Is the NBN good for all small businesses?

The NBN will be a boon for Australia's small business sector, but many small to medium businesses won't survive the transition.

I’m a strong advocate of the need for Australian households, businesses, not-for-profits and government bodies to have widespread access to super-fast broadband. And I can’t wait for the NBN to be rolled out to my home and office.

However, as much as there will be many positives from this type of service, there will also be costs and a fair degree of pain for some parts of Australia’s small business sector.

A few years ago I was at a boardroom lunch featuring NBN Co CEO, Mike Quigley. It was shortly before the initial NBN trial was due to be rolled out in Tasmania. Mr Quigley spoke about the benefits a national super-fast broadband network would bring to Australian businesses, noting that it would enable many of them to expand their product and service offerings into global markets for the first time.

I was reminded of Quigley’s comments, and the discussion that ensued, when the Federal Minister for employment and workplace relations, financial services and superannuation, Bill Shorten, mentioned NBN-related benefits for “small businesses” when speaking on the ABC’s Q&A program last week.

Officially, the NBN website proclaims the benefits of super-fast broadband for Australian businesses (large, medium and small) in the following terms:

·        upload and download files quickly and easily;

·        increase access to national and international markets and opportunities to boost sales;

·        take advantage of rich media, such as video and images without delays; and

·        expand opportunities to attract and retain staff by reaching a larger, skilled workforce via teleworking.

The NBN site includes a nice animated video explaining these benefits in more detail.

I agree with the thrust of the point made by Quigley and Minister Shorten – the NBN will present benefits and opportunities for the Australian small business sector that haven’t existed to date.

It's not all good news 

However, what has not been mentioned (and does not appear to have been acknowledged or addressed) is the additional competitive pressures that the NBN rollout is likely place on segments of the small business sector that have to date enjoyed a degree of natural protection as a result of their customers’ inability to access super-fast broadband.

Once that natural protection falls away, many small businesses will for the first time be exposed to competition from interstate and overseas businesses that may offer products and services that are significantly better and cheaper than their own.

And if local customers adopt, and adapt to, super-fast broadband more rapidly than local small businesses, this will only exacerbate these competitive pressures.

Subject to limited (if any) exceptions, I don’t believe that time saved uploading files or the ability to facilitate teleworking will compensate for the lost sales that many of them are likely to suffer as local customers gain access to interstate and overseas markets once the NBN has been rolled out.

Managing the shakeout

The broad roll-out of a high-speed broadband network will result in an accelerated and profound shakeup (and shakeout) of the small business sector. This should come as no surprise to the Australian Government. In the Department of Innovation’s 2011 publication: Australian Small Business: Key Statistics, they devote a section of its report to the concept of “creative destruction”.

They describe this concept as:

“… the idea that long-term economic progress is driven mainly by innovation by entrepreneurs who, while creating new sources of value, also destroy the value of older and established companies.”

It goes on to note that:

“[f]rom an economic perspective, the phenomenon of creative destruction is not a negative concept [although the report notes that there are social costs involved, such as job losses]. Creative destruction is often seen as a source of productivity growth, thus it is important to create an environment which facilitates this process. Through the process of creative destruction more efficient, competitive or innovative competitors replace destroyed jobs and businesses.”

I’m not against the general concept of “creative destruction” – I think renewal through innovation is essential to drive progress and productivity – but I think it’s also important to manage (and if possible limit) the fallout, particularly for the stakeholders in Australian businesses that end up being “destroyed” as a result.

In my view, the small businesses that are most exposed – in both a positive and a negative sense – to the effects of super-fast broadband are those that sell products or services that can be consumed or serviced more efficiently online than they can through traditional off-line channels.

This presents opportunities for small businesses that are willing and able to innovate, but it is likely to be the undoing of those who fail to respond to changes in customer behaviour that follow the NBN rollout.

NBN no near-term saviour

Research by Sensis indicates that many Australian small businesses are likely to be left flat-footed by the time their customers begin looking for NBN-driven solutions to their product or service needs.

Three statistics stand out from Sensis’ 2012 e-Business Report.

1.   Internet connections for small businesses dropped to 91 per cent, their lowest levels since before the first iPhone was sold in 2007.

2.   The number of small businesses with a website declined by six per cent to 60 per cent.

3.   Only 15 per cent of small and medium businesses combined have a digital strategy for their business, a marginal decline since the year before [NB Medium-sized businesses undoubtedly skew the results here - I expect the percentage of small business with some form of digital strategy would be very low].

These statistics indicate that small businesses have “digital” placed well down their list of priorities. This is perhaps understandable, given increasingly difficult trading conditions, but it does little to support the notion that the NBN will be a near-term saviour for the small business sector.

More needs to be done to help prepare the small business sector (including its employees) to adapt to a post-NBN world.

An 2009/10 ABS report into “IT Use and Innovation in Australian Business” notes that the main obstacles to innovation in small businesses are a lack of access to skilled resources and a lack of funds.

While the solutions to these problems are many and varied (and more than a little problematic), they are worth exploring, given the importance of the small business sector to Australia’s economy and its social fabric.

Digital business barely rates a mention on any of Australia’s federal or state government websites that are dedicated to helping small business. This must change before small businesses themselves can be expected to grab the opportunities, and manage the serious risks, that will emerge for the sector as the NBN is rolled out.

Andrew Twaits is the managing principal at The Strategy Canvas.