Thursday, April 02, 2009

Why is connectivty in Stockholm so much faster and cheaper than in US cities?

We've been discussing US broadband policy and the stimulus package, and this table shows the cost of fiber-based, residential Internet service in several cities (Brough Turner provided the European and Asian data):

Hong Kong$35100100
Lafayette, LA, Municipal$585050
Lafayette, LA, Cox Cable$140550
US, where available, Verizon$1452050

Can we explain the large speed and cost differences?

The Cox Cable offering in Lafayette, Louisiana seems to be the worst deal. It is the slowest and only five dollars a month less than the Verizon network. The municipal network in the same city is faster and cheaper. The Cox network reaches more neighborhoods than the municipal network, and they are forced to compete with temporary sale prices.

Stockholm is at the other extreme. They have a municipal network that reaches every block in the city. Unlike Lafayette, they do not offer consumer service over their fiber, but lease network access to anyone who would like to offer service. The Internet service providers, including incumbent telephone and cable companies, compete on an equal footing.

As a result, there are many competing service providers in Stockholm, and, as Turner points out, the city owns the expensive, long-life assets like fiber, rights of way, conduit, and tunnels, and the service providers own the electronic equipment that is relatively cheap and is upgraded frequently as technology improves.

Many factors determine the cost of Internet connectivity, but the ownership model is significant, and it seems the Stockholm model is superior to those in the US.

Note that analysts at the OECD also endorse the Stockholm ownership model, writing that:
Municipal networks can play an important role in enhancing competition in fibre networks. If these develop, governments should encourage them to be open networks, that is providing dark fibre to service providers rather than becoming themselves service providers. Nor should the existence of a municipal network providing dark fibre mean that investment in other fibre networks in that municipality should be prevented.
Should some of our broadband stimulus funds be used for Stockholm-style municipal networks?

Click here for a paper with more on this topic.

Click here for a PowerPoint presentation on this topic.

Update 11/10/2014

Stockholm reports 19 years of financial and user success. The Stokab report should be required reading for all local government officials.