Technology Workshop: “Strategies to Help Take Your Business to the Next Level”

at theIllinois State Black Chamber of Commerce’s 2nd Annual

Statewide ConventionWilliam L. Kovacs

Vice President, Environment, Technology & Regulatory AffairsU.S. Chamber of CommerceFriday, August 24, 2007

Hyatt Regency, Chicago, IL10:45 a.m. – 12:00 p.m.

2

Why is Broadband Important? Telecommunications is the central nervous system of the American

economy, impacting literally every business. Broadband gives business an important tool to increase productivity,

reduce costs, better serve their customers, and the opportunity to communicate with the world.

Between 1995 and 2004, advances in telecommunications and

information technology were responsible for as much as 75% of U.S. labor productivity gains.

Broadband enables money to be moved instantly and makes selling

products anywhere in the world possible

1

3

How many businesses are in the United States?

As of 2005, there were an estimated 25.8 million businesses in the United States.2

How many U.S. small businesses are there?

99.9% of all U.S. businesses are small businesses with fewer than 500 employees.3

How many Black-owned businesses are there?

As of a 2002 U.S. Census survey, there were approximately 1.2 million Black-owned businesses.4

4

5, 6Percentage of Firms Owned by Different Ethnic Groups

4.99%

5.90%

1.80%

7.00%

7.40%

3.70%

82.90%

81.40%

88.00%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

All U.S. Firms

Nonemployer Firms

Employer Firms

Fir

m T

yp

e

Percentage Owned

Whites

Hispanics or Latinos

African Americans

*Employer firms make up 25% of all businesses but account for 97% of business activity in terms of sales or receipts

**Non-employer firms make up 75% of all businesses but only account for 3% of business activity in terms of sales or receipts

*

**

5 White Black Hispanic Asian Native/Islander

Percentage of Revenue by Race for Employer and

Non-Employer Firms

Asian 3.6%

Black .08%

Hispanic 2.2%

White 93.1%

Native/Islander

0.03%

Asian 4.5%

Black 2.9%

Hispanic 5.4%

White 86.4%

Native/Islander

0.7%

Employer Firm Revenue by Race (%)

Non-Employer Firm Revenue by Race (%)

7

6

Trends In Broadband Adoption Among Ethnic Groups

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Year

Perc

en

tag

e

White

Black

All Adult

White 31% 42% 48%

Black 14% 31% 40%

All Adult 30% 42% 47%

2005 2006 2007

8

7

Trends In Broadband Adoption Across Community Type

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Year

Perc

en

tag

e

Urban

Suburban

Rural

Urban 31% 44% 52%

Suburban 33% 46% 49%

Rural 18% 25% 31%

2005 2006 2007

9

8

Broadband Usage vs. Dial-Up Usage Among Active Internet Users

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Month and Year

Perc

en

tag

e

Broadband Users

Dial-Up Users

Sept. 23, 2005- FCC releases order on DSL12

June 27, 2005- Supreme Court Issues Decision in Brand X Case11

10

9

Broadband Subscribers

111.8 mil

60.4 mil57.3 mil54.5 mil51 mil48.3 mil43.4 mil40.9 mil38.2 mil38 mil

567 mil

298.1 mil281.5 mil

263.8 mil247.1 mil

229 mil209.3 mil

190.3 mil176.3 mil

164.4 mil

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 2011(est.)

Quarter Period

Nu

mb

er

of

Su

bs

cri

be

rs

Number of Broadband Subscribers in the US

Number of Broadband Subscribers Worldwide

11, 12, 13

10

14Broadband Subscribership by Country

7,200,000

8,000,000

9,350,000

14,000,000

14,100,000

15,300,000

16,100,000

26,500,000

56,300,000

60,400,000

0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000

Spain

Canada

Italy

U.K.

S. Korea

France

Germany

Japan

China

U.S.

Co

un

try

Number of Subscribers in Millions

11

Average Broadband Speeds

61

45.6

21.7

18.2

17.6

8.8

8.1

7.6

7.5

7.4

7.3

6.2

6

6

4.8

0 10 20 30 40 50 60 70

Japan

Korea

Finland

Sweden

France

Netherlands

Portugal

Canada

Poland

Norway

Austria

Belgium

Iceland

Germany

United States

Co

un

try

Megabits Per Second

Average Speed (Mbps)

15

12

U.S. E-Commerce Sales

$0

$50,000,000,000

$100,000,000,000

$150,000,000,000

$200,000,000,000

$250,000,000,000

2005 2006 2007 2011 EST.

