The Impact of Broadband Speed and Price on Small Business by Columbia Telecommunications Corporation Kensington, MD 20895 for under contract number SBAHQ-09-C-0050 Release Date: November 2010 This contract was developed under a contract with the Small Business Administration, Office of Advocacy, and contains information and analysis that was reviewed by officials of the Office of Advocacy. However, the final conclusions of the report do not necessarily reflect the views of the Office of Advocacy. Contents 1. Executive Summary ............................................................................................................................. 1 1.1. Purpose ........................................................................................................................................ 1 1.2. Key Observations Regarding the U.S. Internet Market ............................................................... 1 1.3. Policy Recommendations and Considerations ............................................................................. 3 2. Report Definitions and Data Gathering ................................................................................................ 5 2.1. Defining Broadband .................................................................................................................... 5 2.2. Survey Development, Distribution, and Analysis ....................................................................... 6 3. Understanding the U.S. Broadband Market Today .............................................................................. 9 3.1. Overview of Current Broadband Options .................................................................................. 10 3.1.1 Fiber-to-the-Premises (FTTP) ............................................................................................... 12 3.1.2 Cable Modem ........................................................................................................................ 12 3.1.3 Digital Subscriber Line (DSL) .............................................................................................. 13 3.1.4 Wireless Broadband .............................................................................................................. 13 3.1.5 Satellite.................................................................................................................................. 14 3.2. Broadband Needs Are Expanding ............................................................................................. 15 3.3. Economic Impact Analysis of Broadband on Small Business ................................................... 19 3.3.1 Literature Review: Importance of Broadband Access ......................................................... 20 3.4. How Competitive Is the U.S. Broadband Market? .................................................................... 22 3.4.1 Tools to Evaluate Market Concentration and Competition .............................................. 23 3.4.2. The Closing of the Broadband Market to Small Business Providers ................................ 26 3.5. U.S. Broadband Position Compared with Global Competitors ................................................. 29 4. Use of Broadband by Small Businesses Today .................................................................................. 32 4.1. Small Business Use of Computers and Internet Service ........................................................... 32 4.1.1 Computer and Type of Internet Used .................................................................................... 33 4.1.2 Price Paid for Internet Service .............................................................................................. 38 4.1.3 Uses of the Internet ............................................................................................................... 40 4.2. Importance of and Satisfaction with Internet Service ................................................................ 41 4.2.1 Need for More Speed ............................................................................................................ 42 4.2.2 Internet Use Issues ................................................................................................................ 45 4.2.3 Satisfaction with Internet Service Attributes......................................................................... 46 4.2.4 Satisfaction with Internet Service Price ................................................................................ 48 4.2.5 Importance of Internet Features ............................................................................................ 49 4.2.6 Importance of Internet Service to Business ........................................................................... 50 4.2.7 Likelihood of Switching Internet Providers .......................................................................... 51 4.2.8 Internet Service Has Become an Essential Service ............................................................... 53 4.2.9 Constraints to Further High-Speed Internet Use ................................................................... 54 5. Conclusion .......................................................................................................................................... 55 5.1. Recommendations ..................................................................................................................... 56 6. Bibliography ....................................................................................................................................... 63 The Impact of Broadband Speed and Price on Small Business iii Appendix A: Survey Instrument ................................................................................................................. 67 Appendix B: Company Respondent Profile and Survey Results ................................................................ 79 Company Information ............................................................................................................................ 79 Survey Data ............................................................................................................................................ 84 Appendix C: Case Studies .......................................................................................................................... 97 Case Study 1: Satellite Broadband—Towns’ Dairy Farm, Wisconsin ................................................... 97 Case Study 2: Metro vs. Rural Market in Minnesota ........................................................................... 100 Case Study 3: Small Independent Provider vs. National Provider in Rural Central Tennessee ........... 102 Case Study 4: A Comparison of Business and Residential Internet Pricing ........................................ 104 Appendix D: Analysis of Business Use of Broadband ............................................................................. 109 Business Use of Broadband for Telecommuting and Communications ............................................... 109 Business Practices and Strategies ......................................................................................................... 112 Comparisons to 2003 Advocacy Survey .............................................................................................. 116 Analysis of Differences Across Regions in the United States .............................................................. 121 Appendix E: Technical Details about U.S. Broadband Options ............................................................... 126 Fiber-to-the-Premises (FTTP) .............................................................................................................. 126 Cable Modem ....................................................................................................................................... 128 Digital Subscriber Line (DSL) ............................................................................................................. 130 Wireless Broadband .............................................................................................................................. 131 Satellite Broadband .............................................................................................................................. 132 Appendix F: Data on Service Options and Pricing ................................................................................... 133 FTTP Services ...................................................................................................................................... 133 High-Speed Fiber Services for Businesses ........................................................................................... 134 Cable Modem Services ......................................................................................................................... 135 DSL Services ........................................................................................................................................ 138 Wireless Services .................................................................................................................................. 140 Satellite Services .................................................................................................................................. 142 The Impact of Broadband Speed and Price on Small Business iv Figures Figure 1: Number of Employees, Survey Respondents vs.