Broadband in Kansas: Availability and Use Among Businesses. December 11, 2013 (revised)

Broadband in Kansas: Availability and Use Among Businesses December 11, 2013 (revised)

TABLE OF CONTENTS 1 ABSTRACT: BROADBAND AVAILABILITY AND USE AMONG KANSAS BUSINESSES... 1 2 EXECUTIVE SUMMARY... 2 2.1 Project Background... 2 2.2 Description of Broadband Surveys... 2 2.3 Survey Results Indicate that Location and Community Type Affect Broadband Availability, While Price and Speed Affect Broadband Adoption... 4 2.4 Analysis of Findings Business Survey... 9 2.4.1 Broadband Adoption by Kansas Businesses Shows Progress Since the U.S. Small Business Administration s 2010 Survey... 9 2.4.2 The Availability and Use of Business Internet Service in Kansas Varies by Region... 10 2.4.3 Broadband Use by Kansas Businesses Lags Business Use in Other Developed Nations... 12 2.4.4 Kansas Businesses Use More Fiber than Residents, but Business Fiber Users Remain a Small Subset... 14 2.4.5 Kansas Businesses Use the Internet to Transfer Large Files, Accept Online Payments, and Market Their Products and Services... 16 3 UNDERSTANDING BROADBAND PERFORMANCE... 18 4 SURVEY METHODOLOGY... 23 4.1 Background and Objectives... 23 4.2 Survey Process... 23 5 BUSINESS SURVEY... 25 5.1 Key Findings... 25 5.2 Business Characteristics... 26 5.2.1 Description of Business... 26 5.2.2 Number of Employees... 26 5.2.3 Business Location... 28 5.2.4 Region... 29 5.2.5 Primary Markets for Products or Services... 30 5.2.6 Industry... 31 5.2.7 Business Revenue... 32 5.2.8 Role of Respondent... 33 5.2.9 Profile of Businesses by Region... 34 5.3 Business Internet Services... 36 5.3.1 Computers and Internet-Connected Devices... 36 5.3.2 Internet Services Available... 37 Broadband in Kansas: Availability and Use Among Businesses ii

5.3.3 Primary Business Internet Service... 38 5.3.4 Business Internet Price and Affordability... 41 5.3.5 Business Internet Speed... 42 5.3.6 Business Websites... 44 5.3.7 Internet Hotspots... 45 5.3.8 Business Internet Importance and Satisfaction... 46 5.3.9 Much Faster Internet Opinions... 51 5.3.10 Telecommuting... 53 5.3.11 Business Internet Limitations... 54 5.3.12 Business Internet Opinions... 55 5.4 Business Mobile/Cellular Internet Services... 56 5.4.1 Mobile/Cellular Service... 56 5.4.2 Mobile/Cellular Internet Affordability... 58 Broadband in Kansas: Availability and Use Among Businesses iii

TABLE OF FIGURES Figure 1: Primary Home and Business Internet Services... 4 Figure 2: Respondents Reasons for Not Using More Broadband in the Future... 5 Figure 3: Have a Home-Based Business... 6 Figure 4: Importance of High-Speed Internet to Business... 6 Figure 5: Business Survey Business Permits Telecommuting... 7 Figure 6: Member of Household Currently or Interested in Telecommuting... 7 Figure 7: Likelihood Business Would Pursue with 100 Mbps or Faster Connection... 8 Figure 8: Map of Business Responses by Population Density... 10 Figure 9: Map of Business Responses by Internet Connection Type... 11 Figure 10: Primary Business Internet by Region... 12 Figure 11: Business Use of Broadband Worldwide (2010)... 12 Figure 12: Broadband Fiber Connections by Country... 13 Figure 13: Average Advertised Broadband Download Speed by Country... 14 Figure 14: Primary Business Internet by Location... 15 Figure 15: Home and Business Internet Connection Types... 16 Figure 16: Illustration of Service Symmetry on Download Times... 19 Figure 17: Capacity and Speed of Broadband Technologies... 22 Figure 18: Description of Business... 26 Figure 19: Number of Employees... 27 Figure 20: Business Location... 28 Figure 21: Responses by Region... 29 Figure 22: Primary Market for Products and Services... 30 Figure 23: Industry of Business... 31 Figure 24: Annual Revenue... 32 Figure 25: Role of Respondent... 33 Figure 26: Computers and Internet-Connected Devices... 36 Figure 27: Broadband Internet Services Available... 37 Figure 28: Primary Business Internet Service... 38 Figure 29: Primary Business Internet by Location... 39 Figure 30: Primary Business Internet by Region... 40 Figure 31: Home and Business Internet Connection Types... 40 Figure 32: Business Internet Monthly Price... 41 Figure 33: Business Internet Price Affordability... 41 Figure 34: Business Internet Speed Opinions... 42 Figure 35: Internet Speed by Business Location... 43 Figure 36: Business Websites... 44 Figure 37: Business Internet "Hotspots"... 45 Figure 38: Business Internet "Hot Spots" by Business Size... 45 Figure 39: Importance of Business Internet Aspects... 46 Figure 40: Satisfaction with Business Internet Aspects... 46 Figure 41: Mean Business Internet Importance and Satisfaction... 47 Figure 42: Importance of Business Internet Uses... 48 Figure 43: Satisfaction with Business Internet Uses... 49 Figure 44: Importance and Satisfaction of Internet Uses... 50 Figure 45: Percent Willing to Pay More for Much Faster Internet... 51 Figure 46: Activities to Pursue or Increase with Very Fast Internet... 52 Figure 47: Business Allows Telecommuting... 53 Figure 48: Limitations on Further Use of High-Speed Internet... 54 Figure 49: High-Speed Internet Opinions... 55 Figure 50: More Likely to Employ More with High-Speed Internet... 56 Figure 51: Business Mobile/Cellular Internet Service... 56 Broadband in Kansas: Availability and Use Among Businesses iv

