How the actions of municipalities affect the
conditions for infrastructural competition within
the field of electronic communication
For the Swedish Competition Authority
September 2008
A-focus AB • Karlavägen 21 • 17276 Sundbyberg • +46-8-679 9900 • www.a-focus.se
How the actions of municipalities affect the conditions for infrastructural competition
LIST OF CONTENTS 1. BACKGROUND AND INTRODUCTION ....................................................................................... 3 2. THE ROLE OF FIBRE .................................................................................................................. 3 3. THE REQUIREMENTS OF DIFFERENT PARTIES FOR A FIBRE INFRASTRUCTURE .......................... 5 4. MARKET STRUCTURE AND COMPETITION ................................................................................ 7 4.1. 4.2. 5. ACTIVITIES OF MUNICIPALITIES WITHIN THE FIELD ................................................................ 12 5.1. 6. MARKET STRUCTURE .................................................................................................................... 7 COMPETITION SITUATION .............................................................................................................. 9 DIFFERENCES BETWEEN A LAND CONTRACT AND A UTILITY EASEMENT ................................................. 16 CONDITIONS FOR THE LAYING OF FIBRE ................................................................................ 19 6.1. 6.2. 6.3. 6.4. 6.5. THE NECESSARY PERMITS ............................................................................................................. 19 THE INSISTENCE ON CONSULTATION AND CO‐ORDINATED LAYING ....................................................... 21 THE WORKING PROCESS AND RELATED CONDITIONS ......................................................................... 23 WORK‐RELATED COSTS ............................................................................................................... 25 MUNICIPALITY FEES .................................................................................................................... 26 7. A DESIRABLE SITUATION FOR THE FIBRE LAYER ..................................................................... 28 8. PROBLEM AREAS ................................................................................................................... 30 8.1. 8.2. 8.3. 8.4. 8.5. 8.6. 8.7. 9. REFUSAL OF ACCESS .................................................................................................................... 31 CONTRACT‐RELATED OBSTACLES ................................................................................................... 33 UNREASONABLE DIGGING AND LAYING CONDITIONS ......................................................................... 35 UNREASONABLE CONDITIONS RELATING TO DUCTS ........................................................................... 36 DISTORTIVE CONTRACT CONDITIONS .............................................................................................. 38 VERTICAL INTEGRATION AND PACKAGING ....................................................................................... 40 THE INHIBITING REDUCTION OF THE MARKET BASE ........................................................................... 41 CONCLUSIONS AND RECOMMENDATIONS ............................................................................. 42 Sidan 2 av 48
How the actions of municipalities affect the conditions for infrastructural competition
1.
Background and introduction
In the present assignment A-focus was asked by the Swedish Competition Authority to clarify
how the actions of municipalities and municipally-owned companies, within the field of services
and infrastructure for fixed electronic communication, affect the possibilities for the emergence
of infrastructure-based competition.
The aim of the assignment was to provide, from a competition perspective, a picture of the most
significant “problems” and consequences in the market where the actions of municipalities are
concerned. The study addresses the fixed infrastructure for electronic communication, in
particular optic fibre. Mobile services are not covered, but fixed infrastructure used in wireless
networks is included, e.g. capacity for radio base stations.
Information has been gathered partly from secondary data research and partly from primary data
through telephone and personal interviews with a selection of operators, municipalities,
municipally-owned fibre-optic networks (henceforth referred to as “municipal networks”) and
other undertakings and organisations active in the industry. The problems which have arisen are
essentially those related to situations occurring in urban environments, and the report, therefore,
mainly relates to those environments.
2.
The role of fibre
The demand for ever greater speeds and capacity (bandwidth) for electronic communication is
increasing sharply and it is not telephony which is driving change but data communication. Ever
since the market for data communication emerged in the wake of computerisation, the need to be
able to transmit ever greater quantities of data has grown by degrees, and this has increased the
demand for higher speeds. Whereas communication between businesses in the early 1980’s was
often effected at speeds of between 9,600 bit/s and 64 Kbit/s, with most households being
completely without data communication, speeds of around 2 Mbit/s are now usual in domestic
contexts, with most companies enjoying significantly higher speeds than these.
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What we have seen in recent years is a break in the trend of how we both live and communicate, a
fact which has accelerated the demand for data communications connections at ever higher
speeds. The Internet has been a powerful driving factor, which continues to grow in its
distribution range. This has been accompanied by an increase in new applications, increased
interactivity and more audio-visual material. In those networks which, traditionally, have only
been used for telephony and less advanced text-based data communication, the development in
recent years has meant that not just television, but also other forms with a multi-media content,
are being communicated via telecom cables.
Audio-visual material requires a great deal of capacity and is by far the principal driving factor
when it comes to the need for higher data speeds. We can see here the beginnings of a switch
from mass media consumption, i.e. traditional television and radio, to a more individually adapted
and interactive consumption via broadband. Films and music are downloaded from the network
instead of being rented from video shops or bought in record stores. The trend among users to
create or copy multi-media content, which they then share with other users, so called peer-to-peer
communication, also has a major effect on the network’s need for capacity.
Various forms of gambling on or over the Internet are examples of further applications requiring
high data transmission speeds. Other new fields which may become major users of data
transmission include the so called “extended home”, i.e. applications, which, for example, enable the
user to access digitally stored material in the home such as files, photographs and films or to
watch his Pay TV from a different place or via a different terminal. Another capacity-driving
application is so called “e-care”, which can involve audio-visual communication between for
example a doctor in a hospital and a patient in his home.
Where wireless communication too is concerned, the demands for capacity are increasing and in
particular have been driven strongly by the introduction of mobile broadband in 2006. The
mobile telephony networks have a growing volume of traffic minutes for voice and a soaring
quantity of data communication, including the beginnings of a demand for TV services. This
development is also driving the demand for optic fibre in the form of capacity for base stations.
Everything points to the fact that the trend towards higher data communication speeds is set to
continue for the foreseeable future, something which will place ever higher performance
requirements on the networks and hence the need for transmission media which can deal with
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very high speeds. At the present time this is synonymous with fibre, at least where distances of
more than around a hundred metres are concerned. How fast the development proceeds in
different countries will be influenced not only by the IT maturity of countries, but also by the
levels of investment in the underlying fibre infrastructure as well as the spread of competition
over the market as a whole and not just over parts of it.
3.
The requirements of different parties for a fibre
infrastructure
Laying a fixed infrastructure such as optic fibre is a costly process, and for the majority of players
in the market it is not economically possible to any large extent to lay such an infrastructure
purely on a speculative basis, that is to say without a certain assured customer base.
Telecom operators and similar parties may have a variety of reasons to need to lay fibre in a town
or city. Depending on the availability of dark fibre and its price, they will either be interested in
laying their own fibre or in renting it from others. The descriptions below focus particularly on
connections to the end customer, i.e. access connections, and in the case of operators of wireless
networks it is primarily connections to radio base stations which are meant. In certain cases,
however, it may also be that a party wishes to run a backbone connection to or through a town or
city.
Operators of fixed telephony and Internet services
Telecom and Internet operators will approach the business and/or consumer market, with their
capacity requirements being driven first and foremost by the end customer’s increased demand
for higher data speeds, i.e. fixed broadband. Speed requirements increasingly exceed what can
normally be handled with copper cable, save very short distances, for which reason fibre is
required to an ever greater extent. This means that, more and more frequently, there will be a
need for fibre to go direct to the premises of a business or a multi-family dwelling – and thus,
perhaps, in competition with a cable TV network. The extension of fibre to the access network
rarely happens on a speculative basis, and in particular where connections to a business are
concerned, such extension will usually be as a direct result of a demand from a specific end
customer. The lead times are, therefore, comparatively short, since the end customer is neither
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able nor willing to wait more than a few months to get his communications connection set up and
there will be several operators competing in terms of price and delivery time for the end
customer’s business. Whoever wins the end customer is assured of a guaranteed income, which
gives the operator the economic incentive to lay a fibre to the address in question, after which the
operator can deal with other end customers in the same or near-by premises and with the
network’s fine mesh attributes gradually increasing. Operators of fixed telephony and Internet
services are thus frequently more dependent on short lead times, e.g. when it comes to obtaining
digging permits, than other operators – particularly when they are addressing the corporate
customer segment.
Operators of cable TV and LAN networks
Operators of cable TV or LANs primarily address the consumer market and are more and more
frequently offering the so called “triple-play” service, viz. TV, Internet access and fixed telephony.
As far as cable TV is concerned, these networks have been around since the ‘eighties and are
gradually being upgraded to keep pace with wider offers and the customer’s demands for higher
communication speeds. In order to be able to offer high speeds to the residents of a multi-family
dwelling or a neighbourhood of terraced housing, connections with very high speeds to the
property are needed, irrespective of whether the cable structure within the actual premises is cable
TV (coaxial) or LAN (ethernet cat. 6). As a result, there is a growing demand to lay fibre to
premises the operators are active in. The expansion of the network has a relatively long planning
horizon among the existing customer stock, but may also be affected by specific deals for
example if multi-family dwellings change cable TV operators, install LAN networks or opt to
upgrade their networks so that these can handle data-transmission at higher speeds.
Operators of wireless networks
The requirements for capacity are also on the increase for operators of wireless networks – for
both stationary and for mobile communication. These offer, for example telephony and/or data
communication services, to both businesses and private customers. For these parties, too, ever
higher demands are being made for ever higher speeds in communication, in combination with a
total increased quantity of traffic. More and more of the operators’ existing base stations in builtup areas will, therefore, during the next few years, be in need of high-speed connections to the
places where they are located. The need is being driven primarily by fixed or mobile wireless
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broadband and by the fact that an increasing number of radio base stations are demanding speeds
which exceed those which can achieved with copper cables, thus increasing the demand for fibre.
It is also the case that the operators of wireless networks are gradually having to condense
(thicken) their networks, especially in built-up areas, which means more base stations requiring
fibre for so called feeding. The extension of the network for mobile operators and other wireless
networks has a relatively long planning horizon and is not governed by individual customer deals.
Players who deliver fixed wireless broadband may be more affected by individual business deals
and may have a rather shorter planning horizon.
The above segmentation shows that a fibre-based infrastructure is of importance to many end
customer markets and therefore is of great importance for society as a whole.
4.
Market Structure and Competition
4.1.
Market Structure
The market for electronic communication is often described on the basis of various processing
levels. Even if less-processed services at the wholesale stage represent an essential share of the
market and the production cost of the services, one must not forget that it is always the end
customer's demand for electronic communication services such as telephony, internet and
television which is the driving force on the market.
