Organization and business models for broadband networks with

operator neutrality: Swedish experience

Victor Kordas victork@kth.se

ABSTRACT

Broadband market participants are looking intensively for new technological approaches as well as for new business models for delivering reliable broadband access to their customers and in this way increase market share. One of the major problems to be solved by all-fibre broadband operators is to achieve certain level of profitability and, at the same time, offer prices comparable with the ones from incumbent operators that utilize existing infrastructures to deliver the products, which has �broadband� as a keyword in their names.

Concept of operator neutrality that evolved in Sweden is an attempt to solve the problem of all-fibre broadband by making the infrastructure open for all interested service providers. Currently in Sweden there are several small-scale trial deployments of broadband networks of such type and first results of their deployment and operation were considered in this article.

The main conclusions are that while present small-scale deployments of all-fibre broadband infrastructure with operator neutrality make it possible to study various technological aspects, the business aspects cannot be properly studied due to limited number of connected customers. Moreover, extensive development and provisioning of commercial broadband services beyond Internet access by multiple actors that utilize specific conditions of Operator Neutral Networks (ONN) are not performed due to the same reason.

Principle of operator neutrality: basic concept Principle of operator neutrality has evolved as an attempt to introduce

competition in first-mile broadband infrastructure. The initial idea was to create an

alternative to the fibre network of Telia (the biggest telecommunication operator in

Sweden) which owns large backbone network that already reaches all main cities in

Sweden, and avoid a situation where Telia has monopoly on first-mile fibre

connections. The political parties negotiating the proposition agreed that Svenska

Kraftnät � a company that is constructing fibre and power lines should build a dark

fibre network on commercial basis before the end of 2002. The operators would then

be given the opportunity to rent the fibre and add their own equipment in order to

stimulate competition, future development of broadband technologies and their

adoption by mass market.

So far, Swedish government has invested over 8 billion (more than $800

million) Swedish crowns in fibre-based broadband infrastructure. Since the

government had put their trust in the market, the construction slowed down as the IT-

market cooled down. According to a statement1 from Anne-Marie Eklund Löwinder at

the II-association, 55 billion Swedish crowns and 250000 km of fibre to all houses is

necessary to fulfil the vision of the Swedish ICT-commission: 5 Mbit access to all

households in Sweden within five years, and the possibility to choose among various

operators meaning that the urban networks are to be based on the concept of operator

neutrality. This solution is opposed to the traditional approach where single operator

is present in the entire value chain, providing all services, operating, maintaining and

also owning all parts of the network from backbone to the access network in user�s

house. This means that the operator is vertically integrated in all steps and has

achieved a monopoly position where it can control the users and the house owners.

These parties often lack the knowledge about which demands need to be put on the

operator, especially concerning the difference between access and content and also

regarding the length of the contract. Many house owners and condominiums have

signed long contracts with operators, who, in exchange for financing the network, get

exclusive right to deliver services. One example of this is cable-TV.

House owners having learned from these mistakes want to provide their tenants

with freedom of choice regarding broadband connectivity. The evolving concept of

Operator Neutrality seems to be a solution. Figure 1 illustrates the difference between

traditional operator and the neutral concept:

1 Ola Larsmo, �På den smala vägen till det breda bandet�, Dagens Nyheter, B3, 2002-05-05

Figure 1. Vertical Integration vs. Operator Neutrality. In the left picture the

traditional operator controls the entire value chain. In the picture to the right the

operator is neutral and the User can choose his service provider himself.

In an Operator Neutral Network the different parts in the value chain are divided

among different actors. The house owner invests in the infrastructure himself and

becomes the owner of the network in his houses. To operate and maintain the

network, a role known as the Communications Operator has been created. This is an

operator, but not in the traditional sense of an operator providing Internet access. The

communications Operator does not own the network, nor does it provide services

inside it. The task of the Communications Operator is to operate the network and keep

it open for any service provider whishing to offer its service to the Users. It means

this actor has a neutral role. The service providers entering the network can be the

traditional operators who now only offer their service of Internet access instead of

controlling the entire value chain. The network also makes room for other kinds of

content, such as IP-telephony, VoD, and a variety of local services. Figure 2 is an

example of what the Operator Neutral Network can look like:

Figure 2: Different Service Providers can connect to the network and the User

chooses between these. The network is operated by the Communications Operator,

making this neutral solution technically feasible.