Figure 52: Mobile/Cellular Internet Service by Region... 57 Figure 53: Mobile/Cellular Internet Service by Location... 57 Figure 54: Mobile/Cellular Service by Number of Employees... 58 Figure 55: Mobile/Cellular Service by Annual Revenues... 58 Figure 56: Business Mobile/Cellular Internet Affordability... 59 Figure 57: Primary Business and Mobile Internet Affordability... 60 TABLE OF TABLES Table 1: Kansas Business Internet vs. SBA 2010 Survey Results... 10 Table 2: Businesses with Internet Use of Fiber Connections by Location... 15 Table 3: Business Survey Responses by Region... 24 Table 4: Profile of Businesses by Region... 34 Table 5: Availability of High-Speed Internet Services by Region and Location... 38 Table 6: Website by Region and Location... 44 Table 7: Gap Between Satisfaction and Importance Ratings for Business Internet Service... 47 Table 8: Mean Importance and Satisfaction Ratings by Internet Connection Type... 48 Table 9: Percent of Businesses That Allow Telecommuting by Business Characteristics... 53 Broadband in Kansas: Availability and Use Among Businesses v

1 Abstract: Broadband Availability and Use Among Kansas Businesses The Kansas Statewide Broadband Initiative (KSBI), a program of the Kansas Department of Commerce, hired Columbia Telecommunications Corporation (CTC) to assess the availability, uses of, and anticipated needs for broadband among Kansas businesses. CTC conducted a benchmarking survey of the business broadband market across the state. 1 Based on our analysis of the data and our experience nationwide, we note the following key findings: 94 percent of businesses have Internet service a significant overall increase since the state s 2010 market survey, which measured business Internet use at just 72 percent. These results back up a well understood evolution in the digital economy and demonstrate the enormous growth of broadband interest and use over the past few years. The next step that many businesses will expect to take is upgrading to better broadband service. However, cost and availability are factors inhibiting businesses use of broadband. The data indicate that broadband supply is not keeping pace with demand throughout much of Kansas and demand for business broadband will likely continue to increase. Location and community type affect broadband availability. Businesses in rural areas tend to have access to slower services (satellite and dial-up), but lack of broadband availability was also reported in urban regions. Residential broadband infrastructure is an important consideration for home-based businesses, telecommuters, and after-hours work. Economic trends blur the line between strict residential and business Internet use. Approximately one-fifth of households statewide are engaged or planning to be engaged in home-based business and an overwhelming majority of those respondents said that high-speed Internet was very important to those businesses. The data also indicate that broadband-enabled telework is a potential area of economic growth for Kansas; telecommuting is allowed by 25 percent of business respondents, as compared to 20 percent in 2010. In summary: Business broadband adoption has increased, but cost and availability are preventing businesses from taking even greater advantage of broadband as a tool. 1 KSBI has prioritized assessing the current and future ability of Kansans to participate in economic and educational activities that rely on high-speed Internet access; the survey asked respondents to report on their existing Internet connections, their current use of the Internet, and their interest in using the Internet for a range of purposes. Broadband in Kansas: Availability and Use Among Businesses 1

2 Executive Summary This report documents the Kansas Department of Commerce s ongoing exploration of the availability and use of broadband among business users throughout Kansas. 2.1 Project Background The Kansas Statewide Broadband Initiative (KSBI), a program of the Kansas Department of Commerce, hired Columbia Telecommunications Corporation (CTC) to assess the broadband needs of its community anchor institutions, and to conduct studies of the availability and use of broadband among Kansas homes and businesses. In early 2013, CTC completed a needs assessment of Kansas community anchor institutions and published a report, Building the Broadband Future: The Communications Needs of Kansas Schools, Libraries, and Hospitals. 2 That report detailed CTC s findings with respect to these entities increasing need for high-speed Internet access in the context of the elimination of the statewide Kan-ed communications network. Following the publication of that first report, in the summer of 2013, CTC began its analysis of broadband availability, uses, and anticipated needs among the state s residents and businesses. This report documents CTC s findings in the business market. A companion report documents findings in the residential market. 2.2 Description of Broadband Surveys CTC conducted two surveys of the broadband market in Kansas on behalf of KSBI one of homes and one of businesses. The central goal of these surveys was to benchmark the availability and use of broadband in the residential and business sectors. Because KSBI has prioritized assessing the current and future ability of Kansans to participate in economic and educational activities that rely on high-speed Internet access, the surveys asked respondents to report on their existing Internet connections, their current use of the Internet, and their interest in using the Internet for a range of purposes. In addition to asking about broadband technology adoption and use, the surveys asked a battery of questions about demographics, household characteristics, business profiles, and the respondents communities. One of the state government s central goals is finding ways to ensure that Kansans in rural areas have the same broadband options and opportunities as residents in cities and suburbs. We sorted the responses geographically. The cross-tabulation of the broadband questions with the demographic and geographic information associated with each respondent provided the basis for differentiating broadband markets across Kansas. 2 See full report here: http://www.ctcnet.us/kansascaineeds.pdf Broadband in Kansas: Availability and Use Among Businesses 2

