Telecommunications
Background
Telephone Lines
a. Shopping for Local Service
b. Competition among Local Service Providers
Long Distance Providers
Confusing Telephone Bills
Cell Phone Use and Competition
a. Use of Cell Phones
b. Shopping for Cell Phone Service
c. Competition among Cell Phone Service Providers
Internet Service
a. Type of Internet Service
b. Shopping for High-Speed Internet Service Providers
c. Competition among High-Speed Internet Service Providers
Evaluating Telecommunication Options
Final Comments
Background
Healthy competition among telecommunication companies allows small-business owners to choose from a wide variety of new and traditional telecommunication services. These services range from the local telephone line to high-speed Internet. Small-business owners rely on the availability of these services to pick and choose the most useful telecommunication services that best meet their individual needs. They adopt these services into their daily operations to better manage their business in an increasingly competitive environment. Competition among telecommunication service providers continues to be a vital component in allowing small-business owners to access the most affordable, current telecommunication services available. However, pending telecommunication mergers and regulatory changes will likely alter the competitive structure for providing telecommunication services. The following will provide a benchmark to compare future data on competition among telecommunication companies and how competition affects the purchasing behavior and services used by small-business owners. This issue of the National Small Business Poll is dedicated to competition in providing Telecommunications services to small business.
back to top
Telephone Lines
Wire-line telecommunication services continue to be important in connecting the business to the outside world whereas newer technologies are designed to improve communication between the owner and business operations. Virtually all small-business owners have local and long-distance telephone service for their business and 89 percent of small-business owners have fax capabilities (Q#10). Providers of wireline telephone services have taken note of this and continue to actively compete for the business of small-firm owners.
On average, small-business owners have four telephone lines dedicated to their business (Q#1). However, the number of telephone lines varies greatly by size of firm. Nearly one-fourth of businesses with 1-9 employees have one line dedicated to their business. In contrast, just 6 percent of owners with 10-19 employees have one line for theirs. Of those businesses with over 20 employees, almost half have six or more telephone lines.
back to top
a. Shopping for Local Service
The level of competition among telecommunication companies should directly affect the percentage of small-business owners who shop for alternative service providers. Small-business owners actively shop when competition provides them the opportunity to select a variety of products and services that best meet their needs. The survey asked small-business owners whether or not they shopped for a new provider of local telephone service, the reasons they did or did not shop and if they did, whether they eventually switched to a new provider.
The survey found that shopping for local service providers is extensive. Forty (40) percent of respondents shopped for a new local telephone service provider in the last three years (Q#4). Seventy-eight (78) percent of those who shopped cited cost as a reason that they were dissatisfied with their provider (Q#4aA). The cost of telephone service continues to be an on-going concern for small-business owners. In fact, telephone costs and services ranked 16th in NFIB’s Small Business Problems and Priorities publication released in June 2004 and 15th in the 2000 publication.
Price is not the only reason small-business owners shop for a new provider. Forty-nine (49) percent of those who shopped wanted to consolidate their services with one provider (Q#4aF). Forty-one (41) percent were dissatisfied with the quality of service provided (Q#4aD). Twenty-nine (29) percent were dissatisfied because changes were made in their service plan without their prior knowledge or consent (Q#4aC). Twenty-five (25) percent were dissatisfied with their lack of service options (Q#4aB) and 12 percent shopped because their provider merged with another company or was no longer providing local telephone service (Q#4aE).
The majority of small-business owners did find a more suitable alternative to their local telephone service needs. Of those small-business owners who shopped, 71 percent eventually switched providers (Q#4b). That means about one-in-four small-business owners switched over the last three years.
