An Alternative Information Infrastructure ” Maximizing the Benefits of Deregulation Sweden was the first country in Europe to fully deregulate its telecom markets; this happened in 1993. The results were practically free-falling prices and the rise of a multitude of new telecom and service providers. More than 60 international telecom providers operate in Sweden today. During the liberalization process, the city of Stockholm (91% holding) and Stockholm County (9% holding) founded the company AB Stokab with a special mission: In competition with the incumbent network provider and former state monopoly Telia, Stokab began renting out capacity on its newly constructed fiber- optic network to telecom operators, allowing them to save the enormous fixed costs connected with setting up proprietary networks. The Stokab business concept was an immediate success, expressed not only by the company's financial performance, which proved immediately profitable, but also by the degree of competition it has created in the telecom provider and services sectors in Sweden, making it a financial success to its owners practically overnight. Anders Comstedt, president of AB Stokab, considers his company to be one of the main enablers of the Swedish "ICT Society." He explains that soon, everyone in Sweden will have several megabits of transmission speed per second, made possible to a large extent by the Stokab alternative information infrastructure and its look-alikes. In fostering a dependable broadband infrastructure that spans the entire greater Stockholm area, Stokab sees itself as an important cost-sharing mechanism for the entire industry. 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: -
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. -
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. -
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. -
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. | The insight provided by Mr. Comstedt indicates that deregulation alone is not enough to derive the maximum benefit from competition in the telecommunications sector. This Swedish model describes a coordinated deregulation, ensuring a large diversity of service providers that operate in a competitive environment. However, the right mindset is required of government officials in order to implement such a concept. As Mr. Comstedt describes, officials need to "speak the same language" to reap the full benefits of deregulation, knowing when and how to take part in the process and when to stay away. Regardless of the Swedish government's progressive stance toward information infrastructure, Joe Armstrong, co-founder of the Swedish software company Bluetail (which was acquired by Alteon), believes that politicians are still not doing enough to optimize this infrastructure. Creating an analogy with water works, Mr. Armstrong says that if a company wants to deliver a life-critical product such as information via its infrastructure, it needs to guarantee that the delivery will take place at a high quality level and a high rate of consistency. If the company fails, it should have to pay a fine until the service is back to the required level. Mr. Armstrong believes that once the authorities realize that information will be as important to the functioning of society as water and electricity, they will understand that it is not appropriate to allow private enterprises to supply information infrastructure at inconsistent quality levels. "The state should say: If the data transfer rate drops below one megabit per second, the operator has to pay a fine until they fix it. Just like they don't allow any old cowboy to build the roads . This is a sign that the market has matured." Our next focus on educational institutions and technology transfer shows how the Swedish government devised the "third task," a national policy aimed in part at the creation of new high-tech businesses. This policy has proved instrumental in creating a paradigm shift in Sweden's universities, and is considered a key ingredient to spawn a multitude of new companies into the telecommunications environment created by deregulation and Stokab's alternative information infrastructure concept. |
