Contents

Chapter 1 Introduction

Chapter 2 Summary

Chapter 3 Main findings

Chapter 4 Internet access methods and ISPs

Chapter 5 Satisfaction with Internet service

Annex 1 Q10 business questions on Internet

Annex 2 Details of changes to question on Internet packages

Chapter 1

Introduction

1.1 This report provides an overview of business use of Internet, taken from the tenth wave of Oftel’s quarterly business survey, conducted in August 2002 amongst 831 UK businesses. The results are subject to an error margin of about 2-4%, this is slightly higher amongst smaller subgroups. Results referred to as 'significantly' different, have been tested at the 95% level of confidence, please see footnote for further sample details.

1.2 Quotas and weighting were applied to small and medium businesses separately so that the sample was representative of SMEs (Small and Medium Enterprises) in the UK in terms of business size, industry sector and region.

1.3 In some cases throughout the report, data on a rolling basis is shown. This combining of two periods increases the sample size and allows trends in the data to be analysed and interpreted with greater confidence. For example, where identical questions have been asked over the past two waves (May and August 2002), combined data have been used.

1.4 The survey was conducted on behalf of Oftel by Continental Research (footnote 2)during August 2002. This report has been prepared by Continental Research based on the results provided by the survey.

1.5 The report covers:

• Internet penetration among SMEs;
• type of package, ISPs used;
• satisfaction with Internet services.

1.6 A list of the questions is attached in Annex 1. Topics to be researched each quarter are requested by Oftel project teams, and results feed into current investigations and reviews in the individual market areas.

Footnotes

Footnote 1 The survey was conducted amongst a representative sample of small and medium enterprises (SMEs) in the UK, reflecting the UK profile in terms of business size, sector and region. As small businesses (1-50 employees) make up around 97% of businesses in the UK, medium businesses (51-250 employees) were over-sampled in the survey to produce a sufficiently robust sample to allow analysis of the results among medium businesses. The combined results were re-weighted to be representative of UK SMEs as a whole (97% small businesses; 3% medium businesses), consequently the results for small businesses closely resemble those for SMEs as a whole. The error margin for this survey of 831 businesses is about 2-4%, but is higher amongst small subgroups. Results referred to as 'significantly' different, have been tested at the 95% level of confidence and hence are outside of the error margins and therefore can be considered real changes. All data shown is weighted data. Unweighted base sizes are shown on charts and tables to show the number of businesses who were asked the question.

Footnote 2 The report should not be seen as recommended best buys and should not therefore be relied upon when making purchase decisions. Oftel has conducted its own checks on the data in this report and whilst we consider it to be correct, Oftel accepts no liability in respect of any of the results provided to it by Continental or any decisions taken by any person in reliance on the report.

Chapter 2

Summary findings

Headline figures

• 67% of all SMEs have Internet access
  
• 62% SMEs with Internet access use unmetered packages (71% medium and 62% small)
  
• 88% satisfied with overall quality of service
  
• 32% of SMEs with Internet now using ISDN
  
• 15% of SMEs with Internet now using cable modem / DSL (industry figures)

Slight increase in Internet penetration – mainly amongst small businesses

2.1 Nearly 7 in 10 (67%) UK SMEs have Internet access a slight but not significant rise from 63% last quarter. This slight increase is most noticeable amongst small businesses. The number of medium sized businesses with Internet access appears to be reaching saturation (96%).

2.2 Internet penetration increases with business size from 58% in single employee businesses to 96% amongst those with 51 or more employees.

Slight rise in usage of PSTN access via ordinary phone line dial up

2.3 After consistent falls in the proportion of companies using PSTN/ ordinary dial-up access, this wave sees a rise from 55% to 61%. The rise appears to be mainly driven by small businesses connecting to the Internet. Currently 62% are using this method compared to 56% at the last wave.

2.4 The rise in the proportion of businesses using unmetered packages reported in February has been sustained. Use of unmetered packages increases with business size, 71% of medium sized businesses currently use this type of package compared to 62% of small businesses connected to the Internet.

Overall satisfaction remains generally high

2.5 Nearly 9 in 10 businesses (88%) are satisfied with the overall service provided by their ISP. This has remained quite consistent over the last three quarters. Whilst there has been fluctuation with satisfaction with speed of access since February, there has been no significant change overall. There has been a drop in satisfaction with subscription charges since February (currently 84%).

