The Swedes are doing it, so why can't we?

The Swedes are doing it, so why can't we?

Summary: I have never been to Sweden. In fact, I have no real, hard evidence that Sweden really exists as anything more than a collective, Utopian vision where things just work, and life is better.

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I have never been to Sweden. In fact, I have no real, hard evidence that Sweden really exists as anything more than a collective, Utopian vision where things just work, and life is better.

Extensive evidence supports this: consider Ikea, ABBA, and SAAB, which all discount the idea that four-letter words should stand for something dirty.

Sweden is the home of Ingmar Bergman, Björn Borg, the Nobel Prize and Swedish meatballs, all of which have made important contributions in their respective fields.

Now, we read that Sweden is home to something else: the world's newest functionally separated telco (although Telecom New Zealand will this week take that mantle).

On 18 March, the government of Sweden — which I am starting to believe is not just a Utopian fantasy but an actual place where things just work properly — approved "Functional separation for better broadband competition", a bill mandating the functional separation of TeliaSonera, Scandinavia's kinder, gentler version of Telstra.

It's also bigger: TeliaSonera has over 100 million customers in 18 countries. Nonetheless, the company was kind and gentle enough to do something entirely surprising: instead of suing the pants off of the government — as Telstra would surely do and Telecom NZ definitely wanted to — it just set up an infrastructure company to manage its copper and fibre networks and, as Ovum analyst Charice Wang describes it, "promised to provide services under equal terms."

Yes, promised.

The impetus for the government's bill came from the Swedish government's concern that only 63 percent of Swedish households had access to fixed broadband services; neighbouring Norway has 73 percent and Denmark, which I gather has the same sort of friendly rivalry with Sweden as Australia with New Zealand, or Kazakhstan with Uzbekistan, tips the scales at 79 percent.

By way of comparison, the comparable figure for Australia is 46 percent.

This disparity is reflected in the ITU's World Telecommunication Development Report database [PDF here], which tells us Sweden has 214 broadband subscribers per 1,000 people (BS1000) and 17,531 "international Internet bandwidth bits per capita" (IIBBPC) — whatever that means.

Denmark, which is apparently the best in the world in this sort of thing, whipped Sweden and the rest of the world with a BS1000 score of 249.3 and an IIBBPC of 34,891 — the world's highest and nearly twice that of third-place the Netherlands (20,549). Australia, since I know you're curious, has a BS1000 rating of just 103.4 and an IIBBPC score of 5,903; I still don't know what that means, but the fact that we scored just one-third as high as Sweden can't be a good thing. New Zealand weighed in at just 80.8 and 1126, which at least gives us something to crow about.

Assuming the IIBBPC is related to speed, we're in trouble. Sweden, a country with broadband services that leave ours for dead, still thinks things are so bad that functional separation is the only way to improve them.

Then, instead of fighting tooth and nail and suing government ministers, their 800-pound gorilla telecoms operator just rolls over to government mandate and announces it will play fairly for the betterment of European-kind.

Some will argue the writing was on the wall for TeliaSonera: as the #1 operator in numerous European mobile and fixed markets, it was likely to be public enemy #1 in the telecommunications reform currently rippling across the EU.

A draft discussion paper by the European Regulators Group offers an interesting summary of the EU's opinions about functional separation [PDF here]. I won't repeat all of it here for lack of space, but here are a few key points. Functional separation, the ERG tells us:

  • "... seeks to ensure 'full equivalence' of regulated wholesale products"
  • "... should only be implemented when it can be shown that other mechanisms or remedies cannot ensure non-discriminatory access."
  • "... allows the [incumbent] operator to continue to enjoy many of the benefits of vertical integration, so long as these benefits are not based on the leveraging of market power derived from market infrastructure, or infrastructure which is uneconomical to replicate." (my emphasis)
  • "... allows for the targeted separation of those enduring bottlenecks which are difficult for rival operators to replicate commercially, but which provide vital inputs to a range of downstream products and services provided by both the vertically-integrated operator and its competitors."

Here's the big kicker — Sol, are you still reading?

Citing the example of British Telecom, which became the gold standard for functional separation in 2005 and has seen share prices rising steadily ever since, the ERG argues that functional separation actually promotes investment — by both incumbent monopolists and newcomers in the market — by providing market certainty and a clear understanding of the carrier's relationship with regulators.

"It is clear the undertakings entered into by BT were not perceived by the market as a disincentive to invest," ERG wrote. "BT's legal [sic] binding undertakings gave alternative providers in the UK the regulatory certainty to climb the ladder of investment, going from simply reselling wholesale services provided by BT, to physical investments of their own, ever closer to customers' premises ... [without this certainty] BT would undoubtedly have been more reluctant to commit to investing in its [21st Century Network next-generation] core network, to the tune of around 10 billion pounds."

Functional separation actually helping the incumbent? Regulatory certainty helping companies besides the incumbent? This will sound like heresy to Telstra, whose entire business model depends on withholding infrastructure investment until it gets its way.

Indeed, our incumbent has exhibited every one of the undesirable traits cited by ERG as justification for functional separation.

Some will argue that Telstra can no longer be functionally separated because the government gave up its rights over the company in T1, T2 and T3. And sure, the fact that TeliaSonera is 51 percent owned by the Swedish and Finnish governments may have lent a sense of inevitability to the whole thing. But BT's functional separation came a full decade after its privatisation and Telecom New Zealand has also done away with its government roots.

When it comes to functional separation, clearly, where there's a will, there's a way. We just lack the will: the Howard government repeatedly declined to mandate functional separation and Labor has hardly changed that position — although industry group ATUG has argued [PDF here] that the coming AU$4.7 billion next-generation network contract would be a great time to do just that.

