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Journal of Property Investment & Finance

Emerald Article: Broadband technology: An appraisal of government policy


and use by small- and medium-sized enterprises
Vivienne Spurge, Claire Roberts

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To cite this document:
Vivienne Spurge, Claire Roberts, (2005),"Broadband technology: An appraisal of government policy and use by small- and
medium-sized enterprises", Journal of Property Investment & Finance, Vol. 23 Iss: 6 pp. 516 - 524
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http://dx.doi.org/10.1108/14635780510626556
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JPIF
23,6 Broadband technology
An appraisal of government policy and use by
small- and medium-sized enterprises
516 Vivienne Spurge and Claire Roberts
Oxford Brookes University, Oxford, UK
Received May 2005
Accepted July 2005
Abstract
Purpose – The purpose of this paper is to review recent government policy to provide a context for
an exploratory study of broadband take up and use by small- and medium-sized enterprises (SMEs) in
the Thames Valley region of the UK. In recent years, the business environment has been
fundamentally altered by the information and communication revolution that has changed the way in
which businesses are created, operated and managed. However, the take up of broadband amongst
SMEs remains low. Recent government policy has focussed on stimulating both supply and demand
sides of the market for broadband technology as an entry point for SMEs.
Design/methodology/approach – The paper discusses the impact of government policy upon the
use of broadband by SMEs and considers how occupiers are using and benefiting from the use of
broadband.
Findings – The research undertaken indicates that government policy promoting broadband take up
amongst SMEs has been effective in terms of the achievement of targets. The majority of SMEs in the
case study are now equipped with broadband. However, their use of broadband appears to be limited
to the more rudimentary uses for communication and searching for information as opposed to
advanced applications such as e-business and marketing.
Originality/value – Current government policy is aimed at promoting ICT for SMEs, but their
effectiveness and success is yet to be measured. There is a need for more research in respect of the
impact of broadband upon the working practices of SMEs, their business performance and relative
competitiveness.
Keywords Government policy, Small to medium-sized enterprises, Working practices,
Communication technologies, United Kingdom
Paper type Research paper

Introduction
This paper aims to review recent government policy to provide a context for an
exploratory study of broadband take up and use by small- and medium-sized
enterprises (SMEs) in the Thames Valley region. Following an overview of the use of
broadband by SMEs and government policy, the paper uses a case study approach to
evaluate office occupiers’ perceptions of the importance of connectivity, the availability
of government assistance and their use of broadband. The paper concludes with a
discussion of the effectiveness of government policy and identifies potential areas for
future research.
Journal of Property Investment & Over the last two decades, information and communications technology (ICT) has
Finance fundamentally altered the way in which businesses are created, operated and managed
Vol. 23 No. 6, 2005
pp. 516-524 (Keen and McDonald, 2000). ICT has literally transformed the business environment,
q Emerald Group Publishing Limited
1463-578X
so much so that it is now suggested that every business today competes in two worlds;
DOI 10.1108/14635780510626556 a physical world of tangible resources and a virtual world of information (Rayport and
Sviokla, 1996). The many benefits of broadband are well documented, particularly for Academic papers:
small- and medium-sized enterprises; they include new customers and markets (Ritchie Broadband
and Brindley, 2000; Quayle, 2002; Raymond, 2001; Vescovi, 2000), improved marketing
techniques (Sparkes and Thomas, 2001) and improved relations with business partners technology
(Poon and Swatman, 1999).
SMEs have an important role to play in the UK’s economy (Beaver, 2002). There are
currently approximately 4.0 million businesses in the UK and 99.2 per cent of them are 517
classified as SMEs, with between 0 to 249 employees (DTI, 2004). SMEs employ 58.2
per cent of the UK workforce and produce 40 per cent of GDP (DTI, 2004). OFCOM
(2004) reported that of 68 per cent of UK SMEs that are connected to the internet, 37 per
cent use broadband; the remainder use narrowband (40 per cent) and ISDN (medium
band) (23 per cent). This paper is primarily interested in the connection to, and use of,
broadband technology by SMEs.

