2 May 2002

Please note: The industry subscriber figure for broadband usage amongst SMEs with Internet has been amended in this report to 8% - the previous figure quoted (5%) was the industry figure for broadband usage amongst all UK SMEs.

Contents

Chapter 1 Introduction

Chapter 2 Summary

Chapter 3 Internet penetration among small and medium businesses

Chapter 4 Internet access and methods and ISPs

Chapter 5 DSL, cable modems and leased line services

Chapter 6 Satisfaction with Internet service

Appendix 1 Changes to Oftel’s Quarterly Business Survey

Appendix 2 Q8 business questions on Internet

Chapter 1 – Introduction

1.1 This report provides an overview of business use of Internet, taken from the eighth wave of Oftel’s quarterly business survey, conducted in February 2002 amongst 801 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 (see note 1 below).

1.2 The survey sample was changed in wave five, and hence results are not directly comparable with waves previous to that. Details and implications of the changes can be found in Appendix 1. 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 The survey was conducted on behalf of Oftel by Continental Research during February 2002. This report has been prepared by Oftel (see note two below) based on the results provided by Continental Research.

1.4 The report covers:

• Internet penetration among SMEs;
• type of package, ISPs used;
• Internet connection methods used including DSL (digital subscriber line) services and other non-PSTN/dial-up connection methods;
• awareness and usage of broadband services;
• leased lines versus other broadband services (DSL/cable modem); and
• satisfaction with Internet services

1.5 A list of the questions is attached in Appendix 2. 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.

Notes:

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 801 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.

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

• 59% of all SMEs have Internet access
• 38% SMEs with Internet access use unmetered package (51% medium and 38% small)
• 65% SMEs with Internet access aware of cable modem and DSL services
• 89% satisfied with overall quality of service
• 2% SMEs with Internet using leased lines
• 8% SMEs with Internet using DSL or cable modems

Internet penetration remains broadly unchanged

2.1 Around 6 in 10 (59%) UK SMEs have Internet access, this figure remains broadly similar to recent months. The number of medium sized businesses with Internet access appears to be reaching saturation (94%).

2.2 Internet penetration increases with business size from 52% in single employee businesses to 94% amongst those with 100+ employees.

Slight drop in usage of PSTN access

2.3 Just over two-thirds (67%) of UK businesses use PSTN/dial-up access for their Internet connection, a drop from 73% last quarter. The fall appears to be mainly driven by small businesses, currently 69% are using this method compared to 78% in November ’01. These users do not appear to have switched to using an alternative access method as usage figures of other methods remains broadly similar to recent quarters. Suggesting that multi-access users may have stopped using dial up and continued solely with their alternative method.

2.4 Usage of other methods of access remains broadly similar to recent quarters. Small businesses continue to prefer ordinary dial up whilst medium sized businesses are more likely to use leased lines or ISDN services. Industry subscriber figures suggest that 8% of businesses with Internet are using DSL or cable modem services.

2.5 Nearly 2 in 5 (38%) businesses with Internet access are using unmetered Internet access. Use of unmetered packages increases with business size – half (51%) of medium sized businesses currently use this type of package compared to 38% of small businesses connected to the Internet.

2 in 3 businesses with Internet access are aware of DSL and cable modem services and three in five leased lines users, connected to the Internet, would consider replacing them with DSL or cable modem

2.6 6 in 10 (61%) SMEs not currently using DSL or cable modem were aware of these services. This equates to 65% of all SMEs aware of cable modem or DSL services. Awareness was lowest amongst PSTN users (58%).

2.7 59% of businesses currently using leased lines and aware of DSL or cable modems would consider replacing their leased lines with these services. Generally, the lower the bandwidth – the more likely they were to consider switching.

2.8 Around 2 in 5 (43%) businesses not currently using leased lines, DSL or cable modems, but aware of them, considered DSL/cable modem to be a good substitute for leased lines. The main reason given by those businesses who said DSL or cable modem was not a substitute for leased lines was expense – DSL or cable modem being too expensive for their business’ current needs. Some also mentioned that their usage patterns did not require them to use DSL, cable modem or leased lines. Their likely lack of familiarity with any of these services may have prevented them from giving an opinion on whether one is a substitute for the other.

