The Swedish Telecommunications market_ 1998

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The Swedish Telecommunications market_ 1998 Powered By Docstoc
					The Swedish
market, 1998
An analysis conducted on behalf of
Post och Telestyrelsen, the National
Swedish Post & Telecom Agency

4 June 1999
Isak Abramowicz
Tor-Björn Yngwe
Nina Widmark
David Björk

       Öhrlings PricewaterhouseCoopers, S-113 97 Stockholm, Sweden,
                       Street address: Torsgatan 21
                 Tel: +46 8 690 30 00. Fax: +46 8 690 35 00

Every year, the National Swedish Post & Telecom Agency (PTS) commissions an external
party to carry out a market analysis on its behalf, in order to obtain an independent picture of
developments and the competitive situation within the Swedish telecommunications market.
Öhrlings PricewaterhouseCoopers (PwC) were chosen to carry out the 1998 analysis, the
purpose of which is to describe developments from 1994 to 1998, with the emphasis on
developments in 1998. The assignment also includes describing and analysing trends and
developments within this market.

20 of the companies which, by 1998, had notified to the National Swedish Post & Telecom
Agency for permission to provide telecommunication services within the public, fixed or
mobile, telecommunications network had received licences. 13 of these companies’ licences
referred to the provision of fixed telephony services, 7 to the provision of mobile telecommu-
nications services, and 8 to network capacity.

Between January 1998 and May 1999, the number of companies without licences but which
had notified to PTS, pursuant to §4 of the Swedish Telecommunications Act, had increased
from 33 to 97.

The market development in 1998 was characterised by the following trends:

• the mobile market is becoming increasingly significant, both in terms of value as a
  percentage of the total market, and in terms of its importance to the end users;
• explosive development in the market for dial up internet access;
• the overall market is still dominated by Telia;
• smaller players are taking market shares;
• strong pricing pressure on certain “mature services” - primarily international and national
  (Sverigesamtal) phone calls;
• increased packaging of services, primarily aimed at larger corporate customers/
• new niche players are entering the market, e.g. within IP telephony.

PwC believes that the value of the total Swedish market for fixed telephony services and
mobile telecommunications services in 1998 totalled SEK 36,367 million. This constitutes the
size of the market in relation to the end user, and operators’revenues from interconnect traffic
are thus excluded. In 1998, Telia’ share of the total market value was 82% (86% in 1997).
       s                                                  s
Tele2’ share was 9% (8% in 1997), whilst Europolitan’ share was 6.3%(4.5% in 1997) and
other players collectively had a 3.3% (1.8% in 1997) share of the total market value. The
market grew by 15% (SEK 4,672 million) between 1997 and 1998. On top of this, there is the
value of the market for dial up internet access, which PwC estimates at SEK 1,700 million,
and the market for network capacity. The growth in the overall market is primarily attribut-
able to the growth within the mobile telecommunications services and internet access sectors.
Market development: fixed telephony services
The market for fixed telephony services in 1998 was characterised by continued volume
growth and falling prices, primarily for national (Sverigesamtal) and international calls. The
volume growth meant that most operators reported an increased turnover, despite the loss of
market shares by some. The market grew in 1998 by 7% (SEK 1,734 million), and totalled
SEK 25,018 million by the year end. Fixed charges comprised the largest share of the market
value, at 34%, followed by local calls at 23% and calls from fixed to mobile phones, which
enjoyed 16% of the total market value. The value of the percentage of calls from fixed to
mobile phones increased to 11% in a rise that fell short of expectations. PwC believes that this
is due to an increased percentage of calls from mobiles to mobiles, coupled with pricing pres-
sure on this call type. The value of the international calls market continued to decline due to
severe pricing pressure, despite increased volumes. Telia still dominates the fixed telephony
market, but the other players have increased their shares of all of these subsidiary market

The ISDN market grew markedly in 1998, and by the end of the year, there were 373,000
ISDN channels, with companies accounting for 94% of this number and households for 6%.
The increase is largely due to companies’Internet access requirements. The percentage of
ISDN subscriptions is, however, still small in relation to the total number of subscriptions.

More players became active within the IP telephony sphere in 1998, offering a variety of
different services. The end user market was still extremely limited and PwC is of the opinion
that its value in 1998 was less than SEK 50 million.

The operators themselves state that customer groups such as companies and other major users
became more aware of the operators available to them and the alternatives on offer in 1998.
This has led to increased demand for specific services and a demand for negotiations on prices
and T&Cs.

Market development: mobile telecommunications services
The market for mobile telecommunications services continued to grow strongly in 1998. The
value of the market for NMT and GSM totalled SEK 11,349 million (excluding interconnect
revenues), corresponding to an increase of 35% over 1997. This is a markedly more vigorous
increase than that seen between 1996 and 1997, when the market value grew by 13%. The
number of mobile telecommunications services subscriptions continued to grow strongly in
1998, and by the end of the year, totalled just over 4,109,000 subscriptions. This corresponded
to a growth of 30% since 1997. It also corresponds to 46% of the population of Sweden, but
PwC estimates that the percentage of the Swedish population with a mobile phone is
approximately 42%, in that some have double subscriptions.

By the end of 1998, Telia enjoyed 54% of the total number of NMT and GSM mobile sub-
                  s                 s
scriptions. Tele2’ and Europolitan’ shares were 31% and 15%, respectively. One of the
NMT networks (NMT 900) will be closing by the end of December 2000, and the number of
NMT customers continued to decline in 1998. The prepaid cards continued to take market
shares, and by the end of 1998, accounted for 25% of the total number of subscriptions.
Between 1997 and 1998, the number of subscriptions, excluding prepaid cards, increased by
5% (152,000). The value of the GSM market increased by 60% (excluding interconnect
                  s,       s                  s
revenues). Telia’ Tele2’ and Europolitan’ shares of the GSM market value were 57%,
20% and 23%, respectively. In the GSM market including prepaid card subscriptions, Telia’s,
      s                   s
Tele2’ and Europolitan’ shares of the total subscription figure were 48%, 35% and 17%,
respectively. If prepaid cards are excluded, the same companies’shares of the GSM subscrip-
tion market were 54%, 26% and 20%, respectively.

Call charges vary from one type of subscription to another, but changes to the general level of
call charges were limited in 1998. Corporate customers continued to pressurise prices by
means, inter alia, of volume agreements. The operators are of the opinion that certain cus-
tomer groups have become more aware of the available alternatives. Customers are comparing
the operators’prices and subscription T&Cs, and are less willing to tie themselves into a par-
ticular operator for longer subscription periods. This applies to customer groups within both
the corporate and private sector.

The expansion of the GSM networks capacity and coverage continues, for both the 900 and
the 1800 band. The expansion of the 1800 band was not particularly significant for the end
users in 1998, in that a relatively small percentage of mobile phones are dual band ones.

Market development: Internet access
The market for dial up Internet access was dominated by the three big players, Telia, Tele2
and Telenordia. The total number of subscriptions has increased markedly and totalled
approximately 1.4 million by the end of 1998. PwC estimates that the value of the market for
dial up Internet access totalled SEK 1,700 million in 1998, and that this corresponds to a
doubling of the 1997 figure. One important reason for this vigorous growth is the corporate
purchases of so-called home PCs.

A smaller number of suppliers of dial up Internet access, such as BIP, Utfors/Spray and
SBBS2, have taken a share of the market by offering free subscriptions, primarily for the
private market. Telia is the largest supplier of Internet access in Sweden, with approximately
460,000 subscribers at the end of 1998.

The market picture in the fast Internet access segment is somewhat different. The bigger
operators in the Swedish market are competing in this subsidiary segment with companies
such as MCI Worldcom and Global One. These operators do not offer dial up access directly
to end users, opting instead to offer leased line Internet connection, mainly to companies.

The dial up Internet access prices have come under considerable pressure during the year, and
PwC is of the opinion that this pricing pressure will continue. We will probably see a number
of different pricing models over the next few years, including various forms of free access,
payment per service used, flat rate etc.

Alternative access forms, such as ADSL and cable TV were tried during the year, but have
not achieved any significant dispersal. PwC believes that several new access forms will be
launched commercially in 1999.
Market development: network capacity and access networks
The network capacity was characterised by relatively vigorous growth in 1998. PwC estimates
that the core and urban network market for network capacity totalled approximately SEK 650
million in 1998. When compared with the 1997 figures, this estimate corresponds to an in-
crease of approximately SEK 150 million. Telia held the largest market share, but other nota-
ble players included STOKAB, Banverket, Teracom and Svenska Kraftnät. The biggest
access network belongs to Telia. There are currently no other players of significance in the
access network market, and hence there is no real competition. PwC believes that the compe-
tition will, however, increase in future in the form of alternative access technologies, e.g.
access via cable TV and radio-based access solutions.

PwC is of the opinion that network capacity prices at core and urban network level will fall
slightly, but that the volume increase will be greater, resulting in an increase in the market
value. The competition between the telecommunications operators means that network capac-
ity price cuts will probably impact the end users in the form of lower prices.

Within the services sector, customers were increasingly demanding higher capacity and
shorter lead times for those services which are already available. The network capacity
requirement is expected to increase sharply over the next few years, and PwC is of the opinion
that this is unlikely to lead to a capacity shortfall anywhere, with the possible exception of
less densely populated areas. The existing network infrastructure in Sweden is adjudged capa-
ble of meeting the increased demand at core and urban network level through the introduction
of new capacity-boosting technology, such as wavelength multiplexing. PwC is also of the
opinion that more players will enter the market, offering network capacity in the form of core
and urban networks in certain geographically defined parts of the country.

Trends and developments
Developments in the telecommunications market over the past decade have been characterised
by the creation of new markets by new technologies, at the same time as deregulation has
generated market opportunities for new players. The telecommunications market, or rather,
the combined data and telecommunications markets, will continue to change rapidly. The
changes will affect the range of choices available to end users and will lead to increasingly
intense competition. The sort of changes to which we refer include regulatory changes, such
as carrier preselection and number portability, new integrated data and telecommunications
services made possible through new technology such as IP networks, mobile data in broad-
band networks, the packaging of services, and the emergence of new service providers
without their own networks. The competition for the end user will continue to be stiff, and
operators’margins will come under ever-increasing pressure within mature segments at the
same time as volumes increase.

The rapid development on the part of the industry, coupled with its dynamism, means that the
authorities must track developments closely in order to be able to take the measures needed to
promote competition and which will benefit operators, other players and end users alike.
List of Contents

1      INTRODUCTION ........................................................................................................1
    1.1 PURPOSE .....................................................................................................................1
    1.2 METHODS AND LIMITATIONS ........................................................................................1
2      THE SWEDISH TELECOMMUNICATIONS MARKET.........................................2
    2.1 THE SIZE OF THE MARKET.............................................................................................4
3      FIXED TELEPHONY SERVICES..............................................................................7
    3.1    PLAYERS......................................................................................................................7
    3.2    MARKET DEVELOPMENT ..............................................................................................8
    3.3    SERVICE DEVELOPMENTS ...........................................................................................16
    3.4    PRICE DEVELOPMENTS ...............................................................................................18
    3.5    EFFECTS OF COMPETITION ON VARIOUS CUSTOMER GROUPS ........................................20
    3.6    IP TELEPHONY ...........................................................................................................21
    3.7    ALTERNATIVES TO TRADITIONAL OPERATORS .............................................................24
    3.8    OTHER ......................................................................................................................25
4      MOBILE TELECOMMUNICATIONS SERVICES ................................................28
    4.1    PLAYERS....................................................................................................................29
    4.2    MARKET DEVELOPMENTS...........................................................................................31
    4.3    SERVICE DEVELOPMENTS ...........................................................................................38
    4.4    PRICE DEVELOPMENTS ...............................................................................................40
    4.5    THE CLOSING OF NMT 900 ........................................................................................41
    4.6    COVERAGE AND CAPACITY.........................................................................................41
    4.7    DEVELOPMENT ..........................................................................................................42
5      INTERNET ACCESS.................................................................................................46
    5.1 PLAYERS....................................................................................................................46
    5.2 MARKET DEVELOPMENTS...........................................................................................46
    5.3 PRICE DEVELOPMENTS ...............................................................................................49
    5.4 ACCESS FORMATS ......................................................................................................50
6      NETWORK CAPACITY AND ACCESS NETWORKS ..........................................52
    6.1    CORE NETWORK ........................................................................................................53
    6.2    URBAN NETWORKS/REGIONAL NETWORKS ..................................................................58
    6.3    ACCESS NETWORKS ...................................................................................................62
    6.4    SERVICES ..................................................................................................................64
    6.5    CAPACITY REQUIREMENTS .........................................................................................64
    6.6    ACCESS NETWORKS - NEW SOLUTIONS ........................................................................64
7      IMPLICATIONS OF REGULATION AND DEREGULATION.............................66
    7.1   CARRIER PRESELECTION ............................................................................................66
    7.2   NUMBER PORTABILITY ...............................................................................................67
    7.3   LOCAL-LOOP UNBUNDLING (LLUB)..........................................................................67
    7.4   PREFIX ALLOCATION ..................................................................................................68
    7.5   INTERCONNECT .........................................................................................................68
8      TRENDS .....................................................................................................................71
    8.1 CONVERGENCE BETWEEN DATA AND TELECOMMUNICATIONS .....................................71
    8.2 PACKAGING ...............................................................................................................71
    8.3 GEOGRAPHIC DIFFERENTIATION .................................................................................72





1      Introduction

Every year, the National Swedish Post & Telecom Agency (PTS) commissions an external
party to carry out a market analysis on its behalf, in order to obtain an independent picture of
developments and the competitive situation within the Swedish telecommunications market.
Öhrlings PricewaterhouseCoopers (PwC) were chosen to carry out the 1998 analysis.

1.1     Purpose
The purpose of the survey is to describe developments in the Swedish telecommunications
market in 1998. The study shall also include an analysis of developments from 1994 to 1998,
with the emphasis on developments in 1998. The assignment also includes describing trends
within this market.

1.2      Methods and limitations
The assignment was carried out during the period from 6 April to 28 May 1998, during which
time we carried out 35 interviews with companies and organisations with links with the
Swedish telecommunications market. As a result of these interviews, amongst other things,
we have obtained a picture of the market and its various interested parties. The information
obtained has formed the basis for our qualitative analysis. The quantitative analysis is based
on statistical material obtained directly from the operators, published material for the period
from 1994-1996 in Stelacon’ 1997 analysis, and for 1997, from material taken from the same
analysis that has revised, in part, by PwC. We have also used the knowledge gained from
market analyses previously carried out by PwC in Sweden or internationally. Where the mate-
rial is based on information compiled and processed by PwC, and where PwC has made its
own assessments, PwC is stated as the source.

Our analysis and our information are not based on the information currently held by PTS and
which is not a matter of public record.

The starting point for our analysis is that it must be comparable with the analyses of the
Swedish telecommunications market previously carried out on commission from PTS.

The terminology used complies with the definitions specified in the Swedish Telecommuni-
cations Act, wherever possible. The English term has been used in the Swedish language ver-
sion of this report for certain expressions or technical terms, where no satisfactory Swedish
translation was available.

PwC is responsible for the statistical data and the conclusions presented in the 1998 analysis.

2          The Swedish telecommunications market

The telecommunications market can be divided into telecommunications services and network
capacity 1. The term, telecommunications services, comprises all types of services offered to
the general public from fixed and mobile network termination points. The telephony service is
the most common of the telecommunications services, and comprises the transfer of speech,
telefax messages and data communications via low speed modems. Network capacity com-
prises the transmission capacity of telecommunications networks or parts thereof.

As part of this year’ analysis, PwC has observed the trend towards convergence that makes it
increasingly difficult to differentiate between telecommunications and data communications.
This applies to the players’revenues, the services offered and the technical platforms already
extant or planned. PwC has attempted, wherever possible, to cover telecommunications and
those services that entail a notification, pursuant to the Swedish Telecommunications Act.

An amendment to the Swedish Telecommunications Act (1993:597) states that as of 1 July
1997, companies providing telephony services, mobile telecommunications services, other
telecommunications services requiring allocation from a numbering plan, and network capac-
ity, within a public telecommunications network has to notify the authority appointed by the
Government (the supervisory authority)

A licence is also required for certain types of telecommunications operations if the scale of
the operations is considerable and they are conducted within a public telecommunications
network. Such licences are also required for the provision of telephony services, mobile tele-
communications services, and network capacity, and may be linked to certain terms and

20 companies held such licences in 1998. Not all of these companies were engaged in opera-
tions that required licences, but they had retained licences obtained at an earlier date. 13 of
these companies had licences referring to the provision of telephony services, and 7 to the
provision of mobile telecommunications services. 8 of the companies that had reported that
they were offering network capacity, or were planning to do so, within a public telecommuni-
cations network, held licences.

    The breakdown corresponds to the definitions of the Swedish Telecommunications Act.

Licences for telephony services, mobile telecommunications services and leased lines,
December 1998

Telephony services               Mobile telecom. services    Fixed lines/Network capacity
• Telia AB                       • Telia AB                  • Tele2 AB
• Tele2 AB                       • Europolitan AB            • Global One Services AB
• Global One Services AB         • Tele2 AB                  • Telia AB
• MFS WorldCom AB                • Telia AB (TFTS)           • Banverket
• RSLCOM Sweden AB               • Telia AB (ERMES)          • MFS WorldCom AB
• Stjärnan Multimedia Invest     • Danmark Int. (ERMES)      • Telenordia AB
    AB Tele
• Telenordia AB                  • Netcom Systems AB (GSM    • Sonera Sverige AB
• Facilicom International        • Telia AB (GSM 1800)       • AB STROKE AB
  Sweden AB
• Tele 1 Europe AB               • Europolitan PCN AB (GSM
• Sonera Sverige AB              • Tele8 Kontakt AB (GSM
• TeliTel AB
• CalMedia Telecom CMT
• Netnet International S.A.