The Market’s Processing Levels:
-
End-customer Services: At the most highly processed level, one finds those endcustomer services which are offered by operators to companies and households, such as
telephony and internet access. In most cases, the end-customer services can be divided
into three fundamental components: connection to the network, traffic and
supplemental services.
-
Capacity Services: At the level below the end-customer services, there is transmission
capacity. Sometimes capacity services are sold as wholesale services to various operators
which in turn process them into end-customer services. Other times the one producing
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the capacity service uses it for his own purposes with the aim of producing endcustomer services himself (vertical integration).
-
Dark (unlit) Fibre: In order to be able to produce capacity services, a medium is
needed through which data can be transferred over longer distances. Fibre is one such
medium. In the fibre, data is transferred by means of light, as opposed to, for example,
copper where it is transferred with electrical signals. The term “dark fibre”, also called
“unlit fibre”, pertains to a service and refers to the fibre in its unprocessed form, i.e.
without the associated active electronic components used to “light up” the fibre.
Alternatives to dark fibre can be copper cable or radio communication – if the capacity
requirements are not quite so high.
-
Canalisation: Canalisation is regarded as all the physical spaces where, for example,
fibres can be laid out in order to be used for services for electronic communication.
When it comes to fibre, canalisation means the pipes in the ground in which the fibre
can be placed without being damaged. If the fibres are not laid out at the same time as
the pipe, they can be blown into the empty pipe up to approx. 2 km before a new
junction point is needed. Pipes are available in many different sizes and designs for
various purposes, environments, and quality and space requirements.
Vertical integration encompassing several processing levels is common in the aforementioned
value chain, but it also occurs that one processing level is divided up between several different
kinds of operators. With respect to vertical integration, it is currently unusual that a party is active
in canalisation only, rather those who have access to canalisation, e.g. municipalities, municipal
networks and TeliaSonera, sell dark fibre and/or more refined services higher up in the value
chain.
The end-customer service-level is often vertically integrated with the levels below. This is the case
with TeliaSonera, mobile network operators and certain municipal networks. Sometimes,
however, the end-customer service level may be divided up by the access to the network in
question and the electronic communication service to the end-customer. “The service” in this
case pertains to, for example, the telephony service (outgoing calls) or the internet connection.
Examples of such split-ups of the most processed level are operator pre-selection (PSTN) and socalled open municipal networks (which in spite of the denotation “open” is almost completely
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vertically integrated except for the last bit, i.e. the internet service provider supplying the
connection from the broadband network to the Internet). Similar situations can occur in mobile
networks and the term “service provider” is applied in the same way to denote the company
which then markets and sells the service to the end customer.
4.2.
Competition Situation
In order to meet the needs of the end customer, much more powerful network infrastructures
will be needed in the future in the densely populated areas and an increased use of fibre is
therefore unavoidable. More fibre will be needed – if not always right up to the end customers then at least very close, e.g. fifty or one hundred metres from them. This is often called "fibre to
the cabinet", "the curb" or "the pavement". From this near-by fibre point, the final stretch can
consist of copper cable, coaxial cable, radio or even of more fibre.
For large office buildings or multi-family dwellings, the general assessment is that fibre will often
be needed all the way to the building to handle the demands on capacity. To areas with lower
densities of households or workplaces, the assessment is that fibre will be needed for the
telephone junction boxes on the block and/or the local radio base stations. Already, the demand
for fibre is greater than the supply and major investments will be needed in fibre infrastructure in
the upcoming years. This especially applies to densely populated areas where it also often is
difficult and particularly costly to lay out fibre, even if the fibre-optic cable itself does not cost
very much. Altogether, this entails a future need for major investments in order to establish a
fibre-optic infrastructure.
If there are any direct impediments to establishment or if the municipal fees are so high that they
impede or dissuade investments, the growth of the fibre-optic infrastructure is jeopardised. This
will have consequences on competition and ultimately in the price offered to the customer. It is
neither reasonable nor desirable for one or a few companies or organisations to put up the entire
investment. Nor can it be expected that municipalities, except in exceptional cases, will lay out
and provide dark fibre to the extent the market as a whole will demand in the time to come. For
aforementioned reasons, it is important to eliminate any direct or indirect impediments to
establishment.
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It is desirable, from both an investment and a competition point of view, that several companies
and organisations contribute with the investments and that lasting competition can be established
not only at the service level but also lower down in the value chain – at least in densely populated
areas where the customer base is sufficiently large. It can be noted that the market for electronic
communication services is characterised by more intensive competition the higher up in the value
chain one looks and less competition the lower down one goes in the value chain. At canalisationlevel, which is the lowest level of processing, only in exceptional cases is there any municipal
operator who rents out this input good – and then only to a limited extent.
With regard to competition for dark fibre, which is the second-lowest level, TeliaSonera has in
recent years virtually ceased with any new sales of wholesale dark fibre, which has reduced and at
times even eliminated competition on the service. To the extent that there is a municipal network
in the area, dark fibre can usually be rented - at least along those stretches where there is some
laid out. In a few locations, there may be more than one supplier who can supply dark fibre, but
generally the amount of competition is low or very low.
End‐customer Services
sl
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e
L g
n
is
s
e
c
o
r
P
Capacity Services
Dark Fibre Services
Duct Services
Share of production cost
Supply and Competition
Figure 1: The higher the level of refinement,
the greater the degree of competition
Figure 2: Share of the production cost which
is attributable to the various refinement levels
The fact that canalisation and dark fibre constitute a large proportion of the total production cost
for electronic communication services means that the father down in the value chain the
competition is satisfactory, the lower the prices to the end customer can be. The prices for dark
fibre make up a large proportion of the total cost of producing an electronic communication
service and thereby considerably affect on the prices to the end customer. For this reason, it is of
very great importance that the fibre be laid out in a cost-efficient manner and that the market is
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competitive. As an illustration, in order for a telecom operator to be able to provide a 10Mbit/s
connection to a company in a densely populated area dark fibre in the access network will be
required, i.e. from the operator’s telephony station to the business customer's building. Typically,
the cost of renting such dark fibre from the municipal network constitutes 50 percent of the
operator’s total production cost for the service. The price of the rental of dark fibre consequently
has a very large impact on the price to the end customer. The difference can however be most
considerable as the price of dark fibre in the densely populated areas varies substantially from one
location to another. According to PTS estimates, fibre-based accesses will in a few years
constitute 30-40 percent of the number of accesses to business customers, which gives us an
indication of the scope and scale of its effect on the market. From this, one can understand that
competition which only keeps to the higher processing levels has a limited effect on the prices to
the end customer compared with competition encompassing all processing levels in the value
chain.
It is however not to be expected that infrastructure-based competition can be equally intensive
everywhere. The demand on fibre is governed indirectly by the end customer’s demand for
electronic communication services with a higher capacity than what can be managed with other
existing technologies, such as ADSL over copper cables. The more end customers with high
capacity requirement which are gathered in a geographical cluster, the greater the need for fibre to
the area. In those geographical areas where the end customer base is limited (countryside), it is
currently not expected that competition at the lowest processing level can always arise through
parallel fibre-optic infrastructures to the end customers. It may however be relevant when it
comes to stretching fibre to the locality even if other technologies, such as copper and radio,
compete in the access network.
If access to dark fibre or canalisation in Swedish population centres will be limited in the future,
then everything points toward increasing dominance by those few operators which have access to
canalisation and advantageous land contracts, i.e. TeliaSonera and municipal networks in certain
cities. Expansion of fibre-optics in densely populated areas is subsequently not merely an issue of
providing the community with higher data communication speeds, but also about ensuring a
satisfactory, long-term, sustainable competition on the market for electronic communication.
The various municipal administrations, the municipal network, the energy companies and
property companies are all key players in the field. It would be desirable if municipalities which
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govern access to municipal land in the cities give operators and other parties the opportunity to
lay out fibre or rent dark fibre and they should even encourage it as it lays the foundation for a
healthy competition on the market for electronic communications services.
5.
Activities of municipalities within the field
Many municipalities are active within the field of fibre infrastructure through the direct or indirect
ownership of municipal networks and/or property networks in municipal housing; there are
historical reasons for this.
This involvement by municipalities originates to a large extent from the increased costs of leased
lines for their own internal communication needs. To a large extent this was due to the fact that,
at the beginning of the ‘eighties, TeliaSonera altered their pricing for leased lines with a view to
reducing the importance of the cable length on the price to the customer. For parties who
wanted long connections, such change meant a reduction in price, whereas for municipalities,
which typically required very short connections, the change generally meant a rise in the price.
This, in turn, generated a need among municipalities for alternative suppliers and alternative
solutions. When these were not available, municipalities saw an opportunity of laying fibre
themselves to meet their own requirements – a business which often, at least to all appearances,
paid off within a relatively short period of time. This signalled the beginning of the municipal
network which, responding to enquiries from businesses, began to grow in order to meet the
requirements of the private sector.
In parallel with the creation of the municipal networks, enquiries were also received from other
parties (telecom operators) wanting to lay fibre. The result of this was that the municipalities
were obliged to decide whether to rent out dark fibre or other more refined services, and also
whether or not to allow others to dig on municipally-owned land with a view to laying fibre. In
this matter they have come to a number of different conclusions, which means that they vary in
terms of how much fibre they have laid, how much fibre they rent out and how accommodating
they are when it comes to land contracts or permits to dig. It should also be noted that the laying
and renting out of dark fibre is a voluntary municipal activity in which some municipalities are
more active than others. Nor is there anything which, in a general sense, either regulates or
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provides any guidance on the question of whether contracts and permits to dig will or ought to be
granted to a large or small extent and on what grounds.
Municipal activities with connection to the fibre market
The municipalities conduct a number of different activities and operations which, directly or
indirectly, have a bearing on the incentives and possibilities of various players to lay network
capacity in the municipality.
1.
The municipality owns and operates the municipal network
2.
The municipality owns multi-family dwellings where broadband is offered
3.
The municipality enters into land contracts and grants permits to dig
1. Municipal network activities:
A large number of Swedish municipalities own and operate a municipal network, also called local
broadband network or metropolitan area network. Municipally-owned network in this study
refers to the fact that the municipality has laid the fibre and rents it out in more or less refined
form to commercial players. Municipal networks vary greatly, both as concerns their extent and
activities. There are around 150 municipally-owned networks. According to the most recent
survey by PTS, the Swedish Post and Telecom Agency, there are approx. 100 players offering
dark fibre as a service in Sweden, but for most municipalities the activity is still relatively limited
and there are no more than around a dozen municipal networks generating an annual income of
more than four to five million kronor (€400-500 thousand). The average is approx. two million
kronor (€200 thousand) per year and the median less than one million kronor (€100 thousand)
per year. According to the Swedish Association of Local Authorities and Regions (SKL), the
municipally-owned broadband networks have altogether invested around 14 billion kronor during
the last decade, mainly in passive infrastructure, i.e. ducts and fibre.
