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):

Where?Monthly
cost
Uplink
(Mbps)
Downlink
(Mbps)
Stockholm$11100100
Seoul$24100100
Hong Kong$35100100
Tokyo$61100100
Amsterdam$127100100
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.

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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.

27 comments:

  1. Stimulus funds for Stockholm-style access? Oh yeah, right. That would be Socialism. And Socialism only applies to fantastically-rich executives in corporations, who will fight any such leakage of their wealth to something which would benefit society at large.

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  2. Anonymous12:49 PM

    How can this possibly be? Everyone knows that socialism is evil and capitalism provides better service at lower prices.

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  3. Anonymous12:54 PM

    As commenter should_be_linear said at http://tech.slashdot.org/comments.pl?sid=1203787&cid=27629199

    "yeah, Sweden is socialist country in many areas and for many decades, but it kinda works so well that free-market evangelists never mention anything about it, they prefer talking about Cuba."

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  4. I don't think it's socialism as in communism. This is socialism as in "in benefit of the people". To be social for the people that made the country what it is. although if this model would be adapted to US, i'm sure it would only create new problems. (because of the US mindset)

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  5. Anonymous1:41 PM

    Your actually referring to Corporatism not socialism as socialism has nothing to do with private interests.

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  6. It won't work in most of the USA. In Virginia, we have some the most ignorant state representatives. It was against the law for municipalities to create networks that competed with the incumbent local carries like Verizon and Embarq. Bristol Virginia Utilities is one of the few. It's the only one providing fiber access to businesses in Southwest Virginia for a reasonable fee.

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  7. NO, it shouldnt be done with TAX money. The telco and cableco should be forced to SELL all wires and cables to a single UTILITY company whose sole purpose would be to manage, maintain and upgrade all the systems.

    We as customer would pay an ACCESS fee to support this hardware utility. Then we could make deals with ANY provider anywhere. ATT could compete nationwide without having to BUY the other company to get access to the wires etc. They can now access all wires and fibers nationwide.

    They could offer us any service they can come up with, phone, tv, net, new things.

    And a local mom and pop can offer us something also. They should not be held out solely by WIRE OWNERSHIP.

    There can not be any competition until all access is the same to all.

    We dont allow Ford to own the road to our homes and force us to drive Fords. Or charge Chevy a premium to use the Ford access road to my home.

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  8. This is great, Australia is building the same sort of network (except country wide, not just in one city) where the government will own and operate the fibre network (FTTH to 90% of the population) and sell it wholesale to ISP's.

    I doubt we'll get $11 per month access (it's costing $43b to build the new network) but I love the model of the government (and therefore the community) owning the infrastructure, and companies selling access to it.

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  9. Anonymous8:50 PM

    No wonder USA it is in such a mess! You guys looks like wearing tunnel vision glasses. Look around the world is changing for the better people look in new dimensions. And is well known in Europe at least that the Scandinavian have the better system in the world. Maybe you should go there an see for yourself and maybe just maybe LEARN!

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  10. Political arguments aside. For a nation with as much raw backbone connectivity as the USA we have some real bottlenecks when it comes to consumer connectivity.

    I think the real argument here is content rather than connectivity. Most of the companies that provide connectivity here in the USA also are content providers. With the advent of IPTV these content providers are concerned about revenue loss. By placing artificial limits on our connectivity they can control the content and limit our choices.

    Countries like Sweden don't have the greed problem when it comes to consumer connectivity. For Sweden its a technology problem rather than a political and financial problem.

    Unfortunately with the "cash and carry" government that we have here the corporations have a lot more of a voice than consumers because of campaign contributions. The socialism argument is just a diversion to get people away from the reality that political decisions are made in the boardrooms of large corporations rather than in our government.

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  11. Danne in Stockholm11:05 PM

    Yes, it is fantastic in Stockholm. I know as I live here with a 100Mb internet connection included in my apartments rent for the last 5 years(now including IP-telephony).

    You say Socialism, I say "common sense" and not being afraid to "do the right thing".

    15 years ago when Sweden was in peril and the Swedish government decided to invest in It infrastructure and a subsidized "computer in every home" they did it not by strictly capitalist intent but as an investment in the "future".
    No capitalist company would do that (no guaranteed profit) but for a Country it sure had its upside several years later.

    Stokab Invests in building "Black fiber" that any other company can rent. It is not profitable at all times but it serves as a great help for connection any building in Stockholm to the internet.

    When I bought an internet connection for my company in the middle of Stockholm, it was fairly cheap because any of the ISP companies I approached only had to connect our building to the Stokab net and that was a lot closer than for them to have to get a fiber to their own backbone.

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  12. I would think Stockholm is unique. In any case, it's not as cheap in other parts of the country. I pay about $35/month for 100/100 in central Linkoping, Sweden.

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  13. Anonymous4:50 AM

    This is the way the USA and the rest of the world needs to be...and I have quietly been saying it (i.e.: not online) for years. That is, Internet Access should be cheap or free, fast and available for all to use. But instead Time Warner and others in the USA are trying to charge more for high bandwidth usage. Seems like the spectrum is being stretched further and further...hmmmmm.

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  14. Anonymous9:17 AM

    And nobody comments on what mrbill said. Champions of socialism that you all are, the issue has nothing to do with that. When it's proven to you...

    "No comment."

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  15. Natural monopolies like the last mile should certainly be dealt with in this way.

    The feds could make an *excellent* case, if they felt the need, that the primary use of such facilities is to access things in other states, and utilize the Commerce Clause to force the application of money to go to this use, and I really hope they do. 100/100? Even for $60 a month? I'm all over that like a bad smell.

