Policy by the Numbers: Lessons from Stockholm

Lessons from Stockholm

Tuesday, September 18, 2012

Benoît Felten is co-founder of Diffraction Analysis.Toward the end of the last century, governments around the world who had partially or completely owned telecommunication networks liberalized the telecoms market. For the most part, they exited it by selling their stakes in incumbent operators. The prevailing vision at the time was that the private market would provide.A few decades on, it has become apparent that while the private market has thrived, it hasn't invested in renewing the underlying telecommunications networks as much as it should have. As the copper networks that the incumbents inherited age and strain under the end-user demand for bandwidth, many communities are left wondering if they will ever get state-of-the-art service—and how.Incumbent operators have focused their investments on better broadband in highly profitable areas, either disregarding or divesting from more expensive or less promising locales. The result is a growing digital divide that separates broadband users into haves and have-nots. As a consequence, the question of whether local governments should get involved in broadband—and therefore telecommunications—has risen again.In 1994, the municipality of Stockholm launched what was at the time a novel fiber infrastructure initiative called Stokab. Stokab now passes close to 400,000 homes and offices in the Greater Stockholm area and neutrally and transparently wholesales the dark fiber to all market players. It has become a beacon and a blueprint for many municipal fiber projects around the world since. Yet, until now, the project hadn’t been examined in detail, particularly from a financial perspective. A white paper I recently wrote for research firm Diffraction Analysis, "Stockholm's Stokab: A blueprint for ubiquitous fiber connectivity?," offers such an examination.The paper shows that Stokab developed at no cost to the taxpayer, and, in fact, generated significant direct benefits to the municipality over its 17 years of existence. The cumulative profit generated by the operation from 1997 to 2010 is over 750 million Swedish Kronas ($114 million US), and in recent years the profit has grown significantly despite heavy investment in network extension. In addition, while harder to quantify financially, Stokab has generated indirect benefits as well: higher connectivity for citizens and an increase in the attractiveness of Stockholm to tech companies and, more generally, international businesses. Stokab has also allowed the City of Stockholm to embark on a massive redesign of their public services and internal processes, leveraging the near ubiquitous connectivity to improve services they deliver to citizens and lower costs.Could Stokab be replicated today? Maybe not in large cities, where incumbents and their competitors have been cherry picking business and residential areas with fiber, therefore degrading the overall business model for a municipal broadband project. However, in Tier 2 cities, which are largely untouched by the modernization of the access network, the opportunity exists. Political consensus, a bold approach, and a willingness to collaborate with private players are keys to replicating Stockholm's success.

Policy by the Numbers

Lessons from Stockholm

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