Municipal networks are operated in a variety of forms. Some are operated as a department or
subsidiary of the municipally-owned energy company. The aim of transferring the municipal
network activity to the energy company has been to achieve synergy effects, as both utility owners
carry out similar work and are familiar with operating long-term infrastructure installations. The
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fact that energy companies have capital and a long economic staying power is another reason for
placing the municipal network activity with them. The municipal network can, however, be
managed in other ways, e.g. as a department within the municipality with its own overall
responsibility for results. The municipalities have probably also seen the advantages of this form
of administration, even if a closer band increases the risks of the municipal network business
being promoted in various ways compared with other competitors.
There is a great deal of variation regarding the degree of refinement in the services offered by the
municipal networks. The least refined forms are ducts for dark fibre, and dark fibre. More
refined services are network capacity, for example, in the form of Ethernet connections or
similar. In certain cases the municipal networks offer more or less complete end customer
services for telephony or Internet access, which, in principle, are full-value telecom operator
services.
Many municipal networks are operated as so called open networks, meaning that the municipal
network offers dark fibre and, where applicable, capacity services to service providers, who are
allowed to deliver end customer services in the network. However, the “openness” doesn’t say
very much about the municipal network’s own activities. It occurs that the municipal network
itself delivers end customer services in competition with service providers. The advantages
stressed by advocates of an open municipal network include the argument that it is a quick and
simple matter for service providers to connect customers to the network, with competition
between service providers and a large freedom of choice for customers as a result. It is, however,
worth noting that in open municipal networks the service providers’ costs to the network owner
(the municipality) is not infrequently as much as 90 per cent of the price to the end customer.
The service providers’ actual possibilities of competing in terms of price are for this reason
limited.
2. Broadband services in multi-family dwellings
Municipalities frequently offer broadband services to residents via wholly-owned municipal
housing companies. By broadband services in this context is primarily meant connection to the
Internet, but it may also be telephony services and television services. It is not usually the actual
municipality or housing company which has the contact with the end customer; rather, the
network is granted to service providers, who are then able to offer their services to residents
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through the open network described above.
The service providers on the municipally-owned
networks compete with TeliaSonera, which reaches residents via the copper network with DSL
services and telephony, but also with those operators who rent unrefined copper connections
from TeliaSonera, and, in some cases, with cable TV networks which are in the property (e.g. Com
Hem) or with LAN-networks (e.g. Bredbandsbolaget).
There is a trend in which an ever growing number of municipal housing companies are
connecting themselves to the local municipal network and as a result, whether directly or
indirectly, are excluding other players engaged in laying networks. Since the municipal housing
companies often represent a considerable portion of the market, this trend is having a major
influence on both market and competition, a fact which will be touched on further later in the
report.
3.
Land contracts and permits to dig
As the owner of municipal land, it is up to the municipality to decide whether a party should be
given the right to dig and lay fibre in the ground and what conditions should be applicable to
anyone granted such a permit. Administrative autonomy in questions of this kind has meant that
the municipalities deal with the matter in vastly different ways, both as regards how many parties
and which particular ones will be given the right to dig and what conditions will apply. In order
to be able to lay fibre, it is normally required that the municipality grant both a land contract and
a permit to dig, but it is also required that a number of other regulations and orders be followed.
In some municipalities applicants are refused a permit to dig and are referred instead to the
municipally-owned network in order to rent dark fibre or more refined services. The exception
here is TeliaSonera, which enjoys a special position on account of its historical legacy and a
negotiating strength as a result of its size and long land contracts with most municipalities. Other
municipalities may be more generous with their permits, but can occasionally levy high fees,
which can also have an effect on the possibility of laying fibre. Moreover, it is usual for a
municipality to impose very specific demands, e.g. concerning the reinstatement of the land, i.e.
the street or pavement.
As an alternative to a land contract, a party who wishes to lay fibre cable on municipal land may,
in theory at least, avail himself of the so called utility easement, which is a special legally regulated
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right just for pipes and cables. Both the municipalities and the parties wishing to lay fibre
generally prefer the matter to be regulated by means of a land contract, but in those cases in
which the former do not, for various reasons, wish to enter into a land contract, they can have
recourse to a utility easement; this, however, is less common.
5.1.
Differences between a land contract and a utility
easement
Land contract: A land contract, also called a usufruct contract or a partial usufruct contract, is
the grant of a limited right for a person, natural or juridical, other than the owner, to use the
property concerned, in this case the land. The fact that it is a partial right means that it is not an
exclusive right to the property, but that it is shared with others, e.g. that the land is also used as a
street or pavement and that there may be other parties who have pipes, lines or cables either
beside, beneath or above the conduit in question.
The contract governs the management of certain administrative procedures in the matter of
drawings and documentation, general provisions relating to pipes and cables and work in the
street and track area, special conditions, fees and, where applicable, the obligation to lay empty
piping and conduits for the municipality’s account.
The fees payable to the municipality by the party laying fibre cables are normally indicated in the
land contract and vary, depending on the municipality. Some charge no fees at all, others charge
non-recurrent fees or annual fees or both. Non-recurrent fees are usually charged in connection
with the actual installation case or the signing of the land contract, and may be linked to charges
for the management of the contract, the use of maps and the reduction in the economic life of
the street. These can range from a few thousand kronor (a few hundred euros) to close on two
hundred thousand kronor (twenty thousand euros). Annual fees are usually linked to municipality
costs for cables in the ground and occur both as fixed annual fees, fees based on a cost per metre
of cable or fees based on a cost per resident. Fees may vary considerably, e.g. the cost for a metre
of laid fibre cable can vary between one krona (10 cents) and over fifteen kronor (1.50 euros), of
which most are in the interval from four to seven kronor (40-70 cents) per metre and year. Costs
based on the number of residents can also vary considerably as a result of the differences in size
between municipalities.
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Without a land contract, or utility easement, it is usually the case that a permit to dig will not be
granted; however, there are also municipalities who grant permits to dig even though no land
contract has been entered into, and here, too, the variations are considerable. In the contracts
made by municipalities with the major players who bury a great deal of cable or piping and
conduits, usually TeliaSonera or municipal networks, there will most often instead be a standard
payment based on the number of residents in the municipality, rather than the number of cable
metres.
Obtaining a land contract can take anything from one day to a whole year, depending on the
attitude of the municipality, the policy it operates and administrative procedures, which can be
either simple or time-consuming. In some cases a telephone call to the individual dealing with the
matter at the municipality office will be sufficient, in other cases the matter will be decided by the
municipal council. Where a municipality has a negative attitude towards the granting of land
contracts, it is, in principle, impossible for anyone to lay fibre cables or piping and conduits. In
theory a utility easement may be a possibility, but then only for some solitary conduit.
Utility easement: according to the [Swedish] Utility Easement Act, a utility easement is a right,
not limited as to time, to have a utility on the land of another, the decision for which is taken by
the Public Surveying Authority1. In larger places the question is dealt with by the Municipal
Surveying Authority. In those cases in which the municipality is a party to the proceedings in
question, however, the other party may request that the matter be dealt with by the Public
Surveying Authority (National Land Survey of Sweden).
The advantage of a utility easement is that the utility owner’s right to have the pipes or cables in
question in the ground is protected over a period of time, which is not the case with a land
contract. Not only this, but the land fee is usually considerably lower in the case of a utility
easement than with a land contract, and amounts to a few kronor per metre of laid fibre cable in
the form of a one-time fee.
1
Sometimes also called ”Cadastral Authorities”. In Sweden the Authority is called “Lantmäteriet”.
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How the actions of municipalities affect the conditions for infrastructural competition
The practical application of the utility easement is relatively limited for players in the market for
electronic communication and is used on an extremely seldom basis for access lines in urban
environments, but more frequently for backbone lines which pass outside or through a town or
city. The principal cause of this is the lengthy time required for applications to be dealt with,
which means that, in practice, it is of no use as a resource for those players who wish to lay fibre
cables in order to be able to offer an electronic communication service to specific customers,
which is often the case in densely populated areas. It is the policy of some municipalities,
moreover, to oppose utility easements on their land.
The utility easement is a compulsory procedure which curtails the land owner’s right. Therefore,
in those cases in which the land owner opposes it, there is a great insistence on explanations and
decision-making documents, as well as affording the land owner the opportunity to protect his
right. The utility easement is created by a cadastral procedure in which the conditions for the
utility easement are investigated and where account is taken of the interests of both the public and
the individual concerned. During the inquiry, the surveying authorities establish those contacts
which are necessary for the implementation of the procedure, e.g. with property owners and other
authorities. Consultation with other authorities is often necessary in order to obtain their views
on, inter alia, the matter of water and effluent, environmental protection regulations, etc. Certain
procedures may also require field work, such as staking out and attachment of land. In those cases
in which one of the parties is applying for a utility easement and the other party, e.g. the
municipality is opposing this, the party applying for the easement pays the costs of the cadastral
procedure, as well as the opposing party’s legal costs if an appeal is made. Where a case is
complicated and the parties cannot reach agreement, matters may take several years to resolve and
involve heavy costs. In normal circumstances an applicant may expect the procedures involving a
utility easement to cost a hundred thousand kronor (ten thousand euros).
Following a change in the law in 2006, the law concerning utility easements now also applies to
tunnels, culverts, tubes and similar which are installed for the purpose of future installation and
use of conduits. A utility easement provides the possibility of laying and using the utility for the
applicant’s own use but not for renting out, e.g. dark fibres, to other players, which is a significant
limiting of the usufructuary right for a fibre network player and a clear disadvantage in this
connection. A utility easement is applied for on a per-pipe basis and cannot be applied for in a
more general sense for a municipality, which is the case with a land contract.
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6.
Conditions for the laying of fibre
For parties intending to lay fibre in a municipality it is required that a number of conditions be
met, which include obtaining legal permits, a manageable administrative load as well as physical
working process, together with reasonable economic conditions. Through requirements and
conditions municipalities influence these conditions to a very considerable degree and what
principles are applied and what is demanded may vary greatly from one municipality to another.
We summarise below what form the working process takes and what typical demands are, or may
be, made.