Broadband technology and SMEs


Broadband refers to high-speed “always-on” connections to the internet that support
the delivery of innovative content and services (EU, 2002). Compared to traditional
narrowband “dial up” connections, broadband access is immediate. Large volumes of
data can be instantly transmitted, waiting times are reduced and efficiency for users is
improved. There are currently a number of options available for the delivery of
broadband. The three most common forms of technology are asymmetric digital
subscriber line (ADSL) technology (enabling an existing telephone line to be upgraded
to offer a broadband access connection), fibre optic lines and cable leased lines. Users in
more remote locations can utilise wireless and satellite technology, although this
technology is still in its infancy.
Most working definitions of SMEs emanate from the Bolton Committee Report of
1971 which defines a small firm as independent, owner managed and with a small
market share (Simpson and Docherty, 2004). The Bolton Report also adopted a number
of different statistical definitions. It recognised that size is relevant to sector; that is, a
firm of a given size could be small in relation to one sector where the market is large
and there are many competitors; whereas a firm of similar proportions could be
considered large in another sector with fewer players and/or generally smaller firms
within it (DTI (SBS), 2004). For statistical purposes, the Department of Trade and
Industry (DTI) employs the definition that an SME has up to 249 employees (DTI,
2004).
In order to meet the goal set by the EU to become the most competitive
knowledge-based society in the world by 2010, there is mounting pressure being placed
on SMEs to more fully embrace ICT and e-business techniques. SMEs are seen as the
means to achieving the competitive knowledge-based society because, in aggregate,
they are big buyers, big innovators and, most important politically, big employers
(Taylor and Murphy, 2004).
While there are now some two thirds of UK businesses online and further growth is
expected, it is the larger companies who are the most active in ICT, with almost twice
as many e-commerce activities as SMEs (Haig, 2002). The UK Government
acknowledges there is a slow take-up of e-business techniques amongst SMEs (UK
Online, 2002). The problems of the engagement of SMEs with ICT have been
documented as twofold. The first problem lies with defining the characteristics of
JPIF SMEs. There have been many studies in the literature that have attempted to do so;
23,6 central to these is the underlying realisation that many of the processes and techniques
that have been successfully applied in large businesses do not necessarily provide
similar outcomes when applied to SMEs. Westhead and Storey (1996) summed up the
problem stating, “SMEs are not small, large businesses but a separate and distinct
group of organisations”. A second problem is encountered in the diversity of
518 businesses within the SME sector itself. SMEs are not a homogeneous set of
businesses. They vary significantly by size, age, sector, motivation, mode of
organisation, ethnic background, location, knowledge base, power and control of
resources, innovative capacity and so on. These characteristics can play directly on
their need and opportunity to engage with e-business (Taylor and Murphy, 2004).
It is well documented that SME connectivity in the UK is lagging behind other
European countries. Figure 1 shows take-up across the EU13 countries, UK take-up is
well below the EU13 average. The slow take-up of broadband by SMEs is often
attributed to the shortage of appropriate applications and to the lack of awareness by
SMEs of the potential benefits of ICT for their business (EU, 2004).

Government policy
The UK Government has recognised the importance of SMEs in spearheading the
growth in broadband, e-commerce and e-business in its broadband policy, which is
designed not only to nurture and promote the SME sector, but also the connectivity of
the sector. The UK’s broadband strategy is part of the wider UK online strategy which
was led by the Office of the e-Envoy (OeE) until 2005. This work is now undertaken by
the recently formed e-Government Unit (eGU). The strategy includes 113 detailed
recommendations covering 26 commitments to ensure the UK is at the forefront of the
knowledge economy revolution. The three major goals set for UK e-business were that,
by 2005:

Figure 1.
SMEs and broadband,
2003
(1) 1.5 million SMEs are online. Academic papers:
(2) 1 million SMEs are trading online. Broadband
(3) The UKs’ SMEs reached the level of the international best in use of e-business technology
(Dixon et al., 2002a).