This was a statewide study with regional perspectives. Accordingly, as a means of making sure that the different sectors of the state were covered in terms of geography as we evaluated the survey data, we used the approximate geographic boundaries of the state s congressional districts to define our regions 1, 2, 3, and 4. This was in no way an analysis of the congressional district itself or the politics of those regions. Rather it was an attempt to understand different parts of the state with relatively equal populations. We felt this was a sound approach because there were sufficient data from each of these areas to be able to make statistically meaningful conclusions which would not have been the case if we had segmented the data into smaller groupings. 3 The regions encompassed by the district boundaries are roughly equivalent in terms of population size, but have dramatically different densities and demographic characteristics. They provide a basis for analyzing broadband markets based on differences among the state s urban and rural communities. 4 The population densities of the regions offer a good basis for analyzing broadband user groups by community type. Respondents answers regarding Internet use, availability, and current and anticipated demand varied significantly based on location; these variances are often clearer when viewing the results by community type in this way than by rural/urban community type as defined by the respondents themselves. For example, on the business survey, the results showed that a significantly higher number of businesses have fiber Internet connections as their primary type of service in the rural regions than in the urban regions. (The presence of fiber connections in those areas likely speaks to the presence of circuits built by rural telephone companies using federal subsidies.) This result is somewhat less apparent when breaking down the responses by the urban/rural categories as chosen by the respondents themselves. (See Figure 14 and Figure 10.) Using the regions instead of these categories has the benefit of relying on clearly defined boundaries rather than the variable and somewhat subjective interpretations of individual respondents in deciding whether their communities are rural, urban, or suburban. 3 Based on the number of responses received, we did not have sufficient data for comparison by geographic segments. Ideally we would have been able to compare the most rural and most urban parts of the state, but given the lower population in rural areas, we did not receive the level of responses required from rural areas to support that level of analysis. There are inherent limitations when analyzing rural broadband, and the relatively weak response received from rural areas illustrates that challenge. Thus, to analyze the survey data, we had to accept larger segments. 4 The 1 st region encompasses highly rural areas and small towns in the western portion of the state; it can generally be viewed as a proxy for rural Kansas. The 2 nd region contains significantly more population density, and includes the state capital of Topeka, but nevertheless includes a significant rural population. The 3 rd region includes Kansas City and the surrounding suburbs, as well as the City of Lawrence. The 4 th region contains significant portions of both rural and urban residents, including the City of Wichita and the surrounding counties. The 3 rd and 4 th regions can be viewed as representing the state s dense urban clusters. Broadband in Kansas: Availability and Use Among Businesses 3

2.3 Survey Results Indicate that Location and Community Type Affect Broadband Availability, While Price and Speed Affect Broadband Adoption The survey results show a mixed broadband landscape across the state. While overall Internet use is widespread across Kansas among both residents and businesses, the type of service varies heavily by the type of community. Eighty-seven percent of residents and 94 percent of businesses have Internet service (see Figure 1). We note that this reflects a significant overall increase of business broadband adoption since the state s previous market survey, conducted in 2010, which measured business broadband use at just 72 percent of the state s businesses. 5 These results back up a well understood evolution in the digital economy, and demonstrate the enormous growth of broadband interest and use over the past few years. The next step that many businesses will expect to take is upgrading to better broadband service. Figure 1: Primary Home and Business Internet Services 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% No Internet service Dial-up DSL Cable modem Fiber-optic Satellite Leased line Other Home Business Internet technologies used in the predominantly rural areas tend to include more satellite and dial-up services. More urban and suburban areas have access to cable modem service. A minority of users have access to fiber optic service in all locations. 5 Connect Kansas, Business Technology Assessment, 2010. Broadband in Kansas: Availability and Use Among Businesses 4

The survey provides a number of important indicators of how the business community is impacted by broadband availability including the number of business respondents who reported limitations on their broadband use due to either availability or cost (see Figure 2). The survey instrument asked respondents what factors might impede their ability in the future to use high-capacity broadband for their businesses. Approximately one-third of businesses indicated that costs limited further use of high-speed Internet and 22 percent cited the lack of availability of high-speed Internet. Lack of affordable broadband availability was reported in urban as well as rural regions, including over one-fourth of businesses reporting that a lack of broadband availability limited their Internet use in the most urban region. 40% Figure 2: Respondents Reasons for Not Using More Broadband in the Future 35% 30% Total adds to more than 100% as multiple responses were possible 25% 20% 15% 10% 5% 0% No need for further use of high-speed Internet Cost Lack of availability None Selected Other These data seem to indicate that supply is not keeping pace with demand throughout much of Kansas broadband market. The surveys further indicate that the demand for broadband will likely continue to increase, particularly with the growth of telework and home-based businesses. Across the various regions of the state, a significant number of respondents (about 20 percent, and closer to 25 percent in the most densely populated areas) reported having a home-based business or plans to start one within three years. A similar rate of respondents indicated that they used home and mobile Internet services to run a home-based business, either occasionally or frequently. Broadband in Kansas: Availability and Use Among Businesses 5