-
The necessary permits
-
The requirement for consultation and co-ordinated laying
-
The working process and municipal conditions
-
Laying costs
-
Municipal fees
6.1.
The necessary permits
First and foremost is the requirement that anyone wanting to lay a fibre cable or a duct for fibre
cabling and who does not have a utility easement should have a contract with the municipality,
usually a land contract. Under this arrangement it is normally agreed that the municipality will rent
out space on public land for the party in question to lay and maintain telecom cables and the
accessories to such cables. In some cases this may also include a corresponding right of ducts in
the form of empty tubes within the space thus rented out. The right to use the municipality’s
land constitutes no impediment to the municipality or other infrastructure owner from using the
land or carrying out any necessary work in or on the land. Land contracts are usually granted by
the municipal authorities, e.g. the Technical Committee, the Technical Office or the Streets and
Traffic Office.
The geographical extent of contracts may vary and cover a section, an area or the entire
municipality. Land contracts cover a larger area and fulfil the approximate function of a
framework contract, i.e. the applicant refers to the contract when applying for a permit to dig.
Major players are more often than not granted land contracts with municipalities, while the
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smaller players and property owners sign contracts for specific sections. Some municipalities
agree only to section-based contracts.
The periods covered by contracts may also vary, involving as they can, relatively short contracts
or very long ones. TeliaSonera, with its historic legacy, was for a long time the only player on the
market. It has generally enjoyed very long contracts, which have expired and then been renewed.
For this reason TeliaSonera frequently enjoys more favourable terms than other players in the
market, e.g. as far as concerns the level of fees. Several municipalities are aiming for an increased
uniformity in the matter of contracts, with regard to both conditions and fees, yet their
negotiating strength vis-à-vis major players such as TeliaSonera can vary.
Even where a party has a land contract with a municipality, it will still need to obtain a so called
permit to dig prior to the laying or maintenance of the cable or its accessories. Urgent and minor
repair work can, however, usually be carried out without a prior permit and simply be notified
afterwards. Land contracts and permits to dig are generally handled by the same municipality
authority, e.g. Streets and Traffic Office.
Applications for permits to dig are submitted on forms, and often refer to a particular section. In
addition to information concerning the applicant and the current land contract, the application
must contain information about the section to be dug, the method of working, the type and
extent of the work, timetables, previous coordination with other infrastructure owners and
planned information activities. Applications must also be accompanied by maps showing the
proposed routes of the cables and, usually, proposals for the traffic arrangement plan, the so
called TA2 plan. Maps will usually include ground plans and indicate the laying depth, type
section and information on cable dimensions, protective tubes and well sizes. It is customary for
drawings to have express requirements on a scale (e.g.. 1:400) and for the boundary of public land
to be marked out. It sometimes happens that a municipality is able to help by providing access to
mapping tools, which makes life easier for the smaller players. If any vegetation is likely to be
affected by digging, drilling or other work, applications for permits to dig must be accompanied
by drawings showing the planned vegetation protection measures. Applications must also be
accompanied by the TA plan if the work is likely to involve restrictions on roads, pavements or
cycle paths. The applicant must show in the TA plan how road signs, safety protection measures
2
Swedish Trafikanordningsplan.
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and other information are to be dealt with. On a case by case basis other permits may also be
required, e.g. an occasional local traffic order to alter road signs or permits from the police
allowing the applicant to set up sheds and containers. Finally, anyone granted a permit to dig is
required to follow municipal policy in various respects, as well as the law and other regulations.
Examples of this are traffic safety, environmental requirements and noise control policy, etc.
Although an application for a permit to dig may have been made out correctly, this is not in itself
any guarantee that the permit will actually be granted. When a municipality, for example through
its Streets and Traffic Office, makes a decision concerning such a permit, it will give consideration
to a number of factors, including the proposed location of the cables in relation to the
municipality’s own installations, the proposed method of working, accessibility and traffic safety,
inconvenience to the public, the protection of vegetation, the construction time in relation to the
arrangements made and how reinstatement is to be effected. Moreover, consideration will be
given to the condition of the street or pavement and whether they have recently been dug up or
re-asphalted. The negative effects which digging work has on traffic flows and pedestrian
thoroughfares are the principal reason for restricting the possibility of laying fibre, as well as
increased costs to the municipality in the form of the shortened service life of a street, pavement
or cycle path.
When a permit to dig is granted, this will be associated with various restrictions and requirements,
e.g. in relation to the method of working, traffic and safety questions, construction time, raw
materials and the extent of the reinstatement work. It is usual for a municipality to issue early
instructions on several questions, as well as referring to laws, conditions and municipal policy.
Specific requirements concerning reinstatement are very common and include both matters
relating to the execution of the work and the materials to be used in terms of both the surfacing
and filling materials. This type of requirement may involve significant additional expenses for
anyone wishing to lay fibre.
6.2.
The insistence on consultation and co-ordinated laying
There is usually a need for so called “consultation” with other utility owners. In the first place,
this is intended to ensure that those who already have pipes and cables in the ground are
informed and to enable them to provide information so as to avoid damaging the existing
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infrastructure. Similar requirements also apply, for example, to the protection of vegetation and
trees. Anyone applying for a permit to dig will himself usually be responsible for making contact
with all the other owners of pipes or cables (in the ground), but it also known for the
municipalities themselves to help in this respect. Another aim of consultation is to create the
conditions for co-ordination and co-ordinated laying, i.e. to enable the parties to use the
opportunities to co-ordinate cable laying and road works whenever possible. The purpose here is
both to minimise the costs and the inconvenience which digging and reinstatement works cause
to the municipality and its residents.
How consultation and co-ordination take place will vary to some extent, but will include a
combination of direct requirements and formal meetings and indirect and informal contacts
between the parties. Among the direct requirements is often the need to establish an annual
programme of planned cable-laying work, which is sent to the municipality for co-ordinated
planning purposes. The Technical Office, or other municipal authority, will also issue invitations
to regular construction co-ordination meetings, during which the planned work will be discussed
in good time before it is begun. It is also usual for the municipality to produce a surfacing and
street programme for the coming year which it sends to the major utility owners for
consideration. The purpose of this is to give them the opportunity to carry out street works
before the municipality carries out road surfacing work, thereby avoiding the need for newly
surfaced streets to be dug up again. It is not unusual for a permit to dig to be refused if a street
has just recently been resurfaced with asphalt or for the municipality to charge a higher fee for the
first three years after resurfacing work. In other respects, the owners of pipes and cables are
often informed of one another planned work as a result of the requirement for consultation. It is
incumbent upon an applicant for a permit to dig to obtain pipe and cable documents, i.e.
information on where the pipes and cables are, from other owners.
The requirement for consultation and co-ordinated laying means, among other things, that the
municipality must be afforded an opportunity to lay its own cables or empty tubes at the same
time as the other party is laying or digging up telecom cables. In some municipalities there will be
a requirement for the so called laying of empty tubes3 in connection with digging work, i.e. a
condition for securing a land contract and a permit to dig on municipally-owned land is that,
where so requested, the applicant lays ducts for the municipality at the same time. In response to
3
In this context called obligatory tube.
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a later need, fibre can then be blown in at low cost without damaging the ground by new
excavation work. How the costs of this are handled in such cases tends to vary: sometimes the
municipality will meet the additional cost, while at other times it is the applicant himself who
must pay for the cost of both tubes and work. Other solutions may be available as well, e.g. the
cable provider, by way of compensation, will have his land rent reduced during the first year.
Even though these types of contractual condition are not entirely unusual, it is not equally usual
for them to be applied in practice, at least not according to one major private player. If the
municipality wishes to lay fibre, i.e. not just empty tubes, the costs are divided equally on the basis
of an appropriate apportionment formula, e.g. based on the quantity of tubes or cables laid. To
this may be added the fact that several municipal networks in municipalities exposed to
competition do not believe that they have any advantages over other parties.
Co-ordinated laying involves not only an agreement between the municipality and one party, but
is also aimed at minimising recurring damage to the same section. What this means is that,
whoever owns a cable has a responsibility, at the municipality’s request, to co-ordinate planned
cables with the planned cables of other owners. In such cases it is usual for these costs to be
shared equally between the parties who are doing the digging in accordance with an appropriate
apportionment formula. Since excavation work in a built-up area is an expensive exercise, many
companies are favourably disposed to the possibility of using the process of co-ordination in
order to share the costs. It is common to find requirements for consultation and co-ordination
written into land contracts.
6.3.
The working process and related conditions
Laying fibre beneath a street, pavement or bicycle path requires either excavation/digging or
compaction/drilling. The commoner of these is excavation/digging. In thoroughfares with high
traffic densities, intersections and sensitive green environments compaction/drilling may be
preferable, but may also involve risks to nearby pipes and cables where these have been laid.
Inasmuch as digging work is expensive, there is a preference for laying pipes and cables where it
is economically most advantageous to do so. In built-up areas fibre is most often laid beneath
pavements or cycle paths and usually and where possible beneath green spaces. Fibre is
sometimes laid beneath streets, but this is less common, more common is that streets are
traversed. The depth of cables can vary between approx. half a metre and just under a metre
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below the ground, with the greatest depths being used for the more heavily trafficked areas. Fibre
is normally laid nearer to the surface of the ground than other pipes and cables, e.g. electricity,
district heating, water and sewage.
Where major works are concerned it is customary for a joint preliminary inspection of the area to
be made with the municipality for the purpose of documenting the existing conditions at the
scene of the work and avoiding future disputes. The utility owner will also carry out his own
check during the course of the work. The latter check will be evidenced in writing and, where
requested, will be submitted to the municipality’s representative at the time of the final inspection.
The utility owner’s own check will generally include such factors as appearance, laying depth,
choice of materials, a compaction check and any remaining reinstatement. The information
which is finally collected by the municipality will vary.
The utility owner is also responsible for reinstatement after the work has been carried out. In
some municipalities the utility owner, where fibre is being laid in a street, is only obliged to
reinstate up to the bonded base course, alternatively the wearing course where there is no bonded
base course, i.e. to reinstate everything except the top layer (e.g. asphalt). In such cases the
municipality itself will either assume the responsibility for reinstatement of the top layer or will
indicate which contractor will be engaged for do this finishing-off work. Which policy applies
will vary between municipalities and may even vary according to what type of surfacing material is
involved, e.g. asphalt or paving stones. Even where the municipality takes over the responsibility
for reinstatement of the top layer, the utility owner will be liable to reimburse the municipality for
this finishing-off work.