The UK Government has employed a variety of strategies to help small firms overcome
some of the barriers to ICT adoption. For example, awareness raising initiatives,
519
provision of suitable training (Chen and Williams, 1993; Pollard and Hague, 1998;
Fuller, 1996; Lymer et al., 1998) and consulting services that provide help to transfer
business models to the internet (Charlton et al., 1997; Fuller and Jenkins, 1995; Zalud,
1999).
The use of the internet or the progression from the use of narrowband to broadband
technology indicates the overcoming of initial barriers to entry into the digital
economy. These barriers are well documented in the literature (Dixon et al., 2002b; EU,
2002; Buckley and Montes, 2002). The principle barriers for SMEs have been identified
as a lack of awareness of the potential of ICT to enhance business operations or a lack
of understanding of the applicability of ICTs to the products and services they offer.
Other barriers identified include perceptions of unresolved security and privacy issues
associated with use of the internet, particularly with respect to online payments; a lack
of the necessary IT skill-base; high initial set-up costs and a restricted ability to evolve
ICT provision due to a legacy of IT sunk costs.
Government expenditure has focused on increasing the e-business readiness of
SMEs; a range of initiatives have received funding, for example, providing skills
training for broadband, encouraging users to speed up their connectivity and
increasing the provision of the supply of broadband (Booz Allen Hamilton, 2002). In
2001, the UK Government created a £30 million Broadband Fund, via the DTI, to be
given to the Regional Development Agencies (RDAs) to fund regional and local level
projects to contribute to the development of broadband in the UK with projects being
run on a large scale, such as the Remote Area Broadband Inclusion Trial (RABBIT)
and on a small, local scale, such as grants to enable the setting up of a new portal or
hub and online marketing programmes.
During the past three years, the Government has spent a further £67 million on
a comprehensive programme to get UK businesses online, with the added aim of
increasing the e-business readiness of users. Initiatives have included the provision
of skills training for broadband, encouraging users to speed up their connectivity
and increasing the provision of the supply of broadband.
A survey by the Federation of Small Businesses (2002) revealed that three quarters
of small businesses and one third of medium sized enterprises use ordinary dial up
access to connect to the internet. A survey by the Institute of Directors (IOD) found that
just 16 per cent of small businesses have a broadband internet connection, despite a
wealth of evidence that suggests high-speed internet access has a profound impact on
business competitiveness. The reason, according to UK communications watchdog,
OFCOM, is that getting a broadband connection remains a “postcode lottery” (OFCOM,
2004). The IOD believes that this is due to the Government’s laissez-faire approach to
building the nation’s telecommunications infrastructure (IOD, 2004).
JPIF Take-up and use of broadband technology across the Thames Valley
23,6 A dual method approach was taken to an exploratory analysis of broadband take up
and use by SMEs in the both urban and rural locations of the Thames Valley area of
the South-East. The first stage involved a postal questionnaire of office occupiers that
was followed up by series of detailed, qualitative, semi-structured telephone
interviews. The focus of this work was small businesses (up to 25 employees) and
520 small medium sized businesses (26-50 employees). A postal survey was distributed to
460 SMEs in different locations within a ten mile radius of Reading, Berkshire, and a 16
per cent response rate was achieved, providing 74 valid responses. From this sample,
12 respondents participated in a more detailed study of their broadband uptake and
use through semi-structured telephone interviews. These were undertaken to enrich
the initial findings of the survey.
There are three key areas in the classification of the sample; company type,
company size and company location. The sample classified their company activities as
follows; professional services (64 per cent), computer services (19 per cent), financial
services (4 per cent), research and development (2 per cent) and other classification (11
per cent). The size of the companies responding to the survey was heavily weighted
towards the lower end of the SME spectrum, with 58 per cent of companies employing
1-9 staff, 38 per cent employing 10-24 staff and 4 per cent employing 25-50 staff.
Finally, of respondents to the questionnaire, 56 per cent of the sample were located in
urban areas and 36 per cent were located in a rural area. The following section will
explore the key findings of the office occupier survey.
A significant proportion of respondents to the questionnaire (85 per cent) indicated
that they currently use broadband technology. The remaining 15 per cent of
respondents used a narrowband internet connection. Respondents identified a variety
of positive impacts on key areas of their business activity, for example, improvements
in business efficiency (92 per cent), data and information transmission (82 per cent) and
flexibility of working practices (78 per cent). Over 75 per cent of respondents
considered the availability of broadband technology to be vital or very important to
their business. One interviewee said “our business could not function without
broadband – we totally rely on it now”. Respondents also identified the enabling
nature of broadband for certain working practices, for example, the use of hot desking
(58 per cent) and home working (40 per cent). But more advanced working practices,
such as virtual offices, hotelling, marketing or e-business were not identified as
benefits for respondents. The emphasis now placed on such technology was
highlighted by 62 per cent of respondents who identified its availability as a key
priority in any office relocation decision. These respondents would not consider
relocating to an area where broadband services were unavailable.
Only 15 per cent of respondents indicated they did not currently subscribe to a
broadband service; all were located in rural areas of the Thames Valley. Of this sample,
68 per cent of respondents did have access to a broadband supply but had chosen not
to subscribe to it. The main reason given for this is that they did not perceive a need in
their business for the technology. The remaining 32 per cent, who did not have access
to broadband, did not have access to a supply. Of this group, 65 per cent of respondents
identified that they had undertaken some form of lobbying activity to obtain a
broadband supply. Of those respondents that do not have broadband services, 52 per
cent said they felt disadvantaged in the business environment.
Poor communication and a lack of publicity were highlighted as key barriers to Academic papers:
obtaining broadband for respondents to the questionnaire; less than 25 per cent of Broadband
respondents were aware of any government initiatives (either national or local) which
enable small businesses to acquire broadband services, either by providing technology
information about availability or funding. Most respondents were unaware of the
wide variety of schemes and initiatives aimed specifically at SMEs, in particular the
initiatives and schemes run by the South of England Enterprise and Development 521
Agency available to SMEs in the sample area. Several interviewees felt that the range
of government initiatives available had not been sufficiently publicised. Only four
respondents were aware of any statutory initiatives in relation to broadband and only
one respondent could identify a specific scheme from which grants were available for
satellite broadband in his rural area.