Companies that hold licences, but whose licences are for Terrestrial Flight Telecommunica-
tions Systems (TFTS) and paging (ERMES), are not covered by this market analysis. Between
January 1998 and May 1999, the number of companies without licences but which have noti-
fied PTS (pursuant to §4 of the Swedish Telecommunications Act) increased from 33 to 97.
There were a further three companies that held licences, but which are included in the list of
companies having notified for a type of operation other than that for which they hold a

Notifications in respect of          January 1998            May 1999
Telephony services                   15                      34
Mobile telephony services            7                       9
Network capacity                     39                      60
Other telecommunications services    10                      22
(Every company may have notified within several areas)

The big increase in the number of companies to notify is primarily found within the telephony
services and network capacity sectors. This increased interest comes from existing players
from adjacent industries, e.g. energy companies and international players in the telecommuni-
cations industry, and from completely new players.

A schematic description of the market follows:

              Examples of players
              aktörer                             Infrastructure
                                                 Network operators
               MCI WorldCom
               RSLCOM                       Service          Service
               etc., etc.....               providers      providers
               customers            Customers    Customers     Customers

Source: PwC

2.1     The size of the market
PwC estimates that the value of the combined Swedish market for fixed telephony services
and mobile telecommunications services in 1998 was SEK 36,367 million (ex. VAT). We
have based on the operations aimed at end-users within the above-mentioned sectors in our
valuation. Any internal revenues, revenues from interconnect charges, and revenues from
other activities, e.g. paging and the sale of mobile phones, is consequently not included.

We have included fixed telephony services and mobile telecommunications companies from
those companies with licences to engage in telecommunications operations, those that have
notified to PTS, and those with adjacent operations not covered by the obligation to notify,
such as so-called call-back companies, in our valuation.

The market grew by 15% (SEK 4,672 million) from 1997 (excluding interconnect revenues).
The market value has grown by 52% (SEK 12,429 million) since 1994. Mobile telephony’        s
share of the total market value has increased continuously since 1994, but the biggest increase
in value has occurred during the past year (35%).

Value of the total market for fixed telephony services and mobile telecommunication
services, 1994-1998.

          million]40 000

                 35 000

                 30 000

                 25 000

                 20 000                                                                     Mobile telephony
                                                                                            Fixed telephony
                 15 000

                 10 000

                  5 000

                               1994          1995          1996      1997     1998

Source: Stelacon 1994-1996, Stelacon and PwC 1997, PwC 1998

In 1998, mobile telecommunication services comprised 31% (SEK 11,349 million) of the total
market for fixed telephony and mobile telecommunications services. The corresponding
figure for 1997 was 27% (SEK 8,420 million).

The value of the total market for fixed telephony and mobile telecommunications
services, 1994-1998, by operator.

                       [SEK                   Excluding interconnect revenues

                     40 000

                     35 000

                     30 000

                     25 000                                                                        Other
                     20 000
                     15 000                                                                        Telia
                     10 000

                       5 000

                                      1994          1995          1996      1997     1998

Source: Stelacon 1994-1997, PwC 1998

All of the major operators have reported an increase in turnover in 1998. Telia accounted for
82% of the total market - a figure which corresponded to a reduction of 4 percentage points in
comparison with 1997. Tele2 increased its share of the total market in 1998, and now holds
just under 9% of the market (8% in 1997). Europolitan has also increased its share of the total
market, from 4.5% in 1997 to 6.3% in 1998.

3      Fixed telephony services

The market for fixed telephony services in 1998 was characterised by continued volume
growth and falling prices, primarily for domestic (Sverigesamtal) and international calls. The
volume growth meant that most operators reported an increased turnover, despite the loss of
market shares by some. The fall in prices was primarily due to continued stiff competition.
1998 saw several customer groups becoming more aware of the operators available to them
and the alternatives they were offering. This has led to customers making a more active
choice between different operators, and to companies and organisations making tougher cus-
tomer demands in the form of an increased demand for specific services and in conjunction
with negotiations on prices and terms & conditions. This development is particularly evident
in the big city regions, due, in part, to the range of services on offer being greater and the
competition tougher there.

Prices were also affected by the possibility of price reductions if the form of various dis-
counts, e.g. volume-based. The main beneficiaries of this change were larger companies and
organisations, but the situation also changed for other large-scale users.

The complexity ensured by the numerous players with a variety of pricing structures results in
a degree of confusion obtaining amongst the end-users. Private customers in particular were,
according to certain operators, finding it difficult to compare the various alternatives, in spite
of the increased levels of awareness of the various alternatives available to them. Some com-
panies have generated products designed to help the end user make a better choice of opera-
tor. Examples include traffic routing equipment, which choose the cheapest tariff at any given
point from certain pre-selected alternatives, and internet services that compare alternatives.

3.1     Players
In December 1998, there were 13 players in the Swedish market licensed to provide telephony
services to fixed termination point within a public telecommunications network. There were,
in addition to this group, 34 companies who had notified to PTS as a result of engaging in
operations within the sphere, or planning so to do.

The following companies have licences:

• Telia AB

• Tele2 AB

• Global One Services AB

• MCI WorldCom AB

• RSLCOM Sweden AB

• Stjärnan Multimedia Invest AB Tele

• Telenordia AB

• Facilicom International Sweden AB

• Tele1Europe AB

• Sonera Sverige AB

• TeliTel AB

• CallMedia Telecom CMT AB

• NetNet International S.A.

The companies that have notified to PTS include Viatel Sweden Inc., Oy Finnet International
AB, Globalnet AB, Utfors Datakommunikation AB, AT&T Unisource Communications
Services Sverige AB, GTS (formerly Netsource Sverige AB) and Vattenfall. The complete list
of companies to have notified is shown in Appendix E. Appendix D contains descriptions of
the companies that have licences.

3.2    Market development
The market for fixed telephony services comprises fixed subscription charges, call charges for
telephony, telefax messages and data communications via low speed modems.

PwC estimates the value of the fixed telephony services market in 1998 at SEK 25,018 mil-
lion. This valuation is based on information obtained from operators, published material in the
form of Annual Reports, and certain estimates by PwC2. The starting point for the market
analysis was that part of the market that targets end users, and interconnect charges are thus
not included.

The segmentation of the market for fixed telephony services used in the market description is:

• Local calls

• Domestic calls

• International calls

• Calls from fixed to mobile phones

• Fixed charges

• Other, comprising revenues from freephone services, premium-rate calls, payphones, and
  other services, for example.

    In respect of the scope for smaller players where public material is unavailable.

The breakdown of national calls into local calls and domestic calls is based on the breakdown
introduced by Telia on 7 November 1997, when the local, regional and long-distance call
types were abolished. This means that certain minor differences may exist in direct compari-
sons with previous years.

The market for fixed telephony, 1997

                                               Excluding interconnect revenues



                                                    2%                            20%
         Base: SEK 23 275 million
                                    Fixed charges        Local calls          Regional calls   Long-distance
                                    To mobiles           Internat. calls      Other            calls

Source: PwC, Stelacon

The market for fixed telephony, 1998

                                                    Excluding interconnect revenues



           Bas: SEK 25 018 million

                                           Fixed charge                    Local calls               Long-distance call
                                           To mobiles                      Internat. calls           Other

Source: PwC

The total value of the market for fixed telephony services increased by SEK 1,743 million to
SEK 25,018 million in 1998, corresponding to a 7% increase. Fixed charges constituted SEK
8,621 million of the market, corresponding to 34%. Non-recurring charges, quarterly charges
and certain services, such as calling line identification presentation (CLIP) and voicemail, are
included in the fixed charges category. The fixed charges percentage is the same as in 1997.

PwC is of the opinion that the increase in value is due to the increase use of services such as
CLIP and voicemail, and to the increased number of ISDN connections and other leased lines,
primarily aimed at companies.

Local calls are the second largest segment and account for 23% of the market value (local
calls, 20% in 1997). This is followed by calls to mobile phones, domestic calls, international
calls, and others.

PwC estimates, on the basis of statistical material supplied by the operators, and with regard
to calls from fixed to mobile telephones, that households account for 47% of the total and
companies for the remaining 53%. The corresponding estimate for international calls indicates
that households and companies account for 48% and 52%, respectively, whilst for national
calls, households account for 63% of the market value, with the call traffic from companies
accounting for 37%.

The market for fixed telephony, 1994-1998

              million]     Excluding interconnect revenues
               30 000

               25 000                                               Other
                                                                    Internat. calls
               20 000
                                                                    To mobiles
               15 000                                               Sverigesamtal
                                                                    Regional calls
               10 000
                                                                    Local calls
                                                                    Fixed charges
                5 000

                         1994     1995     1996     1997     1998

Source: Stelacon 1994-1997, PwC 1998

Telia implemented a price change in November 1997 whereby, briefly, regional calls were
removed, area calls changed their name to local calls, and the geographical area that applied
to local calls was reduced from the level that applied for an area call3. Long-distance calls
were renamed “Sverigesamtal”, or domestic calls, and were allocated an increased geo-
graphical area. In April 1998, a change to the geographical breakdown was made, and Telia’      s
local call areas now have the same scope as area calls before the November 1997 change. In
the above diagram, the phrase “local call” refers to area calls for the year 1994 to 1997, and to
local calls for 1998, whilst the phrase “national call” comprises long-distance calls for the
years 1994 to 1997 and domestic calls (Sverigesamtal) for 1998. Regional calls are, therefore,
not shown for 1998, and are, instead, shown only for the years 1994 to 1997. A direct compa-
rison with previous years’values may, therefore, be difficult.

Growth during the period from 1994 to 1998 totalled 28%, corresponding to SEK 5,420 mil-
lion. The biggest growth took place within the segment comprising calls from fixed to mobile
phones, where it totalled 185%, and within local calls, where growth during the same period
corresponded to 138%. The growth in value within local calls is due to higher call charges,
but is also due to increased volume resulting largely from the growth in the traffic from dial-
up Internet access. In that the prices for calls to mobile phones from fixed phones have remai-
ned largely unchanged4 during the period from 1994 to 1998, the increase in value in this
segment can be attributed to the pronounced growth in call volumes. The increase in value for
domestic calls was caused, to some extent, by the abolition of regional calls in 1997.

3.2.1 National calls
Comparisons are difficult, in that the various operators define local calls and domestic calls
differently. Telia divides Sweden up into area code regions, where local calls comprise calls
within the same area code region or to adjacent area code regions. Tele2, which is the second
largest operator within this market segment, divides Sweden into eight number areas, where
all area codes that begin with two digits belong to the same area. Calls made within such an
area are designated local calls by Tele2.

Telia’ reductions in call charges (January, November 1998) made it easier for other operators
to compete with Telia within the local call segment.

In that the players employ different definitions of domestic calls and local calls, PwC con-
cludes that a fairer comparison would be achieved by studying national calls. The term,
national calls, is used here to refer to area, regional and long-distance calls for 1997, and to
local and domestic calls for 1998.

 Telia also implemented price changes in February 1999.
 Certain smaller players offer lower prices, but they have small market shares and do not have any marked
impact on the overall value.

The market for national calls, 1997 (area, regional and long-distance calls)

                                         Excluding interconnect revenues

                                                   3% 1%

                SEK 7,681 m illion
                                                Telia      Tele2     Other

Source: PwC, Stelacon

In 1997, Telia had 96% of the market for national calls, which was worth SEK 7,681 million.
The only one of the operators to enjoy any significant market share is Tele2, who held 3% of
the market in 1997. Other operators had a combined market share of 1%.

The market for national calls, 1998 (local calls and domestic calls)

                                           Excluding interconnect revenues

                                              3%        4%

                    SEK 8 181 m illion

                                                   Telia     Tele2       Other

Source: PwC

In 1998, Telia has 93% of the market for national calls, which totalled SEK 8,181 million.
Tele2 has a 3% market share, and the other operators have grown markedly, but still only
have a combined share of 4%.

        s                                                     s
Telia’ dominant position is primarily due to the company’ dominance within the local calls
segment, which comprised the majority of the national calls in terms of value. This domi-
nance is partly attributable to the previous interconnect traffic charges structure, which made
it difficult for other operators to compete with Telia, and partly to Telia’ access to the access
network. Telia’ reductions in interconnect charges have resulted in increased competition.

3.2.2 International calls
The competition remained intense for international calls. The value of the market fell by
approximately 8% (-SEK 218 million) between 1997 and 1998. This decline in value was due
to the continued pricing pressure.

Market shares for international calls, 1997

                                      Excluding interconnect revenues



                  SEK 2 695 million

                                               Telia   Tele2    Other

Source: PwC, Stelacon

Telia does not dominate the market for international calls to the same extent as is the case
with the other fixed telephony market segments. In 1998, Telia held 63% of the market value,
                                      s               s
corresponding to a 10% fall on 1997’ figures. Tele2’ share was 15% in 1998 and this too
corresponded to a fall in market value share, down from 16% in 1997. Other players collec-
tively doubled their share and increased from 11% of the market value to 22%. The other
operators included companies such as Telenordia and MCI Worldcom, both of which held
relatively large market shares.

Market shares for international calls, 1998

                                       Excluding interconnect revenues


                     15%                                                           63%

                 SEK 2 477 m illion
                                                 Telia    Tele2    Other

Source: PwC

3.2.3 Calls from fixed to mobile phones
The value of the market for calls to mobile phones in 1998 totalled SEK 4,081 million, corre-
sponding to an increase of 11% over 1997. This is a low growth rate, bearing in mind the
growth in the number of mobile phone subscriptions and the growth in the value of the mobile
telephony market.

The market for calls from fixed to mobile phones, 1997

                                           Excluding interconnect revenues

                                            4%           4%

                   SEK 3 670 million
                                                         Telia    Tele2    Other

Source: PwC, Stelacon

Telia’ share of the market value in 1998 was 88% (SEK 3,589 million), with the remainder
being divided between the other telecommucation operators so that Tele2 held 7% and the
other players, 5%. PwC believes that the relatively low growth in value in this segment is due
to several companies and organisations having successfully negotiated lower prices for calls
from fixed to mobile phones, and to the fact that increased levels of mobile penetration are
leading to an increasingly high percentage of calls being between mobile phones.

The market for calls from fixed to mobile phones, 1998

                                          Excluding interconnect revenues

                                     7%            5%

                SEK 4 081 m illion

                                                    Telia   Tele2    Other

Source: PwC

PwC calculates that the increase in market value for this type of call will remain relatively
low as a result of pressure on prices and an increase in the percentage of traffic from mobile
to mobile. We believe that the volume growth for calls from fixed to mobile phones will
increase in 1999. One of the contributory factors here is the reduction in interconnect charges
for calls from fixed to mobile phones to be implemented by Telia in line with a ruling in April
1990 by PTS. The players in this market believe that this reduction is far too small to produce
any significant increase in traffic per subscriber, but that it will have some impact. The vol-
ume growth will also be boosted by the continued growth in the number of mobile subscrip-

3.2.4 Subscriptions
The competition stiffened within the private sector as more operators, e.g. Telenordia and
TeliTel, began to offer their fixed telephony services to this target group on an increasingly
active basis.

Telia exercises substantial dominance over the market for direct connections and its share of
the approximately 6.5 million directly connected customers at the end of 1998/beginning of
1999 was in the region of 98%. The competition is, however, substantially harder within the

corporate customer segment than within the private customer one. PwC believes that the total
number of directly connected subscriptions comprised 70% household subscriptions and 30%
corporate subscriptions. Approximately 56% of the corporate subscriptions comprise sub-
scriptions with subscriber exchanges.

Comparisons of market shares in the market for indirectly connected subscribers is difficult,
in that certain households are customers of several operators and use their services via pre-
fixes. This comparison will become more relevant after the introduction of equal access with
preselection in the autumn of 1999. At the beginning of 1999, there were approximately
750,000 indirectly connected customers, and PwC estimates that 95% of this total comprises
household subscriptions, with the remaining 5% comprising corporate ones.

3.3     Service developments
No more significant changes to the range of fixed telephony services in the Swedish market
were introduced in 1998. The increased range of services launched by the operators were
mainly seen within the Internet and mobile telephony market, together with services that in-
cluded both fixed telephony and Internet or mobile telephony services, for example. Services
of this kind included the same voice mailbox for fixed and mobile phones, various kinds of
Internet telephony, and unified messaging. The smaller operators began to offer more
complete service packages and to offer services similar to those already offered by the larger
operators for fixed telephony.

The services that were introduced in 1998 largely comprised specialist services, aimed at cer-
tain smaller target groups, and were probably not noticed to any significant extent by the
normal user. Examples included IP-telephony and ISDN-based services, such as Telia’ Duo.s

3.3.1 ISDN
Telia experienced virtually no competition in the ISDN market in 1998. The number of chan-
nels grew by 90% between 1997 and 1998, but overall, availability must be regarded as
limited in relation to private individuals’and companies’need for higher transfer capacity.
Only 1.6% of those households with Internet subscriptions had ISDN. The corresponding
figure amongst companies and organisations was 25%.