Final inspection normally takes place after reinstatement. Where the municipality itself is
responsible for reinstatement of the top layer, the final inspection will precede this. In certain
municipalities it may also be the case that the inspection is carried out on two occasions, the first
after completion of the work, the second after approx. one year when subsidence may have
occurred in the ground.
The guarantee period is normally around two years. During this time the utility owner is
responsible for any defects relating to the work, e.g. subsidence in the street.
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6.4.
Work-related costs
There are considerable variations in the cost of laying your own fibre, based partly on whether
this is done in a built-up area or elsewhere, and partly on local differences and pressure of
competition.
The laying of fibre is characterised by major costs, the largest of which are excavation/ digging
and reinstatement costs. The costs in Sweden vary due to the fact that the conditions of digging
vary considerably from one municipality to the next, e.g. with regard to the conditions in the land
contract and the type of terrain. Generally speaking, costs are at their greatest in built-up areas
where ground which has already been asphalted needs to be dug up. The average cost for laying
fibre in a built-up area is between 800 and 1,200 kronor (€80-120) per metre, but can also be both
lower and considerably higher. In Stockholm the cost can rise to up to 5,000 kr (€500) per metre.
These costs include, among other items, digging costs, installation materials, reinstatement costs
and, in some cases, reinstatement fees. The actual cost of fibre cable forms only a very small part
of the total laying costs.
As far as concerns the fibre itself, both quality and price tend to vary. It is less common for
anyone to lay a single fibre or pair of fibres; it is usual for, e.g. 24 fibres to be laid and in a core
network often as many as 196 fibres. Costs can vary from around five to fifteen kronor (€0.5-1.5)
for 24 and 96 fibre cable, but can also cost more, depending on the quality. For example, to
connect a specific corporate customer or base station with 10 Mbit/s or more, only one pair of
fibres will be needed, so that the actual fibre cost is a very small part of the total cost required to
connect a customer. The cost of canalisation tubes for blown fibre or micro-fibre cable is
around 5 kronor (50¢) per metre, but can also cost more, depending on quality. Taken together,
it may be said that the cost of fibre cables and canalisation tubes is almost negligible, compared
with laying costs in a built-up area. The cost of blowing in new fibre into an existing duct is
under 100 kronor4 (€10) per metre, which may be compared with the excavation and laying cost
for the laying of new fibre, which can be approx. 10 times higher.
According to an OECD estimate5, the cost of laying fibre is between 60-80 per cent of the total
cost of establishing a fibre network to properties (FTTH). The same report also states that for
4
Tele2 Official reply to Dark fibre report
OECD report, Convergence and Next Generation Networks DSTI/ICCP/CISP(2007)/2/FINAL,
p. 27
5
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parties with access to ducts and similar, as is the case with erstwhile monopoly telecom operators,
as well as the municipalities themselves, the cost can be up to 30 per cent lower than for new
players who do not have these advantages. This picture is also confirmed by the interviews
conducted.
6.5.
Municipality fees
In addition to actual excavation and laying costs, it is also common for the party laying fibre to
have to pay one or even several fees to the municipality. These can be non-recurrent costs or
annual fees, or a combination of both, and can vary between municipalities as far as concerns the
type of fee which is charged, the amount and how it is calculated.
-
Non-recurrent costs occur, for example, in connection with the signing of the land
contract, but may also originate in the actual instance of laying. They are usually justified
by the additional costs incurred by the municipality in the form of both administration
and increased costs for road surfacing. Non-recurrent costs may also be directly linked to
other services, e.g. the use of a detailed municipality-wide map in connection with the
laying operation.
-
Annual fees occur in the form of fixed fees, metre-based fees linked to the laying length
and fees based on the number of residents in a municipality. Which model is used and
the level of the fee will differ between municipalities, but can also vary within one and the
same municipality, depending on the party with whom the municipality has entered into
the contract or at what time it was signed. Many municipalities, however, strive for equal
treatment as far as is possible and reasonable.
Many municipalities have claimed that digging works on asphalt-surfaced streets shorten the
service life of the street. This applies particularly to streets with a lot of heavy traffic. The service
life of a street varies and those with high traffic frequencies are normally asphalted at five to ten
year intervals, whereas those with a low traffic frequency are asphalted less frequently. The
average service life of a street is around twenty years. When digging work is carried out in a street
a risk of subsidence is created, which is especially common in the joints between existing and new
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asphalt. For this reason various measures are adopted to protect the service life of the street and
to compensate for the economic damage caused to the municipality by digging work. This is
done in a number of ways. The usual procedure is for the municipality to give early instructions
concerning both the material itself and the actual execution of the reinstatement work, which can,
in itself, mean additional costs for the contractor. There are even solutions in which the
municipality, approximately one year after digging work and reinstatement, will remove the
topmost layer of the asphalt over an area somewhat larger than that covered by the original
digging work and re-asphalt this section in order to reduce the damage from the original digging
work, and for which the costs must be met by the party who laid the fibre.
To offset the increased road costs, the municipality will sometimes, as already mentioned, charge
a non-recurrent fee to the utility owner in connection with the actual laying operation. How large
the fee is or whether it is payable at all, varies both as between municipalities and depends also on
the type of land use, the surfacing involved and the extent of the work. The fees discussed in this
study show that they can vary between not being charged at all and amounting to several hundred
kronor (tens of euros) per metre of dug up bicycle path, pavement or street, which means
additional costs for anyone wanting to lay fibre. It is also the case that this type of fee may be
charged along with other reinstatement costs, e.g. for asphalting in those cases in which the
municipality itself is responsible for doing this or for appointing the contractor to be used, and in
which case perhaps the fee will not be entirely transparent for the party laying the fibre. Other
non-recurrent fees chargeable, for example, in connection with the signing of the land contract,
also vary considerably and can amount to anything from simple administration fees of a few
thousand kronor (a few hundred euros) to a few hundred thousand kronor (tens of thousands of
euros).
Even where annual fees are concerned, large variations may be encountered. Fixed fees, for
example, may vary from less than a thousand kronor (hundred euros) to ten thousand kronor
(€1,000) a year. Metre-based fees vary between one and ten kronor (€0.1-1) per metre laid per
year, whilst resident-based fees vary from below one krona (10¢) to several kronor (tens of cents)
per resident per year. Compared with the costs of the actual laying operation, i.e. excavation and
reinstatement, these recurrent fees are relatively small, but for those who are laying fibre they
constitute a business risk.
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The utility owner is burdened with this cost, irrespective of whether the cable is used or not.
What this means is that even if there is a customer at the actual time the fibre is laid, it is not
certain that the customer will be there over the longer term, yet the land rent for the fibre must be
paid all the same. When it comes to resident-based fees, these will vary both from the point of
cost per resident and the size of the municipality and can range from anything from ten thousand
kronor (€1,000) in one municipality to more than a hundred thousand kronor(€10,000) in
another. The problem with fixed fees and with fees which are based on the number of residents
in a municipality is that, if they are applied in a general way, they have no direct connection to the
level of ambition of the party laying the fibre and can, therefore, have an inhibiting effect on
investments.
In connection with fees, it is also worth mentioning the business risk to the party laying the fibre
when it comes to the question of who is to shoulder the economic responsibility for the cost of
moving the cable if the municipality decides it wants to alter the layout of the land, e.g. where a
street is to be converted into a roundabout. In theory, this involves double costs, both for
removing the old and for laying the new cable; however, cables often do not have to be removed;
alternatively, they are removed by the municipality in connection with ground work. Still, the so
called transfer of a cable can mean a major cost for laying new fibre, as well as adjustments to
existing equipment, and on many occasions it is the utility owner who bears the risk, at least in the
long term.
A desirable situation for the fibre layer
7.
Where companies wish to establish an infrastructure within municipalities, their wishes and
preferences can be compiled to produce an ideal picture which, if obtainable, would mean
increased investments and competition in the underlying infrastructure.
1.
It should be a simple and uncomplicated matter to obtain a municipal land
contract to suit different levels of ambition for the laying of fibre.
- Different players in the market have different ambitions and different speeds at which
they wish to proceed in extending their fibre laying activities. Some of them may be
keen to cover the whole, or at least the greater part, of a town or city, while others may
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be content simply to address certain segments of the market, e.g. affiliates of business
customers, and who, therefore, may not have the same wall-to-wall ambitions.
2.
Digging on the municipally-owned public roads for the purpose of laying fibre
should not be an exercise subject to excessively high and discriminating
municipal fees or unreasonable costs for reinstatement of the ground and similar
matters.
- Fibre-laying work is generally a very expensive exercise, which is difficult to influence
to any significant extent. Municipal fees and costs related to contract conditions can
vary very considerably not only between municipalities themselves, but also between the
players in the same municipality. It is important that only reasonable fees and
conditions are applied, that they are linked to municipal costs and that the structure and
level of fees do not distort the conditions which allow those involved to compete in the
market.
3.
It should be easy to obtain information on planned digging work in
municipalities and to co-ordinate the laying of ducts or fibre cable.
- Information about what digging work is being planned within a municipality is often
only accessible to those parties who dig there often and on a large scale, e.g. electricity
companies, water-boards, the Swedish Road Administration, municipal Streets and
Traffic Offices and municipal networks, as well as TeliaSonera. Planned digging work is
often discussed in so called “mole groups” of which these players form a part. For
other players who are not equally active in digging work it is important that these are
also afforded access to such information in a very simple and easily accessible manner.
4.
It must be possible to rent ducts where digging work has recently been carried
out on the section in question.
- Where a road has recently been dug up for the purpose of laying fibre, it is most
unfortunate for all parties concerned if the next party wanting to lay fibre is forced to
dig up the same road again. It is essential that ducts which others can use are also laid.
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5.
In those places where there is an active municipal network it must always be
possible to rent dark fibre at fair and reasonable prices and conditions.
- As a rule all municipal networks should offer dark fibre in more densely populated
areas areas, as this service is virtually always sought by operators as input goods. In
rural areas, where the customer base is small, it may also be desirable to have capacity
services available further up the value chain. Where these more refined services, e.g.,
ethernet connections, are offered and the municipal network is active at several levels of
refinement, there is a risk of pinch effects, usually to the disadvantage of dark fibre.
6.
The customer base in a municipality should be open to competition on equal
terms to all parties.
In many small and medium-sized places telecom and data communication services to
the municipal administration and public housing (multi-family dwellings) forms a
considerable part of the total customer base for local electronic communication
services. If these are not open to competition and instead are handled “internally” by
the municipality’s network, energy companies or municipally-owned housing
companies, who in this way act as telecom operators, the market is not open to
competition on equal terms for all the players.