Many questions remain unsolved at this stage and the model presented above is

a generalized one. In Sweden, a variety of implementations of this concept exits and

among them Svenska Bostäder�s network in Vällingby and Hammarby Sjöstad nearby

Stockholm, the urban network in Tierp and the campus network at KTH, Kista, are

the most known ones.

Lets try to give a formal definition of the principle of operator neutrality in

broadband networks.

First-mile telecommunication infrastructure is operator neutral if following

conditions are fulfilled:

- Infrastructure provider does not provide any broadband services

to connected end-users;

- All interested service providers have the possibility to provide

their services to connected end-users on equal conditions;

- End-users are able to choose freely among the broadband

products offered to them by connected service providers.

This definition says nothing about type of physical infrastructure, offered speed

as well as business models applied. This means that the principle of operator

neutrality can be applied to the network with any type of physical infrastructure as

well as mix of different physical infrastructures that is well proven by

StockholmOpen � a research project deployed over fibre-based and wireless

infrastructures.

Another question to answer � is it possible to apply the principle of operator

neutrality to existing copper-based infrastructure? According to the definition, there

are no visible limitations, which restrict doing so. One factor that makes such move

problematic is that existing copper-based infrastructure is created, owned and

exploited by the companies, which at the same time are the biggest service providers

(Telia, Tele2 in Sweden). As a result we do not observe so far any cases of conversion

of pre-existing telecommunication infrastructure from being vertically integrated for

the utilization by single operator into operator-neutral way of operation. Another

reason is that copper-based infrastructure has severe bandwidth limitations and,

therefore, is not able to provide an end-user with the possibility to use several

broadband services simultaneously as well as provide all interested service providers

with the capacity for their services.

As it comes from the definition above, principle of operator neutrality implies

simultaneous operation of multiple service providers within the same infrastructure. It

is important to mention that services to be provided are not limited to one or another

type � for example, provisioning of the access to Internet. This means that an end-user

would be able to consume simultaneously services of different types delivered by a

number of service providers. In order to make this happen, underlying infrastructure

must be capable of offering sufficient bandwidth for all these services in their present

form (mainly various flavours of the access to Internet) and accommodate anticipated

quantitative and qualitative growth of available services. Existing copper-based

infrastructure has severe limitations in terms of bandwidth and, therefore, in long run

is not a preferred type of physical infrastructure for the implementation of the

operator neutrality principle.

In order to identify which types of physical infrastructure could be the most

prospective candidates for the implementation of the principle of operator neutrality,

lets try to formulate the requirements to be imposed on it:

- Offered bandwidth must be sufficient for the services that exist

today and capable of smooth accommodation of the anticipated new

services. According to the definition of broadband given in Appendix 2,

the speed required for a single broadband service is estimated as 384

kbps. Assuming that the number of services to be consumed

simultaneously will steadily grow, physical infrastructure must be

capable of handling several different services simultaneously. Hence

currently the main service is broadband access to Internet, with the time

going the number of services could dramatically increase: only delivery

of few high-quality digital TV channel to an apartment together with

Internet access will easily sum up to the approximate number of 2 mbps

and this is quite opportunistic estimation. Of course the actual number of

services could vary but when planning the infrastructure deployment it is

always necessary to consider bigger numbers rather than smaller ones;

