No. 236

March 2004

SMALL BUSINESS

RESEARCH

SUMMARY

A Survey of Small Businesses’

Telecommunications Use and Spending

by Stephen B. Pociask, TeleNomic Research, LLC

2004. [115] pages. Herndon, VA 20171

under contract no SBA-HQ-02-M-0493

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

This report provides new and much needed data on

small businesses’ use of and expenditures on

telecommunication services. These data provide an

important reference to inform policy decisions.

America’s 22.9 million small businesses use an

enormous amount and variety of telecommunication

services, including local landline, long distance, and

wireless technologies. Given the pace of technological change affecting the industry, as well as the

intense legislative and regulatory debates on such

issues as competition and high-speed Internet service,

policymakers require extensive information on how

these changes affect consumers. Yet public data on

small business consumption of telecommunication

services has not been available. The dearth of information on small businesses’ telecommunication use

paralyzes analysis. The current report examines small

businesses’ telecommunication use and spending.

Overall Findings

Small businesses spend a considerable amount for

telecommunication services. The level of expenditures varies by industry and firm size. As in so many

other areas of regulation, small firms are affected by

telecommunication policies in a manner disproportionate to their size.

Highlights

• The cost burden of telecommunication services is

much higher for very small businesses than for large

businesses. The survey found that very small firms

pay four times more per employee for local and long

distance services than large businesses do. (See

graph.) Firms with 4 employees or less face a peremployee cost of $82.81 for local and long distance

telephone service. Those with 5 to 9 employees pay

$50.18, 40 percent less; and those with 10 to 499

employees face a per-employee cost of $20.99, 75

percent less than firms with 0 to 4 employees and 

58 percent less than firms with 5 to 9 employees.

• Competitive local exchange carriers (CLECs)

are competing against the incumbents and serving

Per Employee Cost of Local and Long 

Distance Services

$20.99

$50.18

$82.81

0 to 4 5 to 9 10 to 499

Firm Size (Number of Employees)

Monthly Cost Per Employee Source: A Survey of Small Businesses’ Telecommunication Use and Spending, 

U.S. Small Business Administration, Office of Advocacy, 2004, Figure 44.
small business users. The survey found that CLECs

now have a 22 percent share and appear to serve

more telecommunication-intensive firms. This particular finding strengthens the view that CLECs are

able to better fulfill the technological needs of

telecommunication-intensive clients.

• Small businesses’ use of wireless telecommunication services is substantial, particularly in industries such as construction. Some small businesses

even appear to rely on wireless services to the exclusion of local and long distance wireline services. The

survey results reveal that 6 percent of small businesses using wireless services did not report long

distance expenditures, and 4 percent reported no

local telecommunication spending. In addition, 25

percent of the firms in the survey spent more on

wireless telecommunication services than on local

and long distance services combined.

• Voice-over-Internet protocol (VOIP) is a fairly

new technology which converts voice communications into packets that are transmitted over the

Internet and then converted back into voice communications. VOIP services are finding a place in the

small business market. The survey found 3.3 percent

of small businesses using this technology. Here again,

the technology is still in the early phase of adoption. 

• Small businesses access the Internet in a variety

of ways. Thirty-eight percent use dial-up services, 26

percent use cable modems, 21 percent use DSL, 4

percent use satellite, 4 percent use T1, and 3 percent

use wireless broadband. All in all, dial-up is still the

most popular means for small businesses to connect

to the Internet. When looking at all remaining highspeed technology available (satellite, wireless broadband, DSL, cable, and T1), cable commands nearly

half of the high-speed data market. More research is

needed in this area to determine whether the dominance of dial-up is based on preference, availability,

or price.

• Bundling is an aspect of telecommunication

services use that has often been overlooked in general telecommunication statistics. Bundled services are

a combination of services that telecommunication

providers package and sell to consumers at prices

generally lower than the cost of buying these services

separately. The survey results suggest that small

businesses want to purchase combinations of

telecommunication services (bundles) from a single

provider. Citing convenience and bundle savings, 79

percent expressed interest, and 85 percent went further in wanting the bundled services on a single bill.

Ordering Information

The full text of this report and summaries of other

studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available on the Internet at

www.sba.gov/advo/research. Printed copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847

(703) 487-4639 (TDD)

www.ntis.gov

Order number: PB2004-102516

Pricing information:

A07, paper copy and CD-ROM: ($38.00)

A02, microfiche: ($20.00)

A00, electronic download: ($22.95)

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