Figure 3: Have a Home-Based Business Already have a home-based business 15% Plan to start one in next three years 7% No 78% Though the home-based business community represents a minority of the population, it is nevertheless economically significant. If approximately one-fifth of households statewide are engaged or planning to be engaged in home-based business, this is a segment of the state s economy that will have a significant effect on driving residential infrastructure needs. An overwhelming majority of residential respondents said that high-speed Internet was very important to their existing or future home-based business (see Figure 4). Furthermore, since home-based business owners appear to use both home and mobile Internet connections to run their businesses in comparable amounts, the demands will likely be felt in both the wireline and wireless markets. 80% 70% 60% 50% 40% 30% 20% Figure 4: Importance of High-Speed Internet to Business 22% 70% 10% 0% 4% 5% Not at all important Somewhat unimportant Somewhat important Very important Percent of Households with Home-Based Business or Plans for Home-Based Business Broadband in Kansas: Availability and Use Among Businesses 6

In addition to home-based businesses, home Internet is also important for jobs that allow employees to work remotely. About a quarter of business respondents reported that they already permit telecommuting. By comparison, about 15 percent of residential respondents reported that someone in their household currently telecommutes. This alone suggests that telework is a potential area of economic growth for Kansas. In addition, 16 percent of businesses reported that they both allowed telecommuting, and had employees working remotely from out of state. This helps illustrate how enabling telework can help Kansas create and retain jobs while appealing to a workforce beyond its own borders. Figure 5: Business Survey Business Permits Telecommuting Yes, but none from outside Kansas 9% No 75% Yes 25% Yes, including some from outside Kansas 16% Figure 6: Member of Household Currently or Interested in Telecommuting Someone in my family already does telework 15% No 70% Someone in my family would like to telework 15% Though most businesses report that access to very fast Internet connections would not prompt them to pursue increased telecommuting, those that do express interest are, again, an Broadband in Kansas: Availability and Use Among Businesses 7

economically significant minority. Over 10 percent of businesses across the state expressed that they would be somewhat or very likely to expand telecommuting as well as other important business practices if they had access to a 100 Mbps or faster connection. An even higher proportion responded that they would be more likely to open offices within Kansas with such a connection. The important takeaway from this result is that, for at least some businesses, lack of high-end broadband has some degree of impact on their employment practices, and that access to such connections may enable them to use new business approaches. Figure 7: Likelihood Business Would Pursue with 100 Mbps or Faster Connection Open offices in Kansas Online employee training E-commerce Electronic document transmittal Telecommuting Videoconferencing 0% 20% 40% 60% 80% 100% 1 Very Unlikely 2 3 - Neutral 4 5 Very Likely Furthermore, our finding that 25 percent of businesses permit telecommuting is an increase over the state s finding in 2010; the previous survey found that only 20 percent of businesses permitted telecommuting. 6 This further suggests that Kansas businesses are trending toward embracing telework. The responses from both the residential and business surveys illustrate how new economic trends blur the line between strict residential and business Internet use. Both home-based business and telework contribute to this trend. Residents increasingly have the ability to use their home Internet connections for business and work-related purposes. There already appears to be 6 Connect Kansas, Business Technology Assessment, 2010. Broadband in Kansas: Availability and Use Among Businesses 8

room for growth in this area based on the number of employers permitting telework, and the number of Kansans pursuing business opportunities from home. Overall, the two surveys present a broadband picture that indicates considerable demand for additional services beyond the current market supply. Both cost and availability of broadband service appear to have some negative pressure on broadband use for businesses in particular. Though broadband use is high overall throughout the state among both residents and businesses, the quality and type of service is highly variable, making some parts of the state competitive over others for capturing segments of the new economy that rely more heavily on high-end Internet connectivity. 2.4 Analysis of Findings Business Survey Responses to the statewide business survey established key benchmark data regarding Kansas businesses use of the Internet and broadband: Approximately 94 percent of Kansas businesses have Internet service (most commonly DSL and cable modem). Businesses Internet connection types are correlated with their location; urban areas have the highest share of cable connections, suburban areas have the highest share of leased lines, small towns have the highest share of fiber connections, and rural businesses have the highest share of satellite and cellular connections. The most rural region has the highest share of businesses with fiber optic service, while the most urban/suburban region has the highest share of leased line service. We discuss the significance of these findings in the following sections. 2.4.1 Broadband Adoption by Kansas Businesses Shows Progress Since the U.S. Small Business Administration s 2010 Survey Most national Internet surveys have concentrated on the residential market. One exception to this was a survey conducted by the U.S. Small Business Administration s (SBA) Office of Advocacy (Advocacy) in 2010. 7 The purpose of the SBA study was to explore the ways in which small businesses access and use high-speed Internet services, and to evaluate the importance of broadband speed and price for small businesses. The SBA survey indicated that in 2010 approximately 90 percent of businesses had an Internet connection and more than 91 percent of those businesses had a broadband connection. Table 1 compares the SBA s 2010 findings to the data gathered in the Kansas business survey. 7 The Impact of Broadband Speed and Price on Small Business, U.S. Small Business Administration, Office of Advocacy. http://www.sba.gov/content/impact-broadband-speed-and-price-small-business-1 Broadband in Kansas: Availability and Use Among Businesses 9