8.
Problem areas
In general, municipalities in Sweden are favourably disposed and accommodating towards those
parties wishing to lay fibre there. They react positively to the fact that there is someone who
wishes to make an investment for the benefit of the municipality’s residents or businesses and
will, therefore, do whatever they can to facilitate the establishment of fibre infrastructures. In
many municipalities, however, the situation is, to a greater or less degree, problematical for
anyone wanting to do this. The problems which parties wishing to lay fibre have come up against
and which either directly prevent or indirectly inhibit their incentives and opportunities to lay
fibre in the municipality are primarily related to the laying of ducts and fibre in urban
environments.
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The following problems have been identified:
1.
Refusal of access
2.
Contract-related obstacles
3.
Unreasonable digging and laying conditions
4.
Unreasonable conditions relating to canalisation
5.
Distortive contract conditions
6.
Vertical integration and packaging
7.
Inhibiting reduction of the market base
8.1.
Refusal of access
One of the biggest and most crucial problems an applicant can encounter is a refusal to grant
access, i.e. the municipality quite simply refuses to enter into a land contract or to grant a permit
to dig. Certain municipalities are very restrictive when it comes to land contracts and have limited
the number of applicants who can lay fibre. Generally speaking, this is a problem which occurs in
a few large or medium-sized towns and cities and the usual procedure in these municipalities is to
permit two applicants to lay fibre, viz. the municipally-owned network and TeliaSonera. In some
cases there may be an additional applicant or applicants, but usually with a limited level of activity
and restricted right to use fibre for commercial purposes. For a party thus affected, a refusal of
access can be a serious and, in practice, very often a definitive obstacle and, in addition to
extensive criticism, a refusal of access has also led to applicants applying for a utility easement and
taking legal proceedings.
There are several reasons why a municipality may refuse to enter into a land contract. Digging
work is often seen as a nuisance, involving disruption of traffic and costs for the municipality.
Having an overall responsibility both for future developments and for day-to-day operations, a
municipality will need to weigh up the pro’s and con’s when goals and priorities are determined.
When deciding on an application for a land contract and permit to dig, a municipality must,
among other factors, take account of the inconvenience which the work may cause and the
benefit which, in the course of time, may accrue to the municipality’s residents and its industrial
and commercial life.
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Municipalities have no express responsibility for the local fibre infrastructure or for promoting
competition in this area, a fact which means that it seldom carries any weight when applications
are considered. None of the municipal representatives contacted said that he or she attached any
particular weight to the requirement for infrastructure competition as being an important factor
for consideration when deciding whether or not to grant a land contract or permit to dig. One
reason why municipalities refuse to grant a land contract is that they do not see any need for
(more) competitive infrastructures in the area. A further reason is that, through their own
infrastructure, i.e .the municipal network, municipalities cater for the needs of the whole
municipality and, in contrast to private applicants, who invest from the profit motive, the
municipality takes an overall responsibility, which also includes an extension of the network to
less attractive areas. The redistribution of funds between potentially profitable and less profitable
areas, combined with a restriction on what is felt to be an “unnecessary” duplication of costly
infrastructure, is perceived as being beneficial from a socio-economic perspective.
There is also a relatively common view among municipalities and joint municipal authorities, that,
unless some degree of restrictiveness is applied in the matter of land contracts and permits to dig,
then a lot of streets in the most central areas will end up being dug up over and over again. There
are, however, no examples of where this has actually happened in practice to any extent worth
speaking of in any town, city or municipality, not even in the large towns and cities which do not
have a restrictive so called digging policy. If such misgivings can, nonetheless, be justified in
certain towns and cities, the situation could still be managed by municipalities ensuring that a
sufficient quantity of empty tubing is laid on the first occasion, so that the street does not need to
be dug up several times.
To some extent protectionism practised in favour of the municipality’s own network activity can
be an ulterior, albeit unexpressed, motive. Even though many municipal networks are separated
from other municipal activities in an economic sense and, in some cases, at a legal level too, the
ties that bind various municipal entities can be powerful and the wish to help each other strong.
As a result of being refused a contract, applicants are forced instead to rent dark fibre or more
refined services from the party or parties who do have the land contract. For an infrastructure
investor engaged in delivering wholesale services, this produces direct consequences in the form
of a loss of market opportunities. The problem concerns not only lost business in the affected
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areas, but can also cover situations where the customer is ideally reached by running cables over
municipally-owned land, i.e. without operations being conducted within the municipality.
8.2.
Contract-related obstacles
There are a number of contractual and contract-related problem areas which can influence the
interest of those wishing to lay fibre infrastructure. As described above, it is customary for
municipalities to charge different types of fees to parties laying pipes and cables in the ground;
such fees are meant to be commensurate with the costs incurred by a municipality in connection
with or as a consequence of, e.g., digging work and the use of the land. There are considerable
variations in the level of these fees, which need not, in itself, be wrong, but may be based on local
differences, type of ground and its current usage, where pipes and cables can be laid, what service
the municipality provides, etc.
Where municipalities with similar conditions apply greatly different fees, this may be due to the
fact that some of them levy additional charges and indirectly subsidise other activities. It is a risk
incurred by operators that municipalities in attractive areas see an opportunity to benefit from the
capital flows generated by the telecom industry and that fees are adjusted to reflect a particular
type of market attractiveness, being linked to prevailing land prices rather than to the
municipality’s actual costs. There is at the present time no clear connection between the fees
charged by municipalities and the costs of administrative management and the damage caused to
the land by digging work.
Disproportionately high fees entail negative consequences for a general willingness to invest and
for competition in general. In order to be able to make economies in his investments, a utility
owner needs to begin his development work in built-up areas where there is already a large
customer base. Only after this can growth to cover more remotely situated customers be financed
by increasing the sections in the existing network. If the fees for setting up business in a built-up
area are so high as to deter investments, this will jeopardise not only development in the built-up
area, but outside it as well. This will bring consequences not only for the total development, but
also for competition and, in the last resort, for the price to the customer. For this reason it is
desirable that fees be kept as low as possible.
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Often the fee for land rent is based on a cost per metre, i.e. in direct relation to the utility owner’s
encroachment on the land, but there are also contracts based on an annual fixed rate cost or on a
cost per resident in the municipality. Traditionally, TeliaSonera have practically always had
contractual arrangements based on a fixed rate cost related to the number of residents in a
municipality. With a view to adapting these contractual arrangements and conditions, it is
sometimes the case that a municipality has entered into similar land contracts with other parties.
Where such an arrangement is offered to small players, viz. those who are just beginning their
development work or who do not have the same level of ambition, the cost can constitute an
establishment threshold and inhibit the development of infrastructure in a municipality. The same
consideration applies also to non-recurrent fees. For this reason it is important that the form of
contract being offered is reasonable and proportionate to the applicant’s willingness and ability to
invest. In essence, it need not be unreasonable that parties are offered different conditions and
that, for example, a major player with many business concerns achieves economies of scale in his
dealings with the municipality, compared with a smaller player. Such differences must, however,
reflect the municipality’s costs and therefore different types of fees may be appropriate for
different parties. Nevertheless, the structure of fees should not, in itself, discriminate against small
players with limited ambitions.
Another problem is that it can be a troublesome business to obtain a land contract. The problem
would appear to be greatest in those municipalities which, in principle, are restrictive in their land
access policies, with some parties complaining about delays and documents which have been lost.
When a land contract has been obtained, it generally seems to work quite well. Certainly, there is a
series of rules and requirements to be followed, but these are, for the most part, handled within
reasonable timeframes and in accordance with a reasonable procedure. Yet, the criticism is still
heard that contracts are often unclear and can be difficult to interpret when problems arise.
The fact that different conditions are found in different municipalities does not, in itself,
constitute a problem; it does, however, mean additional inconveniences for applicants in the form
of a consequent increase in the costs of administration and the training of staff. Generally
speaking, land contracts relating to particular areas are made with major players. For small players
and also, in certain municipalities, as a matter of principle, contracts have to be applied for on a
per-connection basis, which can be extremely laborious and time-consuming. Such a procedure
means not only lengthy processing times and major administrative burdens for both parties, but
can also result in more uncertainty for an operator who wishes to build up his activities using his
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own local infrastructure. The fact that a range of questions are in the hands of individual officials
without any clear regulatory system also creates uncertainty, and exceptions to the regulations and
the established requirements are known to occur, although these tend to be the case when there is
an intention to be accommodating.
8.3.
Unreasonable digging and laying conditions
Through their role as landowner and local authority, municipalities which lay ducts and fibre
enjoy advantages over other players in the market. Such advantages can sometimes, either directly
or indirectly, give rise to situations which distort competition. Through ownership or contracts, a
municipality has access to a great deal of land, ducts, premises, warehouses and cable jointing
chambers, which are strategically important assets when it comes to laying ducts or fibre. They
also enjoy economies of scale in the matter of contract work and, not least, in their capacity of
local authority, a negotiating strength compared with private land and property owners. Such an
advantage can, for example, be important when fibre is to be run through the cellars of privately
owned multi-family dwellings or over private land. In those cases in which the municipality is the
owner of the local energy company, further advantages may arise where ducts are concerned and
in the matter of cost benefits in digging and laying work. Compared with private parties,
excluding TeliaSonera and energy companies, this cost benefit is significant. Likewise, when it
comes to removing pipes and cables, for example, in the case of new road alignment work, which
represents a significant cost, the actual conditions and costs which a private party has to bear can
be significantly worse than those which apply to the municipality’s own operations.
Cost benefits in favour of the municipality also arise where, in certain of them, there is a
requirement for so called obligatory tubes in connection with digging work, i.e. a condition for
obtaining a permit to dig on municipally-owned-land is that the applicant is simultaneously
required at his own expense, or for only a small remuneration, to lay ducts for the municipality to
have control over for future needs. In those cases in which the municipal network lays fibre and a
private party wishes to lay fibre at the same time, the latter must bear half the cost of the digging
and laying work, whereas the municipality itself gets this done at no cost at all or, alternatively,
only at a marginal cost. Laying obligatory tubes in order to avoid having to dig up the streets
unnecessarily is, in itself, a positive measure and the more ducts there are the better grounds for a
properly functioning infrastructure-based competition, but where the municipal authorities or the
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private parties have quite different costs in connection with this, then competition is distorted to
the municipality’s benefit and the willingness of the private party to invest is reduced.
