By Courtney Rubin |  Nov 18, 2010

Small businesses want choice and competition in the broadband service market, but they're not getting either one, says a new government report.

The study from the Small Business Administration's Office of Advocacy – called "The Impact of Broadband Speed and Price on Small Business" – noted that broadband "is central to U.S. small businesses in ways that it is not to individuals."

The small business adoption rate of broadband was at 90 percent when the study was conducted in April 2010, compared to 65 percent of adults who use home broadband connections. Strike off small businesses that don't have any computers, and the level of broadband adoption leaps to 95 percent.

But there are big differences between metro and rural areas in terms of broadband speed, availability and price. Additionally, a third of small businesses surveyed said they wanted service the current network didn't have the capacity to provide. Businesses in cities pay more for Internet service, partly because they're more likely to use the more expensive leased-line services as opposed to dial-up service, which is the cheapest. 

City businesses pay an average of $115 per month for Internet service while rural businesses average $93 per month – about a 24 percent difference. Rural firms firms pay more to get the same bandwith access available in metro areas, though. (DSL is the dominant small business Internet connection type except for in the Northeast, where half of those surveyed have cable modem connections.)

The report also revealed that small business Internet customers pay two to three times more than what residential Internet customers pay for equivalent speeds. In one case study, done in Waseca, Minnesota, a residential service offers 20 megabits per second download/2 Mbps upload for $74.95 per month. But the same company's "ultra" service for businesses offers 20 Mbps download/1 Mbps upload for $249.95 – more than triple the residential price.

Senators Olympia Snowe, a Maine Republican, and John Kerry, a Massachusetts Democrat, requested the report in 2008. Snowe sits on the Small Business and Entrepreneurship Committee and Kerry was the panel’s chairman at the time he requested the report.

"I have heard from numerous small business owners from across Maine who depend on a fast and reliable broadband connection as a matter of basic business survival, but who regrettably are struggling for increased access and speed because rural areas still lack adequate broadband service," Snowe said. "Maine is a prime example of a state where increased broadband utilization can have a dramatic impact on businesses’ ability to grow and expand by selling goods to new markets, both domestic and foreign."

The report recommends that the Federal Communications Commission “stay the course” on its National Broadband Plan. The government also should "protect small business consumers" who "face a number of distinct disadvantages that limit their choices and use of broadband." One example: They are often required to sign one-, three-, or even five-year service contracts with typically steep penalties for early termination. Another recommendation: That the government consider creating federal broadband incentive programs for small businesses.

Said Winslow Sargeant, the SBA's chief counsel for advocacy: "All small businesses must have access to fast and affordable broadband if they’re going to succeed in the global economy."