Table 1: Kansas Business Internet vs. SBA 2010 Survey Results Internet Connection Kansas (2013) (%) U.S. (2010) (%) Broadband 91.3 80.1 Dial-Up 1.1 5.7 Satellite 1.7 4.3 No Internet 5.9 9.9 As seen in this comparison, Kansas businesses use of broadband is significantly higher than the nationwide data indicated in 2010. This difference is likely a result of the passage of time (i.e., progress in Kansas broadband adoption over the past three years), but it is also possible that Kansas is above the national average for business use of broadband, given the residential survey results. 2.4.2 The Availability and Use of Business Internet Service in Kansas Varies by Region The maps in the following figures show the distribution of business survey respondents. Figure 9 includes the business Internet connection type. Figure 8: Map of Business Responses by Population Density Broadband in Kansas: Availability and Use Among Businesses 10

Figure 9: Map of Business Responses by Internet Connection Type The urban area that includes Wichita has the highest share of business cable Internet service. The area including Kansas City, Kansas and surrounding suburbs such as Overland Park, has the highest share of leased-line Internet. The rural regions, largely in the western half of Kansas, have the highest share of both DSL and fiber optic Internet connections. The primary business Internet connections are illustrated in the map in Figure 9 and charted in Figure 10. Again these results are not surprising. Our experience has shown that with the exception of Verizon s FTTP deployments, national telephone companies have been slow to offer direct fiber connections. These providers tend to dominate the larger metropolitan areas. We expect that this situation may start to shift with Google s entry into the Kansas City market. The more rural parts of Kansas are primarily served by independent telecommunication providers, which in Kansas have been more progressive than their national counterparts. Broadband in Kansas: Availability and Use Among Businesses 11

Korea (2009) Switzerland Australia (2009) Spain Iceland New Zealand (*) Canada (2007) Finland (2009) France Sweden Netherlands Germany Turkey Belgium (2009) Luxembourg Estonia United Kingdom Slovenia Norway Ireland Denmark Czech Republic EU27 Portugal Italy Austria Greece Japan (*) Hungary Slovak Republic Poland Mexico (2008)(*) 60% Figure 10: Primary Business Internet by Region 50% 40% 30% 20% 10% 0% Dial-Up DSL Cable modem Fiber-optic Leased Line (T1, DS3, etc.) Satellite Cellular/ mobile wireless Other 1st 2nd 3rd 4th 2.4.3 Broadband Use by Kansas Businesses Lags Business Use in Other Developed Nations Comparing the data from the Kansas business survey (i.e., 90.7 percent of businesses have broadband) and the SBA s 2010 survey (see Section 2.4.1) to the most recent OECD data on business use of broadband worldwide, it appears that the broadband gap among businesses in developed countries is not as pronounced as in the residential market (see Figure 11 below). The United States is not in the top 10 in terms of business broadband connections, but this gap is somewhat deceptive because the majority of business connections are DSL and cable, which pale in comparison to fiber alternatives. (Broadband performance is discussed in Section 3.) Figure 11: Business Use of Broadband Worldwide (2010) 8 100 75 50 25 0 8 Organization for Economic Cooperation and Development (OECD), ICT database and Eurostat, Community Survey on ICT usage in households and by individuals, November 2011. See also: OECD Broadband Portal, http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm Broadband in Kansas: Availability and Use Among Businesses 12

The OECD s 9 latest data regarding broadband use indicate that fiber connections have increased to 14.9 percent of lines (compared to 6 percent in the United States and just under 5 percent in Kansas 10 ); further, fiber connections are growing at a rate four times faster than the increase of fixed broadband access (about 13 percent versus 3.27 percent). Leading the world in fiber penetration are Japan and Korea. Japan Korea Sweden Estonia Slovak Republic Norway Iceland Slovenia Denmark Czech Republic Portugal Hungary Turkey United States Switzerland Netherlands United Kingdom Poland Luxembourg Spain Finland Italy Canada Australia France Austria Germany Chile New Zealand Ireland Greece Belgium Figure 12: Broadband Fiber Connections by Country 11 Percentage of fiber connections in total broadband subscriptions, Dec. 2012 0% 10% 20% 30% 40% 50% 60% 70% 80% As reported by the OECD, the United States also lags behind in terms of average advertised broadband speed. As seen in the figure below, Japan and other fiber-rich countries are the world leaders in advertised broadband speed. 9 Ibid. 10 These percentages are for residential access lines where the OECD number is for all connections. However, the percentage of businesses connections to the total connections is relatively small and does not impact this comparison or relative positioning. 11 OECD, ICT database and Eurostat, Community Survey on ICT usage in households and by individuals, November 2011. See also: OECD Broadband Portal, http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm Broadband in Kansas: Availability and Use Among Businesses 13