Implications of findings
SMEs are an extremely important sector of the UK economy and the Government has
expended considerable resources in providing broadband support services to them.
The Government has seen its priority to intervene in the market to stimulate
broadband supply by reducing the cost of the capital infrastructure investment,
ensuring a stable and predictable regulatory framework and removing and preventing
regulatory barriers to broadband rollout. Broadband demand has been stimulated by a
number of government initiatives such as creating easy access to broadband services,
investing in the marketing and promotion of broadband services to the private sector,
tackling the skills needed for broadband and stimulating private sector demand.
To date, government policy has concentrated on promoting ICT for SMEs through
numerous initiatives, the success of which has been measured on the number of SMEs
with broadband technology. There are now significant numbers of SMEs signed up to
broadband technology; this study found 100 per cent of respondents in the Thames
Valley area had an internet connection, with 85 per cent having broadband technology.
There are several other recent studies which have revealed high uptake of internet
technology (for example, Dixon et al., 2002a; Dixon and Marston, 2004) and the relative
importance ascribed to broadband services by businesses. For example, 54 per cent of
respondents to a survey of SMEs located in the City of London considered that
broadband is either vital or important for expanding business (Dixon et al., 2002a).
This makes a very good case for the success of government policy to increase the
number of SMEs with broadband technology; these companies have been provided
with the tools to enhance their performance and competitiveness.
The literature identifies significant opportunities for companies to use ICT to
improve their performance (Tetteh and Burn, 2001) and to become more competitive
and enhance their prospects for growth (Chadwick and Rumfitt, 2002). The increase in
uptake of broadband shows the Government have been effective in providing SMEs
with the tools to do this. However, this is achieved through companies having the
knowledge of, and the ability to take advantage of, the available technology. It is clear
that the success of any market intervention (and the ability of SMEs to take advantage
of opportunities to improve performance and growth) will be contingent upon training
and knowledge of these tools.
The results of surveys of SMEs and their use of internet technology have been
documented in the literature. These studies identified basic factors such as the speed
JPIF and ease of communication as the most important factors of internet use by SMEs, with
23,6 broadband clearly increasing the speed at which communication can be undertaken
(Fuller and Jenkins, 1995; Poon and Swatman, 1999; Senn, 1996). Another benefit of the
internet is the straightforwardness of searching for information (Fuller and Jenkins,
1995; Poon and Swatman, 1999). This study found that although the majority of
respondents had broadband services, their engagement with the technology was
522 minimal, beyond communication and searching for information. None of those
interviewed highlighted any e-business, e-commerce or marketing activities
undertaken as a result of broadband technology. This lack of training and skills is
acting as a barrier to effective use of broadband by SMEs. Put simply, SMEs have been
equipped with the tools, but are not equipped with skills to use them effectively. These
findings support those of Taylor and Murphy (2004), who suggest that although
current levels of engagement with these new technologies may be relatively extensive,
they are also rudimentary. E-business that goes beyond e-mail and setting up websites
is barely on the agenda of most SMEs. The outlook for the penetration of advanced ICT
skills into the SME sector in the Thames Valley as a direct result of broadband
technology does not look promising. These findings have fundamental implications for
the opportunities open to SMEs to reach niche markets and realise the benefits of
broadband technology.
Current government policy is aimed at promoting ICT for SMEs, but their
effectiveness and success is yet to be measured. Given the improvements proposed by
the Government and the telecom suppliers, it is expected that the vast majority of
SMEs will have access to affordable broadband within the next two years. Further
research is required to assess the effectiveness of government policy, on the basis of a
longitudinal study of users, and to establish whether the substantial financial
assistance provided to SMEs via the RDAs over the last four years has been successful
in achieving greater use of ICT. Further research is also required to explore the impact
of ICT, and in particular broadband, on SMEs’ working practices, business
performance and relative competitiveness.

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