Chapter 3

Internet penetration among small and medium businesses

3.1 Currently just under 7 in 10 (67%) SMEs have Internet access (66% of small businesses and 96% of medium sized businesses). The number of medium sized businesses with Internet access appears to be reaching saturation. Internet penetration amongst small businesses has risen slightly but not significantly this quarter. The results are summarised in figure 3a.

3.2 A further 4% of SMEs claim to be in the process of connecting to the Internet and 5% think they are likely to within the next 12 months. Virtually all of these are small businesses where Internet penetration is considerably lower.

3.3 Figure 3b demonstrates that the number of SME businesses connected to the Internet has grown over the last 12 months from 61% to 67%. Most of these connections will be amongst small businesses where penetration is considerably lower as shown above, as the majority of medium sized businesses (94%) were already connected 12 months ago. A quarter of businesses remain unlikely to be connected in the future.

3.4 Also shown in figure 3b is the current proportion of small and medium businesses with Internet access and whether those without are likely to connect. As mentioned before the majority of medium sized businesses already have Internet access.

3.5 Internet penetration increases with business size, currently rising from 58% in single employee businesses to 96% at the larger end of the market (51+ employees). The trend of higher penetration amongst larger companies has remained quite consistent over time.

Chapter 4

Internet access methods and ISPs

Connection method

4.1 The number of SMEs connecting to the Internet via ordinary phone line dial-up has fallen significantly over recent quarters, however this wave sees a slight reversal of this trend. Currently 61% are connecting using this method compared to just over half (55%) in May ’02, however usage remains lower than in November ’01 (73%) as shown in figure 4a.

4.2 The rise in use of PSTN experienced this quarter is mainly driven by small businesses where penetration has increased slightly this quarter.

4.3 One in ten businesses with Internet (10%) claim to be accessing the

Internet using DSL or cable modem. Industry subscriber figures suggest penetration is about 15% (as at August 2002).

4.4 Although overall there has been a slight fall in usage of ordinary dial-up amongst small businesses in the last 12 months (74% in August ’01, 62% at this wave), they are still far more likely to use this method than other methods. However this bias is less apparent than 12 months ago, with 31% now using ISDN compared to 18% in August ’01, indicating greater use of faster access methods amongst smaller businesses over time.. Medium sized businesses remain more likely to use faster Internet services such as ISDN, leased lines, cable modems and DSL, as shown in figure 4b.

Type of package used

4.5 The increase in the proportion of SMEs using an unmetered package observed in May ’02 has been sustained (currently used by 62% of businesses - the drop in unmetered usage between May and May/ Aug’02 is not statistically significant), as has the corresponding fall in calls only packages.

4.6 The questions asked to establish the type of package being used have been revised to reduce confusion over the definition of Internet packages (revised questions have been running since February ’02 as shown below). For more details on this change see annex 2.

4.7 Nearly three-quarters (71%) of medium sized businesses currently claim to use unmetered packages, as shown in figure 4d. Although nearly two-thirds of small businesses (62%) use unmetered packages, they remain twice as likely to use a calls only (pay as you go) package as medium businesses (24% and 12% respectively) as shown in figure 4d.

ISPs used

4.8 Businesses are making use of a range of ISPs, as shown in figure 4e – which shows individual ISP share of the SME market, based on which ISPs businesses said they were using [NB this is not the same as the proportion of businesses using each ISP as some businesses are using more than one]. Only ISPs with a share of 2% or more are shown. Those with less than 2% share are included in the ‘other’ category.

4.9 BT’s share of the ISP market has remained virtually unchanged at 31%. BT, Freeserve and AOL remain the most popular ISPs used amongst small and medium businesses claiming over half (58%) of the SME Internet market.

Figure 4f: ISP share of UK SME Internet access (based on all ISPs businesses use)
Base: All ISPs used in small and medium UK businesses with Internet access, May/ Aug ’02 (Base: 1332, ‘don’t knows’ have been excluded)

y	Nov '01	Feb ‘02	May ‘02	May/ Aug ‘02
BT	16%	19%	30%	31%
Freeserve	16%	16%	12%	14%
AOL	14%	13%	13%	13%
Demon Internet	8%	8%	6%	6%
LineOne/Tiscali/ Tiny Online	2%	-	2%	3%
Virgin Net	5%	4%	4%	2%
MSN	5%	3%	3%	2%
NTL	3%	-	3%	2%
Others	31%	37%	27%	27%
Total	100%	100%	100%	100%

Chapter 5

Satisfaction with Internet service

5.1 Consistent with previous quarterly surveys businesses continue to express fairly high levels of satisfaction with their Internet service, as shown in figure 5a. 9 out of 10 (88%) businesses are satisfied with their overall quality of service from their Internet provider. This compares to 93% for fixed telecoms services and 89% for mobile suppliers. Medium businesses are significantly more satisfied with overall service – sustaining findings from last quarter.