160 000 Figure 13: Average Advertised Broadband Download Speed by Country 12 Average advertised broadband download speed, by country, kbit/s, September 2011 140 000 120 000 Average advertised broadband download speed, kbit/s* 100 000 80 000 60 000 40 000 20 000 2.4.4 Kansas Businesses Use More Fiber than Residents, but Business Fiber Users Remain a Small Subset Cable modem and DSL were the most common business Internet connections, with market shares of 37 percent and 34 percent, respectively. Approximately 10 percent of businesses had leased-line Internet service and 9.6 percent had fiber optic Internet service. Less than 2 percent of businesses have satellite Internet service and only 1 percent of businesses use a dial-up connection. The type of Internet service used is correlated with the business location (see Figure 14). Businesses located in urban areas are the most likely to have cable Internet service, while those in suburban locations were the most likely to have leased-line connections; businesses in rural areas were the most likely to have satellite or mobile Internet service. 12 Organization for Economic Cooperation and Development (OECD), ICT database and Eurostat, Community Survey on ICT usage in households and by individuals, November 2011. See also: OECD Broadband Portal, http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm Broadband in Kansas: Availability and Use Among Businesses 14

60% Figure 14: Primary Business Internet by Location 50% 40% 30% 20% 10% 0% Dial-Up DSL Cable modem Fiber-optic Leased Line (T1, DS3, etc.) Satellite Cellular/ mobile wireless Other Urban Area Suburban Area Medium-Sized Town Small Town Rural Area, Near Town Rural Area, >1 Mile From Town Interestingly, the highest share of businesses with fiber optic Internet connections was in small towns (see Table 2). This is likely a result of the rural independent telephone companies deployment of FTTP networks. Table 2: Businesses with Internet Use of Fiber Connections by Location Location Businesses with Fiber (%) Urban 5.8 Suburban 9.7 Medium Sized Town 8.9 Small Town 13.7 Rural < 1 mile from Town 11.0 Rural > 1 mile from Town 11.1 Total 9.6 Figure 15 compares primary Internet connections for homes and businesses in Kansas. A greater share of homes have cable Internet service while a greater share of businesses have DSL, leased line, or fiber optic Internet connections. Broadband in Kansas: Availability and Use Among Businesses 15

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% No Internet service Figure 15: Home and Business Internet Connection Types Dial-up DSL Cable modem Fiber-optic Satellite Leased line Other Home Business Although the percentage of businesses using fiber is double the residential percentage, it is still a small minority of Internet connections. From an economic development perspective, communities with higher availability of fiber-based access are likely to have an advantage in attracting and retaining businesses. 2.4.5 Kansas Businesses Use the Internet to Transfer Large Files, Accept Online Payments, and Market Their Products and Services Additional key findings from the business survey include the following data points, which are discussed in more detail in Section 5: Over two-thirds of respondents had business websites, and 22 percent of all businesses with Internet service used their website for online payments. Approximately one-half of businesses purchase mobile Internet data plans. The most important Internet business use was large file transfer and backup. Kansas businesses are generally satisfied with their Internet connection speeds. Twothirds said their Internet service was fast enough for their needs, while only 8 percent said it was fairly slow and 2 percent said it was very slow. The largest gap between Internet service satisfaction and importance among several key aspects was reliability, followed by price and speed. Nearly 20 percent of respondents said their Internet service was not very affordable or not at all affordable. Broadband in Kansas: Availability and Use Among Businesses 16

While one-third of respondents said they would switch to a very fast Internet service for a 20 percent price increase, less than 5 percent would switch for a 60 percent increase. The diversity of respondents business sizes, industries, and market areas indicates that the set of respondents represents a broad cross-section of the Kansas business community. Broadband in Kansas: Availability and Use Among Businesses 17

3 Understanding Broadband Performance As a framework for understanding the survey results described in the following sections, it is important to understand the performance differences among broadband connectivity options. The most common way that consumers compare the performance of a data connection is by evaluating its speed (which is measured in bits per second, and is typically discussed in units of Mbps or 1,000,000 bits per second). However, this measurement can be quite deceptive. For example, a 30 Mbps cable modem connection may cost a residential consumer $50 per month, while a business-grade 10 Mbps Metro Ethernet service can exceed $500 per month. Why would a service with one-third the speed cost 10 times the price of the faster alternative? The answer is that all Mbps are not created equal. Factors such as latency, the availability of the connection speed, and the network s Internet oversubscription rate affect the connection s overall performance. In the example above, the 10 Mbps Metro Ethernet service s total set of performance attributes provides a more robust connection than a 30 Mbps cable modem. Key attributes that impact performance include: Symmetry: Cable modem and DSL services are typically asymmetrical, meaning that their upload 13 and download 14 speeds are different. Typically the download speed is greater than the upload speed by a factor of 10. Metro Ethernet services, on the other hand, are typically symmetrical, meaning that the upload and download speeds are the same. For businesses that produce and transfer large data or video files, asymmetrical services often present a bottleneck to both internal users and external customers. An example of the impact of service symmetry is shown in the figure below. A typical cable modem service can download a 5 GB file in less than 10 minutes, but it would take more than 90 minutes to upload which would not be acceptable to a business creating and distributing large files, such as those seen in production or other studios. 13 Transfer of data from the users devices. 14 Transfer of data to the users devices. Broadband in Kansas: Availability and Use Among Businesses 18