Breakdown of ISDN channels, 1998



        Base: 373 000 channels

               Households        Companies with subscriber        Companies without subscriber
                                 exchanges                        exchanges

Source: PwC

The total number of ISDN channels in 1998 was, according to PwC’ calculations, just over
370,000. Companies without subscriber exchanges accounted for over half of these channels,
whilst only a minority of households were connected via ISDN.

Other players in the market claim that it is difficult to compete with Telia’ ISDN products,
partly because they regard the price of Telia’ “Copper” services, which offers other operators
access to the access network, as high in relation to Telia’ end-user price for ISDN.

The increased bandwidth requirement means that ISDN is no longer the automatic choice for
smaller companies. Larger companies have already, to a significant extent, chosen alternative
solutions. An increasing number of companies are renting leased lines, at the same time as
new technologies such as ADSL are being launched and are expected to offer substantially
greater bandwidth. There are some players in the Swedish market who believe in a trend that
will, in the longer term, mean more fibres to the curbs close to home, or, in certain cases, to
the actual home. There are also certain technical limitations on ISDN which mean that other
technologies may be preferable for operators and customers alike.

This situation makes it probable that ISDN will not achieve any major breakthrough amongst
households in the Swedish market. PwC believes, however, that ISDN will continue to grow
in 1999 in the segment for smaller companies and private individuals, and that it is not until
the year 2000 that other technologies such as ADSL will become genuine alternatives to
ISDN. Rapid growth notwithstanding, the penetration level will continue to be low in absolute

3.4    Price developments
The price of fixed telephony overwhelmingly comprises fixed and traffic charges.

The price of the fixed charge for households has largely been controlled by the fact that these
charges are primarily paid to Telia, and Telia’ pricing is controlled by a pricing ceiling re-
gulation. This regulation comprises the subscription charge for households and companies
with direct phones and the peripheral services linked to the subscription. Telia’ dominance in
the direct connections field means that this regulation affects the market price of the fixed
charges to a very considerable degree. PTS will be reviewing Telia’ pricing ceiling during
the autumn of 1999, and this may, subject to a decision by the Government, result in an in-
crease in certain charges if Telia’ cost estimates show that they are under-priced.

Telia’ role as market leader with a clear dominance within certain call segments means that
the changes Telia makes in the form of pricing structures or pricing levels has a considerable
effect on the market. Telia did, as noted above, implement a change to its pricing structure in
November 1997 whereby the area, regional and long-distance call types were abolished. Telia
also introduced a division of national calls into either local or domestic calls. Comparisons
conducted by PTS show that the average quarterly cost after the pricing reorganisation in
November 1997 is a total of 1.2% higher than the average quarterly cost before the said re-
organisation. The biggest difference is for calls within the caller’ own area code region,
where the quarterly cost rose by 11.1%, and for long distance calls/domestic calls, where the
quarterly cost fell by 22% (PTS Telecom Supervision 1998).

The pricing pressure, primarily on domestic calls and on international calls, continued in
1998. The price cuts were primarily driven by the continued stiff competition with numerous
players and the continued expansion of international telecommunications capacity. Increases
in traffic volume enabled the operators to distribute fixed costs over larger traffic volumes,
which generated the potential for price cuts.

The deregulation seen in a number of countries was, in common with the factors mentioned
above, a contributory factor in the price cuts for international calls. These deregulation proc-
esses made it possible for operators to connect international traffic at national level, using
their own network exchange in the various countries.

Price developments, fixed telephony, Telia: 1994-1998

                                     Price/minute for calls lasting 5 minutes
                                       Telia, daytime, weekdays, ex. VAT

                            0,7                                                 Long-

                            0,4                                                 calls
                            0,3                                                 Local
                            0,2                                                 calls
                                  1994    1995     1996     1997     1998

Source: Telia, PwC

The graph shows the development by average prices per minute for a call lasting 5 minutes
via Telia. For 1998, the local calls column represents the new local call type, whilst that for
long-distance calls represents domestic calls. The price constitutes an average for calls during
the day and at night, and the call setup charge applicable at that time is included. Unlike the
per minute charge for calls, which has fallen during the period, the call setup charge has been
raised twice since 1994. From a starting point of SEK 0.24, it was raised in mid-1997 to SEK
0.28, and then again at the end of the same year to a total of SEK 0.32.

In February 1999, Telia implemented additional price cuts to the per minute price, resulting in
cuts by the competitors as well.

Even if the general price cuts led to lower call prices for consumers in 1998, the percentage of
households’disposable income spent on telephony services is increasing5. This is largely due
to developments in the mobile market, where households have incurred increase telephony
costs in the form of mobile subscriptions, calls from mobile phones and calls to mobiles from
the fixed network. The increase is also due to the growth in the Internet market.

The customer who did benefit from considerably lower call prices in 1998 were those who
were aware of the alternatives and chose an operator suited to their requirements. It was pri-
marily companies with relatively large traffic volumes who achieved lower overall prices in
1998, by means of special contracts, e.g. volume discounts.

  According to an analysis by Telia Nära, published in Dagens Industri on 1 June 1999, 1.5 million of Sweden’s
households spend approximately SEK 5,000 per annum on telecommunications. The corresponding figure in
1994 was SEK 2,000 per annum. These households spend approximately SEK 2,000 on mobile
telecommunications services, SEK 1,000 on Internet access and SEK 2,000 on fixed telephony services.

Price comparison between a selection of operators, May 1999

         Call                        Domestic call               Domestic call
                                     (weekdays, 8 a.m. - 6       (other times)
         Telia, base                 0.304                       0.16
         Telia, base                 1.84                        1.12
         Normal call
         Tele2                       0.256                       0.144
         Tele2                       1.68                        1.12
         Normal call
         TeliTel                     0.224                       0.144
         TeliTel                     1.54                        1.12
         Normal call

       Normal call = 5 minutes, domestic call, inc. call setup charge.
       All prices are shown in SEK ex. VAT.

The comparison shows that a customer can make up to 16% on a normal domestic call by
choosing an operator other than Telia, if the comparison is based on the standard tariff for
weekday, daytime calls. The differences are even greater for international calls to certain
countries. Comparisons of actual prices by the customers themselves are difficult, in that the
various operators offer volume agreements and certain bonus systems, aimed primarily at

PwC expects the pricing pressure to continue in 1999 and for the price difference between
different players to shrink. This primarily applies to international calls to certain destinations,
and to calls from fixed networks to mobile ones. A minor reduction in the price of domestic
calls is also possible, where the trend is to move towards a single rate for all national calls
(local calls and domestic calls alike).

The impending introduction of carrier preselection, whereby the customer themselves will be
able to choose a particular operator for their calls, without dialling a prefix, will probably lead
to a further reduction in prices. PwC believes that several operators will profile themselves as
low price alternatives and thereby put pressure on the market prices.

3.5    Effects of competition on various customer groups
The effect of the increased competition for fixed telephony services varies for different cus-
tomer groups. To summarise, the effects are as follows.

3.5.1 Private individuals
Private individuals and one-man business (approximately 607,000 companies) have benefited
primarily in 1998 from the fact that the continued stiff competition has led to lower call char-

ges, both for those customers who have chosen one of the new operators, and for those cus-
tomers who have chosen to continue using Telia. An increasing number are becoming aware
of the alternatives available to them, even if it is only certain groups who are exploiting this
potential. These groups are customers of several different operators and are exploiting the
potential by using a prefix to choose operator. Private individuals and one-man business with
a high percentage of international calls, for example, have been able to conclude contracts
involving a variety of volume discounts.

3.5.2 Small and medium-sized companies
Small companies with between 1 and 100 employees (approx. 200,000 companies) and
medium-sized ones with 101 to 1,000 employees (approx. 2,600 companies) are a segment on
which many of the operators are focusing. This has continued to benefit this segment in 1998
in the form of advantageous terms with regard both to price and services. The operators have
continued to directly connect several of these companies, but it is still in the big cities that the
competition has promoted genuine alternatives to Telia, and it is within this group that a rela-
tively high number of indirectly connected customers are to be found.

3.5.3 Large companies
For large companies with over 1,000 employees (441 companies), 1998 has meant a conti-
nued reduction in charges, principally those for international calls and calls from fixed lines to
mobile phones. These companies can conclude agreement which, in certain cases, entail
savings of between 30 and 40% on certain call types, depending on volume and call profiles.
They are often directly connected to their chosen supplier and are often relatively flexible, in
that they possess a certain amount of knowledge in the telecommunications field and are,
from the operators’viewpoint, large, attractive customers.

3.6         IP telephony

3.6.1 IP
An Internet Protocol (IP) is the protocol by which data is sent to and from various units on the
Internet. Every unit has a unique address which identifies it and differentiates it from other
units. When data is sent or received, it is divided up into small packages that contain the IP
address of both the sender and the recipient.

IP is a packet-switched protocol, i.e. there is no fixed, point to point connection between the
communicating end-points, unlike with a PSTN, for example. This enables data from a num-
ber of different units to be sent over the same channel.

IPv6 is a later version of the IP6, where the packet size is augmented from 32 bits to 128 bits,
offering improved potential for checks and the potential for authentication. Some experts be-
lieve, however, that it could take several years before IPv6 achieves any breakthrough in cor-
porate networks in that the current version of IP is well established, and many of the short-
    IP is currently at version 4.

comings that initiated the emergence of IPv6, e.g. the inability to authenticate packets, have
been solved in other ways.

3.6.2 Differences between IP telephony and Internet telephony

Differences of IP-based telephony

                                      PSTN/ ISDN                     PSTN/ ISDN
                  1. Phone to phone
                                          Gateway                 Gateway

                 2. PC to phone
                                                                     PSTN/ ISDN

                 3. PC to PC


Source: PwC

It is important, when discussing IP telephony, that straightforward IP telephony is not con-
fused with Internet telephony. IP telephony means that telephony is transferred via LAN or
WAN, using IP. This differs from Internet telephony, where the traffic is transferred over the
public Internet and there are no guarantees with regard to a given call quality or maximum
delay. Internet telephony could be said to be a subsidiary part of IP telephony.

3.6.3 Market developments
Telephony based on IP technology continued to grow during 1998, and although as a percen-
tage of overall telephony, it is very small, the Nordic region is well to the fore globally with
regard to IP telephony. The players in the market are the traditional ones in the Swedish mar-
ket, such as Telia (in the form of Telia Light), Tele2, Telenordia and Sonera, global IP tele-
phony companies such as Delta Three (owned by RSLCOM) and IDT, together with niche
operators, such as Glocalnet.

PwC believes that these companies achieved a combined turnover from Swedish market end-
users of less than SEK 50 million from IP telephony in 1998.

3.6.4 Problems with IP telephony
The quality achieved by using the public Internet for IP traffic is still perceived by the market
as being far too low for ordinary calls via IP to be possible without being perceived as disrup-
tive. As a result, it is primarily telephony over in-house IP-based networks that is currently
acting as a complement to PSTN. Here too, however, there were significant quality-related
problems in 1998. Developments are proceeding apace, however, and in early 1999, there was
a marked improvement in quality. The market is clearly orientated towards IP as a bearer
protocol, and all of the major network equipment manufacturers are working hard to generate
new products within this field.

3.6.5 Internet telephony
Internet telephony involves using the public Internet for telephony. This type of service is
currently a niche service only and offers a relatively low level of call quality. Virtually all of
the market’ players regard Internet telephony as a low price, niche service that will continue
as such and will fail to achieve any major breakthrough in the next few years.

Commercial services have begun to emerge, such as Tele2’ Click2Call, whereby companies
can offer their customers the ability to access Customer Services Departments’ordinary
phones, for example, via internet telephony from the customer’ computer.

3.6.6 Service developments
In 1998, the operators could offer standard telephony services, whilst in 1999, the same ope-
rators anticipate being able to offer value added services, such as conference calls and unified
messaging. The market players believe that existing quality problems will be solved within
the next 1 to 2 years. Partnerships such as Telia’ brokering service, Telia Clearinghouse
Services will boost service development.

Two primary areas in which IP telephony will achieve an early breakthrough have been iden-
tified. The first of these areas is the ability to utilise companies’LANs for telephony as well.
This will cut costs for companies in that it will enable them to utilise their own networks for
both telephony and data. Companies and organisations can also utilise leased lines for IP
traffic between their offices in different locations.

A second area in which IP telephony will achieve an early breakthrough is that of long dis-
tance calls, due to the cost benefits offered by IP for communication8. Developments in 1998
in the private segment were given a major lift by the demand for precisely that - low price
international traffic. The only thing that could slow down the growth in IP telephony is if in-
ternational call prices over PSTNs falls considerably more rapidly than anticipated.

 Telia Clearinghouse Services is a brokering service for IP telephony which, via a network of members, can
provide a traffic clearing service to other countries at a fixed price for ISPs and Internet operators. Global voice
and fax message services are said to be just around the corner.
  It is, of course, possible to digitise and compress speech in a way that approaches IP’ transport efficiency, but
the total cost of switching etc. is considerably lower with IP-based traffic.

If international call prices do fall, the demands for call quality via IP telephony will increase,
because it will no longer be possible to view it as a “low price alternative”. This will result in
more stringent demands being made on the operators with regard to their ability to handle
quality of service in connection with data communication, in order to ensure call quality.
Companies’IT departments must ensure that they have sufficient IP competence if they are to
run their own networks with combined data and telephony traffic. The alternative is to allow a
datacommunications company, for example, to take responsibility for running the LAN.

The technology used for telephony will, in future, become transparent to the end-user, in the
sense that the end-user will not notice the operator’ choice of technology for what we cur-
rently define as ordinary calls. This means that the operators will use IP technology in the
underlying network when it is the best option, and other technologies elsewhere.

PwC is of the opinion that before IP terminals are available on a broad front in the market, IP
telephony will primarily be a matter of replacing backbone technology. It is not until tele-
phony is packaged with data, graphics etc., and until integrated services are offered, that the
end-user will perceive any difference in the form of services other than those currently pro-

PwC believes that IP technology is currently a way for the operators to offer a niche product
cost effectively and to acquire know-how in the field. IP technology, driven by the emergence
of the Internet, is currently an important means for an operator to position itself as a driving
force in the market.

3.7     Alternatives to traditional operators
The alternatives to traditional operators currently available to customers principally take the
form of telebrokers, callback companies and private networks. We have included those com-
panies offering services within the IP telephony sphere amongst the traditional operators, in
that the services they currently offer are similar and the only thing that differentiates them is
the choice of technical platform.

3.7.1 Telebrokers
Telebrokers convey telephony traffic from their customers to different operators. They iden-
tify the cheapest tariff and send phone calls to the telecommunications operator offering the
best tariff at any given time. They charge the difference between the price they offer the end-
user and what they pay the operator. The customer has a traffic routing equipment from the
telebroker that forwards all outgoing calls to the correct operator’ telecommunications net-
work. NETNet’ business, which, together with GTS (formerly Netsource), dominated the
market for telebrokers in 1997, has increasingly begun to like the traditional operators in
1998, and can no longer be classified as a telebroker. This is due to the fact that they have
their own exchange, their own traffic over leased lines, and offer their own services. GTS
(formerly Netsource) still has operations which enable them to be classified as telebrokers,
but they too have operations that are increasingly like those of an operator. Both of these
companies were bought up by international telecommunications companies in 1998.

3.7.2 Callback
Companies offering their telecommunications services with the aid of callback are utilising
the price differences between calling a country or mobile phone directly and the cost of cal-
ling the USA, for example, from Sweden, or Asia from the USA.

The most common method of using callback involves the customer initially dialling a
freephone number to the callback company. After identifying him or herself with a numeric
code, the customer hangs up. The computer calls back within a couple of seconds, at which
point the user can dial the phone number they want to reach. Using a router allows the call to
be transferred directly via the cheapest operator. This system is used by big companies and
allows the user to wait for a computer to call them back. The market for this type of service is
relatively limited, and the ever lower prices of international telephony are pressing these
companies’ margins. Calls to mobile phones is an attractive market segment, and one where
the Callback International company, for example, has produced a card service in association
with Swedish Tenants’ Association.

The callback companies have increasingly begun to focus on certain target groups, and are
working together with, for example, a variety of membership organisations. Their share of the
market in 1998 was marginal (PwC estimates it at less than SEK 10 million) for fixed tele-
phony services, and this share is expected to decline.

3.7.3 Private networks
For larger companies and organisations active in a number of locations, a private network of
their own is often one alternative. Private networks involve companies linking their exchanges
together through leased lines. This can result in lower costs for companies with high levels of
internal traffic. There was an increase in the number of private networks in 1998 amongst
municipalities that own or have access to network capacity via municipally owned power

3.8    Other

3.8.1 Directory Enquiries
The requirements of the Swedish Telecommunications Act mean that telecommunications
companies with an obligation to notify must provide information about their customers for
directory enquiries purposes. Telia shall, via its own number database, provide the general
public with directory enquiries information comprising subscriber numbers and the subscri-
ber’ name and address. The mandatory notification also comprises details of other licence
holders’subscribers. There is no requirement for the cost of the directory enquiries service to
be cost-based when dealing with the customer, nor is there any requirement for other opera-
tors to pay cost-based prices for access to information from Telia’ database - such sales shall
be made on “reasonable terms and conditions”.

PTS is in the process of introducing a new number series for Directory Enquiries, with the
aim of making it easier for new players to become established, in that all directory enquiries
services will be grouped under 118XYZ. The background to the decision is that this will en-

tail a further harmonisation with telecommunications operations in the rest of Europe, and that
it will enable the more efficient use of the numbering plan than was previously possible.
Several of the major telecommunications operators are expected to launch their own directory
enquiries service under their own name within the next 1 to 2 years after the redistribution of
the numbering plan.

