The Nordic telecoms market resembles similar markets in many other countries. It is dominated by the established incumbent telecoms operators, although these are under competitive pressure from latter-day arrivals (more often than not another country’s incumbent). It is also in a period of consolidation.
There are, however, local factors at play which make this market worth a closer look. One is the unusually high degree of mobile phone penetration. In July 2004, Sweden joined the select countries with more mobile phone subscriptions than there are actual residents.
According to a trade newsletter estimate, subscriptions are expected to continue to grow in number throughout 2004, with a 7 per cent increase over the same period in 2003. The roll-out of third-generation (3G) mobile services is also proceeding, if not at the pace originally expected.
Another interesting factor is the growth of IP telephony, which is run over the widespread broadband infrastructure. Municipal fibre-optic broadband networks abound and are beginning to connect through direct links, making calls possible within these networks at next to no cost. The significant Swedish player Bredbandsbolaget, with 280,000 high-speed internet subscribers, has sold 40,000 IP telephony subscriptions in less than two years, while the Swedish dominant cable TV operator com hem is predicted to roll out IP telephony services to its 1.4 million subscribers by this autumn.
A final sign of regional telecoms maturity is the fact that Sweden, in early July, announced the results of its regulatory decisions in the so-called ‘significant market power’ (SMP) process, which was called for by the new EU regulatory package for electronic communications. In a move welcomed by its competitors, the incumbent operator TeliaSonera will be required to offer, at a cost-orientated price, a wholesale access product to other operators, enabling these operators to offer access to the public telephone network at a fixed location for residential customers. Operators without a proprietary network will now be in a position to offer not just a carrier pre-selection telephony service, but the basic subscription as well, in the process taking over the relationship with the subscriber completely.
Incumbent dominance and consolidation
The old incumbent Nordic operators retain their dominance on their respective national markets, albeit a looser one. The effects of competition have so far been felt particularly in regards to mobile services.
An indication of incumbent dominance is their market share national fixed telephony, which varies from 57 per cent (TeliaSonera in Sweden) to 70 per cent (Telenor in Norway).
TeliaSonera was formed in 2002 through the merger of Sweden’s Telia with Finland’s Sonera. An earlier attempt in 1999 to merge Telia with Norway’s Telenor foundered, partly as a result of perceived conflicting national interests, famously causing the then Swedish industry and communications minister to describe Norway as “the last Soviet state”.
The merged company has not been without friction, with national overtones surfacing in the dismissal in 2004 of the Finnish chairman of the board and likewise the Finnish deputy chief executive officer. Widespread speculation of a possible merger between TeliaSonera and Denmark’s incumbent TDC has dampened after TeliaSonera announced its purchase of France Telecom-owned mobile operator Orange’s Danish subsidiary in early July 2004.
The Nordic market’s and its incumbents’ intertwined nature is strengthened further through Telenor owning Sonofon, the second-largest mobile operator in Denmark, and launching Djuice in Sweden, a new, low-price mobile operator. At the same time, TeliaSonera’s subsidiary in Norway, mobile operator Netcom, has achieved a 29 per cent market share in 2003.
3G network roll-out
The Hutchison-owned or dominated ‘3’ is the star of the ongoing roll-out of the new high-speed, high-capacity mobile service known as 3G. It was the first 3G network to open for business in Sweden and, after struggling for around a year, has recently started to take off. This came after introducing an offer whereby for around £14 per month subscribers could call other fixed and mobile subscribers for an hour per month, in combination with unlimited free voice and video calls to other 3 subscribers for one year. A 3G handset was included in the offer. Spurred on by this new competition, other Swedish 3G licensees have finally opened their networks for use. Besides Sweden, 3G services have been launched commercially in Denmark and to a limited degree in Finland. Norway only awarded 3G licences in 2003, 3 being one of the recipients. 3 also holds a 3G licence in Denmark.
The arrival of 3 as a new competitor has not been well received by the Nordic incumbents. The exception is Vodafone, which has entered into a network infrastructure construction joint venture with 3 in Sweden. 3’s network roll-out has been hampered by a marked lack of interest from the incumbents in agreeing to, for example, mast-sharing, provoking a good deal of activity in the Swedish regulatory authority.
TeliaSonera stands out in the 3G market as the one incumbent not to gain a 3G licence in its home country. After TeliaSonera got over the shock of failing to win either a licence or the ensuing regulatory litigation, it entered into a 3G licence and network construction partnership with one of its main Nordic rivals, Tele2. After some difficulty with the Swedish competition authority, this shared network has now been launched. The partners’ attempt to take over the Swedish 3G licence that in effect has been vacated by Orange was, however, thwarted by the telecoms regulator due to competition concerns.
Interestingly, despite the competitive pressures, the Swedish 3G operators filed a joint request to the telecoms operators in late June 2004, asking for a lessening in broadcasting strength requirements and a delay in completing network construction to the end of 2008, rather than the end of 2003 as had been promised originally and as required by their licences. This can be seen as a response to the notifications sent by the regulator in mid-May 2004 to the operators, informing them that they were in breach of their licence conditions on coverage and requiring rectification no later than 1 December 2004. The regulator has not yet responded to the operators’ request.
IP telephony over dedicated broadband networks was first offered to consumers in Sweden in 2002. According to official estimates, around 20 per cent of all Swedish households are broadband subscribers, and the majority of the rest could get such access if they wanted. The greater part of these subscriptions are xDSL-based, which today entails a relationship with the owner of ‘the last mile’ of the copper-based telecoms network, TeliaSonera, which decidedly lacks the motivation to promote IP telephony. In combination with the coming possibility for competitors to take over subscribers on a wholesale basis, this factor is liable to change.
The possibility of broadband operators offering mobile telephony through special handsets connecting to wi-fi hot spots has, however, yet to materialise beyond the drawing-board.
As mentioned above, the Swedish regulator is the first of the Nordic countries to publish final decisions in the so-called SMP process.
These decisions follow the 2002 EU telecoms regulatory package and cover delineating relevant markets in a way comparable to competition law. The regulator then evaluates which operator, if any, holds an SMP on the market in question. Next, the regulator evaluates whether the market in question is marked by less-than-efficient competition. If so, an operator with SMP status may become the subject of a range of obligations.
The time in which an appeal must be lodged against these SMP decisions will expire towards the end of July 2004. To date, only one appeal has been filed, by Vodafone. It would be surprising indeed if it were to be the only such appeal.
Henrik Nilsson is an associate in the international communications group at Bird & Bird in Stockholm