The survey asked non-shoppers the reason that they did not shop for a new provider. Of the 59 percent of owners who did not shop for a new local provider, 60 percent were satisfied with their current service (Q#4c). Twenty-three (23) percent had more pressing matters to attend to than search for a new local telephone provider. Sixteen (16) percent believed there to be no real alternatives from which to choose.
back to top
b. Competition among Local Service Providers
Competition between local service providers continues to play a significant role in providing quality, affordable service for small-business owners. Forty-two (42) percent of small-business owners believe there is more competition for their business from local service providers now than three years ago (Q#3). Thirty-seven (37) percent respond that competition is about the same, while only 14 percent believe there is less competition for their business. On average, small-business owners are aware of between three and four local service providers in their area (Q#5).
back to top
Long Distance Providers
Competition among long-distance service providers did not receive the same attention as other telecommunication services in this report due to the length of the survey and presumed competitiveness. Competition among long-distance providers is strong, allowing small-business owners many choices when shopping for a new provider. On average, respondents are aware of six long distance providers in their area; two to three more than the number of local telephone providers (Q#6). However, many small-business owners choose the same provider for both services. Sixty-five (65) percent of owners bundle these two services through one provider (Q#2).
back to top
Confusing Telephone Bills
Over the years, telephone bills have received a bad reputation for their confusing fees, taxes, and regulatory charges spanning all three levels of government: local, state and federal. But even with all these extra fees and taxes, only 33 percent of owners believe telephone bills are confusing or exceptionally confusing while 64 percent are comfortable with the clarity of their telephone bill (Q#13).
back to top
Cell Phone Use and Competition
Small-business owners strongly embrace the convenience and flexibility that cell phones provide in running their businesses. More and more, the demands of business owners are time sensitive and circumvent the traditional 9-5 business hours. Although owners in some industries consider cell phones to be more useful than owners in others, most believe their service to be helpful conducting business operations.
back to top
a. Use of Cell Phones
The survey found that a large majority of small-business owners (78%) use a cell phone for business purposes (Q#7). The survey also found that owners of smaller firms use cell phones less than owners of larger-size firms. Seventy-six (76) percent of small-business owners with 1-9 employees use a cell phone. Eighty-four (84) percent of employers with 10-19 employees use a cell phone and 85 percent of employers with 20 or more employees use one for business purposes.
Of those owners who use their cell phone for business purposes, 76 percent say that their cell phone is essential or important in operating their business (Q#7a). Those in construction most frequently believe in their importance (98%). Only 63 percent of respondents in manufacturing find cell phones to be essential or important to their business. Importance also varies by size of business. Forty-five (45) percent of owners with 1-9 employees respond that their cell phone is essential to helping them operate their firm. Fifty-one (51) percent of owners with 10-19 employees respond that their cell phone is essential and 57 percent of those with 20 or more employees say that their cell phone is essential to their business.
Owners also find value in providing cell phones for select employees. Forty-four (44) percent of owners purchase cell phones for designated employees (Q#8). However, responses vary significantly by industry type. Seventy-four (74) percent of owners in small construction firms provide cell phones to select employees, whereas 39 percent of respondents in the services and wholesale/ retail industries provide them. Owners of small construction firms appear to benefit the most from the convenience of cell phones. They provide these owners the ability to travel to and from job sites without losing communication with their employees, suppliers and customers.
The size of business is also a factor in whether an owner provides cell phones for designated employees. Forty-one (41) percent of owners with 1-9 employees provide cell phones to select employees; 53 percent of owners with 10-19 employees provide them; and, 64 percent of owners with over 20 employees do. On average, four employees per firm are given cell phones for business purposes (Q#8a). Smaller firms provide the fewest cell phones per firm. The number of cell phones provided per firm gradually increases by number of total employees.
Many small-business owners find it useful to have cell phones for select employees and are willing to purchase additional phones as a business expense. However, 16 percent of small-business owners expect their employees to provide their own cell phone for business purposes (Q#8b). Respondents in the financial services sector are the most likely to expect employees to provide their own cell phone (23%). This could be due to common industry practices.
back to top
b. Shopping for Cell Phone Service
Small-business owners are active shoppers when it comes to choosing their cell phone service provider. Fifty-seven (57) percent of small-business owners actively shopped for a new cell phone provider in the last three years (Q#8d). Responses varied little by size of business. Sixty-five (65) percent of respondents shopped because they were dissatisfied with the quality of their service (Q#8d1D). Sixty-four (64) percent shopped because they needed a different type of plan (Q#8d1A). Sixty (60) percent wanted to upgrade their technology and/or options (Q#8d1B). Ten (10) percent were dissatisfied because of changes made to their plan without their prior knowledge or consent (Q#8d1C). Only 9 percent shopped because their provider merged or discontinued service (Q#8d1E). Pending mergers of cell phone providers will likely affect these numbers in the future, however it is too early to guess their significance and/or which area of service they will affect the most.
