How Can the Stokab Model be Replicated?

Benoît Felten, CEObenoit@diffractionanalysis.com

Context

• In late 2010, Google contacted Diffraction Analysis asking for an examination of the Stokab project.

• The main questions were: • How did it come to be ?• What were the challenges in its inception and growth ?• What were the impacts of Stokab on Stockholm ?• Could other cities follow in Stockholm’s lead ?

• In order to answer these questions, Diffraction Analysis went on a research trip in Stockholm and met with Stokab, the City, Stokab’s customers and various politicians who were involved in the decisions to launch the project.

• This in turn led to the release of a white paper entitled Stockholm’s Stokab: A Blueprint for Ubiquitous Fiber Connectivity?

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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300

400

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Stokab Investment and Profit (1994-2012)(Millions of SEK)

Investment Profit

A Short History of Stokab

First customers (city, hospitals, universities)

sign up. City of Stockholm IT bill goes

down by 40%.

Stokab purchases inner city duct

network to allow initial deployment.

Jan. 24, 1994, Stockholm City Council votes

the creation of Stokab.

Stokab is cash-flow positive

Expansion starts beyond

inner city.

First deals with housing

companies and communications

operators for residential

service.

First (and only) loss in Stokab history post 1997, due to

over-expansion without

commensurate market growth.

Stadshus AB writes off SEK 600m of

assets.

Stokab announces a residential

deployment plan to ultimately cover

400 000 homes in Stockholm.

Stokab announces an expansion of

the residential plan to 40 000 single

homes inside Stockholm.

Stokab in Numbers Today

100 Employees

1 000 Sub-Contractor

Employees

800 Customers

105 Operator Customers

600 Network Nodes

1 250 000km of Fiber Deployed

5 500km of Cable Deployed

Integrators

Stokab’s Market

• Stokab sells one product and one product only: point-to-point dark fiber circuits.

• By not offering any form of lit services Stokab does only competes in a very limited way in the retail market.

STOKAB

Public Institutions Businesses

Wireline BroadbandOperator

Mobile Broadband Operator

Real Estate

Communications Operator

Internet Service Provider

Residential Customer

Stokab’s Pricing

• Stokab’s pricing has two essential components:

• Set-up fees dependent on the location to be connected and whether it is already on the physical network or not. Multiple fibers and redundant circuits are discounted when purchased at the same time.

• Recurring fees based on the straight distance between the two nodes the access lines are connected to. Recurring fees also depend on level of SLA purchased.

• Stokab’s pricing is transparent. Only locations that are outside the inner city and not yet on the network require a specific quotation. All the rest is catalog.

• Stokab’s pricing is replicable: any customer purchasing something another customer already purchased will get the same price.

• This leaves some latitude for Stokab to innovate on price when it negociates new contract types (for example, very short or very long contract terms) but once a quote is agreed, that sets the price for the future.

How Stokab Benefited Stockholm

• Stockholm considerably reduced the amount of telecom related digging work and the associated costs and disruption for citizens.

• Stockholm punches above its weight in international rankings for business attractiveness, due in large part to best-in-class Quality of Telecommunications (4th in C&W rankings)

• PwC examined the various services available in 26 large cities around the world. It identified Stockholm as having the best network for schools, the second best broadband quality, and the best digital economy (PwC Cities of Opportunity, 2011).

• Stockholm has become a European IT hub and a welcoming environment for Start-Ups. Venture-capital firm Creandum reports that over the past five years, more than €1.3 billion has been generated per year from Swedish tech company exits.

• The City of Stockholm has embraced its connectivity. It saved 40% on its IT bill from the first year onwards, and has been leveraging the network to equip and manage remote locations. More recently it launched over 50 e-services thanks to the fact that 90% or more of the population is considered online.

Innovation: SVT’s live event coverage

• For live events in Stockholm (marathon, Stockholm Tennis Open, royal wedding…), SVT used to send one or more trucks on location to edit the live feeds.

• For the royal wedding, SVT approached Stokab to see if they could rent fiber on location and directly connnect their camera equipment to the editing center in their headquarters.

• This in turn led to SVT reworking their whole approach to live coverage, now edited in house. The savings are massive, estimated at around 40% of production costs.

Innovation: Stockholm’s 4G coverage

• The pre-existence of an extensive fiber network throughout Stockholm has allowed 4G mobile broadband competition to a degree not seen anywhere else in the world yet.

• Long-term leases of dark fiber by mobile operators was made possible by Stokab’s latitude to price (provided the prices become replicable).

• 4 networks operate in Stockholm:• The incumbent’s, Telia Sonera,• Operator « 3 »,• Tele 2 and Telenor who operate their passive infrastructure through a joint

consortium called Net4Mobility

Innovation: Heating schools

• One interesting side-effect of the Stokab deployment has been an experiment in school heating.

• Stokab’s nodes host active equipment and therefore generate heat. Instead of letting that heat dissipate, Stokab experimented with using the energy to hear a public school in Stockholm.

• The program was successful and is now being expanded to other nodes and other public buildings.

Key Success Factors

• Stokab remained a key infrastructure asset for the city despite political changes and even when things turned tough in 2002-2003.

• Throughout its history, Stokab was never financed by taxpayers’ money except for the initial 5000 € to incorporate it.

Political Marketing

Consensus accross party lines

Understanding of infrastructure dynamics

Long-term vision and support

Focus on passive service offering

Neutral and non-threatening position in the market

Gradual build-up with high revenue generators targeted first

Can the Stokab model be replicated ?

• A Stokab-like project in a city the size of Stockholm seems unlikely

• However, in Tier 2 cities with operator participation, the model should be successfully replicable.

Challenges Opportunities

Existing copper competition is alive and active

Cherry-picking in the business market has already happened in most large

cities

Broadband players are likely to be more aggressive on all fronts

Technology is mature and costs to deploy have gone down considerably

Awareness for high-speed broadband services is building

Operators are more willing to consider public-private partnerships

Thank You!

• Visit www.diffractionanalysis/publications for more reports on broadband and NGA.

• Contact benoit@diffractionanalysis.com for queries and further analysis.

• Benoît Felten’s blog: www.fiberevolution.com

• Follow Diffraction Analysis: @diffraxion

• Follow Benoît Felten: @fiberguy

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