                         s                                                         s
Competition with Telia’ Directory Enquiries service was limited in 1998. Telia’ share of the
directory enquiries by phone market fell by a few per cent, but at the end of the year, it was
still a few percentage points over 90%. Telia’ main competitor - Informationsmäklarna - has
been allocated eight numbers from the 118 series by PTS. Informationsmäklarna functions
primarily as a sub-contractor for other telecommunications operators, but also deals directly
with end-users. The focus is on the corporate market. Informationsmäklarna provides direc-
tory enquiries services for both the fixed network and for the mobile networks’subscribers,
and the company’ customers include Tele2/Comviq, Telenordia, Europolitan, GTS and ten or
so other players.

As things stand, the biggest threat to Telia’ dominant position in the directory enquiries
sphere comes from the provision of the same service via other media, e.g. in catalogue form
or via the Internet. Telia has, inter alia, published its Yellow Pages on the Web, and a deci-
sion has been taken to allow subscriber information to be published as well (Private/

Internet-based directory enquiries services are, as yet, undeveloped, but they are expected to
become significant. An increasing differentiation between standardised directory enquiries
with basic services, and which can be automated or semi-automated, and premium services, is
another trend predicted within this sphere. The development of speech recognition technology
will prove of the utmost importance to this development.

3.8.2 Freephone services
Freephone services through the so-called 020/0200 number series allow companies and orga-
nisations to take calls from throughout Sweden using a single number, although the operators
also offer freephone services for calls from other countries. Companies can use the numbers
in their marketing and profiling, and the numbers can also be used by employees calling in to
their own company.

For the end-user, freephone services mean value added in that the calls are free of charge.
Telia offers its services via the 020 prefix, whilst the other telecommunication operators use
the 0200 one. Telia dominates this market to a very large extent, but the other operators did
increase their market shares in 1998.

3.8.3 Premium rate services
There is currently no real competition to Telia in the field of premium rate calls via the 071,
072, 0900, 0939 and 0944 prefixes. Many operators feel it is difficult to compete with Telia in
this field at present, one of the reasons being the terms and conditions Telia offers the other

players interested in providing premium rate calls via Telia’ network and in having Telia
handle the invoicing and administration.

Another is the compensation Telia demands for calls from other networks (fixed or mobile),
via Telia’ networks, to premium rate numbers. The other players feel that the charges for this
type of call are too high and that they only achieve a limited margin in relation to the price to
the end-user.

Telia has called a halt to the sale of the 072 series, and will similarly be stopping sales of the
071 series at the end of 1999/beginning of 2000.

4         Mobile telecommunications services

The analysis of the mobile telecommunications services market includes subscription charges
and call charges, together with value added services offered for mobile telephony, e.g. pre-
mium rate calls, directory enquiries, e-mail etc. Paging and flight telephony have been exclu-

When assessing the market’ value, PwC has opted to exclude the operators’revenues from
interconnect traffic with other operators to ensure that the analysis shows the size of the mar-
ket in relation to the end-user. If these revenues had been included, the market value in 1998
would have totalled SEK 15.1 billion, corresponding to an increase of 32% over the previous
year’ figure of SEK 11.4 billion. The mobile operators report that interconnect traffic reve-
nues for 1998 corresponded to between approximately 20% and just over 30% of turnover,
which is a change from the 30% or so noted in last year’ analysis. The operators have repor-
ted different percentages of revenue from interconnect charges. One reason for the change
may be that the percentage of calls from fixed phones to mobiles failed to grow by the same
extent as the market for mobile telecommunications services. The difference between the
various operators’ interconnect revenues may be due to different traffic structures, with diffe-
rent percentages of calls between mobile phones within their own networks and different per-
centages of calls from fixed to mobile phones.

The value of the market, excluding interconnect revenues, was SEK 11,349 million, corre-
sponding to an increase of 35% since 1997, when the value was SEK 8,20 million.

The number of subscriptions for mobile telecommunications services continued to grow
strongly in 1998, and by the end of the year, there were just over 4,109,000 subscriptions.
This corresponds to a growth of 30% since 1997 and corresponds to 46% in relation to the
population of Sweden. PwC estimates the penetration at approximately 42%. PwC’ estimate
of penetration is lower than the number of subscriptions in relation to the population figures is
due to the fact that players in the mobile industry estimate that approximately 10% of the
customers have double subscriptions9. There are also certain phones that are used by several
people in a single company or household. Penetration is estimated on the basis of the fact that
the mobile phone is viewed as a personal phone and the base is thus just under nine million
people (the population of Sweden). The penetration may be lower as a result, inter alia, of the
prepaid card subscription having led to customer behavioural patterns where customers may,
for example, have cards with several different operators.

Demand continued to be stimulated through subsidised terminals, but a greater percentage of
mobile phones were sold without subsidy in 1998 than in previous years. There was no signi-
ficant change in the official level of call charges in 1998, but corporate customers continued
to pressure prices by means of, amongst other things, volume agreements. The prepaid cards
continued to take market shares and accounted for 25% of the number of subscriptions at the
end of 1998.

    A customer may, for example, have one GSM and one NMT phone, or two GSM phones.

The operators believe that certain customer groups have become more aware of the alter-
natives available to them. They compare the operators’prices and subscription terms and,
according to the operators, are displaying a greater unwillingness to tie themselves in to
longer subscription periods. This applies to both companies and private customers.

Developments amongst the operators have seen the focus shift from increasing the number of
subscribers as much as possible to working on certain segments. The next step is to increase
the volume of traffic from the respective customers and to increase the use of mobile data

4.1      Players
There were four operators with a combined total of seven licences to provide mobile tele-
communications services within a public telecommunications network in the Swedish market
in December 1998. PwC has excluded companies with licences for paging (ERMES) and
Terrestrial Flight Telecommunications Systems (TFTS) from the market analysis. The players
in the mobile telecommunications services market were joined in January 1999 by
Tele1Europe, which has no licence of its own, and acts instead, as a service provider within
Telia’ GSM network.

The licence holders in 1998 were:

•   Telia AB (GSM 900, GSM 1800, NMT 450/900)
•   Europolitan AB (GSM 900), Europolitan PCN AB (GSM 1800)
•   Tele2 AB (GSM 900), Netcom Systems AB (GSM 1800)
•   Tele 8 Kontakt AB (GSM 1800)

Of these companies, only Tele 8 Kontakt, which is owned by Telenordia, has not commenced
any expansion of mobile networks.

Telia AB (Telia Mobile/DOF)
Telia has a comprehensive range of mobile services designed for both private customers and
companies, and is the market leader in the Swedish mobile market, in spite of competition
from Europolitan and Tele2. The company is the only operator to offer services in the NMT
networks (NMT 450 and NMT 900). Telia has initiated a number of partnerships with exter-
nal partners in 1998 to enable the faster and better development of new services. Partnerships
have, inter alia, been entered in connection with the development of services for cordless
communication - machine to machine and radio-based local networks. Some of Telia’ ser- s
vices are marketed under the DOF brand name. In 1998, Telia launched calling cards that
could be topped up for GSM, known as prepaid cards. NMT 900 will be closing by before the
end of the year 2000, and Telia is working to transfer NMT 900 customers to its own GSM

Tele2 AB (Comviq GSM/Tele2Mobil)
Comviq GSM has been integrated with Tele2, which is part of the NetCom Group, since the
end of 1997/beginning of 1998. Tele2 AB has a mobile network, but offers its mobile tele-

phony services to customers through two brand names, Comviq and Tele2Mobil. Comviq
focuses on mobile telephony for private individuals, whilst Tele2Mobil is primarily orientated
towards corporate customers. Tele2 states that in addition to its low prices, the company pri-
marily competes through good indoor coverage. Tele2 has been awarded licences for mobile
telephony for the GSM 1800 band in combination with GSM 900, and they are currently wor-
king to build up this network.

In 1998, Tele2/Comviq commenced trials of so-called local mobile telephony in three loca-
tions in Sweden (Växjö, Umeå and Gotland). The idea is that this subscription format will
offer low prices in order to be able to compete with local calls in the fixed network.

In 1998, Tele2 became the first operator in Sweden to launch a prepaid card for corporate
customers - Tele2Mobil Kontant. 1998 also saw Tele2Comviq become the first in the market
to jointly package subsidised mobile phones and prepaid cards. Campaigns were conducted
jointly with Ericsson and Philips.

Europolitan AB
Europolitan AB is one of two wholly owned subsidiaries of Europolitan Holdings AB. The
other company is Europolitan Stores AB, which sells mobile phones and accessories, and
which provides Europolitan’ network subscriptions. Europolitan holds licences to offer
mobile telecommunications services for both GSM 900 and GSM 1800. The company focu-
sed, right from the start, on being to the fore in the development of new services and new
technology. Europolitan has also elected to concentrate primarily, in the initial stages, on
customers with substantial mobile communication requirements. This customer category has
stringent quality and technology related requirements, and largely comprises corporate cus-
tomers. Europolitan is also investing in the mass market, where customer stocks increased in
1998, largely thanks to the launch of the prepaid card ”Europolitan EASY”.

Telenordia (Tele 8 Kontakt AB)
Tele 8 Kontakt AB is licensed to supply mobile telecommunications services based on an
independent GSM 1800 network. The company was bought by Telenordia at the end of 1997
after a period of attempts to find financiers to enable Tele 8 to build a mobile network.
Telenordia sees commercial potential in the licence, provided that the right business model
can be found. Telenordia is currently of the opinion that the requirements associated with the
licence, coupled with the already high penetration levels for mobile telephony in Sweden,
make it difficult to exploit this commercial potential. Telenordia would also, during its start-
up period, be dependent on interconnect agreements with other mobile operators, which cons-
titutes a barrier in that they believe it would be difficult to achieve sufficiently advantageous
agreements. If Telenordia fails to fulfil the coverage requirements associated with the licence
by December 1999, the company risks losing it.

4.2     Market developments

4.2.1 The total mobile telecommunications services market
The total market for mobile telecommunications services comprises the value of traffic and
subscription charges for traffic via the analogue NMT 450 and 900 networks, and the digital
GSM 900 and 1800 networks. The value of the total market for mobile telephony continues to
grow strongly, and in 1998, the total market for mobile telecommunications services totalled
SEK 11,349 million (excluding interconnect revenues). This corresponds to an increase of
35% since 1997, when the market value was SEK 8,420 million. In 1994, the market had a
turnover of SEK 4,340 million.

The value of mobile telecommunications services, 1994-1998
              million]              Excluding interconnect revenues

                  12 000

                  10 000

                   8 000
                   6 000
                                                                             Telia (GSM)
                   4 000                                                     Telia (NMT)

                   2 000

                             1994       1995      1996      1997      1998

Source: Stelacon 1994-1997, PwC 1998

The growth in the market for mobile telecommunications services is driven by the GSM seg-
ment, whilst the value of the NMT segment has declined steadily since 1995. In 1994, the
GSM market comprised 25% of the value of the total mobile market, but by 1998, this per-
centage had risen to 87%. Between 1997 and 1998, this market grew by 60% from SEK 6.2
billion to SEK 9.9 billion. The NMT market’ falling share is largely a result of customers
demanding more value added services, the better speech quality of the GSM networks, the
fact that the GSM networks are being expanded to cover areas only previously covered by the
NMT networks, and Telia’ campaign to shift people over from the NMT 900 network.

Between 1994 and 1998, Telia’ share of the market value fell from 87% to 63%. This reduc-
tion was primarily due to NMT’ falling share of the total market. During the period from
1994 to 1998, Telia increased its GSM share from 12% to 50%, whilst Europolitan’ share of
the market value rose from 6% to 20% and Tele2’ from 7% to 17%.

Market shares of the mobile telecommunication services market, 1998

                                                            Excluding interconnect revenues

                                                    20%                                       13%



         SEK 11 349 million
                                                    Telia ( NMT)      Telia (GSM)     Tele2    Europolitan

Source: PwC

1998 saw a certain change in the market shares in comparison with 1997. The number of
customers in the NMT network continued to decline. Telia GSM increased its share of the
total market value from 40% to 50% in 1998. Telia’ combined share of the market value fell,
however, from 66% to 63%. Tele2 retained an unchanged share of the market value at 17%,
whilst Europolitan increased its share of the market value from 17% to 20%.

Number of mobile subscriptions, NMT and GSM, 1994-1998

                                        4 500 000
                                        4 000 000
                                        3 500 000
              Number of subscriptions

                                        3 000 000
                                        2 500 000                                                       Tele2
                                        2 000 000                                                       Telia (GSM)
                                                                                                        Telia (NMT)
                                        1 500 000
                                        1 000 000
                                         500 000
                                                     1994      1995      1996       1997      1998

Source: Stelacon 1994-1997, PwC 1998

There were a total of 4,108,793 mobile subscriptions in Sweden in 1998, corresponding to an
increase of approximately 940,000, or 30%, since 1997. The operators estimate that the churn
level 10 was around 20% - the same level as has been reported for several years now.

In 1994, Telia had an 85% share of subscriptions in the mobile market. By 1998, this figure
was 54%. During the period from 1994 to 1998, Europolitan increased its share of subscrip-
tions from 5% to 15%, whilst Tele2 went from 10% to 31%.

Market shares for mobile subscriptions, NMT and GSM, 1998

                                            15%                                12%


                   Base: 4 108 793 subscriptions

                                           Telia (NMT)   Telia (GSM)   Tele2   Europolitan

Source: PwC

Telia’ total share of subscriptions, including both NMT and GSM, fell between 1997 and
1998 from 61% to 54%. This corresponded to a reduction in Telia NMT from 24% to 12%,
partly as a result of a deliberate transfer of customers from NMT to GSM. It is difficult to
determine to what extent Telia has lost any customers to the competition through this transfer,
in that the customers may have had double subscriptions, one of which was NMT, and that
they may not have taken out any new GSM subscription at all when cancelling the NMT

The operator that reported the biggest increase in their share of subscriptions in 1998 was
Tele2, which increased its share from 26% in 1997 to 31% in 1998. Europolitan increased its
share of subscriptions in 1998 from 13% to 15%.

A comparison between the operators’market shares in terms of value and number of sub-
scriptions reveals that Europolitan and Telia GSM have a larger market share when it is mea-
sured in terms of value than in terms of subscriptions. In 1998, Europolitan had 15% of the

  Churn = the number of subscribers who cancel their subscription with an operator without starting a new
subscription with the same operator.

market’ subscriptions, but accounted for 20% of turnover. The equivalent figures for Telia
GSM were 42% and 50%, respectively. The market shares for Telia NMT were pretty much
on a par for number of subscriptions and value, whilst Tele2’ share of the number of subscri-
bers, 31%, was considerable higher than its share of the value at 17%.

The trend in the number of subscriptions reveals a considerable smaller increase between
1997 and 1998 if prepaid cards are excluded, and indeed, between 1997 and 1998, the number
of subscriptions only increased by 5%, or 152,000 subscriptions, when prepaid cards are
excluded. This should be compared with the above-mentioned increase of 30% for all sub-
scription formats.

The number of mobile subscriptions, NMT & GSM, 1994-1998, excluding prepaid cards

                                       3 500 000

                                       3 000 000

                                       2 500 000
             Number of subscriptions

                                       2 000 000
                                                                                      Tele 2
                                       1 500 000                                      Telia(GSM)
                                                                                      Telia (NMT)
                                       1 000 000

                                        500 000

                                                   1994   1995   1996   1997   1998

Source: Stelacon 1994-1997, PwC 1998i

The revenue per prepaid card customer is lower than the revenue for other types of subscrip-
tion, which means that operators with a high percentage of prepaid cards have a lower turn-
over per subscription than operators with a small percentage of prepaid cards. Tele2 has in-
vested heavily in prepaid cards and this is a partial explanation for the company’ market
share being lower for turnover than for percentage of subscriptions. The advantages of pre-
paid card customers include the fact that they pay a higher call charge than many of the other
customers, which yields a better margin for the operator. Prepaid cards also generate prepaid
revenues, small credit losses and have low distribution costs. A high percentage of prepaid
card customers can also be expected to choose to stay with the operator from whom they
acquired their prepaid card if they shift to a different type of subscription.

Market shares for mobile subscriptions, 1998, excluding prepaid cards

                                      17%                                      16%


              Base: 3 085 814 subscriptions

                                       Telia (NMT)   Telia (GSM)   Tele2   Europolitan

Source: PwC

The figure above shows the market shares for all mobile subscriptions, excluding prepaid
                s                                                               s
cards. If Tele2’ market share for 1998 of 22% is compared with the company’ share of the
entire mobile subscription market, i.e. 31%, the investment in prepaid cards becomes very
apparent. The same situation is evident in the change over the year. Tele2 increased its market
share with regard to number of subscriptions excluding prepaid cards by two percentage
points in comparison with last year, from 20% to 22%, but if prepaid cards are included, the
increase was one of 5 percentage points, from 26% to 31%. Europolitan increased its market
share for mobile phones excluding prepaid cards from 14% to 17%, whilst Telia’ decreased
overall from 66% to 61%.

4.2.2 The GSM market

The market for digital mobile telecommunications services, where GSM is used in Sweden,
constitutes the competitive part of the market for mobile telecommunications services, in that
Telia is the only operator licensed to offer mobile telecommunications services via analogue
NMT networks. As noted previously, it is within the GSM market that growth is occurring,
not only in terms of value and subscribers, but in the form of services and products. In 1998,
the GSM market had a value of SEK 9,88 billion if interconnect revenues are excluded.