Currently, competition among cell phone service providers offer small-business owners a good supply of affordable plans and options from which to choose. Sixty-three (63) percent of owners who shopped for a new cell phone service eventually switched to a new provider (Q#8e). Sixteen (16) percent of those who switched paid a penalty for terminating their contracts (Q#8e1). This shows that some small-business owners are more influenced by incentives from competitors and/or disgust with their current provider than a contract termination fee. Of the 43 percent who did not shop, 68 percent were generally satisfied with their current service while only 13 percent responded that there were no other real alternatives from which to choose (Q#8f). Seventeen (17) percent had more pressing matters to attend to.
back to top
c. Competition among Cell Phone Service Providers
Fifty-four (54) percent of owners believe there is more competition for their business among cell phone providers today than three years ago (Q#8c). Eight (8) percent believe there is less competition now than three years ago. The Western region had the highest level of perceived competition. Forty-one (41) percent of respondents from the Western region state that there is much more competition among cell phone providers, whereas only 25 percent of owners in the Northeast believe there to be much more competition than three years ago. Small-business owners in the Northeast most often say that competition is less today than three years ago (21%).
On average, small-business owners are aware of five cell phone service providers in their area. The South averages most with six. In choosing their cell phone provider, 12 percent of respondents chose the same provider as their wireline service (Q#8h). Eighty-two (82) percent chose a different carrier. However, there is wide variation by region. Thirty (30) percent of owners in the Northeast have the same provider for both their cell phone and wireline services, but only 6 percent bundle those services in the Midwest. The relative lack of competition in the Northeast may play a significant role in the number of owners who bundle their services with one provider. However, small-business owners are generally not bundling their cell phone plan with other services, unlike the popularity of bundling local and long-distance plans.
back to top
Internet Service
Most small-business owners have incorporated the Internet into their business operations. For many owners, the Internet is vital in advertising their product or services, processing payments, complying with government regulations, and streamlining business transactions. Increasingly, these functions require faster Internet capabilities.
back to top
a. Type of Internet Service
The survey looked into the type of Internet service owners use for business purposes and why owners chose the service they selected. Eighty-two (82) percent of respondents do have Internet service for their small business (Q#9). Over half of those have high-speed Internet. Fifty-eight (58) percent of small-business owners with Internet service have high-speed Internet while 24 percent use a dial-up service. Seventeen (17) percent do not have any type of Internet service.
The size of business plays a significant role in the type of Internet service used, if any. Small-business owners with 1-9 employees are the least likely to have high-speed Internet (56%) and the most likely to have no Internet (19%). Seventy-one (71) percent of those with 20 or more employees have high-speed Internet and only 9 percent have no Internet service. The financial services sector has the highest penetration of high-speed Internet service (82%).
Of those owners who have high-speed Internet, 54 percent of respondents subscribe to a Digital Subscriber Line (DSL) service (Q#9a). Twenty-five (25) percent use a cable-modem; 5 percent use wireless or satellite; and, 10 percent use a T1 line (high-speed digital connection). Businesses with more than 20 employees are much more likely to choose the T1 line service than smaller-size businesses.
The lack of access is not the primary reason owners do not purchase high-speed Internet service. Of the 24 percent of respondents who do not have high-speed Internet service, 79 percent chose not to subscribe and 19 percent do not have high-speed Internet service available in their area (Q#9c). Of those who choose not to have high-speed Internet service, 52 percent say they have no need for the service in their business; 21 percent respond that high-speed Internet is not worth the cost; 8 percent do not use a computer in their business; and, 1 percent choose not to have high-speed Internet in their business because they have it available in their home (Q#9c1).