Figure 16: Illustration of Service Symmetry on Download Times Oversubscription to Internet: Internet service providers (ISP) recognize that users in a given area do not all access the Internet at the same time; therefore, ISPs only subscribe to a portion of their networks total potential demand. For example, an ISP that has 1,000 subscribers with 10 Mbps service might contract for a 100 Mbps connection rather than the maximum 10,000 Mbps Internet connection its users might require. The ratio of a network s maximum potential demand to its contracted rates is its oversubscription ratio. In this example, the oversubscription ratio is 100:1. Cable modem and DSL providers often have a 100:1 or greater oversubscription ratio for residential users and a 50:1 ratio for business users. If an ISP bundles Internet access with a Metro Ethernet service, the oversubscription ratio is often 10:1 or less. In addition, with a Metro Ethernet service, users often will contract for specified Internet connections, thus defining their own performance. At times, users will not notice the oversubscription, while at other times oversubscription brings the user experience to a crawl no different than traffic on the weekend vs. traffic during a weekday rush hour. Broadband in Kansas: Availability and Use Among Businesses 19

Availability 15 of the Data Transport Rate: Metro Ethernet providers will specify a committed interface rate (CIR), which is the guaranteed transport speed of the circuit connecting the users location(s). Cable modem and DSL services are often burstable, meaning that users may at times experience the advertised data rates, but that the average speed realized will vary greatly based on the traffic being generated over the provider s distribution network. Performance parameters on a given burstable service are rarely publicized or realized. Often the network operator cannot change this parameter without changing the network physical connections. During heavy use burstable subscribers will experience the same traffic discrepancies as do drivers on the weekend vs. drivers slogging through the weekday rush hour. Capacity: The data rate specifies the speed (in bytes) at which data is being transferred, whereas capacity is the measure of how much data was transmitted in a given period. For connections supporting burstable services, capacity limits may defer required network upgrade. For example many data plans for a wireless service will specify the Gigabytes (1,000,000,000 Bytes, or GB) allowed during the month. These plans will carry extra fees for exceeding the limit and will actually slow down your connection speed as you approach your capacity limit. Cable modem and DSL providers have raised the possibility of adding capacity limits on their services (e.g., Comcast has trials of bandwidth limits), but to date implementation of such policies have been limited. Latency: This is the delay between the instant a message is sent and the instant it is received. Latency occurs on a provider s network and, if a connection is made over the Internet, additional delays are added there. With cable modem and DSL services latency is not an attribute users can specify. For Metro Ethernet and other higher end transport services latency is often a quality-of-service (QoS) feature for which a user can contract (at an added price). At times networks with high latency will prevent users from running certain applications. For example, satellite-based ISP services have an extremely high latency due to propagation delays (i.e., the time it takes for a signal to reach the satellite). These delays will prevent effective use of interactive services such as voice calls or interactive video. Overhead: This is not typically an option that a user can specify. Each transaction over the network will contain data regarding how to handle the message and where to deliver it (i.e., network control and operation). For cable modem services, overhead is typically part of each transaction; for Metro Ethernet, overhead is not part of a user s bandwidth. Connection Type: This attribute describes how a connection is made with other locations. For example, on a cable modem or DSL service, all connections to other locations are made through the Internet with Internet addressing schemes. This includes any Virtual 15 Availability is often confused with oversubscription to the Internet. Oversubscription applies to the Internet connection, whereas availability applies to the connection or transport between user locations or the access point to the Internet. Broadband in Kansas: Availability and Use Among Businesses 20

Private Networks (VPNs) set up between user locations. With higher end data services a user might be able to route traffic over the provider s network without connecting to the Internet, set up direct point-to-point connections, or specify which locations will connect among each other (e.g., point-to-point or multipoint-to-multipoint). Security: Although security is primarily a function of encryption and other techniques applied by the user or the application sites accessed, traffic over a private network is inherently more secure than traffic on a network that establishes connectivity over the Internet. For example a cable modem or DSL user with multiple sites will transmit packets over the Internet to connect between sites. With a higher-end service such as Metro Ethernet connecting user sites, the transport would remain on the provider network. In addition, higher end services often have encryption options at the transport layer. Port Rate: Not all connections are equal. The network connection, drop, and customer premises equipment (CPE) will define the potential connection speed at the customer site. The port rate is the maximum speed that the demarcation point to the customer can support. For cable modem services this is defined by the incorporated standard 16 for adding data on a cable television system. An example of the impact of capacity (Bytes) and speed (Mbps) for selected services and network architecture is shown in the figure below. As indicated, fiber-to-the-premises (FTTP) architecture offers far superior performance (capacity and speed) as compared to cable modem or DSL services. 16 Data over cable service interface specification (DOCIS) is an international standard that defines how broadband data transfer is accomplished over an existing cable television system. Broadband in Kansas: Availability and Use Among Businesses 21

Figure 17: Capacity and Speed of Broadband Technologies Broadband in Kansas: Availability and Use Among Businesses 22

