ViaEuropa Chairman Jonas Birgersson says his open model offers consumers low prices and freedom of choice—and it could work in the U.S.

by Jennifer L. Schenker

U.S. telephone companies Verizon Communications (VZ) and AT&T (T) have convinced regulators that closed networks are not only acceptable but essential. The telecom giants want to build quick new fiber systems to deliver high-speed Internet and entertainment services into U.S. homes. But the only way to justify the billions in cost, they argue, is if rivals are prevented from having equal access to the network and offering competing media services over the same pipes.

If that is the case, asks Internet entrepreneur Jonas Birgersson, why is it Swedish carriers can offer consumers much higher speeds than those available in the U.S., for similar or lower prices—even though multiple operators share the same fiber network?

The feisty 36-year-old, who has founded four companies, including Bredbandbolaget (B2), a broadband service provider that was sold to Telenor (TEL.F) in 2005 for about $730 million, is out to prove that the open access model he is pioneering in Sweden can work in the rest of Europe and in the U.S.

EUROPE'S FREEDOM OF CHOICE
Birgersson, who made his first million at age 26, is now chairman of ViaEuropa, a Stockholm company that manages network services and infrastructure for 60 different Swedish cities that have their own fiber networks. (This is an obvious difference from the private-sector approach mainly used in U.S. telecommunications, but it's akin to cities owning their own sewer or transportation systems.)

ViaEuropa assumes the job (from cities) of renting out capacity to multiple Internet service providers who compete to offer services to consumers. Making the deal even more enticing, ViaEuropa employs technology from a separate Birgersson company called Labs2 (LABS.ST) that lets consumers switch from one service provider to another literally at the click of a button. Such freedom of choice means a larger selection of services available to customers and more competition among providers.

Birgersson's experience in Sweden has convinced him it's possible to build a profitable fiber business with open access. "We are on a mission to prove beyond any shadow of a doubt that what we have done in Sweden is doable in any urban area in Europe or in the U.S.," says Birgersson, a military history buff who has proved in the past to be a formidable foe to phone companies.

THE FUTURE OF THE INTERNET IS NOW
Now he is talking to investment banks (he won't reveal which ones) about creating a global infrastructure fund to finance his company's international expansion into cities such as London and San Francisco. Similar to the funds used to build roads or bridges, it would support construction of civic fiber networks over which a range of competing Net services could be offered.

His move to expand Sweden's fiber revolution around the world comes at a good time. A new study from the Paris-based Organization for Economic Cooperation & Development (OECD) has been prepared for a ministerial meeting in Seoul on June 17-18. Called The Future of the Internet, it concludes that the closed access model currently favored by regulators in the U.S. is flawed and could harm competition and the deployment of next-generation services.

The report notes the dramatic transition in phone systems around the world. Because of the rise of the Web and digital media, the 100-year-old network of copper wires strung into homes is being replaced with fiber-optic cables capable of carrying thousands of times more data. At the same time, the basic design of the network is shifting from conventional circuits to an Internet-type model. These changes severely strain regulations devised decades ago for a different world.

LOSED ARCHITECTURE DEFEATS COMPETITION
Yet according to the OECD report, unless the bedrock principle of open access is maintained in the new era, countries risk losing the benefits of competition. If new fiber networks deployed by incumbent telcos are closed, and the companies are allowed to bundle voice, TV, and Internet access, the result could be less freedom of choice and higher prices. It would also be more difficult to determine whether prices are linked to costs, potentially allowing operators to hide anticompetitive practices such as cross-subsidization between services.

Regulators have spent the last 20 years trying to unbundle networks and services, in part to prevent such cross-subsidization. "One of the dangers at the moment with investment in fiber is you shut out the rest of the market," says Dimitri Yspsilanti, head of the OECD's telecom unit and a co-author of the report. "If you have an architecture that is closed, competition built up over the last decade or more will disappear."

That's precisely what Birgersson argues. U.S. cities such as Philadelphia and San Francisco, which have already tried and failed to build their own public networks, are natural partners for a company like ViaEuropa, says William Hahn, a Delaware analyst covering carrier operations and strategies for technology consultancy Gartner (IT). "If ViaEuropa can go in and say 'we can do it right' to cities that have already proven friendly to the idea, everybody is going to pay attention to that," says Hahn.

U.S. CARRIERS ALSO MAKING PLANS
Birgersson's track record suggests that not just cities ought to be paying attention. After he and two colleagues started Bredbandbolaget in 1998, that startup managed to grab more than a quarter of Sweden's broadband market within seven years. ViaEuropa is off to a fast start, too, with more than 70,000 customers who can get Internet access at speeds up to one gigabit per second—100 times the fastest speeds available in the U.S.—at prices comparable or even lower than basic U.S. DSL.

Not that U.S. carriers are sitting still. Verizon is planning to spend $23 billion on its FiOS project, installing fiber-optic cables to customers' homes through 2010, while AT&T is investing $6.5 billion to $7 billion on its own version, U-verse, which involves installing fiber cables in neighborhoods, though not right up to homes (BusinessWeek.com, 1/28/08). Phone companies are under pressure to provide ever-faster Web access and TV products as they contend with cable companies encroaching on phone company turf with their own flavors of phone and Internet access.

Cable companies, meanwhile, are hatching plans for their own upgrades. But they aren't just overhauling their gear to compete with one another. They're also intent on meeting customer demand for more bandwidth and speedier downloads as more online video becomes available from companies such as Apple (AAPL) and YouTube (GOOG). The U.S. operators are even arguing that it will be necessary for them to limit what traffic they allow to run over their network to make sure they have enough capacity. Whether or not they remain open to all comers is an issue known as "net neutrality."

That is where ViaEuropa comes in. "Once there are functional market dynamics, the issue of net neutrality will go away," says Birgersson. Open access systems that separate infrastructure from service are the only way to ensure competition and consumer choice, he says. Allowing the same company to operate the network and control all of the services, he says, is like letting the builder of a shopping mall decide not only which stores can operate there but also what merchandise they sell.

OPEN AND CLOSED SYSTEMS MAY COEXIST
Swedish consumers now have lots of choice. B2 is still operating in the market, and ViaEuropa has two open access competitors, Pennet and Zitius. TeliaSonera (TLSN.ST), the incumbent, has also agreed, in certain circumstances, to participate in the open access model, managing high-speed networks inside apartment buildings that are owned by the landlords and that accommodate multiple service providers.

But like Verizon, TeliaSonera worries about the economics. "We are open to both systems, but we need to be able to predict our return on investment," says Joacim Damgard, vice-president and head of sales at TeliaSonera Broadband Sweden. He said he believes open and closed systems will coexist for some time.

If ViaEuropa gets its way, incumbents in other markets may find that, like it or not, they too are obliged to embrace open access or be prepared to lose market share to those who do.