Overall satisfaction remains generally high

2.9 Nearly 9 in 10 (89%) businesses are satisfied with the overall service provided by their ISP. Following the slight drop in satisfaction with subscription charges last quarter – satisfaction with this aspect has recovered to 92%, which is encouraging as this affects two out of three Internet connected businesses. UK SMEs with Internet access remain least satisfied with the speed of their service (71%).

Chapter 3 – Main findings

Internet penetration among small and medium businesses

Figure 3a: % UK SMEs with Internet access
Base: UK businesses, August ’01 (Small – base: 516, Medium – base: 300), November ’01 (Small – base: 506, Medium – base: 309), February ’02 (Small – base: 500, Medium – base: 301)

3.2 A further 6% 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.

Figure 3b: Internet penetration amongst UK businesses
Base: UK businesses, May ’01 (Base: 801), August ’01 (Base: 816), November ’01 (Base: 815), February ’02 (Base: 801)

3.3 Figure 3c shows the 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 have Internet access or are in the process of connecting.

Figure 3c: Internet penetration amongst UK businesses
Base: UK businesses, February ‘02 (Small – base: 500, Medium – base: 301)

3.4 Three-quarters (76%) of small businesses that have not yet connected claim that they are unlikely to connect to the Internet in the next 12 months, equating to 3 in 10 small businesses unlikely to connect to the Internet in the next year.

3.5 As reported in previous quarterly surveys, Internet penetration increases with business size, currently rising from 52% in single employee businesses to 94% at the larger end of the market (100+ employees). These figures remain broadly unchanged in recent months and a full breakdown can be found in the November 2001 report www.oftel.gov.uk/publications/research/2002/q7intb0202.htm.

Note:

3. The apparent drop from 63% to 59% is not statistically significant but within the error margins for the survey, and therefore may not be a 'real' drop.

Chapter 4 – Internet access methods and ISPs

Connection method

4.1 The number of SMEs connecting to the Internet via PSTN/ordinary phone line dial-up has fallen significantly over recent months. Currently just over two thirds (67%) are connecting using this method compared to around three-quarters (73%) in November, as shown in figure 4a.

4.2 Almost 1 in 10 businesses with Internet (9%) claim to be accessing the Internet using broadband services, either DSL or cable modem. Industry subscriber figures are broadly similar at around 8%. This equates to approximately 1% of all small and medium-sized businesses using DSL or cable modem.

Figure 4a: Internet access methods used by UK businesses
Base: UK businesses with Internet access, Aug ’01 (Base: 643), Nov ’01 (Base: 650), Feb ’02 (Base: 615)

Note: figures add to more than 100% as some businesses are using more than one access medium

4.3 The fall in usage of PSTN for Internet access appears to be driven mainly by small businesses. Currently 69% small businesses use PSTN compared to 78% in November ’01. Consistent with previous surveys small businesses continue to prefer ordinary phone line/dial up access whilst medium sized businesses remain more likely to use ISDN or leased lines, shown in figure 4b. Broadband access is also used by more medium businesses than small, perhaps usage patterns of larger businesses are driving the need for broadband services. Awareness and usage of broadband services is covered in more detail in Chapter 5.

Figure 4b: Internet access methods used by UK businesses
Base: UK businesses with Internet access, February ’02 (Small – Base: 332, Medium – Base: 282)

Type of package used

4.4 SME’s use of the various Internet packages available remains broadly similar to recent quarters. Approximately 2 in 5 (38%) are using an unmetered product (33% fully and 5% partially unmetered).

Figure 4c: Main type of Internet package used by businesses
Base: UK businesses with Internet access, May ’01 (Base: 594), August ’01 (Base: 643) November ’01 (Base: 650) February ’02 (Base: 615), ‘don’t knows’ and ‘others’ have been excluded.

4.5 Half (51%) of all medium sized businesses currently claim to use unmetered packages, as shown in figure 4d. Small businesses appear to be as likely to use unmetered products (38%) as calls only packages (35%). Calls only packages decrease in popularity as business size increases.

Figure 4d: Main type of Internet package used by businesses
Base: UK businesses with Internet access, February ’02 (Small – base: 332, (Medium – base: 283) ‘don’t knows’ have been excluded

ISPs used

4.6 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.

