Chapter 9. Entrepreneurship Infusion: Political and Societal Change for the Innovation Economy

Anders Comstedt

A catalyst for competition in telecommunications

The AB Stokab business model is based on the concept that it is cheaper for telecom operators to rent network capacity than it is to lay out a proprietary infrastructure. The concept was designed to enable as many telecom operators as possible to enter the market soon after it was deregulated, and save them the tremendous fixed costs associated with constructing such networks. The concept was seen as a win-win situation since the city of Stockholm was trying to avoid competition based on how fast operators could get their cables down. After already having been through the roll-out of the cable TV networks overbuilding side by side in the 1980s, the city and county had an interest in reducing the street digging. Competition was supposed to occur in telecom services, not in how fast one or two new individual operators could get their cables down. Constructing and maintaining a dependable, high-capacity information infrastructure capable of satisfying the needs of a large number of providers and consumers was considered a prerequisite for a flourishing telecom services market with continuous innovation.

In practice, Stokab made sure it could cater to all operators' immediate needs at once by taking their network requirement plans, laying them over each other, and then just looking right through them. Even though the operators' network plans all had different shapes and sizes, they could all be embedded within the Stokab structure. The aggregated approach also meant that individual shifts in competitiveness between operators was evened out at the fiber level.

When the concept was introduced, operators feared they would be too dependent on Stokab for network capacity. Their worries were that the Stokab infrastructure would not be rolled out at a convenient pace, or that Stokab would be influenced by the interests of their competitors . Stokab responded that if the new infrastructure roll-out happened in an uncoordinated manner, it would take too much time and would be too costly for all of them collectively. Stokab also reminded the operators that the city owns the streets anyway and would balance telecom interest with other use. A coordinated telecom build-out would gain more leverage versus other interests.

At the same time, Telia, the incumbent telecom operator, claimed that Stokab's plan would never work. Just providing an infrastructure was nothing that could be found in the textbooks , and it was not considered possible to run a profitable business based on this model. According to common knowledge, money was made by selling services at a premium price. The concept was truly innovative and nobody else had ever tried anything like it; if for no other reason, in most countries of the world at the time, it was simply illegal.

Even though Stokab's fixed costs represented a heavy up-front investment, the lower prices resulting from deregulation implied such savings for Stockholm, the largest user of telecommunications services in the area, that the investment was immediately justified. Also, the networks that were rolled out to the hospitals outside of the city enabled Stockholm County to quickly save far more than it had invested. In addition to the savings realized by its shareholders, Stokab achieved its first positive result in 1998, and since then has been a profitable business.

Lessons learned

There is an evolution of government officials' attitudes toward a liberalized telecommunications sector, its benefits to society, and the role that the government should play within the context. The " mentality gap" between officials at different levels of understanding of what liberalized telecommunications markets mean for a region can make it impossible for them to communicate. This evolution can be described in four phases:

1. Regarding operators merely as a source of income to the state/local government and thus granting them rights of way against a fee. In this phase, the motivation for authorities to increase the number of providers in the region is given only if it will increase the fee income they receive in the process.

2. Focusing on the government's own telecom costs. The realization that the government can make more money by savings generated through increased competition than by charging fees. In this phase, authorities will aim to maximize the level of competition between operators in order to maximize their savings.

3. Understanding that not only the city and the municipal governments have a problem with high telephone bills, but that a lack of diversity of service providers presents an inward investment problem for entire industries in the region.

4. Aiming to improve the quality of life of the whole region by enabling the spawning of new industries through an efficient process of deregulation. This implies ensuring that quality network infrastructures are available for large and small players to find fast access to the market.

Originally, Stokab saw its concept as something that would work primarily in developed economies, primarily metro areas, to create competition and spawn new markets. Lately, however, the company has been approached by officials from developing countries as well, claiming that they wish to " leapfrog the industrial age" and enter directly into the information age. These regions have an even greater incentive to create a single infrastructure capable of supporting multiple operators, since their economies might not allow them to duplicate communications infrastructures in the way that they were duplicated in Sweden and in other developed countries around the globe.