- The component for deployment of chosen physical

infrastructure must be widely available on the market, which also means

availability of multiple hardware vendors and specialists capable of

deploying and supporting the infrastructure. This requirement is posed

due to decentralised character of Swedish telecommunication market:

unlike existing copper-based first-mile infrastructure, which was

massively deployed mainly by a single actor � Telia ensuring in this way

its consistency over the country�s territory, new infrastructure is going to

be deployed and supported by wide variety of actors without central

coordination. At the same time all segments must interoperate with each

other on level 3 � IP level. We can observe this move already today: first

operator neutral networks appeared around Stockholm, in Skellefteå,

Tierp, Landskrona and some others involving local municipalities and

different local players into the sphere of broadband;

- There is no strong governmental regulation with respect to this

new infrastructure. As a good example here could serve 3G mobile

infrastructure, that operates in the licensed spectrum and the licenses are

being awarded through government institutions. This implies specific

requirements imposed by the government (like country-wide

deployment) as well as additional charges (license fee) to be paid by the

infrastructure creators.

There are several types of physical infrastructures, which satisfy the set of

requirements above and optical fibre and IEEE 802.11b are some of them.

Lets now consider which consequences come out due to the application of the

operator neutrality principle to first-mile telecommunication infrastructure for each

group of involved actors.

• End-users.

Operator neutral telecommunication infrastructure is intended for supplying

broadband services for residential users and small and medium enterprises. As the

result they are getting the possibility to choose themselves their services and

respective providers.

• Service providers.

The concept of operator neutrality implies presence of multiple service

providers within the same infrastructure competing for the same customers and, as the

reality showed, it was not an easy task to get them there. Therefore the main

challenge, which is in the front of operator neutrality concept today, is from the one

hand to achieve qualitative and quantitative growth of the provided services, and,

from the other hand, to grow the infrastructure in terms of total quantity of connected

locations and active paying subscribers.

Who are the service providers now and which services do they provide? Who

could potentially become a service provider in the near future in ONN and which

services will be provided? And what kind of differences brings the operator neutral

approach comparing with currently used approaches?

For the providers of Internet access operator neutrality concept means decreased

amount of the investments to be done in the first mile. Once connected to an ONN

they are capable of reaching all potential customers that are connected to it. But there

is also one �but�: all ISPs are equal, there is no advantages based on the infrastructure

ownership for anyone of them.

In the framework of traditional approach, all service providers that provide

services other than access to Internet have to rely on this or that ISP in order to deliver

their services to the end-users. Within the operator neutral approach there is no such

dependability any longer. In other words, if a company wants to start provisioning of

some broadband service, in the operator neutral case it doesn�t need coupling with an

ISP, inside an ONN they become equal and independent from each other.

Because the conditions that are created by the application of operator neutral

approach were not available before and due to the fact that the approach itself implies

existence of multiple service providers in the single infrastructure, it is important that

these service providers somehow appear in ONNs together with their services. It is

also important to stress once again, that the only service being massively provided so

far through operator neutral infrastructure is broadband access to Internet.

The number of potential users within an ONN is limited to the number of outlets

deployed. Therefore, the amount of money, which could be possibly collected for a

certain product group, (for example broadband access to Internet) is limited to the

consuming ability of the connected users and, in general, doesn�t depend on the

number of the suppliers of these products. I.e. when a service provider is about to

connect to an ONN it needs to answer the question �How many potential customers I

will be able to reach and with whom I will compete for them?� This question is

especially important for service providers, which supply services other than Internet

access � while for a connected ISP all people and companies that leave or work in the

connected premises can be considered as potential customers, providers of other types

of services are targeting much smaller niche groups of customers. Therefore, in order

to get these new service providers to an ONN it is necessary that this particular ONN

has potential customers, which belong to the group that is being targeted by a service

provider. Moreover, it is important to give quantitative estimates for each target

group.

• Network owners.

This group of actors owns the newly created first-mile broadband infrastructure

with operator neutrality. If according to the traditional approach the infrastructure is

created, owned and operated by a single actor, in the framework of operator neutral

approach, network ownership and service provisioning to the end-users is to be done

by different actors. It is important to mention, that traditional telecommunication

operators, who are currently the biggest infrastructure owners are not the most

prospective owners of the first-mile infrastructure with operator neutrality: the entire

way of their operation doesn�t comply with the operator neutral approach. So, who

can be investors than?