Market shares of mobile telecommunication services, GSM, 1998

                                                Excluding interconnect revenues



                    SEK 9 883 m illion
                                                     Telia    Tele2     Europolitan
Source: PwC

The percentages are naturally different if NMT is included than if the value of the GSM
market for 1998 only is taken into account. Telia increased its market share in 1998 from 54%
to 57%. Tele2’ market share decreased, however, from 23% to 20%. Europolitan’ markets
share remained unchanged from last year.

Market shares for GSM subscriptions, 1998, including prepaid cards




                Base: 3 605 388 subscriptions

                                                    Telia    Tele2    Europolitan

Source: PwC

Telia has 48% of the total number of GSM subscriptions (including prepaid cards), in com-
parison with 57% of the market value. Europolitan, which has previously focused primarily
on customers who are heavy users of mobile services, have a far higher share of the market
value at 23% than they do of subscriptions (17%), and hence, a higher revenue per customer
at SEK 3,649 in comparison with Telia’ SEK 3 314. Tele2, which accounts for 35% of the
subscribers, only has 20% of the market value and a revenue per subscriber of SEK 1 536.

These values are based on annual turnover (excluding interconnect revenues), and the number
of subscribers at the turn of the year, 1998/1999.

Revenue per GSM subscription, 1998

                                        Excluding interconnect revenues

                     4 000                                                         3 649
                                        3 314
                     3 500

                     3 000
                     2 500
               SEK 2 000
                                                             1 536
                     1 500
                     1 000
                                        Telia                   Tele2            Europolitan

Source: PwC

If prepaid cards are excluded for GSM, a slightly different breakdown of market shares is
obtained for the number of GSM subscriptions. Tele2 has a considerably lower percentage of
subscriptions when prepaid cards are excluded, at 26% in comparison with 35% of the market
for all types of GSM subscription. It is primarily Telia that has a large share of the market for
GSM subscriptions if prepaid cards are excluded, although this is also the case for
Europolitan, with figures of 54% and 20%, respectively for the two companies.

Market share for GSM subscriptions, 1998, excluding prepaid cards




        Base: 2 582 409 subscriptions

                                                Telia   Tele2      Europolitan

Source: PwC

4.3    Service developments

The mobile operators are increasingly attempting to differentiate their offers in the form of
various types of subscription with different tie-in times, in order to reach different groups of
mobile users. The operators are also packaging different types of services into the subscrip-
tion and pricing them in accordance with a variety of structures. Telia and Netcom have
elected to market their respective products for different customer groups under different
names. Telia uses the Telia Mobile and DOF brand names, whilst NetCom uses Comviq and

The company to offer the greatest number of different types of subscription is Tele2, with 11
different forms. Europolitan also has a number of different types of subscription and differen-
tiates between the types it recommends for private and corporate subscriptions. Telia has
elected to offer fewer types of basic subscription, and offers the same types for private and
corporate customers alike. The operators give companies the opportunity to conclude their
own agreements and to utilise services such as mobile user group and coverage limitation.

The subscription types are currently categorised as corporate or private subscriptions, accor-
ding to the type of services included and the terms and conditions of the actual subscription.
This breakdown is becoming increasingly irrelevant due to the vast range of subscription
types, and the operators are noticing that certain private customers are electing to utilise
subscription types intended for corporate customers, whilst businesses are using subscriptions
aimed at private customers, whenever this is economically advantageous.

4.3.1 Prepaid cards

The strong growth in the sales of prepaidcards for mobile phones continued at the end of
1998. Tele2 was the first to launch this product in the Swedish market, when the company
began offering its prepaid card in the spring of 1997. Europolitan launched its card in the
autumn of 1997, whilst Telia waited with its prepaid card until July 1998.

Activated prepaid card subscriptions, 1997 and 1998
                                                   No. active prepaid card subscriptions, turn of the year, 1997/98

                                         700 000
                                                                                        615 000
                                         600 000

                                         500 000

                                         400 000
           No. subscriptions

                                                                   313 000
                                         300 000                                                                             1998
                                                                                228 000
                                         200 000
                                                                                                             95 000
                                         100 000
                                                               0                                     7 000
                                                                Telia                  Tele2          Europolitan

Source: Stelacon 1997, PwC 1998

In 1998, Tele2 and Europolitan had 615,000 and 95,000 prepaid card subscribers, respec-
tively. Telia gained 313,000 prepaid card subscribers during the period from July 1998 to the
end of the year. The card products were relatively similar in 1998 to those offered in 1997,
apart from the new corporate prepaid cards that were launched. The operators did, however,
introduce services such as voice mailbox and SMS, even for the prepaid card customers,
which enabled them to attract new customer groups who demanded more in the way of value
added services.

Average inflow of prepaid card subscriptions per month, 1998

                                                                            Inflow per month, 1998

                                                                   56 909
                                                   60 000

                                                   50 000

                                                   40 000
                               No. subscriptions

                                                                                            32 250
                                                   30 000

                                                   20 000
                                                                                                                  7 333
                                                   10 000

                                                                    Telia                   Tele2              Europolitan

Source: PwC

In a comparison of the number of prepaid card subscriptions in relation to the number of
months for which the companies have been offering the product, the inflow of prepaid card
subscriptions per month was greatest for Telia, who offered the product from July 1998, i.e.
for just under 5 _ months. The average inflow for Telia was just under 57,000 per month,
followed by Tele2 at 32,000 per month (12 months) and Europolitan, with just over 7,000
prepaid card subscribers per month (12 months). One explanation for Telia’ rapid growth is
that subscribers with Telia’ ”Pott” subscription type (these subscriptions means that the
subscriber pay a monthly charge in advance and can then make calls for this amount. Money
left over is carried over to the following months) could transfer their saved amount to prepaid
cards. The comparison is a simplified picture of reality, in that sales vary widely from one
month to another, depending on campaigns and offers.

The market breakdown within the prepaid card market reflects, to a degree, both the size of
the players in relation to market shares based on value and the number of subscriptions, and
their focus on different market segments. Europolitan, which focuses primarily on the type of
customer regarded by the industry players as the primary target group for prepaid cards, is a
typical example of this phenomenon.

There are a relatively large number of prepaid cards that are sold by not activated. The
operators state that this number corresponds to approximately 15-20% of the number of pre-
paid card subscriptions, and constitutes both sold but non-activated subscriptions, and new
prepaid cards that are for use with existing subscriptions.

The prepaid cards were originally intended for use by private individuals with low traffic
volumes and a high degree of cost awareness or cost control requirements. At present,
however, up to 15% of the prepaid cards are, according to the operators, being sold to com-
panies. The corporate customers who, according to the operators, are the primary users of
prepaid cards, are professional groups where the incoming traffic dominates, e.g. craftsmen
and security guards, but the operators are also noting an increased interest on the part of other
types of company.

4.4    Price developments

The officially published list prices for mobile telecom services has, in principle, remained
unchanged from recent years in 1998. The corporate customers have been able to benefit from
successive price cuts in 1998 in that more and more companies are concluding volume agre-
ements with the operators. This is primarily true for larger companies and organisations. The
official price lists have not, however, changed to any notable degree, which means that the
prices for the private segment have remained at the same level as before. It is worth noting
that there are certain geographical differences in pricing, with companies in northern Sweden,
for example, able to obtain cheaper call charges through Comviqs subscriptions ”Norr”.

The quantity of subscriptions with different price structures, subscription periods, volume
discounts, temporary offers, different service contents, prepaid cards etc. makes it difficult for
the customer to find an optimum subscription form.

Direct comparisons of the differing prices for prepaid card offers are also impossible in that
there is a certain differentiation in service content11 and call setup charges.

4.4.1 Subsidies
1.55 million phones 12 were sold in 1998. The number of ordinary GSM subscriptions in-
creased by approximately 403,000 and the number of prepaid card customers by approxima-
tely 788,000. Some of the subscriptions were sold without subsidies, but the majority were
sold with mobile phone subsidies. The industry players say that private customers wishing to
take out a subscription place great importance on subsidies, but that phones without subsidies
are primarily sold to corporate customers and prepaid card customers.

It is difficult to determine how many mobile phones were sold without subsidies, but certain
players state that the percentage of non-subsidised mobile phones is increasing steadily.

The price of mobile phones at the wholesale stage of the chain, i.e. suppliers to retailers/
operators has, according to the industry players, fallen by between 10 and 15% in recent
years. This means that the operators can offer equally advantageous prices to the end-user,
without having to subsidise individual phones to the same extent.

4.5     The closing of NMT 900
Telia intends to close down its NMT 900 network before 31 December 2000. One of the
reasons for this is that NMT uses more capacity per speech channel than GSM, due to the
analogue NMT technology. The closing of the NMT 90 network will provide additional
bandwidth for the GSM networks, which will also benefit in the form of improved sound
quality and access to services such as CLIP, fax and data transfer. There are also cost benefits
for Telia entailed in reducing the number of platforms that have to be maintained, and for
which services must be developed.

The remaining NMT 900 network customers can continue to use the network until 31 Decem-
ber 2000, but Telia is offering NMT 900 customers a variety of solutions to enable them to
                   s                                                        s
transfer to Telia’ GSM network, including charge-free admission to Telia’ GSM network,
transfer of call kitties, and free forwarding of the NMT number for a year.

4.6    Coverage and capacity
The operators continued to expand their systems in 1998, with regard both to geographical
coverage and capacity.

Telia, Tele2 and Europolitan complied with the coverage requirements stipulated in the GSM
900 licences as early as 1996, which means that they cover all communities with a population
of more than 10,000, and all motorways. PTS stipulates, as part of the GSM 1800 licences,
   e.g. someone with a Comviq Kontant subscription can both send and receive text messages using their mobile
phone, whilst someone with a Europolitan Easy or Telia Refill subscription can only receive text messages.
   Source: MTB, Mobitelebranschen.

that the operators must cover 50% of the population of Sweden and all communities with a
population in excess of 50,000. Europolitan and Tele2 are licensed to utilise GSM 1800 in
combination with GSM 900, which means that they can build by complementing existing base
stations. Telia and Tele8 Kontakt are licensed to expand GSM 1800 as a separate system,
which means that they cannot exploit GSM 1800 as an extension to the GSM 900 network.
Telenordia (Tele8 Kontakt) had not started to expand its system, as of May 1999. The terms
of the licence stipulate that the licensee must have completed the expansion required in accor-
dance with these terms by 31 December 1999.

The decision to close down NMT 900 contributed to Telia’ decision in 1998 to continue with
its capacity expansion for GSM 900, with the aim of covering the areas previously covered by
NMT 900.

The operators also continued to expand for increased indoor coverage and coverage in
tunnels, for example, in 1998.

The rapid growth in the form of subscribers and traffic also made substantial demands on
capacity expansion. The operators anticipate a continued strong growth in traffic due to in-
creased call traffic, increased demand for existing services, new services, and mobile data
communication and the Internet.

Telia, Europolitan and Tele2 are expanding the GSM 1800 network to increase capacity.
GSM 1800 will primarily be important in the bigger cities in Sweden, where the GSM 900
frequencies are already being maximally utilised, to ensure that the operators are able to offer
sufficient capacity in their networks. The 1800 networks were relatively unimportant in 1998
as dual band phones are relatively new on the market and the vast majority of subscribers
have phones that can only use the GSM 900 band.

PwC believes that the discussion of GSM 1800 usage will probably fade away, as the end-
user does not notice which band is being used. Dual band phones, that work for both the GSM
900 and GSM 1800 bands, are in the process of replacing phones for use with GSM 900 only
in the context of new sales. There has been no service differentiation between the two bands.
One discussion that may arise, however, is whether the operators awarded licenses for GSM
1800 are expanding the network in the manner and on the scale specified in the licenses.

4.7    Development

4.7.1 Mobile data
There is a trend towards increasing importance on the part of mobile data. PwC calculates, on
the basis of discussions with leading players in the mobile telephony market, that the percen-
tage of data/SMS differs for the various operators and accounted for between 2% and 5% of
turnover in the mobile networks in 1998. Developments within the mobile data field are cur-
rently primarily limited by high call charges and insufficient bandwidth. The mobile market
players believe that service development will pick up when higher transfer rates become pos-

The speed of the GSM networks will be raised as early as the summer of 1999 from 9.6 Kb/s
to 14.4 Kb/s, which generates improved potential for new services. IF consumers are to bene-
fit from even greater usage of mobile data in future, however, they must be offered higher
transfer rates, in which case, the operators have four possible choices: HSCSD, GPRS, EDGE
and UMTS:

• HSCSD (High-Speed Circuit-Switched Data) allows a user to use bandwidth on several
  GSM channels simultaneously, thereby providing a transfer rate of approximately 64
• GPRS (General Packet Radio Services) is a packet-switched technology whereby data can
  be sent using the GSM networks in the same way as in the data networks and on the
  Internet. The bandwidth can reach approximately 115 Kb/s;
• EDGE is a modulation technique for mobile packet-switched data that enables transfer
  rates of up to 384 Kb/s;
• UMTS (Universal Mobile Telecommunication System) is the third generation mobile
  telephony system. The data transfer rate is up to 2 Mb/s adjacent to the base stations and
  384 Kb/s elsewhere on the network.

The industry players believe that GPRS with packet data and UMTS with bandwidth are of
the greatest significance in the expansion of mobile systems. The expansion in all four states
is expensive and time consuming, and requires both the system suppliers and mobile
phone/terminal suppliers to offer products suited to the various stages of the technology. The
end-users must also buy new phones/terminals.

PwC believes that GPRS will be introduced at the end of 2000, beginning of 2001. The ex-
pansion of UMTS networks will naturally depend on the way in which PTS formulates the
UMTS licences and to whom they allocate them. One suggestion is for a network supplier to
offer various service suppliers the ability to launch services on the UMTS network. PwC is of
the opinion that the operators will not be able to offer commercial services in UMTS networks
until early 2002. It is also probable, irrespective of the licensing terms and conditions, that
UMTS will be expanded relatively rapidly in the big cities, whilst the end-users in rural areas
and smaller towns will continue, primarily, to use GPRS for mobile data after 2001.

4.7.2 Convergence between fixed telephony and mobile telephony
One trend evident within mobile telephony is, to a degree, for the mobile phone to be used for
telephony purposes, rather than the fixed phone, whilst households’ fixed lines are used for
functions such as dial-up Internet access. This substitution is relatively limited in the private
market at present, but there is an increasing degree of substitution being seen in the corporate
segment, where the mobile phone is increasingly replacing fixed phones for telephony ser-

PwC believes that the only things stopping a more rapid convergence between fixed and
mobile telephony are the price difference between the two formats, the call quality of the
mobile networks, and the bandwidth in connection with data transfer.

The price difference between fixed and mobile telephony is still considerable. Examples of
ways of solving this problem include home base stations or differentiated tariffs, where it is
cheaper to make a call if you are in a given geographical zone, e.g. the office or the city block
where you live. Tele2 implemented price cuts down to SEK 0.40 per minute in 1998 for all
call traffic using their networks in Umeå, Växjö and on Gotland, which could be seen as an
attempt to see what sort of impact this will have on the degree of substitution.

The quality of the GSM networks is perceived by many as being too uneven for mobile
telephony to replace fixed telephony completely. The quality was, however, improved still
further in 1998 with the introduction of EFR technology13 to the mobile networks.

When it comes to the services offered, the range of services provided by the fixed and mobile
networks are becoming increasingly similar, and in some cases, the services are actually more
sophisticated in the mobile network, due, in part, to the greater functionality of mobile tele-
phony terminals. Examples include the voice mailbox function. The fixed network’ primary
advantages lie with services that more bandwidth than the 9.6 (14.4) Kb/s currently offered by
the GSM networks.

4.7.3 New competitors within mobile telecommunications services
A further step towards additional competition within the mobile telephony market would be
made possible by obliging the operators to allow service providers without their own net-
works to use the mobile networks to offer mobile telecommunications services to customers.
At present, the owners of the mobile networks decide for themselves which other operators
are to be allowed to use their networks to offer services. The Norwegian company, Sense,
applied to rent capacity on Telia’ GSM network in 1998, in order thereby to offer mobile
telecommunications services. PTS was of the opinion that there were no grounds, under the
provisions of the current Swedish Telecommunications Act, for supporting Sense’ request,
but is of the opinion that a partnership of this kind would benefit competition and hence the

A trend towards a different structure with network owners and service providers may follow
from the issue of licences for UMTS at the end of the year 2000. It may become easier, in
conjunction with the introduction of UMTS, for telecommunications operators to buy the
network capacity required to enable the sale of mobile communications services. PTS has,
therefore, proposed an amendment to the Swedish Telecommunications Act in a letter to the
Government. PTS would like to see mobile telecommunications licences of the future apply to
mobile networks and not, as is currently the case, to both networks and services. PTS also
believes that all network operators should be under an obligation to sell network capacity to
any telecommunication operator wishing to buy. The EU Directive’ rules on open networks
should steer the pricing of this facility and the relationships between the operators.

The market is divided on what such a regulation would mean, and existing mobile operators
are particularly strongly opposed to this type of change. They believe that this would change
the rules of the game for the market after the fact, after they have completed their investments
     EFR stands for Enhanced Full Rate and is the latest generation of voice coders for GSM networks.

in mobile networks, and that this would affect companies’ willingness to invest in new tech-
nology and new services.