Figure 4e: ISP share of SME Internet access (based on all ISPs businesses use)
Base: All ISPs used in small and medium UK businesses with Internet access, February ’02 (Base: 615) 6% ‘don’t knows’ have been excluded.

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, February ’02 (Base: 615, 6% ‘don’t knows’ have been excluded)

4.7 BT, Freeserve and AOL remain the most popular ISPs used amongst small and medium businesses claiming around half (49%) of the SME Internet market, but the remaining 51% are using a variety of different providers for their Internet services.

Chapter 5 – DSL, cable modem and leased line services

Awareness of DSL or cable modem services

5.1 61% of Internet connected SMEs not currently using cable modem or DSL were aware of these services. Taking into account those already using these services, this figure rises to 64% amongst all Internet connected businesses. Awareness does not vary greatly according to business size – 64% of small businesses and 67% of medium sized businesses with Internet access were aware of DSL and cable modem services.

5.2 Figure 5a shows awareness of cable modem and DSL by access methods amongst businesses not currently using these services. Businesses currently using leased lines for their Internet service were more aware than average of DSL and cable modem services. Awareness was lowest amongst those using PSTN/dial up access.

Figure 5a: Awareness of DSL or cable modem services by access method
Base: UK SMEs with Internet access, not using cable modem or DSL (Base: 538)

5.3 Of those companies who were aware of cable modem and DSL, 42% had sought information from ISPs or telecoms providers. Figure 5b shows the proportion of businesses seeking advice from each source, some businesses are included in more than one category. A proportion (16%) of businesses aware of these services claimed not to have used information to find out about them. These were mainly small businesses (1-50 employees) perhaps not currently using the Internet sufficiently to justify looking into faster services in more depth.

Figure 5b: Information used to find out about broadband services
Base: UK SMEs aware of cable modem or DSL services (Base: 304)

Satisfaction with information available on broadband

5.4 Just over two-thirds (67%) of businesses with Internet access and aware of DSL and cable modem are currently satisfied with the information available on these services. Small businesses aware of these services are as satisfied as medium sized businesses (67% and 60% respectively), as shown in figure 5c. Awareness of DSL and cable modem does not appear to affect satisfaction levels amongst medium sized businesses, however only half (48%) of small businesses with Internet access and unaware of these services were satisfied with the information available.

Figure 5c: % satisfied with information available on broadband services
Base: UK SMEs with Internet access (Base: 615)

* base size less than 100 so apply caution

5.5 There was little difference in satisfaction levels according to the type of package used – ranging from 77% of all businesses with Internet access using an unmetered product to 86% amongst businesses using a subscription and calls based package.

5.6 Current access methods used by SMEs connected to the Internet have an effect on levels of satisfaction. Almost all (99%) of those currently using a DSL or cable modem service are satisfied with the information available while slightly more than three-quarters (77%) of those using ordinary dial up/PSTN are satisfied.

Leased lines

5.7 Currently 4% of all SMEs use leased lines (not specifically for Internet access). Medium sized businesses are more likely to use leased lines than small businesses (31% and 3% respectively).

5.8 The base size for this group is fairly small so some caution should be applied to results. Slightly less than half (44%) of businesses with leased lines use digital lines as shown in figure 5d. The totals equate to more than 100% as some businesses have more than one capacity of leased line. Slightly more than a third of businesses with leased lines (36%) use analogue lines. These findings are broadly similar to last quarter, digital lines with higher capacity being more popular than analogue and lower capacity digital lines. There remains a significant minority (21%) unsure about the type of leased line being used.

Figure 5d: % using various bandwidth of leased line
Base: UK SMEs with leased lines (Base: 128)

5.9 6 in 10 (59%) SMEs using leased lines and aware of DSL or cable modem services would consider replacing their leased lines with DSL or cable modem, 37% would not consider replacing their leased lines and a further 4% did not know. Small businesses appear more likely (68%) to consider replacing their leased lines than medium sized businesses (41%) however, apply caution to these results as they have been drawn from small base sizes. Generally the lower the bandwidth the more likely businesses are to consider replacing their leased lines with DSL or cable modem services.

5.10 Of the 37% which would not consider replacing their leased lines, the main reasons given were satisfaction with leased lines or that leased lines were better for their needs ie faster, more reliable or cheaper than DSL or cable modem services.

