area. 10. Conclusions Point Topic believes that its maps of broadband take-up in the UK offer the most comprehensive picture of the competitive broadband landscape available. We are particularly interested to monitor the take-up of superfast broadband as it becomes more prolific for example once Openreach has passed more homes with FTTx than Virgin Media has with Docsis 3, will market shares change as a result? Take-up of broadband is not just about the availability of services. It also needs the desire and financial ability of local populations to adopt broadband. In order to fully realise the objectives of its digital policy, the UK government needs to focus not only on making services available, but encouraging take-up from all members of its population. The future digital divide will not be an issue of provision it will be an issue of economics. If you have any questions on this report or Point Topic s Broadband Geography services, please contact laura.kell@point-topic.com for more information or phone 020 3301 3303. Page 16 of 16