The first mile broadband infrastructure is to be installed inside the premises,

therefore the property owners and developers are the prospect investors. Investing in

the operator neutral infrastructure they are able to achieve following:

- Increase attractiveness of their property by incorporating fresh

new high-speed infrastructure for digital data in their properties;

- Avoid exclusive contracting with the providers of

telecommunications services;

- Shift the choice of service providers from property owners

(themselves) to actual service consumers (tenants);

- Offer more services to the tenants.

Business models applied by commercial actors in existing operator-neutral

deployments

In this part we will discussed business models applied in existing deployments

of broadband networks based on operator-neutral approach by their respective

operators. We will start from Viaeuropa (www.viaeuropa.net)

ViaEuropa has expressed its business idea in following way:

�On a neutral competitive basis mediate the different supplier's services on an

operator neutral Broadband access net for telephony, television, film and the transfer

of information via computers. Through advanced value-adding services for mediating

and invoicing of services.�

The company started up in October 1999 and is acting as Communications

Operator in Hammarby Sjöstad, in the south of Stockholm. Hammarby Sjöstad, along

with Södra Länken, is Stockholm�s on-going urban development project. An old

dockland and industrial area is being transformed into a modern city area that will

form a logical extension of Södermalm, with 8, 000 apartments housing a population

of 20,000. After completion of all parts of the project in 2010 there will be 30,000

people living and working in the area.

The approach of Via Europa to solving the ownership issue is very similar to the

approach applied by another operator DigiDoc OpenIP � they do not to own any

active equipment. This approach gives them the certain level of flexibility on the

market and enables the network owner to feel free when making the decision about

the Communication Operator. Their approach to solving the task of proper

maintaining and operating network resources they solve in rather simple and effective

way � they do everything themselves. Their arguments for such approach is that they

posses all necessary knowledge and skills to run the network in the best possible way

providing good work conditions both for users and service providers.

The revenue model implemented by ViaEurope is very straightforward as

shown in Figure 2. An End User has direct billing relationship with the service

providers he chooses. From the total amount of money received by a service provider,

certain amount is directed to the Communication Operator. In our case it is

ViaEuropa. The amount received, Communication Operator further splits into 2

different parts where one part goes to him and the second part goes to the Network

Owner. In this case by Network Owner we mean both owners of passive and active

infrastructure.

The second operator is OpenIP (www.openip.se) that operates several operator

neutral networks mainly in smaller cities in countryside.

Their case is rather interesting because this company already had the experience

on the market of communication and neutrality.

OpenIP sees their role as in the following way:

�In our business idea it appears that we shall not own anything in the Network.

We have a contract with a network owner to develop the network and to see that the

network will become very attractive for the consumers. If we fail in that matter we

don�t earn any money as we share the fee to access the network with the network

owner. We have responsibility for the maintenance. If we can't handle that matter we

don�t get any contract for maintenance. We risk a lot even if we don�t own anything.�

Jakke Sjöberg (OpenIP)

OpenIP has decided not to own anything from the network. They consider

having enough risk taken by their responsibility to make the network attractive: �We

risk a lot even if we don�t own anything.� Jakke Sjöberg (OpenIP)

They posses the knowledge and experience needed for maintenance and

technical operation. They consider the issue of providing customer relationship

support to be handled by the Service Provider on the first place. They provide

customer support in the cases in which the Service Provider cannot help the customer

The revenue model used by DigiDoc OpenIP also supports the idea of the cash

flow model User -> Service Provider -> Communication Operator -> Network Owner.

It is shown in Figure 3. In this solution, however, the Users also a fixed monthly fee

to the Communication Operator for basic connectivity to the network.

Figure 2. Revenue Model of ViaEuropa Figure 3. Revenue Model of

Open IP

There are also several cases, which are quite similar to each other: the same

entity combines the roles of network owner and communication operator. This

approach seems to be popular in smaller settlements in countryside, where

municipality decides to be active in the sphere of broadband by building state-of-the-

art fibre-based access network. An appointed communication operator performs

network operation and maintenance while respective service providers deliver

services to the users.

