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28 March 2007 Blog Home : March 2007 : Permalink

Swedish Marketplaces

The reason why I have not been blogging much the last week or so is because I have been in Sweden on business. I'm not going to go into too much detail about the paid work save to say that it was to do with the various Fiber to the Home (FTTH) projects that Swedish municipalities are running. These are truly fascinating and something that the rest of the world - and particularly America with its worries about Net Neutrality - would do well to look at. Polly Pot would do well to look at them too because taking a look at the way these work might convince her that governments are not all-knowing and that markets are good.

Some history and background. In Sweden (and also in Norway) power is generally distributed via municipally owned and controlled companies. These companies are private entities but their shareholders are the local municpalities and hence, while they aren't supposed to make a loss, they aren't driven to maximise profit either. Typically they are small, relatively efficient and they rarely own the generating assets; as in the UK, these entities are merely the distributors of the power, making sure that the local grid is working. In addition to electrical power they may also distribute gas and heat and I think some also do water and sewerage - this depends on the municipality. Consumers in Sweden actually buy their electricity from a number of generating firms who pay these local companies to deliver it for them for a fee. In the late 1990s Sweden, for one reason or another, went fiber mad and all sorts of people started digging up the roads and fields to lay fiber to connect cities and districits and many also intended to connect individual houses or apartment buildings. This was the Internet bubble Scandinavian style, and as with the Internet bubble everywhere else, at some point the free money went away and with it, in most cases, the idea that FTTH was a viable (or even useful) technology.

However the bubble did mean that a number of municpal utilities had made significant investment in fiber before they hit the "oops" moment. Since these guys are not intended to make losses they needed to find a way to get some sort of return on the millions of krona they had invested without spending that much more. On the other hand they didn't need that return to be instant; a five to ten year horizon would be fine. On the gripping hand they couldn't sell the networks they had built because
  1. there were no buyers with money
  2. the networks usually needed a lot more expansion to be useful
The solution that they have come up with, pioneered as far as I can tell in Västerås by Mälarenergi and its Net City, is to adopt the electricity model and sell access to the ISPs, alternative voice providers etc. Intriguingly they also charge the business and homeowners to connect themselves to the network thus allowing for the rest of the network to be built without losing money. They have a rule that a neighbourhood will be connected when 60% of its owners have signed up and charge more for people who sign up late.

The connected households then have access to a high speed network and can choose service from any number of ISPs at a variety of speeds and at a price which is less than typical DSL conecntivity would be (while the service offered is faster). The service providers have access to their potential customers at a significantly lower cost that they would be if they had to get ot via DSL and Local Loop Unbundling or building their own fiber. The utility gets to make money and thus recovers its investment but does so without needing a large investment in staff to provide customer support (that is the job of the ISPs).

All in all it is a win-win-win situation and a market oriented one at that. I don't know how well this model would transfer to other countries but I think it might work for a number of places where local utilities are common or even where municpal authorities have the money to invest if they are not utility providers.

It would absolutely bugger the whiners at Verizon and other US telcos who think that municpal WiFi should be made illegal because it would take their arguments and turn them around. As the BBC reported about the philadelphia project:

When Dianah Neff announced the project she faced an immediate legal and lobbying onslaught from the giant telecommunications companies, led by Verizon.

It was alarmed that the government of America's fifth largest city was getting involved in wi-fi at all, and that the fees would be a fraction of the cost of a private fast internet connection, typically around $45-60 per month when bundled with a mandatory landline telephone service.

"There is a question here about whether the competition is fair when the government has advantages of borrowing money, owning and perhaps giving away real estate access, regulating and taxing us," said Eric Rabe of Verizon.

"If you are in a position where you can regulate and tax your competitor, it certainly gives you an advantage. That is a whole fairness question that I think ought to be worked through and thought about."

By providing a managed local network that service providers can use there is no argument about competition because any service provider can decide to use the network. It is therefore completely fair and also avoids the "waste" arguments because it has very low operational cost and the capital expenditure is paid for by the property owners.

I despise l'Escroc and Vile Pin