In January 1999, Tele1Europe and Telia signed an agreement whereby Tele1Europe can offer
its services by utilising Telia’ GSM network. Tele1Europe will offer its own SIM cards and
numbers. This is a commercial agreement between two operators and not a result of regula-
tion, and there may be a variety of reasons behind such an agreement. PwC believes that one
possible reason is that an operator wishes to forestall the legislation with the aim of de-
monstrating that it is not necessary to legislate to increase competition. The ability to offer
packaged solutions comprising data communication, mobile telecommunication and fixed
telephony would constitute a substantial motivation for anyone concluding an agreement in
order to act as a service provider.

5      Internet access
This chapter focuses primarily on dial-up access, which is the part of Internet access that
could be said to be closest to telephony. This is because dial-up Internet traffic is partly trans-
ported and connected over the public telecommunications network, whilst leased line Internet
connections entail dedicated lines.

5.1     Players
Virtually all of the major operators in Sweden supply Internet access. All of the larger opera-
tors provide Internet access for companies, and in some cases, to households via retailers, in
the form of ISPs. Amongst the larger operators, however, it is only Telia, Tele2 and
Telenordia who currently offer dial-up Internet access directly to the private segment. There
are also an additional hundred or so ISPs in Sweden, including companies such as BIP
(Bottnia Internet Provider), Utfors/Spray and SBBS2, all of whom offer free Internet access.

5.2    Market developments
The growth in the number of subscriptions in Sweden over the past three years has been pro-
nounced. The total number of dial-up access users has increased from 54,000 subscribers at
the end of 1995 to approximately 1.4 million by the end of 1998.

Dial-up access - total number of subscriptions (inc. ISDN)

                                  1 600 000

                                  1 400 000

                                  1 200 000

                                  1 000 000                               Other
              No. subscriptions

                                   800 000
                                   600 000                                Telia

                                   400 000

                                   200 000

                                              1995   1996   1997   1998

Source: PwC

The major increase in the number of Internet subscriptions is clear. Between 1997 and 1998,
the percentage of subscriptions for dial-up access increased by 118%. This vigorous growth
has, in recent years, been boosted by the increased penetration of Swedish households by PCs
- a level which, according to IDC, totalled approximately 50% by the beginning of 1999. This

trend was boosted still further in 1998 by corporate purchases of the so-called home PC. It
should be mentioned, in this context, that the customers may, in the same way as for fixed
telephony, have several Internet subscriptions, which makes any assessment of the actual
level of Internet penetration on the basis of the various player’ subscription figures more
difficult. The majority of households have more than one user, which would indicate that the
number of Internet users is considerably higher than the number of subscriptions. According
to a survey entitled “Internetmarknaden i Sverige” (The Internet market in Sweden) conduc-
ted by PwC in the autumn of 199814, 2.4 million people aged between 18 and 74 use the

PwC believes that the breakdown into corporate and private subscriptions for dial-up access
by the major players corresponds to approximately 25% corporate subscriptions and approxi-
mately 75% private ones. PwC has also calculated that private subscriptions make up an even
higher percentage for other smaller players, who principally target private customers.

PwC is of the opinion that a continued strong growth in the number of dial-up access sub-
scriptions will take place, albeit with a lower net growth rate than that seen to date.

Percentage of dial-up access subscriptions, inc. ISDN, per operator, 1998



            Base: 1 424 000 subscriptions                              30%

                                            Telia   Tele2   Telenordia/Algonet   Other

Source: PwC

The market’ biggest players are Telia, Tele2 and Telenordia/Algonet, who are estimated to
account for 79% of the total number of subscriptions in 1998, with Telia biggest at 32%,
followed by Tele2 at 30% and Telenordia at 17%. The clearest trend between 1997 and 1998
was the increase by the smaller niche operators. PwC estimates that they held 9% of the total

     The survey can be found on PTS’homepage at

number of dial-up access subscriptions in 1997, but that by 1998, this figure had risen to

The increase on the part of the smaller players is due, in part, to the fact that these smaller
ISPs often offer various forms of cost-free packaged services with free subscriptions for
private individuals - something that was not previously seen to the same extent. Tele2’ share
of the subscriptions is calculated to have shrunk by 10 percentage points since 1997, whilst
Telia’ share has fallen by 2 percentage points. Telenordia/Algonet, by contrast, increased
their market share by 2%.

Value, dial-up access per operator, 1998





            Base: SEK 1 700 million

                                      Telia   Tele2   Telenordia/Algonet   Other

Source: PwC

The value of the market for dial-up Internet access doubled between 1997 and 1998. PwC
calculates that Telia is now bigger than Tele2 in terms of percentage of the market value for
dial-up access, whilst Telenordia enjoyed a somewhat smaller share. PwC further calculates
that these companies will maintain their strong market positions for dial-up Internet access
over the next few years, but that in the longer term, there will be an increased concentration,
with fewer players in the market, as Internet access become more of a basis service, and the
larger players are able to put pressure on prices thanks to economies of scale.

The biggest barriers to a greater utilisation of Internet subscriptions and increased growth in
value are:

• the complexity that still obtains with regard to the use of PCs, modems etc.:
  Using an ordinary PC in the home requires quite some time to be expended before the user
  can access the Internet. The computer has to be booted, connected made through the dial-

  A relatively high degree of uncertainty exists here in that the majority of the smaller players have been
unwilling to provide information and that a large number of the free subscriptions are inactive.

       up process (which usually blocks the phone line), and a number of applications have to be

• Limited bandwidth:
  Access from households is achieved almost exclusively using ordinary modems, which
  yield limited performance.

• Partially immature services:
  Although the development of Internet services is proceeding very rapidly, many services
  have, to date, failed to provide sufficient value added in comparison with conventional
  alternatives. A classic example of this was provided by the earlier version of Yellow
  Pages on the Internet, which essentially simply provided the information contained in the
  physical directory version, and the value of booting the computer and then connecting to
  the Internet before being able to use the service was consequently insufficient16.

5.3     Price developments
The price of Internet subscriptions has fallen substantially as the operators have competed for
new subscribers. PwC calculates that the average monthly cost of a dial-up access subscrip-
tion has more than halved over the past two years. Most experts are also agreed that the
pricing pressure will continue.

PwC is of the opinion that the traditional pricing, based on rates per minute, will be partially
replaced by payment for service utilised, or by a flat rate for a telephony, Internet and data
communication package. The user will pay a flat rate for free access up to a given number of
hours. One possible scenario for the future would entail numerous companies paying for a
given level of service and per Mb transferred, whilst a substantial portion of the private seg-
ment will be offered Internet access, free of charge, in exchange for the customer using a par-
ticular homepage, for example, or accepting advertising during download periods.

One likely trend would entail more offers, where the terminals are subsidised in the same way
as has been done within the mobile telecommunication sector.

     A new and markedly improved version of Yellow Pages has now been launched at

5.4     Access formats


                 PSTN           ISDN           Electricity                          Cable TV network

           Modem xDSL       ISDN      Fast    Electricity   Mobile   Satellite   Digital-TV   Cable modem
                                     access   network modem

Source: PwC

There are currently a number of different dial-up access formats for connection to the Internet.
Dial-up access via a modem is far and away the most common method for private users and
smaller companies, whilst larger companies often have a leased line. Modems with better
transfer rates and more advantageous terms for ISDN connections mean that private users
could currently be said to have access to the Internet with a capacity which is, in most cases,
sufficient for simpler uses. The options of both users and industry experts are, however, very
divided on the importance of bandwidth in the development of the Internet. Available band-
width steers service development which, in turn, steers customers’expectations of other

Cable modems may achieve a limited breakthrough, primarily in those areas which already
have access to the cable TV networks. Security problems and the sharing of capacity amongst
several households17 are, however, potential hindrances. ADSL/xDSL also have the potential
to become a common access format with regard to connections to households and to small and
medium-sized companies, provided that the pricing scenario is attractive to the users. This is
due to the extremely high bandwidth in a downwards direction and to the fact that the existing
access network can be utilised.

The bandwidth out to households is not, however, the only limiting factor in the system. Con-
nection from the ISP to the Internet is often a bottleneck and it is relatively common for the
systems to be over-subscribed, which leads to low bandwidth per user during peak periods.

  Capacity sharing depends on the way in which the network is built up, and different variants exist. Some
network structures do not give rise to capacity sharing.

Capacity and price, inc. VAT, of various access formats (example)

Access format   Transfer rate,      Transfer rate, up   Connection            Ongoing cost
                down                                    charge
Cable modem     Approx. 1-27        2.5 Mb/s            e.g. Stjärn TV,       SEK 365/month,
                Mb/s                                    SEK 995 in            SEK 279/month if
                                                        connection            you subscribe to
                                                        charge,               cable TV
                                                        installation costs
                                                        SEK 795.
                                                        Cable modem:
                                                        SEK 2,995. Telia
                                                        is launching
                                                        Internet access via
                                                        the cable TV
                                                        network in July
                                                        1999. The prices
                                                        have not, as yet,
                                                        been set.
Cable modem     Approx. 500 Kb/s                        e.g. Tele2’ s         SEK 310/month.
                (depending on the                       Connect2Internet      Monthly rental
                network’ current                        Kabel Två-vägs:       charge for
                load)                                   connection            modem: SEK 85
                                                        charge, SEK 500
ADSL            Approx. 2 Mb/s      150 Kb/s            e.g. Telia            SEK 695/month
                                                        Flexicom (trial).     and SEK 0.50/Mb
                                                        No connection
                                                        charge during trial
ISDN            128 Kb/s            128 Kb/s            e.g. Telia Internet   SEK 230/month,
                                                        ISDN. No one-off      12 months’
                                                        charge                prepaid: SEK
                                                                              1,795, charge per
                                                                              ISDN channel:
                                                                              SEK 0.184/min
                                                                              weekdays, 8 a.m.
                                                                              - 6 p.m., SEK
                                                                              0.92/min at other
Satellite       400 Kb/s            56 Kb/s             e.g. Tele2’ s         SEK 195/month
                                                        Connect2Internet      and SEK 0.22 or
                                                        Satellit standard     SEK 0.44/min.
                                                        has a package         Connection
                                                        charge of SEK         charge: SEK 0.50
                                                        495 when signing
                                                        a new 24-month
                                                        charge: SEK 250
Modem           56 Kb/s             56 Kb/s                                   Often approx.
                                                                              SEK 150/month.
                                                                              Free subscription
                                                                              available. Local
                                                                              ions rates paid.

6       Network capacity and access networks

The basis of the value chain within the telecommunications market comprises network infra-
structure. This infrastructure is fundamental to a functioning telecommunications market,
firstly in order to fulfil the need for the requisite capacity, and secondly because the existence
of competition, or lack thereof, affects the market in such areas as price levels, range of ser-
vices etc.

Network infrastructure can be divided into three groups. The transfer of information over long
distances is effected via core networks, i.e. high capacity nationwide or inter-regional net-
works. Urban networks/regional networks give a community of region access to local traffic
and connection to the core networks. Local access networks provide the link between the
home/company and the urban network. The network capacity market players offer, in princi-
ple, two “services” on the basis of this infrastructure, namely black fibre and administered
bandwidth rental18.

A player does not require legal title to infrastructure to be able to function as a network ca-
pacity supplier; he can also act as an intermediary in the market, i.e. rent network capacity
from an infrastructure owner and then sell the capacity on.

Infrastructure owners own infrastructure in the form of core networks, regional networks/
urban networks, and access networks. In spite of the fact that infrastructure owners in Sweden
differ from one another by the type of network owned, a strikingly large number of them are
state or municipally owned. This tendency is most apparent at core network level, where all of
the significant players are owned by the state. Infrastructure owners rent out network capacity
in the form of black fibre and/or administered bandwidth, both to players in the second stage
of the value chain, and directly to end-users, i.e. organisations and companies.

   The Swedish Telecommunications Act defines the concept of network capacity as “transfer capacity in a
telecommunications network or part thereof”. PwC has opted to divide the service into two sub-groups, in order
to differentiate between the degree of network capacity refinement. The term, black fibre, refers to unrefined
network capacity, i.e. fibre optic or copper cable without active equipment. Administrative bandwidth refers to
refined network capacity, e.g. in the form of leased lines. PwC’ definition of administered bandwidth also
includes variable administered bandwidth.

The network capacity market - schematic diagram

                               Infrastructure owner

                                                                                  Black fibre
                         Network capacity operator/
                           service providers
                                                      Service providers

              Organisations             Companies             Private customers

                        Telecommunications market customers

Source: PwC

In the second stage of the value chain, the network capacity is refined into telecommunica-
tions services by telecommunications operators and service providers. The telecommunica-
tions operators run telecommunications networks based on the network capacity rented from
the infrastructure owners. The telecommunications operators offer two types of services,
namely administered bandwidth and refined telecommunications services. The customers
comprise both service providers, who only rent administered bandwidth that is further refined
to comprise other services and is offered to end-users, and direct end-users. Certain players
function both as infrastructure owners and network operators/service providers. The clearest
example of this is Telia, with Telia Nät constituting the network owning part, whilst the offers
made to service providers and end-users come from other sections of Telia.

6.1    Core network

6.1.1 Players
There are primarily four players that own network infrastructure within the core network
sector, namely Telia, Banverket, Svenska Kraftnät and Teracom. All four use their infra-
structure for internal purposes, but they also rent out network capacity to other players on
varying scales.

Telia Nät
Telia Nät is the market’ biggest actor, with network capacity infrastructure that covers vir-
tually the whole of Sweden. Telia Nät owns core networks, regional networks/urban net-

works, and local access networks, and primarily offers administered bandwidth19. The cus-
tomers comprise other Telia companies, external operators and end-users. Turnover from the
renting out of network capacity to external customers increased by just over 20% in 1998 in
comparison with the previous year, in spite of price cuts. Telia’ turnover for the renting out
of network capacity at core network level to external customers was SEK 227 million in 1998.
The net turnover for Telia Nät, including renting out, was SEK 2,756 million in 1998.

Banverket has, alongside Telia, the most comprehensive network infrastructure, in the form of
a fibre optic network that extends along the railway system’ embankments. Banverket owns
a fibre optic network comprising approximately 10,000 kms, and which comprises, in part, an
SDH-network (Synchronous Digital Hierarchy). The network consists of three fibre pairs with
a theoretical maximum capacity of 2.5 x 40 Gb/s. The planned theoretical maximum capacity
is 32 x 10 Gb/s. Banverket is not planning to rent out black fibre, and instead, simply provides
administered bandwidth. Banverket only utilises part of the network capacity for its own pur-
poses, and the rest is offered in the form of leased lines, with a capacity of 2 Mb/s and up-
wards. The policy is to allow all operators and network owners wishing to do so to rent space
on the network. The customer categories comprise large and medium-sized telecommunica-
tions operators, and certain end-users, and include Global One, MCI WorldCom, Sonera,
Tele2, Telenordia and Telia. The turnover from the renting out of network capacity in 1998
was approximately SEK 130 million.

Svenska Kraftnät
Svenska Kraftnät currently owns a fibre optic cable network of approximately 1,800 kms for
network capacity in southern and central Sweden. An expansion in the northern province of
Norrland of a further 1,200 kms was begun during the first quarter of 1999, and will be fini-
shed by the first quarter of the year 200020. Svenska Kraftnät’ network infrastructure has
been built in close co-operation with the customers who, in 1998, primarily comprised Tele2,
and the infrastructure investments are only made when financing has been guaranteed. Nego-
tiations are also in progress with other players concerning future connections.

Svenska Kraftnät only offers black fibre, but is considering the potential for extending its
range of services to include administered bandwidth. No decision has, as yet, been reached on
this matter. Svenska Kraftnät also has a radio link network in northern Sweden, in addition to
its fibre optic network. The network follows the Luleåälven river and stretches between Luleå
and Porjus. Turnover from the renting out of black fibre in 1998 totalled approximately SEK
28 million.

Teracom, which is state-owned, owns a radio link network that is primarily used for the
transmission of radio and TV programmes, but which is also used for tele- and data commu-
nication. Teracom has over 100 radio link stations located throughout the country, at a few

  Approximately 1% of the total network capacity turnover derives from the renting out of black fibre, where
raw capacity over both fibre and copper is sold within the local station network.
     The expansion is being one third financed by PTS for national defence reasons.

tens of kilometres distance from each other. Teracom’ infrastructure can be used for the
transport of telecommunications messages, both at core network level and at urban/regional
network level.

Teracom has been extending a digital radio link network, based on SDH-technology, for a
couple of years now, and which is successively replacing the analogue network. The digital
radio link network has a transmission capacity of 155 Mb/s and a theoretical maximum capa-
city of 15 x 155 Mb/s. Teracom currently offers administered bandwidth.

In 1998, Teracom rented out network capacity at core network level to a value of approxima-
tely SEK 10 million.

Other players
NSAB (Nordiska satellitaktiebolaget), which offers satellite communication for TV, radio,
data transmission, the Internet, and multimedia, primarily within the Nordic region, but in
other parts of Europe, too, is another notable player, alongside the big four. The company is
owned by Svenska Rymdbolaget (37.5%), Teracom (37.5%), and Tele Danmark (25%).
NSAB currently owns and operates three satellites. These satellites, Sirius 1, Sirius 2 and
Sirius 3, cover the Nordic region, the Baltic region, Poland and western Russia. An agreement
was signed with Sveriges Television in March 1999 regarding digital TV broadcasts.

Utfors, which launched its network and telecommunications operator business operations in
1998, is another network capacity market player. Utfors is building up its own infrastructure
for network capacity, and the company currently owns fibre optic infrastructure, primarily in
the Mälardalen region. Further expansion is occurring on an ongoing basis, and the com-
pany’ aim is to build up a core network. In the network capacity sphere, the company offers
black fibre.

