Competition Could Reduce Small Business Phone Bills by $6 Billion

America’s small businesses saved more than $4 billion in 2003, and could save more than $6 billion this year thanks to expanded competition and innovations in telecommunications, according to an analysis released by the CompTel/ASCENT Alliance and the PACE Coalition.

"The expansion of telecom competition is providing an important economic boost by reducing the cost of operating a small business," says H. Russell Frisby Jr., CEO of the CompTel/ASCENT Alliance. "But these benefits could be jeopardized by critical court and regulatory decisions on the agenda for this year."

"Our customers tell us that the emergence of strong competition for long time incumbents has strengthened their own business position by enabling them to cut costs and enhance productivity because of the availability of phone services tailored to their individual needs," says Peter Karoczkai, Chairman of the PACE Coalition and vice president of Marketing at InfoHighway Communications, a New York-based CLEC offering competitive services to the small business market.

The CompTel/PACE study estimates that bundled offerings and lower prices for both local and long-distance services reduced small business voice phone bills by about 10 percent last year. The result, according to the CompTel/PACE analysis, was an aggregate savings of $4.4 billion, or about $770 a year on average for each of America’s 5.7 million small businesses.

@subhead:Savings Should Grow With Bell Entry Into Long Distance

Moreover, the analysis foresees savings in 2004, of at least $4.3 billion and as much as $6.7 billion, if policymakers maintain policies necessary to sustain competition. PACE/CompTel believes savings are more likely to reach the higher end of the range because of intensifying competition now that the Bell companies have been allowed into the long-distance market in each of the 48 states.

The calculations reflect a survey of small business users by PACE in combination with telephone expenditure data from research firm IDC, which estimates that America’s small businesses (i.e., those with fewer than 100 employees) spent about $50.8 billion on telecom services last year, $44.3 billion of it on voice telephony. The PACE survey shows savings of 10 percent on the low end and up to 30 percent on the high end for voice telephony.

Frisby and Karoczkai say the FCC’s decision last year to continue to require the Bell phone companies to share their lines at market-based wholesale rates was good news for small business and consumers alike. They added that small businesses and consumers alike could face rising telecom costs if the FCC loses a current court challenge to its decision.

@subhead:Competition is Heating Up

The CompTel/PACE analysis uses U.S. Census data to extrapolate an estimate of the number of small businesses (see accompanying one-page description of methodology). None of these census counts and expenditure figures includes the multitude of home-based businesses run by self-employed individuals. Thus, the savings estimates are clearly on the conservative side.

The savings estimate of at least 10 percent in 2003 reflect actual experience of small businesses during a period when the Bell companies were still barred from offering long distance services in a number of states. It is highly likely that savings will accelerate this year now that the Bell companies are offering long distance in every state. The Bells are offering aggressively priced bundled business services to gain market share. The Bells’ competitors are responding with attractive bundles of their own so that small business savings should reach the 15 percent level, or about $6.7 billion, on voice services in 2004.

As the Small Business Administration noted last year in a filing with the FCC: "The main concerns of small business end users, namely price, customer service, and flexibility, are readily addressed by CLEC offerings. In addition, the presence of alternative carriers has placed competitive pressure on ILECs to lower prices and offer increased services."

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