Small Businesses Lose Out on Broadband

WASHINGTON, D.C. -- If you work in a large business, you probably already have a high-speed Internet connection. But if you're part of a smaller company--ostensibly the ones with the most to gain from a speedy connection--odds are you're out in the broadband cold.

Broadband adoption rates, and the economics of providing such services, were two of the topics discussed during a debate here Tuesday. Sponsored by the Cato Institute, a libertarian think tank, the debate brought together telecommunications analysts from around the world.

Blake Bath, managing director and senior equity analyst at Lehman Brothers, noted that while broadband deployment hasn't always gone as smoothly as some hoped, it is nevertheless "alive and well."

The industry's most noticeable gains have been in the business sector, Bath says. There, more than 55 percent of companies offer high-speed access to their employees, up from only 2 percent in 1990, he says.

The reason broadband investment in the business sector has been so prevalent, he argues, is that broadband companies can recover their investment more quickly in that market.

Small Business Lag

However, not all businesses should be considered the same. There's a big difference between large businesses and small ones, says Scott Cleland, chief executive of the Precursor Group investment research firm.

Cleland says that broadband deployment for large businesses is "almost 100 percent." The real problem lies in getting access to small businesses, where there is a "broadband paradox."

Small businesses make up one-third of the country's economy, but only 10 to 20 percent of them have broadband access, he says.

The problem is that many of these businesses, which would stand to benefit tremendously from high-speed access, are too far away from the necessary infrastructure, he says. Broadband providers simply haven't yet seen a way to make infrastructure expansion to these areas profitable.

The same physical distance that hurts small businesses is also the reason that high-speed access for home users isn't more widespread. Most of the day's panelists say broadband access currently reaches 7 to 9 percent of homes.

Another serious deployment problem: reaching rural areas. Erik Olbeter, senior Internet analyst at Schwab Capital Markets, says a comparatively lower rate of return on rural infrastructure investments and the difference between rural and urban economies make rural deployment a tricky proposition.

Doug Ashton, managing director at Bear Stearns, says Germany, with its dense population, is an example of an area where broadband deployment has worked. Users live closer together, allowing for easier sharing of network infrastructure.

Ashton says that deployment strategies in the Unites States are not working and that answers will have to be found in policy.

"Without policy change, it's pretty hard to see how you can get any real access modernization, at least over the next three to five years."