Contents

Chapter 1 Introduction

Chapter 2 Summary

Chapter 3 Main findings

Chapter 4 Internet access methods and ISPs

Chapter 5 Use of broadband and interest in SDSL

Chapter 6 Use of email instead of fixed voice calls

Chapter 7 Satisfaction with Internet service

Annex A Q11 business questions on Internet and adhoc questionnaire

Annex B Details of changes to question on Internet packages

Chapter 1

Introduction

1.1 This report provides an overview of business use of Internet, the majority taken from the eleventh wave of Oftel’s quarterly business survey, conducted in November 2002 amongst 846 UK businesses, with additional research into use of email rather than voice calls which was conducted in October 2002 amongst 200 UK businesses, please see footnote for further sample details (see note one below).

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 during November 2002. This report has been prepared by Continental Research and Oftel (see note two below) based on the results provided by Continental Research.

1.5 The report covers:

• Internet penetration among SMEs;
• type of package, ISPs used;
• use of Broadband;
• attitudes and interest in SDSL;
• use of email instead of fixed voice calls;
• switching package and connection types; and
• satisfaction with Internet services.

1.6 A list of the questions is attached in Annex A. 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 surveys were 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 the survey of 846 businesses is about 2-4%, and 4-6% for the sample of 200, and 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

• 67% of all SMEs have Internet access;
• 61% SMEs with Internet access use unmetered packages (74% medium and 60% small);
• 86% satisfied with overall quality of service;
• 26% of SMEs with Internet now using ISDN, 13% use DSL/cable modem; and
• 42% of SMEs aware of SDSL.

Internet penetration remains broadly unchanged

2.1 Nearly 7 in 10 (67%) 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 (96%).

2.2 Internet penetration increases with business size from 61% in businesses with 1-5 employees, to 96% amongst those with 51 or more employees.

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

2.3 After consistent falls up until May in the proportion of companies using PSTN/ ordinary dial-up access, this wave sees another slight rise from 61% to 63%.

2.4 There had been a slight fall in the proportion of businesses using unmetered packages since May. Use of unmetered packages increases with business size, 74% of medium sized businesses currently use this type of package compared to 60% of small businesses connected to the Internet.

2 in 5 businesses are aware of SDSL services

2.5 42% of SMEs were aware SDSL services, with no significant difference between small and medium companies. Of those businesses using the Internet (not via PSTN), 44% were interested in using these services. 46% of businesses with non dial up Internet access, and interested in SDSL said they would be prepared to pay higher costs for a service maintaining their current downloading speeds, but increasing their outgoing capacity.

Almost all businesses use email in place of voice calls in various circumstances

2.6 98% of businesses with Internet send emails rather than fixed voice calls in various situations. The most popular reason was to send an attachment – suggesting that email may also replace some fax calls or postage. Other popular reasons for emailing rather than calling were to contact abroad for cost reasons (73%) or time differences (75%). A similar proportion (73%) felt that emailing was more convenient than fixed phone calls.

A third of narrowband unmetered users upgraded from metered package

2.7 Few (6%) PSTN users had ever used a different method of accessing the Internet while broadband customers are more likely to have upgraded from an alternative connection method.

2.8 Switching from metered narrowband to unmetered is significantly more evident than switching away from unmetered – 33% switched to unmetered compared to 2% switching back to metered.

Overall satisfaction remains generally high

2.9 Nearly 9 in 10 businesses (86%) 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 82%).

Chapter 3

Main findings

Internet penetration among small and medium businesses

3.1The proportion of small and medium businesses with Internet access has not changed since the last wave. 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. The results are summarised in figure 3a. A further 4% of SMEs claim to be in the process of connecting to the Internet.

Figure 3a: % UK SMEs with Internet access

Base: UK businesses, Aug/ Nov ‘02 (Base: 1677, small – 1060, medium - 617)

3.2 Internet penetration increases with business size, currently rising from 41% 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.

Figure 3b: Internet penetration amongst UK businesses by employee size

Base: UK businesses, Aug/Nov ‘02 (Base: 1677)

Number of employees

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 had been falling significantly over recent quarters, however the last wave saw a slight reversal of this trend which has been sustained this quarter. Currently 63% are connecting using this method compared to just over half (55%) in May ’02, however usage remains significantly lower than 12 months ago (73%) as shown in figure 4a.

4.2 Over one in ten businesses with Internet (13%) claim to be accessing the Internet using DSL or cable modem. Industry subscriber figures are unable to show which businesses are using broadband.

Figure 4a: Internet access methods used by UK businesses

Base: UK businesses with Internet access, Aug/Nov ‘02 (Base: 1365)
Note: figures add to more than 100% as some businesses are using more than one access medium

4.3 Although there is continuing fluctuation in usage of ordinary dial-up amongst SMEs over the last 12 months, they are still more likely to use this method than other methods. However this bias remains less apparent than 18 months ago, with 63% now using dial-up compared to 73% in November ’01 (as mentioned above). The proportion of small companies using dial-up has risen again this quarter from 56% in May to 62% in August, and is now at 65% sustaining the rise last quarter. Oftel will continue to monitor.