There are also, in addition to the core network owners, players who do not personally own
infrastructure, but who, instead, buy administered bandwidth and/or black fibre which they, in
turn, then rent out. These players include several of the established telecommunications ope-
rators, for whom intermediary leasing comprises only a limited part of the total network
capacity (surplus capacity), and the university network, SUNET, which offers connections for
colleges of further education and universities21.

6.1.2 Market developments
The four dominant players are continuing to expand their networks, with regard both to geo-
graphical coverage and to capacity. The aim here is both to satisfy internal requirements for
greater geographical coverage and more updated technology, and to ensure their ability to
increase the range of products offered to customers. From a competitive viewpoint, this
should mean that the telecommunications operators will be able to negotiate better prices. The
competition between telecommunications services providers is becoming more intense and
price is an important competitive tool, and it is thus reasonable to assume that part of the
savings that the operators will be making will benefit the end-users.
     SUNET thus functions as an operator of network capacity supplied by Banverket.

There is certain amount of market expectation that, in addition to the investments touched
upon above, one or two new players will enter the market within a two-year period, in spite of
the barriers to establishment posed by investment costs. They will probably be major inter-
national players who have the necessary capital to make an investment of this kind. New
players will probably establish themselves geographically in areas where the operators’end-
user market for telecommunications services is biggest, i.e. in southern Sweden and the
Mälardalen region.

The market players believe that the core network capacity prices throughout Sweden will fall,
and that the price cuts in southern Sweden and the Mälardalen region will be bigger than
elsewhere in the country.

The network capacity market in the form of core networks was characterised by relatively
strong growth in 1998. Customer demand increased both in terms of volume and of the num-
ber of customers. The market did, however, experience a certain amount of pricing pressure,
in spite of this increased demand.

It has proved impossible to separate the infrastructure owners’turnover from the renting out
of network capacity in 1998 from their turnover from core networks and regional/urban net-
works. The following section thus comprises an estimate by PwC of the total core and urban
network market for network capacity.

Market shares: core networks and regional/urban networks

                      Total turnover: approx. SEK 650 million (ex. internal sales)




                 Telia    Banverket      Svenska Kraftnät      Teracom      STOKAB   Other

Source: PwC

PwC calculates that the renting out of network capacity at core and urban network levels by
the infrastructure owners totalled approximately SEK 650 million in 1998. These figures do
not include internal leasing, such as Telia´s subsidiary ”Telia Nät” revenues from other Telia

companies. If these figures are included, the turnover would quadruple. The estimate corre-
sponds to an increase on the 1997 figures of approximately SEK 150 million22. As noted
above, network capacity is offered not only by infrastructure owners but by network capacity
operators, who comprise telecommunications operators that rent out surplus capacity in their
networks in the form of administered bandwidth. It is very difficult to produce an accurate
estimate of the scale of this leasing, and PwC has, therefore, elected not to specify any turn-
over for this segment.

Turnover for infrastructure owners, per level and per type of service

                        Core network
                      Regional/urban networks

                                                                      Black fibre

                                           Access networks

                                                                      cations services
             ca.                  ca.
             SEK 187 million      SEK 463 million

Source: PwC

Many players are of the opinion that the level of competition in the Swedish network capacity
market is not totally satisfactory, in that the total number of infrastructure providers is small
and the players who can undertake to provide network capacity throughout the country is even
smaller. Competition in Sweden is thus differentiated. On stretches where the demand for
network capacity is substantial, such as Stockholm-Gothenburg-Malmö and in the Mälardalen
area, the competition is more intense, whilst in other parts of Sweden, Telia is, in principle,
the only provider.

     Stelacon 1997.

Turnover, core networks and regional/urban networks

                           Total turnover: ca. SEK 650 million (ex. internal sales)



                                     Black fibre      Administered bandwidth

Source: PwC

From a straightforward capacity point of view, there is no need for infrastructure investments
in order to meet the network capacity requirement, in that technologies such as WDM23 mean
that the theoretical maximum bandwidth of existing infrastructure can be multiplied many
times. Certain players are of the opinion that the lack of black fibre is restrictive, in that they
would prefer to have control over the terminal equipment. In spite of the fact that a number of
players point to the need for investments in infrastructure to improve the competitive situa-
tion, there are few players who are making major investments, and the investments that are
being made are primarily designed to meet the investors’own requirements.

6.2     Urban networks/regional networks

6.2.1 Players
PwC estimates that there are between 180 and 190 owners of network capacity infrastructure
at urban network/regional network level. Many of this number only own a very limited infra-
structure, however, and the majority uses the network capacity for internal purposes only. The
incidence of competing infrastructure varies across the country, and the actual networks vary
in terms of size and technical construction.

Buyers of network capacity offered via urban/regional networks comprise operators, admini-
strative municipalities and other organisations/companies with a geographical presence in the
municipality/region in question.

  WDM, Wave Division Multiplexing, increases the capacity of a fibre optic link by allocating optical signals to
certain wavelengths and then sending these signals using the same fibre.

The urban network owners can be divided into three groups, namely Telia, players operating
at a regional level, i.e. own networks that are not limited to a single geographical munici-
pality, and owners of urban network infrastructures, i.e. networks that do not extend beyond a
geographical municipality.

The biggest individual player in the urban network/regional network market is Telia, which
owns networks throughout Sweden. In a number of smaller communities throughout Sweden,
Telia is the only alternative for network capacity in the urban/regional network sphere, which
means that the end-users’ network capacity costs are, at times, high. This is indicated by, inter
alia, the fact that many administrative municipalities are, themselves, investing in network
capacity infrastructure, which would probably not have been the case if genuine alternatives
to Telia’ urban network infrastructure had existed. The uneven incidence of alternative net-
work capacity in Sweden’ municipalities will probably lead to a trend where operations par-
ticularly dependent on good access to administered bandwidth, e.g. call centres, being restric-
ted in communities where there is a lack of alternative network infrastructure.

STOKAB is the biggest of the regional network owners and is the biggest single owner of
network infrastructure within the entire segment, with the exception of Telia. STOKAB is
owned by the City of Stockholm (91%) and Stockholm County Council (9%), which founded
the company in order to be able to offer an attractive range of black fibre products. The
owners also wanted to stimulate the emergence of a comprehensive telecommunications ser-
vices market in Stockholm with the aim of boosting the region’ trade and industry.
STOKAB, together with Telia, currently holds the exclusive rights to network infrastructure
investments in the Stockholm City Centre area24. STOKAB is expanding and operating a fibre
optic cable network in Stockholm County, which currently comprises approximately 2,000
kms of 35 fibre optic pairs.

STOKAB offers black fibre on commercial terms throughout Stockholm County. The cus-
tomers comprise both telecommunications operators who use the network capacity to offer
telecommunications services to their customers, and end-users. STOKAB calculates that by
the end of 1999, the network will cover the majority of the city centre blocks, most municipal
schools and municipal establishments, and a number of industrial, office and business centres
in the City of Stockholm. The intention is also for the centre of every municipality in
Stockholm County to be connected by the end of 1999.

STOKAB’ turnover in 1998 totalled SEK 137 million.

As noted before, parts of Teracom’ network infrastructure is used for the transmission of
telecommunications messages at regional level, and not simply within the core network sec-
tor. The customers comprise both telecommunications operators and end-users in the form of
companies and organisations. In 1998, Teracom rented out network capacity at regional level
to a value of approximately SEK 20 million.
     Inside the Stockholm City boundaries.

Vattenfall has approximately 250 kms of fibre optic cable, drawn alongside the company’      s
power lines, at its disposal. Vattenfall’ fibre is primarily localised within regional/urban net-
works, and thus constitutes a complement to Banverket and Svenska Kraftnät, inter alia, who
offer core network capacity.

Sydkraft has regional network infrastructure in southern Sweden. The network is primarily
used for the company’ own purposes, but the company also rents out administered bandwidth
at speeds in excess of 2Mb/s and a smaller quantity of black fibre. Sydkraft TeleCom is also
building a regional SDH network, in which their customers comprise telecommunications
operators, municipalities and county councils.

According to information received by PwC, the regional players achieved a total turnover of
approximately SEK 170 million in 1998 (excluding Telia). 80% of these SEK 170 million
derive from STOKAB, whose turnover is on a par with Banverket, and five times higher than
Svenska Kraftnät’s.

Outside of Stockholm County, the access to regional infrastructure is more limited. Teracom
does constitute an alternative where its network structure is available, but from a future
perspective, it should be remembered that transmission via radio technology is limited to fre-
quency availability. Vattenfall and Sydkraft are, at present, relatively insignificant players in
the network infrastructure market.

Urban network owners
The urban network owners comprise various organisations, such as administrative munici-
palities/municipal companies, universities/colleges of education, and private companies.
According to the PwC report, entitled “Charting telecommuncations and IT infrastructure”,
the total number of urban network players at the end of 1998 could be estimated at between
138 and 205, of which by far the overwhelming majority comprised administrative muni-
cipalities/municipal companies. A survey carried out by STOKAB/Svenska Stadsnätsföre-
ningen showed that 173 municipalities had some form of urban network25. The other players,
i.e. organisations such as universities and certain companies, are few in number, and only tend
to use their infrastructure for internal purposes. PwC calculates that their effect on the tele-
communications market is limited.

The total connection length of Sweden’ urban networks is estimated at between 3,240 and
4,810 kms, just over 60% of which comprises fibre optic links. The alternative infrastructure
in the majority of municipalities is, nonetheless, limited, and in approximately 75% of the
municipalities surveyed, the connection length was less than 10 kms. According to the
STOKAB/Svenska Stadsnätsföreningen survey, approximately 20% of the urban network
owners estimate that their networks exceed 50 kms in length. PwC is of the opinion that the
majority of Sweden’ urban networks are too small to have any real effect at present on the
network infrastructure competitive and pricing situations at present. The urban network

   STOKAB/Svenska Stadsnätföreningen in partnership with the Department of Trade and Industry’ IT    s
infrastructure survey, “Survey of the IT infrastructure in municipalities and county councils”, 30 April 1999.

owners are, however, planning new investments in their networks, which should lead to even
more municipalities being able to demonstrate alternatives to Telia in the urban network

The municipalities’reasons for investing in their own infrastructure are usually grounded in
their own administrations’needs. According to the STOKAB/Svenska Stadsnätsföreningen
survey, 65% state their own administration’ requirements as the prime cause, whilst 20% of
the remaining municipalities have built urban networks with the primary objective of achi-
eving lower costs for the municipality. 15% of the municipalities stated that the aim of their
building work was to stimulate trade and industry.

Another reason for the lack of alternative infrastructure is that only some of the urban network
owners in existence actually rent out network capacity. According to the PwC report,
“Charting telecommuncation and IT infrastructure”, commercial services are offered in app-
roximately 40% of the municipalities that have urban networks, and are planned in a further
12% of the municipalities.

PwC estimates that alternatives to Telia’ infrastructure are only found in approximately 65-
70 of Sweden’ 289 municipalities, but that the range on offer will increase in the future. As
noted previously, several of these urban networks are, furthermore, of insufficient size and/or
quality to have any impact on pricing levels and the competitive situation26. PwC calculates
that the combined turnover of this type of player from the renting out of network capacity to
customers outside of their own (municipal) operations or energy company, was approximately
SEK 15-20 million in 1998.

The incidence of competition at urban network level does not affect price levels for services
such as leased lines to any great extent. This is because the urban network players in many
cases fail to offer the holistic solutions that many telecommunications services end-user
demand (such as leased lines, Internet access etc.).

As things stand, therefore, the competition for urban network type infrastructure is limited and
different in different parts of Sweden, with a greater element of competition in and between
the big city regions.

6.2.2 Market developments
The market was characterised by the new construction and extension of urban networks by
administrative municipalities/municipal energy companies in 1998. Customers’ interest in
these local urban network owners also increased during the year, in spite of the fact that a
number of the municipally owned players do not, as yet, offer the renting out of black fibre or
administered bandwidth for external customers.

PwC believes that the municipalities have, in the majority of cases, invested primarily for
internal use, but that several of them are considering offering network capacity in the market.
The technical quality of the networks does, however, vary, which means that many munici-
     The infrastructure’ technical preconditions and quality vary considerably from one municipality to another.

palities’offers can only be seen as a complement. The competition in the market is uneven
and varies from one municipality to another.

No new players entered the market, which is dominated by Telia, in 1998. In Stockholm,
STOKAB constitutes a genuine alternative for renting black fibre, whilst Teracom is an inte-
resting alternative in those parts of the rest of Sweden where they have networks.

6.3        Access networks

6.3.1 Players
Network capacity is used within the access network sector by the end-users to connect to
urban and core networks. The end-users comprise private individuals and companies/

The biggest and most significant telecommunications access network is owned by Telia. It
largely comprises copper cable pairs and reaches, in principle, every Swedish household.
There are currently no other significant players in the field, and hence no genuine compe-

The picture is somewhat different if other possible access networks, such as the cable TV
network, are included. It is, at present, slightly unusual for cable TV to be used as a telecom-
munications access network, but solutions of this kind may constitute an interesting alter-
native within a few years’time, in that approximately 2,600,000 Swedish households are cur-
rently connected to cable TV27. There are currently in the region of 70 players in the cable TV
market, but the majority are small and only operate in a single community. In 1998, the four
largest companies, Telia Infomedia Television, Kabelvision, the StjärnTV network28, and
Sweden On Line, accounted for 79% of the total number of households connected. A break-
through for cable TV access would increase the competition in the access market, but only to
a degree, in that Telia Infomedia Television has over 50% of the connected households in
Sweden. The high level of cable TV availability is thought, in itself, to be insufficient to break
Telia’ dominance of the access market.

     Cable TV statistics are taken from Swedish Cable TV Association figures.
     Only available in Stockholm.

The cable TV market

                               Total number of households connected to cable TV, 1998: 2 600 000


              7%                                                                                        51%



              Telia Infomedia Television         Kabelvision     StjärnTV-nätet       Sweden On Line   Other

Source: Swedish Cable TV association

The GSM/NMT networks already constitute alternatives to Telia’ copper access network for
speech telephony, which means that Telia, Tele2 and Europolitan can be included amongst the
access network players. The lower transfer rates, coupled with the high prices for mobile tele-
communication in comparison with fixed telephony, do, however, limit the mobile networks’
potential for offering a fully acceptable access network alternative to the fixed access net-

6.3.2 Market developments
The competition for network capacity in the access market remained weak in 1998, and the
telecommunications market was, therefore, dependent on Telia’ copper access network to
reach households in 1998. The competition was stronger on the corporate front, as direct
access is an alternative for the larger customers. Competition on the access front is expected
to increase in the future, with one access solution alternative being the cable TV network.
Telia Infomedia Visions’dominance of the cable TV market means, however, that households
only have the opportunity to acquire an alternative access supplier via cable TV in 47% of
those households that have cable TV.

Netcom’ Kabelvision has carried out tests in 1998 involving using the cable TV network for
the Internet, as a result of which Kabelvision’ customers in Stockholm were offered a high-
speed link to the Internet via a bidirectional cable modem. Sweden On Line also offers
Internet access via the cable TV network, and the Stjärn TV network in Stockholm has also
conducted tests and will launch its own Internet service in 1999. The competition thus relates
to Internet services, but not to telephony.

6.4    Services
There was a trend in the services sphere in 1998 that saw customers increasingly demanding
higher capacity and shorter lead times for already available services.

The most common services offered in the market at present comprise black fibre and ad-
ministered bandwidth. At core network level, the demand for administered bandwidth seems
able to be met with the aid of new technology that increases capacity. A couple of players
have, on the other hand, indicated that black fibre is in demand to an extent that outstrips
availability, and that this trend was reinforced in 1998. PwC calculates that the lack of black
fibre demanded constitutes a limitation for certain operators who currently want to use tech-
nology platforms other than those commonly found within the core networks.

New technologies have emerged, such as wavelength multiplexing, which means tat the capa-
city for existing infrastructure is increasing. Wavelength multiplexing also gives rise to a pos-
sible new service, namely the renting out of wavelengths. This service is known as grey fibre,
and can, as the name suggests, be seen as a something in between black fibre and admini-
stered bandwidth.

6.5     Capacity requirements
The network capacity requirement is expected to increase dramatically over the next few
years, driven primarily by the strong growth in datacommunication. It is, however, this in-
crease notwithstanding, and as noted previously, unlikely that the greater demand for admi-
nistered bandwidth will lead to a capacity shortfall in Sweden’ larger communities, between
them, or internationally, in that the network infrastructure currently extant in Sweden is ex-
pected to prove sufficient to meet this increased requirement. Wavelength multiplexing will
secure the potential for continuous upgrading of the infrastructure’ performance.

6.6     Access networks - new solutions
When it comes to access to households, several of the market’ players claim that it is prima-
rily cable TV that constitutes a genuine alternative to today’ copper access. A transfer rate of
256 Kb/s - 10 Mb/s29 can be achieved with a cable modem. Telia owns a large part of the
Swedish cable TV networks, so this alternative will probably not change Telia’ dominance of
the customer access market to any significant extent.

Alternatives to the existing access forms include ADSL, for example, whereby it will be pos-
sible to receive data at transfer rates of between 2 and 8 Mb/s30 via the telecommunications
network’ copper cables. The transfer rate when actually sending data will be considerably
lower at approximately 150 Kb/s. Telia has conducted wide-ranging tests of the technology

  The transfer rate to the respective subscriber depends on a number of factors, such as the structure and
capacity of the network, the number of users on the same network etc.
  The transfer rate to the respective subscriber depends on a number of factors, such as the distance between
curb and subscriber, the quality of the copper cable etc.

with households and companies in Stockholm, Gothenburg and Sundsvall in 1998, which will
continue until the summer of 1999.