These distortive effects are particularly evident the more the active the municipalities are with
their own municipal networks and the higher up the value chain they offer services, i.e. when they
are active with their own municipal networks and apply different conditions to when they
themselves lay fibre, compared with when a private party does so. The situation which then arises
is that the municipality, with special cost benefits, competes higher up the value chain with other
companies who do not have the possibility of laying fibre on the same advantageous conditions.
If a municipality only operates on the market for renting out ducts, the distortive effects on the
market for electronic communication services are small. When the municipality is operating on
the market for dark fibre the distortive effects increase, since the municipality has a series of cost
benefits compared with other parties, and when the municipality expands higher up the value
chain, the effects are transmitted to an ever larger part of the market and the consequence
become ever more serious.
It is worth noting that in most cases what is involved are differences regarding the ability to lay
ducts and fibre, which, from the municipality’s perspective, are seen as entirely natural and almost
self-evident, but there are here, nonetheless, incipient distortive effects on the market, which
inhibit the private player’s willingness to invest.
8.4.
Unreasonable conditions relating to ducts
When optical fibre is laid, this can either be done by laying empty tubes with the fibre then being
run through them or by laying an insulated fibre bundle directly into the earth without tubes. As
far as concerns the empty tubes, these can be of different dimensions and types, depending on
the purpose and estimated demand from the end-customer base in the area. In order for
competition to be able to emerge right down in the value chain, it is assumed that several
competing players have fibre at their disposal. In order for this to be able to happen to any
noteworthy extent, it is assumed in practice that each player will not be digging up roads or
pavements at different times, since this would be far too costly. Ducts in the form of empty tubes
is, in itself, a very small cost by comparison with the cost of digging to lay ducts in the ground. If
there are unused ducts on a section of road, the costs of laying fibre are very small, compared
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with having to dig up the road again. There are, however, very few municipalities, if any, who
have an active strategy for laying ducts for renting out to those parties who wish to lay fibre.
When a private party, for example, is obliged to lay so called obligatory tubes, these are, as a rule,
at the disposal of the municipality’s own municipal network, which does not rent out unused
ducts to other parties wanting to lay their own dark fibre. Instead the municipal network lays its
own dark fibre in the duct and rents it out. Other ducts which are unused are generally not rented
out, since very few, if any, municipal networks regards themselves as being in the duct renting
business, but in the dark fibre business.
As a rule, municipalities do not ensure that ducts are laid with a view to meeting the market’s
future needs. As a result of not ensuring that sufficient ducts are laid for future use as the
occasion arises, the indirect consequence is that digging is prioritised as roadways are dug up
whenever a new player on the scene wishes to lay fibre on the section of road in question.
As a rule, there are opportunities here for the municipality to establish duct tubes in connection
with digging work being done by others, but also for them, in their capacity of road holder, to
take the opportunity when the road is being reconstructed and new fibre laid. The costs of
digging work inhibit any further indirect possibility of establishing a number of competing fibre
networks, since the end-customer base is seldom able to justify multiple digging costs. The fact
that municipalities generally lack a well-thought out strategy for dealing with the duct problem has
often meant that they have seen a risk of the streets of a town or city being dug up unreasonably
often and have therefore refused to grant land contracts to any parties other than to TeliaSonera
and the municipal network. This can be the case in spite of the fact that the municipality network
has unused ducts which are not, however, being rented out – since only dark fibre or more
refined services are being offered.
The consequence of this type of action on the part of the municipalities is that there is an almost
total lack of ducts6 in built-up areas which can be rented by companies wishing to lay fibre with a
view to competing on the market for dark fibre or services higher up the value chain, which in
turn has meant that a company wishing to lay fibre in a built-up area is obliged to reckon with a
total cost for this of around a thousand kronor (€100) per metre; these are cost levels which are
difficult to justify other than on an exceptional basis. This in turn creates poor conditions for
6
Including cable jointing chambers and similar related facilities
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establishing an infrastructure-based competition on the market for electronic communication
services.
8.5.
Distortive contract conditions
It is a fact that different parties have differing contract conditions, for which there may be
different reasons. The fact that these contracts were entered into at different times is one such
reason and explains, among other things, why TeliaSonera who, in a number of municipalities,
have very old contracts, have contract conditions which differ from those of parties who have
arrived on the scene at a later stage. The corporate size of the parties concerned and the extent of
their networks may provide another explanation for the differences in conditions, inasmuch as
extensive operations can contribute to economies of scale, e.g. in the matter of improved
procedures and communication with the municipality.
The fact that various parties are offered different conditions does not necessarily constitute a legal
problem, but may create one from the point of view of competition. Major differences in
contract conditions are apt to generate very strong feelings among a number of parties, who feel
themselves treated unfairly as a result of less favourable opportunities to compete. Criticism is
levelled first and foremost at fees, but in tandem with this are other differences which may have
economic consequences, e.g. the transfer of cables when the municipality makes changes to the
use of the land. The fact that a party is forced to pay considerably higher fees than another one
without such differences being justified other than as differences in municipal fees creates a
serious obstacle to competition and has a direct effect on a company’s margins and its abilities to
compete in the market. In the worst-case scenario, this can mean that it will not be possible to
enter the market at all. Seen from the end-customer’s perspective, a marginally distorted
competition also means that the unfairly treated party lacks any real ability to keep prices down
compared with his competitor or competitors and therefore that the price to the end-customer is
kept high.
During the course of the work a party laying fibre may encounter a number of problems which
may be more or less difficult to solve. For example, the ground may turn out to be contaminated
by waste, e.g. asbestos. Disputes may then arise as to who is to pay the cost of any
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decontamination work, as well as the additional costs which may arise for various cordoning off
work and similar measures. It appears that this type of question can be solved relatively easily
between municipal entities, e.g. there are good relations and a shared view that the money, in a
sense, remains within the municipality. Where private parties are concerned, they tend to
encounter harsher conditions, and there is a greater risk that unforeseen problems lead to
conflicts.
Specific contract conditions may also create different forms of establishment thresholds. An
example of this is cable marking. Cable marking means that a utility owner may be called upon,
e.g., to mark on the asphalt where his pipes and cables are in the ground. The purpose of this is
perfectly understandable and is intended to prevent existing pipes and cables in the ground from
being damaged when new digging work is carried out. For a major player with access to local
resources, cable marking is not a problem, whereas for a small company lacking local human
resources such a requirement can lead to costs being incurred, not just for travelling, but also
administrative problems, such as getting hold of staff who can come to the place in question at
short notice. The occurrence of this type of condition may not hinder the laying of fibre as such,
but can make life more difficult for new players on the scene who wish only to lay isolated
sections in the locality, and can militate particularly against small players with limited human
resources.
There are also specific contract conditions which jeopardise the utility owner’s legal security. For
a party who has been refused a land contract or one who considers that the level of fees offered is
unreasonable, there is the possibility of applying for a utility easement from the Public Surveying
Authority (National Land Survey of Sweden). This possibility constitutes a protective measure
and a legal route to by-passing the land-owner’s decision in the matter. Parties have, however,
indicated that some municipalities have contractually excluded the possibility of seeking a utility
easement when the land contract has been made. Whether this is possible from a purely legal
point of view is unclear, but it may nevertheless be regarded as fully legitimate. For the
municipality a utility easement constitutes a problem inasmuch as it prevents the municipality
from altering and further developing the use of the land. It is for this reason that municipalities
prefer that applicants enter into land contracts in which the municipality has some influence over
what conditions and principles are to apply to the utility owner. The problem with contractually
excluding the utility easement is that the party concerned is negotiating away his right to have his
case examined by another authority and is as a result, therefore, completely surrendering to the
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municipality and the conditions which the latter may dictate. In other words, the municipality is
appropriating to itself an increased power over the utility owner in question.
8.6.
Vertical integration and packaging
Many of those municipalities which have set up a municipal network offer only dark fibre, but
there are also other examples of municipalities who, through their municipal networks and
sometimes the municipally-owned housing companies, offer services higher up the value chain,
which can give rise to a number of competition-related problems.
There are municipalities that not only rent out dark fibre but also sell capacity services to both
operators and end-customers, as a result of which the municipality competes directly with the
market’s telecom operators. This is unfortunate, inasmuch as the municipalities, on account of
their assets, have advantages which, with the possible exception of TeliaSonera, make it impossible
for private applicants to compete on the same conditions. Hence, the offering of services higher
up the value chain also puts a check on the growth of a local infrastructure-based competition.
even if, in certain cases, price can be kept down in the short term.
There are an ever greater number of collaborative projects or “joint ventures” to be found
between the municipally controlled network and municipal housing companies, the aim of which
is to offer broadband services to residents of multi-family dwellings. The services offered to
consumers are usually Internet access and fixed telephony (IP), and lately television services as
well. The arrangement is often called “open network” by allusion to the fact that several different
service providers are able to offer Internet and telephony to end-customers via the network.
Normally, consumers are offered a choice of between five and ten different service providers ,
but it is less usual that services from the market leaders TeliaSonera, Telenor, Tele2 or Com Hem can
be ordered. Instead it is the smaller players who offer their services via the open networks. The
major players lack either their own access to customers or the economic incentive to attempt to
act on this market and have directed a great deal of criticism against this municipally managed
vertical integration. Of the sums paid by end-customers for services to the service providers, up
to 90 % goes back to the municipal network and housing company. The municipally-owned open
network thus has a very powerful economic incentive to ensure that as many as possible of the
residents, through a service provider, become customers of precisely this network infrastructure
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instead of opting to receive services via, for example, cable TV or via DSL from TeliaSonera or
some other operator.
As a result of its influence and power, the municipally-owned network either excludes or limits
other competitors. The municipally-owned housing company can, for example, add around fifty
kronor a month on the rent for all residents in the building as a charge for the cable infrastructure
which the municipal network and the housing company have set up together. In itself this means
a distortion, since other competing infrastructures on the property, e.g. copper, cable TV or
wireless, do not enjoy the same opportunities and thus do not compete on the same conditions.
There are also examples of when an even more refined communication service such as broadband
at a certain speed has been included in the rental. This contributes to a lock-in effect and distorts
the competition even more, since, naturally enough, there are few residents who would choose to
pay, e.g. 100 kr/month (10 euros) for broadband via DSL or cable TV if the broadband service
provided by the municipal network were already included in the rental. The fact that the
municipality itself controls permits to dig, etc. for the laying of fibre to the property and, through
its municipally-owned housing company, has the power to decide who may set up “broadband
cables” on the premises and, moreover, acts through is own network, contributes to a restriction
on competition rather than variety at the infrastructure level. Where broadband infrastructure
and services have been included in the rental there has been a perceptible effect with penetration
by competitors in the property being quickly reduced. Cases also occur where the municipallyowned housing company, in the contract made, has restricted the right of the cable TV
infrastructure to offer other services than TV, i.e. broadband or telephony. It is difficult to see
any other reason for this than to reduce competition with its own network and its own broadband
and telephony services.