In some cases municipality plays the role of a negotiator and establish direct

agreements with the service providers guaranteeing neutrality and equal opportunities

for all of them inside the infrastructure.

The revenue model follows the structure: End User -> service provider ->

network owner and is rather straightforward. It is very much based on the willingness

of municipality (or some other big actor) to take the risk and invest in broadband

infrastructure.

Summary.

Operator neutral approach that evolved in Sweden showed to be promising

concept when it comes to further development of high-speed broadband. Hence it

does not have limitations in terms of physical infrastructure, in reality it is very much

oriented on optical fibre. One of the main advantages proposed by operator-neutral

approach is further specialisation of the actors involved in the sphere of broadband in

terms of performed activities as well as shift of decision-making from property

owners to the consumer. As a result the consumer gets the possibility to choose

preferred providers of broadband services and is not limited any longer to the only

broadband provider that deploys the infrastructure in his premises. From the other

hand, in the framework of operator neutral approach the space for evolvement of

smaller local service providers is created. Due to openness of the infrastructure they

are able to communicate directly with their customers without intermediate party �

ISP.

At the same time it is important to stress that current fragmented deployment of

Operator Neutral Networks doesn�t stimulate further development of broadband

services. Consequently, the parties, which could potentially become service providers

or, at least, service developers, do not consider ONN as an attractive media for

placing their investments. In the conditions of decline of the telecommunication

sector, they do not have strong believe that operator neutrality as an approach will

manage to survive over the long period and, therefore, that their investments in

operator neutral networks will be secured. Present deployments with several

thousands connected end-points (including both SME and residential users) makes it

possible to provide only general-purpose services, like Internet access or TV

streaming, while provisioning of more specialized services, like enterprise

applications needs bigger quantity of potential users connected.

From the very beginning the deployment of ONN should be performed in

complex manner having in mind following:

Who are potential customers � their quantity and characteristics?

Who are potential service providers and how they match potential customers?

Municipalities shall play an important role in the deployment of broadband

infrastructure and consider it as a utility for delivery of information-related services to

their citizens. This approach imply involvement of municipalities into the

organizational process of ONN deployment, brings them more responsibilities, but

instead they will get efficient instrument for further community development.

Further ONN consolidation will have positive impact in the development of

broadband and IT sphere in general. It can create new possibilities for IT companies

and stimulate their participation in broadband technology development. As a result the

value of the network will increase and the audience connected will become a valuable

resource for marketing activities equally important for advertisers similar to TV or

printed media. This will stimulate the investment activity in the sphere of broadband

and attract new fresh sources of financing.

Network consolidation will result in simplification of deployment of broadband

infrastructure and decrease service provisioning costs, which will lead to mass

deployment of broadband infrastructure throughout the country.

Local independent software vendors (ISV), which produce software application

for business, education and entertainment purposes are able to develop and offer

broadband services for the customers connected. They will not consider ONN as a

concept, which is worth investing in it unless they see sufficient number of potential

users connected to the network. �Sufficient� number is a variable, which depends on

the character of application and form of provisioning (i.e. whether company provides

the access to the application itself or sells licenses for ASP-like services, target group,

etc).

Public awareness of the concept of operator neutrality is still low. Such a

situation has obviously negative impact on further development of ONNs and

broadband infrastructure in general. It is very important to deliver the idea of operator

neutral approach to different society groups stressing particular features, which are

important for each of them.

Serving as a backbone, ONN deployment will stimulate further installations of

WLANs both in public places and as fixed wireless access points.

With the respect to small and medium enterprises joint activities of the

broadband infrastructure providers, software developers, service providers and

communication operators will result in the creation of environment capable of the

delivery of all technologies and applications that are necessary for performing basic

business operations. I would call this concept �Run your company by getting

broadband�. Such approach will make it possible to decrease the amount of initial

investment into business supporting facilities directing them instead into the business

development.

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