5.11 Figure 5e shows the extent to which UK SMEs who use neither leased lines nor DSL or cable modem but are aware of them, think DSL or cable modems are a substitute for leased lines for their particular needs.

Figure 5e: Substitution of leased lines with DSL or cable modem services
Base: UK SMEs without leased lines and aware of but not using DSL or cable modem services (Base: 290)

5.12 About 2 in 5 (43%) of these businesses considered DSL or cable modems to be a substitute for leased lines (19% a very good substitute and 24% fairly good) for their business. Almost a quarter (24%) thought DSL or cable modem services were no substitute for leased lines and the remaining third did not know. However, some caution should be applied to these perceptions of DSL/cable modem as a substitute to leased lines, as many of these businesses are unlikely to have experience of any of these services.

5.13 Small businesses (43%) were as likely to think DSL or cable modem was a good substitute for leased lines, as medium sized businesses (49%).

5.14 The main reason given by those businesses who said DSL or cable modem was not a substitute for leased lines was expense – DSL or cable modem being too expensive for their business’ current needs. Some also mentioned that their usage patterns did not require them to use DSL, cable modem or leased lines. Perhaps their likely lack of familiarity with any of these services prevented them from giving an opinion on whether one is a substitute for the other.

Chapter 6 – Satisfaction with Internet service

6.1 Consistent with previous quarterly surveys businesses continue to express fairly high levels of satisfaction with their Internet service, as shown in figure 6a. 9 out of 10 (89%) businesses are satisfied with their overall quality of service from their Internet provider.

Figure 6a: % UK businesses satisfied with aspects of Internet service
Base: UK businesses with Internet February ‘02 (Base: 615, ‘don’t knows’ have been excluded)

6.2 There has been little change in satisfaction levels for call charges since August ’01, but the previous fall in satisfaction with the speed of access and customer care has been sustained this quarter. Currently 71% are satisfied with the speed of access compared to 78% in August ’01 and 82% are satisfied with the customer care from their ISP compared to 89% in August ’01.

6.3 Generally medium sized businesses are slightly more satisfied with speed than smaller businesses (85% and 70% respectively). This is consistent with medium sized businesses access methods – more of these businesses tending to use faster access methods such as leased lines and ISDN than smaller businesses. As reported previously we will continue to monitor satisfaction with this aspect alongside use of broadband services, as perhaps the lower levels of satisfaction with this aspect will drive businesses towards using broadband services offering faster speeds.

6.4 Satisfaction with subscription charges, (based on businesses paying subscriptions) has recovered to similar levels as reported in August, following the slight drop in November ‘01. Satisfaction with this aspect remains relatively high in comparison to other measures which is encouraging as it affects two-thirds of Internet connected businesses in the UK.

6.5 Satisfaction does not vary greatly according to the type of package used. Businesses paying for calls as well as subscription charges are slightly less satisfied with most aspects than those on unmetered products. Unmetered business users are also more satisfied with the speed of access than those on subscription and calls or calls only packages. During November ’01, 76% of businesses using calls-only packages were satisfied with the speed of their Internet access compared to 62% currently, suggesting this group is behind the drop in satisfaction with this aspect.

Figure 6b: % UK businesses satisfied with aspects of Internet service, split by package used
Base: UK businesses with Internet access February ’02 (Base 615, ‘don’t knows’ have been excluded)

* based on those businesses which pay subscription charges/call costs

Appendix 1 – Changes to Oftel’s Quarterly Business Survey

Background

A.1 Oftel’s quarterly business surveys began in May 2000. The purpose of these surveys is to provide better information for Oftel decision making and to assist stakeholders in their response to Oftel documents and policy decisions.

A.2 The surveys focus on small and medium-sized businesses and exclude large businesses for a number of reasons:

• large businesses account for less than 1% of all UK businesses;
• they are very over-researched particularly in the field of telecoms (primarily due to their limited number) and for this reason are often reluctant to participate in research;
• they have considerably greater buying power for telecoms services and can negotiate bespoke deals with individual suppliers, enabling them to get better deals, and making it difficult to make any meaningful comparisons in a research context; and
• Oftel uses its large business advisory panel to conduct research on specific topics.