Year

Sal

es in

Do

llars

U.S. E-Commerce Sales

16, 17

13

Quarterly U.S. E-Commerce Retail Sales as a Percent of Total Quarterly Retail Sales

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 2010 EST.

Quarter

Per

cen

t18, 19

14

Purchasing Patterns of Web Savvy Shoppers

• 79% of U.S. online consumers researched products online during the past 3 months

• 57% of U.S. online consumers purchased products online during the same period

• 51% of U.S. online consumers are cross-channel shoppers (research online purchase offline last 3 months)

• Consumers who research products online before buying them offline will influence more than $500 billion of offline sales in 2007

• Over half of online consumers research online but purchase in store• Almost $400 billion of store sales – or 16% of total retail sales – are

directly influenced by the Web as consumers research products online and purchase them offline

• Offline sales not influenced by the Web will decrease 24% by 2012

20, 21, 22, 23

15

Percentage of Consumers who Research Carefully Considered Major Items Online but Don't Purchase them Online

82%

79%

63%

53%

49%

44%

44%

43%

43%

38%

38%

33%

23%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Automobiles

Major appliances

Cable or satellite TV service

Small appliances

Phone, wireless, or Internet service

Jewelry

Sporting goods

Linens/home décor/ furniture

Consumer electronics

Baby/children's products

Footwear

Clothing accessories

General apparel/clothing

Pro

du

ct

Percentage of Consumers

24

16

Percentage of Consumers who Research Urgent, Disposable Goods Online but Don't Purchase them Online

54%

54%

53%

51%

41%

36%

35%

31%

28%

27%

26%

21%

21%

0% 10% 20% 30% 40% 50% 60%

Videos/DVDs

Video games

Toys

Tools/hardware/garden supplies

Office supplies

Non-prescription drugs

Music

Health and beauty products

Flowers/cards/gifts

Food and beverages/groceries

Event tickets

Books

Auto parts

Pro

du

ct

Percentage of Consumers

25

17

What Steps Should be Taken to Increase Broadband Deployment and Usage

Among Minority Populations?

• Access (supply) — If broadband is not available, how do we get it out there?

• Rate of Subscribership (demand) —If broadband is available, how do we increase the percentage of customers who sign up for broadband service?

18

Total of Relevant Federal Telecom and Broadband Spending for FY 2006

Major Federal Telecom & Broadband Programs

$7.7 billion

Other Federal Broadband Programs

$920.2 million

Total Spending $8.6 billion

19

Major Federal Telecom and Broadband Programs 26,27,28

Program Agency Description FY2006 (obligations)

Universal Service High-Cost program

Universal Service Administrative Company (USAC)/Federal Communications Commission (FCC)

The goal of this program is to ensure that consumers in rural, insular, and other high cost areas have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services that are reasonably comparable to those services provided in urban areas.

$4.1 billion

Universal Service Low- Income program

USAC/FCC This support, commonly known as Lifeline and Link Up, provides discounts that make basic, local telephone service affordable for more than seven million low-income consumers.

$820.4 million

Universal Service Rural Health Care program

USAC/FCC This support provides reduced rates to rural health care providers for telecommunications and Internet services so they pay no more than their urban counterparts for the same or similar telecommunications services.

$40.1 million

Universal Service Schools & Libraries program

USAC/FCC This support, commonly referred to as E-rate support, provides affordable telecommunications and Internet access services to connect schools and libraries to the Internet.

$1.7 billion

20

Rural Broadband Access Loan and Loan Guarantee Program

Rural Utilities Service (RUS), U.S. Department of Agriculture (USDA)

This Program helps facilitate the construction, improvement, and acquisition of facilities and equipment for broadband service in eligible rural communities. The Program’s goal is to ensure that rural consumers enjoy the same quality and range of telecommunications services that are available in urban and suburban communities.

$329.2 million*

Community Connect Broadband Grant Program

RUS, USDA This Program is designed to provide financial assistance to furnish broadband service in rural, economically-challenged communities where such service does not currently exist.

$8.9 million

Distance Learning and Telemedicine Program

RUS, USDA This Program provides funding for telecommunications, computer networks, and related technologies to facilities that target rural students, teachers, medical professionals, and residents.

$39.5 million

The Traditional Infrastructure Program and Rural Telephone Bank

RUS, USDA The Rural Telephone Bank is a traditional infrastructure loan program that provides financing of broadband and other advanced services.

$689.8 million

Subtotal $7.7 billion

* Available funding for loans and loan guarantees was $1.085 billion but all available funds were not awarded.