A similar situation may also occur in municipally-owned business properties, which means that
broadband delivered under municipal management is included in the office rent to the business
and that, as a result, competition is, in large measure, put out of the running.
8.7.
The inhibiting reduction of the market base
It is the total market base for electronic communication services in a place which determines its
attractiveness for investments in the infrastructure. By market base is meant both households
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and small businesses in single and multi-family dwellings and companies in office premises, as
well as public administration, including schools, day nurseries, hospitals, care units for the elderly,
etc. When services are set up for the first time in a place, it is the usual strategy for the operator
to establish a bridge-head from which to continue building in future. It is characteristic of such
bridge-heads that they are able to provide potentially large income concentrated over a small area.
A bridge-head of this kind may, for example, be a cluster of multi-family dwellings or a corporate
customer, preferably spread over several addresses in the town or city.
There are many examples of where the municipal network is not on the whole focused on the
municipality’s suburbs or rural areas, but where the strategy is to focus on those customer
segments with the greatest income potential. For a municipality this can often mean that the
obvious solution is to effect connections to all its own workplaces, which may amount to several
hundred, and to the housing stock of the municipally-owned housing company. Not infrequently
the municipal network also offers communication services with a high degree of refinement to
the municipal administration.
All in all, this provides the municipal network with a secure and often large income, which is of
positive value to the network. A negative side-effect, however, is that, at the same time, it reduces
the incentives for private players to invest in the local infrastructure, inasmuch as a large part of
the most attractive customer base, which could be used as a bridge-head, is not open to
competition on equal terms. In many municipalities the municipality itself is the only major
customer for communication services. In those places where the municipality and municipal
operations together constitute the largest employer and where a large percentage of multi-family
dwellings are owned by the municipal housing company the effect is greater. These problems
have an indirectly inhibiting effect on the establishment of an alternative fibre infrastructure, but
can nevertheless be of a great importance, particularly in smaller places.
9.
Conclusions and recommendations
It may be observed that there are a number of direct and indirect obstacles to the establishment
of a fibre network infrastructure and that such obstacles are inhibiting the growth of long-term,
lasting competition on the market for electronic communication services. Essentially, it is a
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question, in most cases, of the municipalities failing to understand the market situation and the
need for investments and competition, as well as a lack of awareness of the significance of their
actions. In certain cases it is more a question of the municipalities’ attitudes to the need for
competition in the field. Several municipalities seem to be of the view that a fibre network
infrastructure is a natural monopoly and that a situation in which there is only one municipallyowned network and TeliaSonera laying fibre is not in any way a bad situation. Many consider that
a restriction on the number of fibre network players has positive effects, inasmuch as it creates
fewer difficulties for the municipality and that, from the perspective of the municipality, it can be
sensible from a socio-economic point of view not to have parallel infrastructures. In this respect
municipalities are apt to draw parallels with the situation concerning roads, electricity, water and
sewage. This basic attitude, which is commonly encountered, also colours the attitude of
municipalities to those companies who wish to lay fibre beneath “their” streets and pavements
and governs their behaviour in the matter. There are few municipalities who take the view that
there can be any social benefit to be had from increased competition and conditions which make
it easy for several parties to invest in ducts and fibre. It is also far from being the case that all
municipalities share the view that the market will soon really demand fibre to a considerably
greater extent than is the case at present.
With regard to the effect of the pressure of competition on the price of renting dark fibre or less
refined network capacity, the players in the market testify to the fact that in those sections or
those towns or cities where, for example, TeliaSonera and a municipal network have offered such
services, there has been an extremely significant effect on the price. Thus, in many cases a
relatively small number of players has been sufficient to produce a significant effect on the price.
During recent years, however, prices for the wholesale service in dark fibre have stayed relatively
constant, which may be a consequence of the fact that TeliaSonera have stopped offering this
service and that the pressure of competition has declined as a result. The fact that TeliaSonera
have ceased to offer dark fibre may have significant consequences in various quarters, not the
least risk being that this will affect prices and access to dark fibre in those municipalities which
operate a restrictive policy.
In the long run a restrictive policy with regard to municipal land contracts risks inhibiting total
long-term investments in fibre infrastructure in Sweden. What this means is that investments in
infrastructure will to a greater degree be dependent on a municipal willingness to invest and that
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financial capacity, staying power and a willingness to take risks will be concentrated to a greater
extent on one or a small number of players.
In order to increase both competition and investments in the fibre network infrastructure in
towns and cities, we propose the following concrete measures. These proposals should be seen
against a background of the fact that access to the fibre network infrastructure is a necessity for
social development and hence a social benefit, and also that fibre is not a natural monopoly and
that laying fibre is not a core activity of municipalities.
1. Being able to dig should be a simple and uncomplicated matter
In order to ensure access to fibre and a favourable price development, it is not reasonable for
municipalities to refuse to enter into land contracts on grounds of principle. All municipalities
should have a clear and transparent decision-making process with regard to the granting of land
contracts with a short processing time (no more than 30 days), clearly motivated decisions and
with the possibility of appeal.
It is also of crucial importance that land contracts are not so designed that they discriminate
against new players. Entry thresholds in the form of high fees, even for small set-ups, should be
avoided and, as a suggestion, fees could be based on a step-based model with a ceiling, where the
price model for smaller parties could be linked to the number of so called metres dug and for the
larger ones a template for unlimited digging in the whole town or city.
In view of the fact that there are a large number of municipalities in Sweden and that it is an
administrative burden for an operator to have to deal with all the different forms of contract, the
aim should also be to have more uniform principles between the various municipalities. It would
also be an advantage if procedures and the administrative routines for obtaining permits to dig
and land contracts were to be harmonised and made more or less the same in all municipalities.
2. Low and non-discriminatory fees
The municipal fees associated with the laying of fibre on municipally-owned land are, in quite a
number of cases, unjustified and/or disproportionately high. It is unclear to operators why there
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are such glaring differences in fees as between one municipality and another and there is a
complete lack of transparency as to what exactly fees cover and how they are calculated. It
would, therefore, be desirable if municipal fees for land rent and similar were to be based on a
transparent calculation reflecting as closely as possible the municipality’s actual costs.
Municipalities should also bear in mind that the lower the fees the better this is for a willingness
to invest and that this is to the benefit of its residents.
Furthermore, it is of the very greatest importance that land contracts of the same type are not
discriminatory in the sense that parties of varying sizes and different negotiating strengths or who
have signed contracts at different times experience major differences in fees. The fact that parties
who lay a great deal of fibre can have legitimately lower costs per metre than those who lay only a
small amount need not, in itself, however, be discriminatory, provided the cost is linked to actual
differences in municipal costs.
3. Information on planned digging work
Operators and other parties in the market for electronic communication services who are
interested in laying fibre should be able as a simple matter to obtain information on what digging
work is being planned in the various municipalities. By digging work is meant not only when
someone is planning to lay fibre, but also where it is planned to dig in connection with, for
example, electricity, water and sewage and where, with advantage, the work can be co-ordinated.
Having regard to the fact that there are a great many municipalities, a national database would be
preferable.
4. Renting ducts
There should be a clear economic incentive for anyone laying fibre to lay ducts for future needs,
e.g. for the benefit of other parties. In this context economic incentive would mean that the party
digging on a particular section and laying ducts for future use should be able to obtain a financial
subsidy to help finance digging and laying work. The additional duct tubes could probably be
financed most suitably by the municipality, who would then be the owner of the duct and could,
under its own management or by buying such a service, rent out ducts to companies wishing to
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lay fibre in a particular section. It ought to be possible to solve the problem of financing in line
with other public financing solutions for the development of broadband.
5. Dark fibre at reasonable prices
The basic principle should be that neither dark fibre nor refined communication services are
activities which should be operated under municipal management. In the short term, however,
municipalities with their own networks should continue renting out dark fibre with the aim of
ensuring that private parties should enter the market and that the municipalities, in the longer
term, should back out of the market. This applies in particular in built-up areas. Furthermore,
prices for dark fibre from municipally-owned networks should be transparent, based on costs and
non-discriminatory.
6. A market entirely open to competition
For reasons of principle, municipalities should not be in the business of refined services for
electronic communication, either to external customers or within the municipal administration.
Apart from the fact that this is not part of the municipality’s core activity, and in many cases may
require major investments which are far from being risk-free, it can also give rise to a conflict of
interests, the incentive for pinch effects and can decimate the market base which is needed to
establish a functioning competition. In small and medium-sized towns the entire local customer
base is required to be able to simulate private investments in fibre and ducts. In particular those
cases in which municipally-owned housing companies build their own property networks and
include the costs of this in the rent, and where the municipal network offers refined services way
beyond dark fibre, can be inhibiting for both competition and a willingness to invest.
7. Other considerations
Prices and obligations, which are determined by land contracts and similar factors, have a crucial
significance for a willingness to invest and for competition in the fibre network infrastructure. As
a suggestion, the Competition Authority could take the initiative in scrutinising municipal land
contracts with the aim of ensuring that municipalities do not charge disproportionately high fees
and that various players in the market do not suffer discrimination. Furthermore, the
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Competition Authority could, as a suggestion, carry out a special follow-up investigation focused
on any special measures which could be taken to ensure that municipal vertical integration within
the field of electronic communication does not distort competition, e.g. by the municipally-owned
housing company charging all the residents of multi-family dwellings additional fees in the rent to
get access to the municipality’s so called open network.
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Annex 1:
Companies and organisations contacted
1. Alltele
2. Banhof
3. Blixtvik
4. Com Hem
5. Dellcron
6. Gothnet
7. Municipality of Gothenburg
8. IP Only
9. Public Surveying Authority
10. Municipality of Malmö
11. MKB (Malmö) (Malmö Municipal Housing)
12. Mälarenergi Stadsnät (Mälarenergi Municipal Network)
13. Municipality of Norrköping
14. Perspektiv bredband
15. SKL (Swedish Association of Local Authorities and Regions)
16. SSNf (Swedish Urban [Municipal] Network Association)
17. Stokab
18. TDC
19. Tele2
20. Telenor
21. TeliaSonera
22. Teracom
23. Municipality of Västerås
24. Municipality of Örebro
25. Örebro Stadsnät (Örebro Municipal Network)
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