4 Survey Methodology To develop the appropriate data for this report, CTC conducted two surveys of the broadband market in Kansas one of homes and one of businesses in early 2013. This section summarizes the survey methodology. 4.1 Background and Objectives The business and residential surveys were completed as part of a broader evaluation of Internet services used by community anchor institutions (CAIs), businesses, and homes across the State of Kansas. This survey and subsequent evaluations were sponsored by the Kansas Statewide Broadband Initiative 17 (KSBI). KSBI is a partnership among the Kansas Department of Commerce, Kansas communities, government officials, the private sector, and the National Telecommunications and Information Administration (NTIA) to analyze the changing nature of our broadband footprint and to encourage economic growth in Kansas through greater use of the Internet and advanced communications networks. The KSBI business survey was designed to capture substantial information about the use of Internet services by Kansas businesses, including: Availability of Internet services at business locations Current Internet services, costs, and affordability The importance, satisfaction, and opinions about key Internet service aspects Use of the Internet for key businesses activities Opinions regarding the value of high-speed Internet services Mobile/cellular Internet services used by businesses Basic information about the businesses, including size, location, and market area By assessing the current state of high-speed Internet services available to businesses across Kansas, KSBI hopes to identify ways in which the state may support improvements in those services to better meet the needs of the business community. 4.2 Survey Process This project required coordination between staff from the Kansas Department of Commerce and the consultants involved in managing the project. The Department of Commerce helped coordinate the overall project, defined the project objectives and schedule, coordinated activities, provided input into the questionnaire development, responded to questions by survey recipients, and reviewed preliminary study findings. 17 www.kansascommerce.com/index.aspx?nid=360 Broadband in Kansas: Availability and Use Among Businesses 23

The Department of Commerce hired Columbia Telecommunications Corporation 18 (CTC) to develop the Internet services studies and to manage all aspects of the project. CTC was responsible for all project communications, coordination, methodologies, and reporting of results. In May 2013, survey booklets were mailed first-class to 10,000 randomly selected business mailing addresses in Kansas. The survey packet included a postage-paid envelope to return responses directly to the survey processor. The sample selection was designed to provide at least 1,000 valid responses statewide (i.e., a response rate of 10 percent was assumed for planning purposes, based conservatively on similar studies in other areas). A total of 1,688 completed responses 19 were received by July 8, 2013 and are included in the survey analysis, providing a gross response rate of 16.9 percent. 20 The number of surveys sent, number of completed responses, and response rate by region are summarized in the following table. The results presented in this study represent the averages across all respondents, unless otherwise noted. Region Table 3: Business Survey Responses by Region Surveys and Responses by Region Surveys Sent Responses Percent Sent Percent Responses Response Rate 1st 2,850 563 28.5% 33.4% 19.8% 2nd 2,337 424 23.4% 25.1% 18.1% 3rd 2,487 336 24.9% 19.9% 13.5% 4th 2,326 359 23.3% 21.3% 15.4% Unknown 6 0.4% 10,000 1,688 100.0% 100.0% 16.9% Aggregate results across all responses are available with a confidence interval of ±2.4 percent at the 95 percent probability level. That is, 19 times out of 20, the survey results would capture the actual values for all Kansas businesses within ±2.4 percent. 21 Survey results for selected questions are also summarized at the regional level, geographic location, or within other sub-categories. Because total number of Kansas businesses within each sub-category is not known, confidence intervals cannot be accurately computed within sub-categories. However, these comparisons provide valuable insight into the similarities or differences between businesses located in different areas, or with other differentiating characteristics. 18 www.ctcnet.us 19 At least 35 additional surveys were received after the cut-off date, and are not included in the results. 20 Excluding 348 undeliverable survey packets, the net response rate was 17.5 percent. 21 Based on Census estimates of approximately 74,000 private, non-farm establishments in Kansas Broadband in Kansas: Availability and Use Among Businesses 24

5 Business Survey In May 2013, a survey was mailed to 10,000 businesses across Kansas soliciting information about their business Internet service, use of the Internet for various business activities, satisfaction with Internet service options, opinions about their current broadband services, and their desire for enhanced Internet services. A total of 1,688 useable surveys were returned. The results of the business survey are summarized and discussed in this report section. 5.1 Key Findings Key findings from the business survey include: Approximately 94 percent of Kansas businesses have Internet service. DSL and cable are the most common connection types. Businesses Internet connection type is correlated with their location. Urban areas have the highest share of cable connections; suburban areas have the highest share of leased lines; small towns have the highest share of fiber connections; rural businesses have the highest share of satellite and cellular connections. The 1 st region has the highest share of businesses with fiber optic service. The 3 rd region has the highest share of leased line service. Over two-thirds of respondents had business websites, and 22 percent of all businesses with Internet service used their website for online payments. Approximately one-half of businesses purchase mobile Internet data plans. The most important Internet business use was large file transfer and backup. Kansas businesses are generally satisfied with their Internet connection speeds. Twothirds said their Internet service was fast enough for their needs, while only 8 percent said it was fairly slow and 2 percent said it was very slow. The largest gap between Internet service satisfaction and importance among several key aspects was reliability, followed by price and speed. Nearly 20 percent of respondents said their Internet service was not very affordable or not at all affordable. While one-third of respondents said they would switch to a very fast Internet service for a 20 percent price increase, less than 5 percent would switch for a 60 percent increase. The diversity of respondents business sizes, industries, and market areas indicates that the set of respondents represents a broad cross-section of the Kansas business community. The business survey results are presented and discussed in the following sections. In addition, comparisons or cross-tabulations of responses based on business characteristics, service types, Broadband in Kansas: Availability and Use Among Businesses 25