4.4 As the proportion using dial-up rises again, the proportion using ISDN is dropping, and has fallen from a peak of 36% in May ’02, to 27% at this wave.

Figure 4b: Internet access methods used by UK businesses

Base: UK businesses with Internet access, Aug/Nov ‘02 (Base: small – 774, medium – 591)

4.5 Medium companies remain more likely than small companies to use faster Internet services such as ISDN, leased lines, cable modems and DSL, as shown in figure 4b.

Type of package used

4.6 Currently 6 in 10 (61%) businesses use an unmetered Internet package, broadly similar to that reported last quarter and continuing to sustain the rise reported in May ‘02.

Figure 4c: Main type of Internet package used by businesses

Base: UK businesses with Internet access Aug/Nov ‘02 (Base: 1365) ‘don’t knows’ and ‘others’ have been excluded.

4.7 Three-quarters (74%) of medium sized businesses currently claim to use unmetered packages, as shown in figure 4d. Although 3 out of 5 small businesses (60%) use unmetered packages, they remain more than twice as likely to use a calls only (pay as you go) package as medium businesses (25% and 10% respectively) as shown in figure 4d.

Figure 4d: Main type of Internet package used by businesses

Base: UK businesses with Internet access, Aug/ Nov ’02 (Base 1365, ‘don’t knows’ have been excluded)

Switching access method and package

4.8 Almost 9 out of 10 (89%) UK SMEs with Internet have never used an alternative method of connection to that which they use now. Medium businesses are more likely to have used an alternative method of connection (3 in 10) compared to small businesses (1 in 10).

4.9 PSTN users are most likely to have connected straight to the Internet (94%) while broadband users are more likely to have upgraded from an alternative type of connection. Due to the extremely small base size of broadband users the information shown in figure 4e is the actual number of businesses who answered the question as reporting percentages would be misleading. Please treat results as indicative only.

Figure 4e: Previous connection method/package used

Base: UK SMEs with Internet using cable modem/DSL, Oct ’02 (Base: *20)

* extremely small base so percentages cannot be calculated and results should be treated as indicative only and with caution

4.10 Two thirds (67%) of unmetered narrowband users connected straight to the Internet via this type of package, whilst the remainder upgraded from metered packages – either pay as you go or subscription and calls packages. Switching away from unmetered is significantly less evident – 2% of those currently using a metered narrowband package switched from unmetered.

* small base sizes so treat results with caution

ISPs used

4.11 Businesses are making use of a range of ISPs, as shown in figure 4h– which shows estimated 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 4h: 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, Aug/ Nov ’02 (Base: 1365, 8% ‘don’t knows’ have been excluded)

4.12 BT’s share of the ISP market has remained unchanged at 31%. BT, Freeserve and AOL remain the most popular ISPs used amongst small and medium businesses claiming nearly two-thirds (61%) of the SME Internet market.

Figure 4i: 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, Aug/ Nov ’02 (Base: 1365, 8% ‘don’t knows’ have been excluded)

Broadband usage and perceived benefits

5.1 Two-thirds of DSL/cable modem users (68%) get their broadband services from the same supplier as their fixed telephone services.

5.2 Nearly half (45%) of SMEs with DSL/cable modem state that a benefit of their current connection (compared to other connection methods) is the time savings it offers, allowing faster and more efficient working.

5.3 Over a quarter (28%) stated benefits of cost savings and not having to pay call charges, and 22% mentioned the ability to control costs better because of the unmetered access. 14% mentioned the convenience of unlimited usage and having a permanent connection. 1 in 10 (11%) stated the ability to conduct faster sales or purchasing, and 10% mentioned faster transfer of data. 1 in 10 (9%) said broadband had no noticeable impact compared to other connections.

Figure 5a: Perceived benefits of DSL/cable modem compared to other connections

Base: Businesses using DSL/cable modem, Nov ’02 (Base: 103)

Interest and potential use of SDSL

5.4 SDSL is a two-way broadband service that allows larger amounts of data to be both sent and received data faster than via an ordinary phone line. 42% of SMEs with Internet access were aware of this, with no significant difference between small and medium companies. Companies currently using leased lines were more likely than average to be aware (4 in 5 were aware).

5.5 Amongst companies connected to the Internet by non dial-up access, just under half (44%) were either fairly (23%) or very (21%) interested in using an SDSL connection. There were no significant differences between small and medium companies.

5.6 A third (32%) of these Internet users interested in SDSL services said they would be prepared to sacrifice some of their current downloading capacity to increase their outgoing capacity, as shown in figure 5a. Around 2 in 5 (38%) would consider an SDSL service with reduced incoming and outgoing speeds for lower costs than faster SDSL services – this was slightly, but not significantly, higher amongst medium businesses than small however, the small base sizes mean caution should be applied to these findings.