What is clear, however, is that functional separation is fast becoming accepted business practice all around us. Sweden may have it over much of the rest of the world when it comes to quality of life, but how long will our telecommunications industry have to eat their dust?

It could be a while; until someone grabs this bull by the horns, it looks like the only meatballs we've got in Australia are the ones in Parliament.

Topics: Broadband, Browser, Government AU, Legal, Telcos, NBN

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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9 comments
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  • Now why cant we do this.

    Someone send this to Telstra... with a note to read the full brief. This is what they need to do to survive and avoid the double standards that are imposed on them as they do run the infrastructure.
    anonymous
  • Sweden vs. Australia

    I don't think it's that helpful to the argument to hold up Sweden in general as some kind of paradise on earth, whose general quality of life Australians can only dream about. This is because Australia actually ranks ahead of Sweden, and Denmark for that matter on indexes such as the UN Human Development Index and ranks similarly on other indexes such as how free and democratic and educated a nation we are & so on. In other words, we're not doing all that badly compared to the Scandinavians. So anyway, perhaps our BS1000 and IIBBPC (whatever it is) are not as good as the Scandinavians but I wonder if that's all because of Telstra? I'm not against functional separation at all, but I think we have other issues such as our population density for example which also impact on services. I think Australia will catch up in the future whatever happens. And hopefully functional separation will be one of the things to happen, but on the other hand, Australia got into colour TV really late too.
    anonymous
  • Sweed

    Cabling up somewhere like Sweden, where a large majority of the population lives in small apartments, would be quite a lot easier than doing the same in Australia, where many people live in excessively large McMansions.

    Not to defend Telstra or anything, but comparing the 63% to 46% figures might be not so relevant in that light.

    Myself, I live in Switzerland. I now get 15,000 KB/s for about $65 a month. Not sure how that compares to Oz these days.
    anonymous
  • Unfair Comparison

    I agree with the last comment. More balanced reporting and less "knee jerk" reactions would be welcomed. Most people that engage in Anti telsra bashing usually have a vested interest themselves or have a hidden agenda. More balanced reporting.
    anonymous
  • A balanced report?

    David, as usual you have reported facts and figures which continue to demonstrate just how bad the situation is in Australia.

    There is nothing "knee jerk" or "Telstra bashing" about the report.

    How can it be, when it is a fact of life in Australia. I know from real life experience, Telstra does everything in it's power to prevent anyone from competing.

    Even though I am now retired, I have no doubt the problem of having to deal with the Telstra bureaucracy hasn't changed in over 40 years.

    None of the ignorant & lazy government regulation has made any impression on Telstra's bureaucratic monopoly and none will, until the Senator gets off his desk chair and legislates to separate the monopoly control of the infrastructure which gives Telstra so much power and control over anyone who attempts to setup any business which will be in direct competition with their very lucrative revenue flow.

    David, Keep up the good work. The Telstra fan boys, Telstra exec's and especially their waffling Marketing guru will one day realise "their time has come". They will have to earn the money they wallow in at present.
    Huntsman.ks
  • Australia left for dead

    Probably one of the best, well researched articles on the topic. Strikes at the heart of the argument. The article was not meant to "compare" the Scandanavian countries with Australia. Just demonstrates an approach that works. The fact is regulatory clarity and functional separation will benefit all stakeholders.
    anonymous
  • Misinformation!

    Excellent article, but a few comments made here are wide of the mark:

    Most Swedes do NOT live in small apartments. 56% of the population live in single dwelling houses. The average household size is smaller in Sweden, meaning more connections are needed per capita.

    Yes, Sweden's population density is 10 times greater than Australia's, but it is just a 10th of the UK and Germany and very low by world standards. And given that much of Australia's interior is devoid of people the comparison is a little misleading. Sweden's urban proportion of population (83%) is lower than Australia's (89%). The truth is, most urban Australians have inferior access to broadband than rural Swedes, although the same goes for many other services like health, education and aged care.

    Any fool could see the sense in functional separation back when the govt still had a majority stake, but I fear that ship has sailed. On the other hand, it was pure joy to see Howard and Coonan being savaged by the beast they bore all last year.

    Yes I'm a Telstra basher and proud. I don't have any vested interests or hidden agendas, I just think they are rent seekers and a barrier to progress in this country. I have worked on quite a few office fitouts in the last couple of years, and Telstra was the only large organisation I observed that wasn't going VoIP. Why is that?
    anonymous
  • In an ideal world

    Once again a point of view is based on a small number of facts while ignoring many others.

    83% of population live in urban areas compared to 89%, looking at the actual size of these "urban" areas the population density is still much lower in Australia then Sweden and elsewhere.

    How about factors such as cost of living, taxes etc in determining the real cost of services.

    Geography, other then population density it is also within hundreds of KM's drive to their borders and they can reach many top 30 OECD countries within 3 hours flying time. In Australia the closest top 30 OECD country is 6 or so hours flying time, to run international connections between 5,000 and 10,000 of under sea fiber needs to be laid.

    Australia is unique in it's circumstances so why does everyone try and actually compare us with all of these other countries.

    We should aspire to be the best country on earth and have the best services possible given our unique environment.
    anonymous
  • You're extremely lucky

    Telstra cable internet; up to 30,000kbps (approx 3000KB/s) $60 for 600MB of data !!!!! ($150 per gigabyte thereafter). Or. $80 for 12GB of data and your bandwidth reduced drastically if you exceed your limit.

    Truly draconian by European standards.
    anonymous