21

Other Federal Broadband Programs

Program Agency Description FY2006 (obligations)

Public Telecommunications Facilities — Planning and Construction

National Telecommunications and Information Administration, Dept. of Commerce

Assists in planning, acquisition, installation and modernization of public telecommunications facilities

$19.7 million

Grants for Public Works and Economic Development Facilities

Economic Development Administration, Dept. of Commerce

Provides grants to economically distressed areas for construction of public facilities and infrastructure, including broadband deployment and other types of telecommunications enabling projects.

$158.1 million

Education Technology State Grants

Office of Elementary and Secondary Education, Dept. of Education

Grants to State Education Agencies for development of information technology to improve teaching and learning in schools

$272 million

Star Schools Office of Assistant Secretary for Educational Research and Improvement, Dept. of Education

Grants to telecommunication partnerships for telecommunications facilities and equipment, educational and instructional programming

$14.8 million

Ready to Teach Office of Assistant Secretary for Educational Research and Improvement, Dept. of Education

Grants to carry out a national telecommunications-based program to improve the teaching in core curriculum areas.

$10.9 million

Special Education — Technology and Media Services for Individuals with Disabilities

Office of Special Education and Rehabilitative Services, Dept. of Education

Supports development and application of technology and education media activities for disabled children and adults

$3.4 million

29

22

Medical Library Assistance

National Library of Medicine, National Institutes of Health, Department of Health and Human Services

Provides funds to train professional personnel; strengthen library and information services; facilitate access to and delivery of health science information; plan and develop advanced information networks; support certain kinds of biomedical publications; and conduct research in medical informatics and related sciences

$65.2 million

State Library Program Office of Library Services, Institute of Museum and Library Services, National Foundation on the Arts and the Humanities

Grants to state library administrative agencies for promotion of library services that provide all users access to information through State, regional, and international electronic networks

$163.7 Million

Native American and Native Hawaiian Library Services

Office of Library Services, Institute of Museum and Library Services, National Foundation on the Arts and the Humanities

Supports library services including electronically linking libraries to networks

$3.6 million

Appalachian Area Development

Appalachian Regional Commission

Provides project grants for Appalachian communities to support the physical infrastructure necessary for economic development and improved quality of life.

$62 million

Delta Area Economic Development

Delta Regional Authority Grants to support self-sustaining economic development of eight states in Mississippi Delta region.

$7.8 million

Denali Commission Program

Denali Commission Provides grants through a federal and state partnership designed to provide critical infrastructure and utilities throughout Alaska, particularly in distressed communities

$139 million

Subtotal $920.2 million

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Recommendations

• Advocate for Executive Order creating a White House Office of Broadband Policy to coordinate the activities of the 9 federal agencies that are managing 20 programs aimed at ensuring that Americans have access to telecommunications and broadband.

• Work with U.S. Chamber members, local chambers of commerce, policymakers, and all other interested groups to support existing efforts to make broadband available all across the United States and to increase the demand for the technology through state and local grassroots awareness/adoption campaigns.

• Support reforming federal broadband programs to ensure that funds are directed to unserved and underserved areas and populations.

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Endnotes

1 Thomas W. Hazlett, Coleman Bazelon, John Rutledge, and Deborah Allen Hewitt, Sending the Right Signals: Promoting CompetitionThrough Telecommunications Reform, Report to the U.S. Chamber of Commerce at p. xix (Sept. 22, 2004). Available at: http://www.teleconsensus.com/portal/teleconsensus/041006telecommstudy.htm. 2 Frequently Asked Questions, Office of Advocacy, U.S. Small Business Administration. Available at: http://www.sba.gov/advo/stats/sbfaq.pdf. 3 Id. 4 Revenues for Black-Owned Firms Near $89 Billion, Number of Businesses Up 45 Percent, U.S. Census Bureau, April 18, 2006. Available at: http://www.census.gov/Press-Release/www/releases/archives/business_ownership/006711.html. 5 Minorities in Business: A Demographic Review of Minority Business Ownership, Office of Advocacy, U.S. Small Business Administration, April 10, 2007. Available at: http://www.sba.gov/advo/research/rs298tot.pdf. 6 A nonemployer firm is “defined as one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the construction industries), and is subject to federal income taxes.” Nonemployers account for almost 75% of all businesses, but only account for approximately 3% of business activity in terms of sales or receipts, according to the U.S. Census Bureau. Source: Firm Size Data – Statistics of U.S. Businesses and Nonemployer Statistics, Office of Advocacy, U.S. Small Business Administration (available at: http://www.sba.gov/advo/research/data.html). 7 Minorities in Business 8 John B. Horrigan and Aaron Smith, Home Broadband Adoption 2007, Pew Internet & American Life Project, June 2007. Available at: http://www.pewinternet.org/pdfs/PIP_Broadband%202007.pdf. 9 Id. 10 Bandwidth Report (citing Nielsen//NetRatings), WebSiteOptimization.com, Jan. 2003 – June 2007. Available at: http://www.websiteoptimization.com/bw/.

