Intelligence at the Edge #2


David's smiling face

By David S. Isenberg                                                               amnetlogo    

From America's Network, October 1, 1998

Even the most ardent get-the-government-off-our-back-sters have to admit that municipal government does a pretty good job with roads and sewers. As I grope in the legal debris of the Telecom Act of 1996, I ask myself what, if anything, makes telecommunications infrastructure different?

The best example that I know of telecom infrastructure-as-public-good comes not from America's network, but from Sweden's. In 1994, the city of Stockholm chartered a company named Stokab to provide dark fiber to all comers at cost-based rates. In an amazing two years, Stokab built a 96-fiber pedestal on virtually every city block in Stockholm.

Stockholm chartered Stokab because it recognized that rate-lowering competition and a proliferation of new telecom services attracts clean, high wage, information-based businesses. The city envisioned a virtuous circle where advanced infrastructure led to an educated workforce, a prosperous economy, and an attractive lifestyle. In addition, Stockholm did not want multiple competitors digging up its historic streets time and time again.

Focus on fiber

To date, Stokab's business plan is on-track, and 1998 will be its first profitable year. Its customers include wireline and wireless telecommunications companies, cable television (CATV) providers, Internet service providers, and companies that need private, high-speed metropolitan area networks, like banks and insurance companies.

MFS (now Worldcom) was one of Stokab's first customers. In 1994 MFS found a European foothold with Stokab, which provided entree to the exclusive international carrier club. Tele2, Sweden's second carrier, was another early customer; Stokab lowered Tele2's barriers to competing against Telia, Sweden's former PTT.

The secret of Stokab's success is direct access to city-owned ducts and tunnels. Stokab hung fiber optic cable in the subways, and pulled it alongside steam pipes, water pipes, electric cables and sewer lines. The city-owned company found remarkably little red tape from municipal agencies. And in the odd case of "dig we must," Stokab had little difficulty in obtaining the necessary city permits.

Stokab's second secret is its focus on dark fiber. According to AndersComstedt, Stokab's managing director, initially Stokab was to become a full-service telecommunications company. But while Stokab's directors knew infrastructure, they quickly realized that fielding telecom services was a totally different game. So Stokab made the crucial decision to zero in on infrastructure.

Stokab's focus on dark fiber creates a clean interface between what it does and doesn't do. Also, the decision promotes trust, in that it keeps Stokab from competing against its customers. Stokab provides a physically separate fiber for each customer, designing each customer's network to individual specifications. Customers light their own fiber, and provide all service layers above that. (The only exception is that Stokab operates city's own data network.)

Other cities, other models

Comstedt has seen other municipal telecom ventures stumble as they climb the value chain. When it comes to marketing telecom services, he says, "That's when they screw up. They get outsmarted by other people. They don't develop the way they initially had in mind." He has seen municipal electric companies rush to bundle telecom services into their offerings but, he says, "sooner or later you're in a situation where commodity products need to be cost-effectively produced."

Billy Ray, manager of the Glasgow, Ky. municipal Electric Power Board, debates this observation. For eight years Glasgow, population 14,000, has operated one of the most visible U.S. municipal information services. Its citizens can buy 53 channels of CATV for $15 a month, and 4-megabit symmetrical Internet service for $22 a month (including cable modem rental). Like Stokab, Glasgow has driven rates down and brought information intensive business and white-collar jobs to town. It also shows that a municipal company can operate infrastructure plus offer retail telecom services.

Nonetheless, next to Stokab, Glasgow makes me uneasy. Does Glasgow's success depend on the smallness of the town and the inspired leadership of one individual? Will it scale to a big city, where greed can grow unchecked by public awareness, where incompetence is easier to hide behind anonymity? Will it transfer to other towns, where leadership is less visionary? To me, the Stokab model seems more robust, because it gains strength from the magic hand of open competition at every level above dark fiber.

Tragically, both efforts would be against the law in four U.S. states. Furthermore, thanks to lobbying by the regional Bell operating companies, several other states are mulling anti-city ownership laws.

Cities benefit from having cutting-edge infrastructure, and they benefit from competition. If a city wants its own telecom infrastructure, why make it illegal in this land of the free, the home of America's network?