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  16. Anonymous12:09 PM

    Assuming that the $11/month is the only cost to consumers is just naive. What about the taxes people pay to install and maintain the municipal network? If each citizen is paying hundreds of dollars (or kronor, or whatever) in taxes each year then the real cost could actually be substantially higher than network access in other places. Of course, maybe the network was installed and is maintained by a volunteer force who refuse to accept payment for their services due to a deep sense of civic pride and devotion to socialist ideals. But somehow I doubt it.

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  17. Anonymous3:10 PM

    The Stockholm model was set up by Peter L├Âthberg, one of the great Internet gurus. He is probably unique in understanding both how to make bits flow over the wire and how different business models affect usage, pricing and development. Other places in Sweden adopted different models, where the city owns the signaling equipment as well as the fiber. This has invariably led to higher prices and more friction over right of way. The cost of getting fiber into my apartment building would be about $10,000. In Stockholm, an operator would happily plunk down the money to get the entire building as customers. Here, they don't get sole access to the fiber, so they won't pay. Neither will the municipality fiber company. Since my neighbours are not interested enough in getting a better service I may have to plunk down the money myself.

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  18. Stockholm rocks!3:37 PM

    I have found many americans get confused about the way the Swedish economy works. We are essentially a free market.

    I know you guys are very afraid of putting your "tax money" in the way of free competition, but in this case you do have something to learn.

    The dark fibre in Stockholm is not "built by the city". It's built by a company (Stokab) which was created and is still owned by the city of Stockholm.

    The company is profitable and we are free to sell it at any time for a nice return on our investment of taxpayer money.

    Internet connectivity is just as much infrastructure as roads and railroads. If it's useful to everyone and the usefulness increases with the amount of installations, having the community take the initial risk is a really good idea.

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  19. I don't know where you got that $11/month idea but that's so way off. The prices here for 100mbps is between 200-300SEK/per month, far from the 88SEK equivalent.

    Next, when I lived in the US, I paid $60/month to Comcast for 6mbps. That was one year ago. Don't know if the prices have gone up or down.

    Either way, your number are wrong so get more accurate figures.

    I agree with Stockholm Rocks!. Americans have no sense of "social" infrastructures that not only benefit everyone but can also be used to create profits. They should learn that taxes are not bad when used effectively.

    And to compare Sweden to Cuba...spare the bulls**t.

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  20. Anonymous1:54 AM

    stockholm : $11/month
    perth, australia : $3000/month

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  21. Anonymous1:55 AM

    stockholm : $11/month

    perth, australia : $3000/month

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  22. Here are replies to two comments:

    1. Anonymous said...

    Assuming that the $11/month is the only cost to consumers is just naive. What about the taxes people pay to install and maintain the municipal network?

    =====

    You are assuming that the city network (StokAB, http://www.stokab.se/templates/StandardPage.aspx?id=306.) loses money. I do not know if that is the case. Perhaps someone from Sweden can comment.

    2. Sapphire said...

    I don't know where you got that $11/month idea but that's so way off. The prices here for 100mbps is between 200-300SEK/per month, far from the 88SEK equivalent.

    =====

    I got the figure from Brogh Turner -- he quoted it in a presentation at Ecomm 2009. (See slide number 7 at http://www.slideshare.net/eCommConf/26-brough-turner).

    I just did a quick Google search, and found a price of "under 100" SEK per month at https://www.afb.se/en/About-AFB/Tenant-at-AFB/Tenant-at-AF-Bosader/Broadband/.

    It seems that Turner is correct.

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  23. All money needed was the initial investment. These money would be payed back to the tax payers by now. If not they will be soon, stokab showed a profit of 67 Billion SEK or about $7.7 bn during 2007. Remember that they are only operational in stockholm, but it is still about $8500 usd per swedish citizen.

    The point is that this is INFRASTRUCTURE, much like roads. If a utility company is created to maintain such infrastructure, you enable short-sightedness to boost profits. Just like roads, this should be handled by some sort of government entity. This will lead to a fewer number of networks (which will lower prices) and to a higher penetration of technology (subsidary of networks in markets that would not attract purely commercial interests, for example).

    Plus, a utility company will start selling access themselves, which will create a very favorable situation. In sweden, we have this problem with the copper network for ordinary phones. The same company that sell access to smaller companies owns the phone network. This have created a very unfavorable situation for the smaller companies.

    Lastly, people are talking about forcing companies to sell their networks to a utility company. In order to do this and avoiding the problem I just mentioned, some laws have to be created. This is absolutely not capitalism, but it certainly is american.

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  24. Anonymous12:17 PM

    Don't they pay up to 57% of their money to tax in Sweeden? Maybe that's why it's faster!

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  25. Socialism!!??

    What do you call the 700 billion dollars from USA's tax money given to AIG, GM, and hundreds of other "businesses" (monkey businesses).

    http://bailout.propublica.org/main/list/index

    "Business people know how to do it better than government" hahahahahahahahahaofodlaw8

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  26. Bobby Romey9:18 PM

    I think we should consider this method, especially considering that their service is so much faster and cheaper than ours. You can't argue with the numbers no matter how you try to spin the political aspect of this style of network. The simple fact is that if this can work and make our connectivity cheaper and faster we should use those funds, which have been seemingly wasted on the cable companies for years, to make our connectivity competitive with others around the world.

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  27. Anonymous8:48 AM

    I don't think the utilities owning all of the lines will ever happen. In my city, the cable lines were in danger of becoming the cities, so what did the only telco in the city do? Put brand new fiber lines in and removed the cable lines to keep their monopoly of the cities internet/cable

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