5.7 46% of businesses with Internet and interested in SDSL said they would be prepared to pay higher costs for a service maintaining their current downloading speeds, but also increasing their outgoing capacity. Again this was slightly more evident amongst medium businesses than small, but caution should be applied.

Figure 5a: SMEs prepared to use various types of SDSL

Base: SMEs internet users interested in SDSL Aug/ Nov ‘02 (Base: 172)

* NB small base size, so result should be viewed with caution

SDSL perceived benefits

5.7 Over a quarter of respondents (27%) mentioned speed in one way or another, including faster data transfer, access, quicker transactions, and the amount of time that these would then save. Other perceived benefits of SDSL included two-way transfer of files (17%), increased productivity (9%), and efficiency (8%). Other mentions included 'allows us to set up our own FTP site', 'improved communication between sites', 'graphic design', and 'customer services on website'.

Chapter 6

Use of email in place of fixed voice calls

6.1 Businesses were asked whether or not they send emails rather than making voice calls from fixed line phones in various instances, as detailed in figure 6a below. It appears that for businesses email replaces fixed telephony voice calls in various instances. In total almost all businesses with Internet (98%) said that they send emails instead of making voice calls in at least one instance.

Figure 6a: % businesses sending emails rather than making fixed voice calls in a variety of circumstances

Base: UK SMEs with Internet, Oct ’02 (Base: 165, don’t knows have been excluded)

6.2 The most popular reason, of the scenarios mentioned, was to send emails when it required an attachment (82% claimed to do this). However, in this instance a voice call alone would not suffice and email may also be replacing some fax calls or postal services.

6.3 The second most popular reason for sending emails over voice calls where perhaps a phone call may have been sufficient, was to make contact abroad. This was either due to time differences (75%) or because emailing internationally is cheaper than calling (73%). A similar proportion (73%) agreed that emailing was more convenient than phone calls.

Satisfaction with Internet service

7.1 Consistent with previous quarterly surveys, businesses continue to express fairly high levels of satisfaction with their Internet service, as shown in figure 7a. Nearly 9 out of 10 (86%) businesses are satisfied with their overall quality of service from their Internet provider. This compares to 93% for fixed telecoms (in August) services and 95% for mobile suppliers. Medium businesses are significantly more satisfied with overall service – sustaining findings from previous quarters. This higher level of satisfaction amongst medium businesses is driven by higher levels of satisfaction with access speeds, which is likely to be a reflection on their greater use of faster access methods.

Figure 7a: % UK businesses satisfied with aspects of Internet service

Base: UK businesses with Internet Aug/ Nov ‘02 (Base: 1365, ‘don’t knows’ have been excluded)

7.2 Satisfaction with call charges (amongst those that pay them) has fallen significantly from 77% last quarter to 73%. Satisfaction with this aspect has fallen amongst both small and medium companies this quarter, both of which stood at 77% last quarter.

7.3 Satisfaction levels with subscription charges remain fairly stable at 82%, the same level of satisfaction as for ISP customer care.

7.4 Generally medium sized businesses are again more satisfied with speed than smaller businesses (82% and 73% 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.

7.5 As the number of businesses moving from metered to unmetered packages changes, differences are emerging in satisfaction levels between customers of the different packages. As figure 7b 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.

7.6 Companies on unmetered packages are noticeably less satisfied with the customer care they receive (74%) compared to those on metered packages (89% satisfied).

7.7 The overall quality of service is the most consistent aspect across all three packages (as observed in previous quarters).

Figure 7b: % UK businesses satisfied with aspects of Internet service, split by package used

Base: UK businesses with Internet access Aug/ Nov ‘02 (Base 1365 ‘don’t knows’ have been excluded)

Annex A

Q11 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 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?

Q3 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

Q4 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
High speed access via 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

Q9 What are the benefits to your business of broadband compared to other Internet connections such as ordinary dial-up access?

Q10 In addition to DSL and "cable modem" broadband access which allows you to receive large amounts of data faster than an ordinary phone line connection, there is another type of access called SDSL or "symmetrical services". SDSL is a two-way broadband service which allows you to both send and receive larger amounts of data faster than via an ordinary phone line. Before now were you aware of this?

Very interested
Fairly interested
Not very interested
Not at all interested

Q13 And would you be prepared to take SDSL with reduced incoming speed AND outgoing capacity, for cheaper costs than higher-speed and higher-capacity SDSL services?

Q14 And would you be prepared to pay extra to maintain your incoming speed, and increase your outgoing capacity compared to your current method?

Q15 In what ways do you think SDSL would benefit your company?

Q16 Do you currently get your fixed telephone services and you DSL broadband services from the same fixed line operator?

Q17 Do you currently get your fixed telephone services and you DSL broadband services from the same fixed line operator?

Ad hoc questionnaire

Annex B

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

Figure b: Revised questions

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.