What we can learn from Sweden: How can the roll-out of true open access fiber networks succeed in Germany?
In his article, Mikael Häußling Löwgren (Swedish Fiber Optic Alliance) describes how regionally located fiber optic providers in Germany can learn from the experiences of Swedish providers and why an open access model is the key to successful FTTH marketing. In a total of three parts, the author discusses the advantages and disadvantages of potential business models for municipal utilities and local FTTH providers and presents these in detail.
Part 2: Advantages and disadvantages of the two business models
I have spoken to German and Swedish municipal utilities on many occasions about the advantages and disadvantages of the two business models and the risks and opportunities associated with a switch. I learned how difficult it is to discuss something you don’t know – because you overestimate the risks and underestimate the opportunities. That’s why it’s worth looking outside the box, in this case to Sweden, to better assess the opportunities and risks. I have drawn the following conclusions from my discussions: Let the active network operate
- Faster and easier entry into the market: The expansion of a fiber optic network is already very different from that of an electricity or gas network. Operating a telecommunications network is also an additional challenge. With an outsourcing partner/platform operator, you only have to face one of the two challenges, or to put it another way: this business model requires less expertise – the partner provides it. Later on, you can take over active network operation yourself if necessary.
- For small communities with an insufficient number of potential end customers: Even in Sweden, around 10 percent of local carriers still offer a private label on a closed network and do not operate the active network themselves. These are the smallest municipalities. They say that they cannot achieve sufficient economies of scale. Furthermore, around 40 percent of local carriers have their active network operated by an external outsourcing partner who brings a large number of service providers with them. This is the next largest group of small municipalities.
- Fewer staff, lower CAPEX: In order to operate your own active network, you need IT systems such as an Operations Support System (OSS)/Business Support System (BSS) and IT staff in addition to the hardware in the network. In addition, all founders start from scratch and it takes time to reach the required volume. This is logical and a challenge in an investment business, which speaks in favor of outsourcing. It is also a question of capital. So the question is: at what point does it pay off? A local carrier in Sweden reported that it had three employees to operate its active network itself in 2008. At that time, he had 3,000 connected customers. In 2019, it had 15 times as many connected customers, but the increase in staff for network operations was only five more employees. An outsourcing partner will never give up or enable such economies of scale.
Operating the active network yourself
- retain the economies of scale and the higher margin on sales growth: As described above, investments must be made in personnel, office space, software and hardware for in-house operation. In Sweden today, 53% of local carriers operate their own active network. These are the local carriers in the larger Swedish municipalities with an average population of around 80,000 inhabitants (from 25,000 to 1,000,000). From this we can conclude that it would also be worthwhile for German local carriers, e.g. municipal utilities in areas with a similar population, to push ahead with their own active network operation.
- Flexibility for new services or achieving added value more easily: If you operate your network yourself, you have better control over internal workflows/processes, you can react flexibly and add new services more easily or put together new bundled products with other municipal utility products in combination with an open fiber optic network offer. You are in a better position to promote local start-ups and thus make the location more attractive, or to support “municipal services” such as smart grids, intranet, smart city, “digital town hall”, healthcare and education. All in all, there is more freedom and this makes it easier to offer customers attractive services.
Many brands and products from other service providers instead of our own white label product
- The local carrier does not have to establish and maintain a new brand: With Open Access – at the level of active wholesale products – the local carrier (municipal utility) is a pure infrastructure provider, without its own brand and services. This gives it a simpler market position and keeps it out of the line of fire, so to speak, of day-to-day business with end customers. In Germany, as in Sweden, the municipal utilities are locally known, trustworthy infrastructure operators. Positioning a brand against other brands in a free market is more like the retail business and costs resources and capital. It is simply a very different business.
- Better take-up and higher network utilization: Many end customers want to be able to choose their service provider and switch if they are dissatisfied with their current one. When many service providers have entered the market, as has been the case in Sweden for some years now, there will be a second growth spurt. Then you can also offer customers who want a special provider. Diversity promotes consumption.
- Better leverage in competition: The competitors of the local carriers in Sweden are those who also have their own network. These include, above all, Swedish Telekom and the large Swedish cable network operator ComHem. As described above, an open fiber optic network brings new, network-independent service providers (service providers without their own fiber optic network) into the market, which in turn makes the large established telecommunications companies less visible in the crowd – a market psychological advantage.
The article will be continued in the next aconium newsletter. You can then find out which business model the author believes is most suitable for municipal utilities.
By Mikael Häußling Löwgren, Swedish Fiber Optic Alliance. The original version of this article was published in Cable!vision Europe 02/2021.
The Swedish Fiber Optic Alliance is an initiative of the association “Svenska Stadsnätsföreningen” for the exchange of knowledge on fiber optics between Sweden and Germany. “Svenska Stadsnätsföreningen” is an industry and interest group. Its members are local carriers in almost 200 of Sweden’s 290 municipalities and 135 providers of network services and equipment.
Background to the research: In spring 2020, the Swedish Fiber Alliance and BUGLAS launched a project, a GAP analysis, which compared the business models between the Swedish local carriers and the German local carriers. BUGLAS member company Troiline GmbH was actively involved in the project. The GAP analysis was presented and discussed for BUGLAS member companies in a webbinar.
Mikael Häußling Löwgren is a Swedish telecommunications engineer, economist and chairman of the Swedish Fiber Alliance initiative and has more than 30 years of German-Swedish sales and business experience. For many years he has been involved in the development of the civil fiber optic market in Sweden and Germany. He is therefore very familiar with the topic in both countries, can make profound comparisons and draw appropriate conclusions.
Swedish fiber optic alliance
Mikael Häußling Löwgren
+46 (0) 704 223431
mikael.haussling(at)ssnf.org