This report looks at how consumers in the UK spend their money on TMT goods and services. It tracks changes in the portion of household expenditure going to TMT. It shows that expenditure patterns are very different in the lowest 40% of all households, with very little expenditure going on newer technologies. The greatest increase in TMT expenditures has been concentrated in the upper middle of the income range. The richest consumers have actually decreased the portion of their expenditure devoted to TMT in the last five years.

On the other hand, the published commentary failed to note that the new BARB panel will allow analysts to get more accurate figures for the actual watching of TV advertisements. This data, to be released in a couple of weeks, will provide important new information. We doubt whether the figures will make pleasant reading.

Since the research for our report on Vodafone was carried out, the UK mobile operators have made a number of changes in tariffs. We think the net impact of these changes has been to increase average call charges. This may be the first time that the UK has seen any upward trend in prices. If these price changes stick, the impact on voice ARPU is clearly positive.

Looking ahead, the costs of buying a PC and funding a connection will act as barriers to Internet expansion. Such expenditures weigh more heavily on households in less prosperous households, where the Internet have-nots are concentrated. Although the Internet-enabled mobile phone and digital TV subscription would eliminate PC ownership as a barrier to Internet access, we do not think these will be (for the foreseeable future) access platforms of more than marginal significance.

Nokia's quarterly results statement included an estimate for worldwide global handset shipments of about 390 million. Global shipments so far this year have been:

This report looks at the prospects for mobile operators. It focuses on the UK, and Vodafone in particular, because of the high quality of data available to analysts. We think the main conclusions apply widely across European operators.

It is well placed to weather any downturn, though its dependence on recruitment advertising continues to concern outside observers.

Europolitan, Vodafone's Swedish affiliate, has just announced that its expected costs to build a 3G network will be 10bn Swedish Kroner, or about 1bn Euros.

How will this happen? XP contains hooks that link it closely to Microsoft Passport and Microsoft Messenger. These two applications are the gateway into .NET. Passport provides the central storage for user details (no more tedious entry of personal data into web forms), Messenger offers a broad set of 'unified messaging' functions. One example struck as particularly powerful; XP users can automatically see which of their list of 'buddies' is online and can contact them via instant messaging. If this isn't a direct threat to AOL, we don't know what is. (These functions have been separately available for some time, but making them an integral part of the operating system will hugely expand their use).

We note with interest the reported bids by various consortia for part or all of BT's fixed-line network.  According to press reports, the Earthlease consortium has offered £8bn for BT's local loop (i.e. the copper wire connecting individual telephones to the local exchange), while a WestLB led consortium is reported to be ready to offer £18bn for the entire network.  Note that each of these bids will be structured as asset purchases financed largely by debt. The plans are to provide wholesale access to the network to BT Retail and other telcos.

We try to assess the impact on the replacement cycle and network use, and hypothesise that these development are not likely, by themselves, to increase the current levels of replacement. Cameras and Multimedia Messaging Services look as though they may be an attractive combination, but we question whether the industry has yet managed to create true interoperability between phones for this type of function.

As the various separations in the BT family draw closer, we use this report to assess the likely prospects of the core UK fixed line division, Wholesale and Retail.

The key points are:

The UK mobile operators have made much of their honesty in ceasing to record subscribers that have not made calls within six months. This will help analysts make a clearer judgment of how many people actually use mobiles, and what the correct figure is for ARPU. But pleasure at the apparent increase in openness should be tempered somewhat. Operators are starting to make active efforts to stop subscribers becoming 'inactive'. In the last few weeks all the UK operators appear to have adopted similar policies. These policies state that the operator will take back a subscriber's telephone number unless one call is made or one SMS is sent from the phone during each six-month period.

As important, the mobile operators are keeping a much tighter rein on inventories, effectively shifting stock risk to retailers such as Carphone Warehouse. Inventory levels throughout the supply chain will be lower. Retail price levels will be more robust – improving operator margins. But we expect total sales over the Christmas period to be lower than expected because of the higher prices in the retail chain.

This report provides our model for global handset sales in 2001 to 2005. We continue to forecast 375 million units shipped in 2001. The forecast for 2002 is 470 million units. Key constraints on the level of shipments in Europe:

At current pricing levels, we see pay-TV penetration struggling to exceed 60% by 2010. And the rapid continued price inflation in the pay-TV offerings of Sky, the cable companies and ITV Digital will make even this target difficult to achieve. As our recent note on household expenditure (Time and Money) indicated, the poorest 40% of the population have very little surplus cash. Increasing prices means that pay-TV is moving even further beyond the reach of this group.

We look at the recent improvements in NTL performance but suggest that continued progress towards cash generation in unlikely. In our view, NTL will miss its guidance for cash flow in 2002 and 2003 by substantial amounts, making its financial position increasingly unstable. Our view is that NTL will use up its existing cash resources long before it turns cash positive. The problems are exacerbated by the large amounts of NTL's debt that need to refinanced in 2004 and 2005.

But market comments on NTL's liquidity position have not been as insightful as they might be. This is where the real attention should have been focused.