Comment on the NGA investment case studies: Stokab
In the DAA workshop and the related online group, we discuss exemplary cases to thrash out the pros and cons of different NGA investment models, which could be replicated on a larger scale.
Please share your views, devoting particular attention to the following points:
- What are the right commercial, financial and regulatory arrangements which make long-term NGA investment feasible?
- What elements of the case studies can serve as a role model for replication and what needs to be adapted?
- How can EC policy improve the feasibility of such models (under the current regulatory framework)? Are certain models better than others?
Below we present the second case for your comments, Stokab from Sweden. The most voted comments (through the "interesting" button) will be fed into the discussion at the Assembly.
Facts and commercial model
- Stokab is owned by the City of Stockholm and exemplifies the activities of c. 170 city operators in Sweden in that it rolls out future proof communications networks. This infrastructure in turn enables effective and innovation-enhancing competition at the services level which generates positive spill-over effects on economic and social prosperity in the Stockholm region. The company’s fibre optic network was expanded sequentially from an initial footprint in the city's financial district and will cover 90% of local households with FTTH point-to-point technology by the end of 2012.
- Stokab builds and operates a wholesale-only model and exclusively sells dark fibre access at affordable prices and on non-discriminatory terms to downstream service providers. The pricing model comprises a non-recurring set-up fee plus a fixed monthly fee in inner city areas. Outside the centre, monthly rental charges vary with the length of the local dark fibre loop. These elements are combined with volume discounts and differentiation of charges based on contract length. Currently, more than 100 service providers use Stokab's passive network.
- Stokab also tries to exploit synergies with existing infrastructures and through improved coordination to reduce the need for civil works and cut construction costs. Construction works and a large part of network maintenance have been outsourced to subcontractors.
- By virtue of its regional geographic footprint Stokab's market position so far does not constitute significant market power (SMP) and hence, the company is not subject to access regulation. However, SMP regulation of the fibre access network of the vertically integrated incumbent Telia Sonera directly impacts on Stokab's business model as the regulated access price for Telia Sonera's dark fibre defines a point of reference in the market which city network investors find challenging to compete with.
- According to both Stokab and the Swedish Organisation of Local Authorities, this jeopardises the viability of further network investments. As a result, Stokab is hesitant to commit to additional large-scale investments as long as this uncertainty persists.
- Stokab is a special-purpose entity which is managed independently of the city of Stockholm and does not benefit from national public subsidies. The municipality provided the initial tranche of equity; apart from this, the company relies on private sector debt funding and, as the network expands, retained earnings to finance further deployment. During 1996 and 2008 investments amounted to cca. SEK 3000 million and additional cca. SEK 1500 million have been planned between 2009 and 2012.