25

11 On July 27, 2005, in Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U. S. 967 (2005), the U.S. Supreme Court confirmed that cable companies do not have to share their broadband facilities with their competitors. Available at: http://www.supremecourtus.gov/opinions/04pdf/04-277.pdf. 12 To ensure that its rules were technology-neutral and consistent with the Brand X case, the Federal Communications Commission issued a rule on September 23, 2005, that phone companies would no longer have to share their DSL broadband facilities with their competitors. Available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-05-150A1.pdf. 13 World Broadband Statistics, Point Topic Ltd., Q1 2005 – Q1 2007. Available at: http://point-topic.com/home/operatorSource/reports.asp. 14 World Broadband Statistics Report – Q1 2007, Point Topic Ltd., P. 20. (June 2007). Available at: http://point-topic.com/contentDownload/dslanalysis/world%20broadband%20statistics%20q1%202007.pdf . 15 Daniel K. Correa, Assessing Broadband in America: OECD and ITIF Broadband Rankings , Information Technology and Innovation Foundation, April 2007. Available at: http://www.itif.org/files/BroadbandRankings.pdf 16 “E-commerce: Growth of E-Commerce,” (citing U.S. Department of Commerce data), Economist Intelligence Unit Country Commerce Select, April 23, 2007. 17 “Internet Economy Passes New Milestone,” Agence France Presse, Jan. 14, 2007. Available at: http://asia.news.yahoo.com/070114/afp/070114230811hightech.html

18 Quarterly Retail E-Commerce Sales: 1st Quarter 2007, U.S. Census Bureau. (May 16, 2007). Available at: http://www.census.gov/mrts/www/data/html/07Q1.html. 19 U.S. Online Commerce Growth and Opportunity Through Shipping , JupiterResearch, LLC., p. 1. (April 19, 2006). Available at: http://images.fedex.com/us/retail/online_commerce.pdf. 20 Comparisons Between U.S. & Europe Consumer Multi-Channel Behavior (summary of teleconference by Forrester Research on the “State of Multichannel Shoppers in the U.S. and Europe,” iexpound.com. (June 27, 2007). Available at: http://www.iexpound.com/2007/06/comparrisons-between-us-europe-consumer.html.

26

21 Tamara Mendelsohn, Mobile Shopping Looks to Change Retail Self-Service, Forrester Research, Inc. (June 11, 2007). Available at: http://www.iexpound.com/2007/06/how-mobiletools-will-be-driving-multi.html. 22 Tamara Mendelsohn, The Inevitable Convergence Of Retail Channels: How POS, Commerce Platforms, And Contact Center Applications Unite, Forrester Research, Inc. (May 17, 2007). Summary available at: http://www.iexpound.com/2007/05/retailer-shopping-channels-continue-to.html.

23 Tamara Mendelsohn, The Web's Impact On In-Store Sales: US Cross-Channel Sales Forecast, 2006 To 2012, Forrester Research, Inc. (May 7, 2007. Updated June 1, 2007). Summary available at: http://www.iexpound.com/2007/05/its-rare-that-two-independant-research.html.

24 NACTAS 2006 Benchmark Survey, Forrester Research, Inc. Summary available at: http://www.iexpound.com/2007/04/what-types-of-goods-are-more-fitting.html.

25 Id. 26 2006 Annual Report, Universal Service Administrative Company. Available at: http://www.usac.org/_res/documents/about/pdf/usac-annual-report-2006.pdf.

27 2005–2006 Progress Report, Rural Development, U.S. Department of Agriculture. Available at: http://www.rurdev.usda.gov/progress/2005-6-ar-v10-final3.pdf.

28 Lennard G. Kruger, Broadband Loan and Grant Programs in the USDA's Rural Utilities Service, CRS Report to Congress, Congressional Research Service. (July 10, 2007). Available at: http://www.nationalaglawcenter.org/assets/crs/RL33816.pdf.

29 Lennard G. Kruger and Angele A. Gilroy, Broadband Internet Access and the Digital Divide: Federal Assistance Programs, CRS Report to Congress, Congressional Research Service. (July 30, 2007). Available at: http://www.nationalaglawcenter.org/assets/crs/RL30719.pdf.