Figure 5a: % UK businesses satisfied with aspects of Internet service
Base: UK businesses with Internet May/ Aug ‘02 (Base: 1332, ‘don’t knows’ have been excluded)

* due to the changes made to question phrasing on type of package used, these figures vary slightly from previous results –full details of this change can be found in annex two.

5.2 There has been little change in satisfaction levels for call charges since August ’01. However satisfaction levels with subscription charges are lower than they were in February. This change could be brought about by the changing customer profile of this group (as already reported, businesses are upgrading their access package to faster subscription based services). Satisfaction with customer care from their ISP remains at just over 80%.

5.3 Generally medium sized businesses are again more satisfied with speed than smaller businesses (84% and 75% respectively). This is consistent with medium sized businesses access methods – more of these businesses tend to use faster access methods such as leased lines and ISDN than smaller businesses.

5.4 As the number of businesses moving from metered to unmetered packages increases, differences are emerging in satisfaction levels between customers of the different packages. As figure 5b shows those who are on a subscription-free package (i.e. they only pay the call costs) are significantly less satisfied with the speed of access than those on the other two types of package, particularly those on an unmetered package.

5.5 The overall quality of service, and particularly ISP customer care are the most consistent aspects across all three packages (as observed in previous quarters).

Annex 1

Q10 business questions on Internet

Q1 Is your company connected to the Internet or in the process of connecting to the Internet?

Yes connected
Yes in process of connecting
No not connected/not in process of connecting

Q2 Is your company likely to become connected to the Internet in the next 12 months?

Q3 Thinking about the main ISP that your business uses, do you have to pay a subscription fee for the package provided? This might include free usage time, and normally is paid on a monthly or annual?

Q4 Do you ever pay any "per minute" call charges for the time your business spends online? Would you say you…

Pay per minute call charges for all the time you are online
Pay per minute call charges for some but not all the time you are online
Pay no per minute call charges for being online

Q5 Which of these best describes the package provided by your business' main ISP?

Monthly or annual subscription and cost of calls made when online
No subscription fee and pay cost of online calls only
Monthly/annual subscription which gives unlimited free usage and pay no call costs
Monthly/annual subscription which gives free usage at certain times or for certain amount of time but pay for call costs at other times
Other (specify)

Q6 Which ISP's do you use to access the Internet?

Q7 Overall are you satisfied with the following aspects of Internet use?

Overall quality of service offered by ISP
The call costs
The speed of access
The customer care offered by ISP
The subscription charges

Q8 Which of the following does your company use to connect to the Internet?

Ordinary phone line/dial-up access
BT Highway
ISDN line
High speed access via DSL, always on, unmetered access, faster than an ordinary phone line which enables you to make voice calls at the same time as using the Internet
Leased line
Cable modem – always on, unmetered access, offering various access speeds, faster than an ordinary
phone line which enables you to make voice calls at the same time as using the Internet
Fixed access delivered by radio
Satellite

Annex 2

Details of changes to question on Internet package

Internet packages

Since February ’02 the quarterly surveys have included alternative questions to establish the type of Internet package being used. The original question was fairly complex and lengthy with scope for misinterpretation.

Original question

Q. Which of these best describes the package provided by your business' main ISP (Internet Service Provider)?

Monthly/annual subscription and cost of calls whilst online
No subscription fee and pay cost of online calls only
Monthly/annual subscription which gives unlimited free usage, and pay no call costs
Monthly/annual subscription which gives free usage at certain times or for certain amount of time, but pay for calls costs at other times

Revised questions

Q. Thinking about the main ISP that your business uses, do you have to pay a subscription fee for the package provided? This might include free usage time, and normally is paid on a monthly or annual basis.

Yes/No

Q. Do you ever pay any per minute call charges for the time you spend online?

Pay per minute call charges for all the time spent online
Pay per minute call charges for some but not all the time spent online
Do not pay any per minute call charges for being online

The implications of changing the phrasing of questions are that some of the results will be affected. To understand what changes are due to the revised questions and what changes are real changes in the market, the original question phrasing was run concurrently with these revised questions for three quarters. Results from both sets are shown below.

Figure a: Original question

As shown in figure a and b above, the main impact of changing the questions was a slight increase in the proportion of businesses using an unmetered package.

As shown above the rise in use of unmetered packages was sustained in August and both sets of results reflect this rise.