A.3 Oftel’s business surveys are conducted among a representative sample of UK small and medium businesses (with a minimum turnover of £50,000), reflecting the UK profile in terms of number of employees, business sector, and geographic region. As small businesses (with up to 50 employees and over £50,000 annual turnover) account for around 97% of UK businesses, the surveys over-sample medium businesses in order to produce a sufficiently robust sample to allow analysis of results among medium businesses.

A.4 Quotas are set for small and medium businesses separately to ensure each sample is representative of businesses of these different sizes, in terms of number of employees, business sector, and geographic region. After interviewing, the results are combined and weighted to be representative of UK small and medium businesses as a whole. This enables us to present representative results for small and medium businesses separately, each based on sufficiently robust samples, and representative results for the combined small and medium business sector.

Details of changes to the sample

A.5 A review of the first four surveys was conducted in March 2001, and a segmentation study conducted enabling the data to be examined in greater detail than was possible during each separate wave. As a result of this work, three key changes have been made to the surveys between waves four (February 2001) and five (May 2001):

a) Larger quarterly sample

• The first four waves of Oftel’s business survey interviewed 700 businesses each quarter – 400 small, 300 medium. From wave five, each quarterly sample has been increased to 816 businesses – 516 small, 300 medium.
• Increasing the overall sample will provide greater scope for a wider variety and more detailed analysis among subgroups.

b) Change to definition of ‘medium’ businesses

• The first four waves of Oftel’s business survey sampled ‘medium’ businesses with between 51-500 employees in order to be as inclusive of as many businesses as possible. From wave five, the survey samples ‘medium’ businesses with between 51-250 employees.
• Businesses with more than 250 employees were generally found to be making fairly good use of competition and choice, and were exhibiting behaviour that was more in line with larger businesses than smaller businesses in relation to their use of telecoms. It was therefore decided to exclude them from future surveys and focus resources on smaller businesses who generally require greater assistance to make best use of the choices available. This definition of medium businesses as up to 250 employees is now in line with that of the DTI.

c) More detailed sampling of small businesses

• The first four waves of Oftel’s business survey applied quotas and weights for small businesses’ number of employees in the categories 1-10 employees, 11-25 employees, and 26-50 employees. From wave five, these categories have been expanded and quotas and weights are now applied to 1-5 employees, 6-10 employees, 11-25 employees, 26-50 employees.
• Businesses with 1-10 employees account for around 86% of all SMEs. However, use of telecoms can differ quite significantly between businesses with one employee compared to those with ten. Refining the sampling methodology to interview consistent numbers of 1-5 and 6-10 employee businesses wave-on-wave, should result in fewer fluctuations in results, and enable greater opportunity for analysis and trend data based on number of employees at this lower end of the spectrum.

Implications of changes for comparison between surveys

A.6 The changes to the sampling methodology (employee categories) as described above, mean that the results of wave five are not directly comparable with those from waves one to four. This does not however mean that the results from waves one to four are inaccurate or invalid. Waves one to four are representative of businesses with up to 500 employees, whereas waves five, and onwards, are representative of businesses with up to 250 employees, and provide a greater focus on businesses with up to five employees than waves one to four.

A.7 Whilst this unfortunately results in a discontinuity of trend information between waves four and five, the re-focus on smaller businesses following the review of the first four waves of data, was felt to be of greater benefit in assisting Oftel’s policy development and assessment, and other work in respect of small businesses.

Appendix 2 – Q8 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 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)

Q4 Which ISP's do you use to access the Internet?

Q5 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
The information available on broadband services

Q6 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

Q7. Broadband services such as DSL or cable modems offer faster always on unmetered access to the Internet and enable you to make voice calls at the same tie as using the Internet. Before now were you aware of broadband services?

Q8. What sources of information if any have you used to find out about these services?

Advice from friends/colleagues/other businesses
The websites of ISPs/telecoms companies
Other websites
Information direct from ISP or telecoms company (other than website)
Information/leaflet/literature/advertising/advice from ISP/telecoms companies
Magazines/leaflets but NOT from ISP/telecoms company

Q9. Would you consider replacing your leased lines with DSL or cable modem broadband services?

Q10. Why would you not consider replacing your leased lines with broadband services?

Q11. In your opinion to what extent are broadband services via DSL or cable modem a substitute for leased lines for your business?

A very good substitute
A fairly good substitute
Not a very good substitute
Not a substitute at all

Q12. Why don’t you think that leased lines are a good substitute for leased lines?