In addition, the survey asked about the use of Voiceover Internet Protocol services (VoIP). The service allows a computer to act as a telephone through the Internet. Although small-business owners are actively using the Internet for traditional purposes, very few use more advanced Internet technologies. The survey found that only 7 percent of small-business owners use VoIP services (Q#9b). However, the marketing of this technology is just beginning to reach the small-business community. Larger firms and some government agencies have incorporated VoIP into their communication systems but so far small-businesses are largely untouched by this technology. However, VoIP service providers are beginning to actively market their product to small businesses across the country with attractive savings plans.
back to top
b. Shopping for High-Speed Internet Service Providers
Small-business owners actively shop for high-speed service in this area as well. Forty-seven (47) percent of respondents shopped for a new provider of high-speed Internet service in the past three years (Q#9e). Owners of the smallest firms were more active shopping for a new provider of Internet services than owners of larger firms. Forty-nine (49) percent of owners with 1-9 employees shopped for a new provider, whereas 37 percent of owners with 20 or more employees shopped for one. Small-business owners in the financial service sector were the most active shoppers for high-speed Internet service (57%).
The primary reason owners shopped for new service was cost. Sixty (60) percent shopped because they were dissatisfied with the cost of their service (Q#9e1A). Fifty-one (51) percent were dissatisfied with the speed of their service (Q#9e1C); 43 percent were dissatisfied with the reliability of their service (Q#9e1B); and, 36 percent with the responsiveness of their provider in helping with service problems (Q#9e1D). Of the 43 percent of owners who did shop, 75 percent eventually changed service providers, especially those in the Northeast (95%) (Q#9e2). Of the 51 percent of those who did not shop for a new Internet service provider, 57 percent were satisfied with their service; 21 percent had no real alternatives from which to choose; and, 6 percent were locked into a long-term contract (Q#9f).
back to top
c. Competition among High-Speed Internet Service Providers
As with local and cell phone service competition, the majority of respondents believe there is more competition for their business from high-speed Internet providers today than there was three years ago. Fifty-eight (58) percent of owners respond that there is much more or slightly more competition than three years ago (Q#9d). Thirty-three (33) percent respond that competition is about the same and only 3 percent think there is much less or slightly less competition than three years ago. On average, small-business owners are aware of four high-speed Internet providers in their area (Q#9g).
back to top
Evaluating Telecommunication Options
Each year, telecommunication companies introduce a number of new and improved products and services to the market. In order to stay competitive, small-business owners are pressured to keep-up with these new technologies and evaluate their usefulness to their business. The survey found that owners are not overwhelmed by the increasing number of telecommunication products available and believe they are able to make sound decisions in purchasing telecommunication services that best meet their business needs.
Seventy (70) percent of respondents personally evaluate their business’s telecommunications options while 22 percent rely on the advice of an employee (Q#11). Only 4 percent seek advice from an outside expert. However, those respondents with more than 20 employees are more likely to have an employee capable of evaluating their business’s telecommunication needs, whereas the smallest firms rely heavily on the owners’ expertise. Respondents in the financial services industry are the most likely (13%) to seek the advice from an outside expert. Ninety (90) percent of owners believe that the person making the recommendations (whether it be the owner, employee, or hired expert) is capable of sound technical judgments about telecommunications options and how they best fit their business (Q#12).
back to top
Final Comments
Telecommunication companies currently provide small-business owners with competitive markets to purchase new and traditional telecommunication services. Owners say that there is more competition for their business among telecommunication providers today than three years ago. Small-business owners help stimulate these markets by actively shopping for alternative service providers. A large majority of those who shop, do eventually switch providers. Many small-business owners switch providers in an effort to get some combination of the best prices, newest technologies and better service.
However, the use of telecommunication services differs significantly by size of firm. Owners of smaller-size businesses do not adopt new technologies as quickly as owners of larger firms. As new technologies become more available and relevant to business operations, owners of small firms slowly integrate these services into their business to remain competitive.
Currently, competition is working to provide telecommunication services to the small-business community. Owners of small firms are eager to shop for the best products and services that meet their needs. Competition among providers of new and traditional services will continue to be a vital component in keeping small-business owners up-to-date and competitive within their industries. However, the landscape of competition for these services will soon change. Pending mergers of the largest telecommunication companies will reduce the number of competitors in the market. They will provide a wider spectrum of products and services and will compete for customers outside their traditional regions. This survey provides a baseline to compare future trends in competition among telecommunication service providers.