The size to which the market for access via cable TV and ADSL networks will grow depends
both on the end-user’ perception of the pricing, and on the capacity requirement generated by
new services. During the trial period, the price of the ADSL service has comprised a fixed
part and a floating one, which is based on the number of megabytes downloaded.

PwC believes there is a risk that the consumer will respond negatively to the floating cost, in
that most people find it difficult to gain any sense of the amounts of data they are down-

Many experts feel that access for fixed telephony services via electricity networks will not
become a commercial alternative within the next few years, due to problems of instability in
the networks in the form of disruptions, and to the fact that the cost of the equipment currently
being tested is far too high. PwC also believes that is less likely that the electricity/energy
companies will, themselves, be able to achieve the same market force for communications
solutions over the next few years as that achievable by the telecommunications companies.

Stockholm Energi will be launching an Internet access service via the electricity network in
the spring/summer of 1999 in partnership with Tele2. This service will initially be offered
within a geographically limited area (Bromma in Stockholm), and the plan is for it then to be
spread to larger areas. Partnerships such as this may be one way of increasing the market im-
pact of this type of offer.

An increasing number of fibres will be drawn further own towards end-users over the next
few years, even for private customers, in the opinion of PwC. Housing companies are increa-
singly interested and other players such as energy companies and municipal networks are also
demonstrating interest. PwC believes that the probable trend will see fibres offered as a group
connection for a block of flats, for example, or to the nearest connection point to the end-user.
Customer access for private customers will still be dominated for the next 2 to 3 years by
copper or coaxial cable, with cable modems or ADSL offering speeds of 2 Mb/s or greater.

Radio access solutions using technologies such as LMDS31, are access alternatives for the
future for those operators who wish to offer their own access to their end-users. LMDS is seen
in Europe as a technology that could very well become important within “point to multipoint”,
and tests are in progress.

  Local multipoint distribution service, operators, inter alia, at between 26 and 28 GHz, and offers asymmetric

7        Implications of regulation and deregulation

7.1     Carrier preselection
The majority of the market players are agreed that the introduction of carrier preselection that
will take place on 11 September 1999 is an extremely important regulatory change. This is
partly due to the market structure in Sweden, where a large percentage is comprised of house-
holds and small companies, for whom indirect connection is a viable alternative to direct con-
nection. The introduction of carrier preselection will coincide with the introduction of the
international prefix, 00, in Sweden.

The effect that preselection will have on the various operators and the competitive situation is
difficult to assess. Operators that currently offer their services via prefixes estimate that over
30% of phone calls are lost to Telia because the customers forget or neglect to use the prefix.
Of those subscribers who have applied to become customers of an operator other than Telia,
35% or more may be dormant customers, and many customers have subscriptions with several

The change will affect all end-user segments, but it remains to be seen which will make an
active choice. It is unlikely that many of those groups of private individuals who are currently
unaware of the alternatives available will choose a new operator. Both a knowledge of the
alternatives and the number of households using operators other than Telia varies between
built up and rural areas.

                                          Aware of                               Uses

                               Built up area        Rural area   Built up area          Rural area

Telia                                                            97.5%                  96.9%

Tele 2                         52.8%                34.4%        12.2%                  7.1%

Telenordia                     13.3%                5.1%         1.1%                   0.4%

    t         t
Don’ know/Don’ know of any     27.7%                39.8%        1.5%                   2.3%

Source: Demoskop in Telecom Supervision 1998, PTS

Knowledge of the alternatives on offer is important to the ability to choose telecommunica-
tions services from different operators. Approximately 40% of households in the above-
mentioned survey felt that they had sufficient information, whilst 46% felt that they had insuf-
ficient information. The operators have continued to market their services actively since this
survey, and an intensification of the marketing can be expected ahead of the introduction of

carrier preselection. It is important to question whether there genuinely is a lack of informa-
tion or whether it is a case of households feeling that they have insufficient information be-
cause they have not taken on board the information that is available. This may be due to
households not believing that the savings that could be made are worth the hassle of

This shows, however, that there is a need for information on the available alternatives, and
that the effect of the introduction of carrier preselection will depend on how well operators
and PTS manage to communicate the change.

PwC believes that the big winners will be the operators who can offer holistic solutions that
include both the services which the customers have become used to having included in a fixed
subscription, and the degree of service currently offered. The operator who can show the
savings that a change would yield in relation to the effort required will have a clear advantage.
Telia is in a unique position due to the company’ dominance in the fixed access sphere, and
the fact that the customers are already subscribers to their network.

7.2     Number portability
The introduction of number portability will be an important factor for boosting competitive-
ness, primarily with regard to the competition for the larger companies and organisations.
These groups have previously demonstrated a sluggishness in changing operator as a result of
the massive indirect costs associated with a change of this kind. These include costs in the
form, for example, of information for customers or other interested parties, new business
cards and brochures. The fact that it is primarily the larger companies and organisations that
will be affected by the change is that it must be profitable for the operator to offer the cus-
tomer direct access is number portability is to achieve any genuinely significant impact.

Number portability may prove more significant in the big city areas than in other parts of the
country because the competition is greater in these areas and the cost of direct access lower.
Number portability will also prove more significant if a new form of access technology be-
comes a genuine alternative to today’ copper access. The introduction of number portability
will increase the competition for corporate customers, and the operators will compete to an
even greater extent than today with service, prices and range of services - which will benefit
the customers.

7.3     Local-Loop Unbundling (LLUB)
Telia still dominates the fixed access market (primarily in the private access to households
sector, but also in private access to companies), in spite of the services which Telia offers
other operators. The other operators regard the Copper service as incorrectly priced and they
thus believe that this makes it impossible for them to compete with Telia on equal terms.

The dominance in the local call market has, to a degree, been broken in that mobile telephony
has successfully taken a large share of this market, in spite of the markedly higher call char-
ges. The mobile phone is currently used primarily for telephony, which means that the domi-

nance in the access network can be said to be of the greatest importance with regard to
Internet access via modems or ISDN, and to future broadband access requirements.

If the terms on which players compete are to be the same for all, the majority of the market’ s
players believe that the rules governing access to the access network must be changed.
Operators other than Telia stay that genuinely free competition cannot be achieved until they
can buy or rent existing access at a price which they regard as being competitively neutral in
relation to what the access network costs Telia.

7.4     Prefix allocation
The trend towards more differentiated services has resulted in the operators seeing a need for
more prefixes, in order to be able to offer various types of services with different prefixes.
Examples of differentiated services include low price telephony over the Internet or adverti-
sing telephony. An operator who only offers this type of service can offer the service by allo-
wing the customer to use a particular prefix. An operator who wishes to offer different types
of services can be forced to allow the en-user to use two stage dialling32, for example, for one
of the services. This leads to an increased difficulty in using the service, and hence to re-
sistance to using the service from the end-user.

Some operators believe that the difficulty in obtaining several prefixes for a company in line
with the existing criteria inhibits competition and that they are decelerating the development
and growth of differentiated services.

7.5     Interconnect
The opportunities for operators to compete on equal terms are still affected by the intercon-
nect services offered and the interconnect charges levied.

Anyone supplying a telecommunications service and who is subject to an obligation to give
notice, pursuant to §4 a of the Swedish Telecommunications Act (1993:597) is liable, upon
request, to conduct interconnect traffic with another party who provides a telecommunications
service and who has notified, pursuant to the said paragraph. The same thing applies to any-
one providing another telecommunications service within a public network on a scale which,
with regard to the dispersal area, number of users or other comparable circumstance, is signi-
ficant. §20 of the same Act stipulates that remuneration for interconnect facilities in respect of
telephony services to fixed termination points shall be fair and reasonable with regard to the
performance costs. This also applies to interconnect facilities in respect of telephony services
to mobile termination points, if it is being conducted by anyone with a significant influence
on the interconnect market and who has been registered by PTS with the European Commis-
sion, pursuant to §4 b of the Swedish Telecommunications Act. PTS has calculated that Telia
is the operator, from all those operators active in the Swedish market, who has a significant
influence and is hence liable to offer equivalent terms and conditions for anyone requesting
interconnect facilities.

     Example: Dial a 020/0200 number, enter an account number and PIN code, dial the desired phone number.

The market players believe that the interconnect services currently offered cover the funda-
mental requirements for the ability to offer competitive telephony. Several players also point,
however, to the need for access to Telia’ access network on reasonable terms, and for a
broader portfolio of interconnect services.

The interconnect charges in respect of telephony services to fixed termination points have
continued to fall in 1998, and Telia implemented two price cuts during the year.

Interconnect charges for termination and access (ex. VAT), peak traffic, weekdays
between 8 a.m. and 6 p.m.: per minute charge plus call setup charge.

SEK 1/100 per minute     1996                     1997                1998 (Nov.)

local segment            16                       12 + 7              6.4 + 4.2

single segment           23                       16 + 7              8.9 + 4.9

double segment           30                       23 + 7              12.6 + 5.6

big city segment                                                      7.3 + 7

Source: Telia and The Swedish Competition Authority

Telia’ per minute charge for a local call in 1998 was SEK 0.184 (ex. VAT), whilst a com-
peting operator utilising Telia’ interconnect service for indirect connection achieved a per
minute charge for interconnect traffic of SEK 0.178 (SEK 0.089 + SEK 0.089) for two single
segments plus a call setup charge of SEK 0.49. The pricing trend has made it possible for
several operators to offer competitive prices for local calls, even if the margins are still small
and the operator must utilise Telia’ interconnect facilities all the way down the line.

1998 also saw no change to the interconnect charge for calls from mobiles to mobiles, and
from fixed to mobiles, and the charges have, instead, remained on a par with previous years’
levels. In April 1999, PTS decided that the interconnect charge for telephony services in
Telia’ mobile network shall be reduced, as of 1 June 1999. The charge is currently SEK 2.75
per minute for peak rate traffic and SEK 1.60 per minute for other traffic. These rates are to
be reduced to an average maximum of SEK 1.89 per minute for traffic using Telia’ GSM s
network, SEK 1.43 per minute for traffic using Telia’ NMT 900 network, and SEK 1.87 per
minute for traffic using Telia’ NMT 450 network. PTS based its decision on the fact that its
review had revealed, inter alia, that the costs of customer support, marketing and sales had
been included when Telia calculated the price it had previously set.

PwC calculates that the reduction in the interconnect charge for telephony using Telia’   s
mobile networks will lead to a reduction to more or less the same extent in the per minute
charge for the end-user. This may mean increased traffic in both the mobile and fixed net-
works. The effect on the fixed network will depend on the possibility that the high percentage
of calls from fixed to mobile phones currently handled by operators could increase still
further. The effect will probably be greatest within the private segment, which is considerably
more price sensitive. On top of this, there is the increase in traffic that would have occurred
irrespective of this change, due to market growth. The probable increase in traffic can hence
lead to the net revenues of the operators increasing or being maintained, even with lower

The reduced interconnect charges also increase the opportunities for the other operators with
interconnect agreements to offer competitive prices for calls from fixed phones to mobile
ones. It was previously primarily the operators who exploited the potential for bouncing
traffic in a foreign operator’ network (so-called tromboning or refiling) who have been able
to offer prices that were sufficiently low to enable them to compete with Telia and the other
mobile operators. The operator with whom the traffic is bounced then terminates the traffic, in
turn, in Telia’ mobile network, for example. The cost of this procedure is the sum of what the
operator pays for traffic to the foreign operator and the foreign operator’ charge on Telia.
This is often considerably lower than the SEK 2.75 that the operator has, to date, paid in
interconnect charges for calls from fixed phones to mobile ones. Whether the reduction will
prove sufficient for these operators to exploit the potential for national interconnects is diffi-
cult to assess. The international telecommunications markets will, however, definitely also be
affected by the changes taking place there in the form of deregulation and cuts in international
transfer price rates etc. This trend, coupled with the fact that mobile traffic is beginning to be
differentiated to a greater extent, even internationally, means that the potential for bouncing
traffic at the low costs currently borne by certain players, will probably decrease.

8      Trends

8.1    Convergence between data and telecommunications
The integration between data and fixed telephony will largely be affected by how quickly IP-
based networks can offer sufficient quality for telephony.

Estimates by market players indicate that up to 5% of the traffic from private telephony and
20% of the corporate traffic can be IP-based within 2 years. In 5 years’time, it is estimated
that between 30% and 40% of the traffic from private telephony and between 70% and 80%
of the traffic from corporate telephony will be IP-based. We use the term, IP-based, here to
mean that the call, during some part of the transfer, utilises an IP-network.

The factors that will promote this trend are:

• packaging of data and telephony in new services with value added for the end-user;

• the integration of speech and data in the companies’exchanges and LANs.

• Some of the criteria which certain of the market’ players believe must be fulfilled if the
  trend is to proceed at the pace predicted by the market’ players are:

• the providers must develop systems that are better adapted to the needs of telephony (e.g.
  ensure Quality of Service, billing solutions);

• the operators must be prepared to exchange or complement existing installations with new

8.2     Packaging
The packaging of services is becoming increasingly important to the operators in terms of
their ability to compete for customers. Companies are currently the main prioritised target
group for packaged services, and they are being offered solutions involving fixed telephony,
mobile telephony, data access, value added services, support etc. The packaging of services
can be seen as a competition inhibiting measure if it is done by leading market players. The
Swedish Competition Authority has previously examined Telia’ combined packaging of
GSM and NMT subscriptions, for example, and Telia was obliged, on this occasion, to cease
the combined packaging of these services.

The packaging of services will probably increase as service providers without their own net-
works are allowed to offer their services in the mobile market by utilising the mobile ope-
rators’networks. The potential for packaging offers is, after all, one of the important reasons
for a smaller operator offering mobile telephony via an agreement with a mobile operator.

Allowing more players to compete on equal terms will also result in packaging no longer
necessarily being seen as inhibiting competition. There may, however, be certain difficulties

for new players in achieving profitability in a business where they are more or less functio-
ning as a retailer to one or more other operators.

Several companies which traditionally belong to other industries are developing an ever in-
creasing interest in telecommunications. One clear example of this is provided by the energy
companies who have formed their own “communication companies”, or alliances with
operators. Examples of such companies include Vattenfall, Sydkraft Telecom, and Stockholm
Telecom. The advantages generated by packaging with existing products are an important
competitive factor for these companies, both for the existing products and for the telecommu-
nications services.

8.3     Geographic differentiation
The players believe that the demand for services currently varies greatly between big cities
and smaller towns/rural areas. This also makes different demands on the expansion of net-
work capacity and the development/launch of services. Investments in new technology, e.g. in
the form of the expansion of mobile data (GPRS and UMTS) or the expansion of fibre optic
links to homes or companies, will initially focus on the big cities. The consequence will be an
increased differentiation, with different services, prices and market working up approaches for
different geographical areas of Sweden. This does not have to mean that the customers outside
of the big city regions pay higher prices or receive poorer service.

Examples of geographical differentiation include Comviq Norr, where Comviq offers com-
panies in northern Sweden lower call charges for calls from mobile phones, and Telia’ ISDN
services, which are considerably higher priced outside of so-called ISDN communities. PwC
regards the lower prices offered by Comviq for mobile telephony in Växjö, Umeå and on
Gotland more as tests of volume and price elasticity than examples of geographical differen-
tiation resulting from competitive or demand variations.

In the legislative history of the revised Swedish Telecommunications Act (Govt. Bill
1996/97:61), it is clear that Telia is to be required to provide telephony services between fixed
termination points at a reasonable price. The price shall be reasonable from a consumer per-
spective, and this means that certain geographical differences are permitted, unless a reduc-
tion in one region is being paid for by an increase in another. The Government has utilised the
reasonableness requirement in the form of a price ceiling for Telia’ subscription charges.
When it comes to the pricing of other services and call charges, there is currently, in practice,
no price ceiling for Telia, and they are, instead, allowed to compete with other players by
means, for example, of geographical differences in pricing.

The players state that the market will notice far more clearly a trend whereby, in order to be
able to develop new services and products, they will launch them in areas where profitability
is possible first, and refrain from launching them throughout the market. Profitability and
competitiveness will also be ensured through different pricing in different geographical areas.

Appendix B – stat istical material

Compilation of the statistical material included in the report

The statistical material for fixed telephony services in 1998 is based on the information collated by PwC directly
from the operators, from publicly available material, and on PwC’ assessments. The information for the period
from 1994 to 1996 is based on statistical material from Stelacon’ 1997 market analysis. The 1997 statistical
material is based on the same analysis but has been revised by PwC to include partially new information
obtained from the operators.

Table 1: The value of fixed telephony by segment, during the period from 1994 to 1998. Revenue from
interconnect traffic is excluded. Source: Stelacon 1994-1996, Stelacon and PwC 1997, PwC 1998.
Fixed telephony             1994            1995          1996            1997           1998
market (SEK m)
Total                       19 597          20 438        21 621          23 275         25 018
Fixed charges                7 146           7 339         7 639           7 911          8 621
Area calls*                  2 388           3 094         4 093           4 764          5 680
Regional calls**               662             598           592             565            0
Long-distance calls***       3 903           3 012         2 564           2 352          2 501
To mobile phones             1 431           2 044         2 555           3 673          4 081
International calls          3 138           3 415         3 178           2 695          2 477
Other                          929             936         1 000           1 315          1 658
*        Changed name to local calls on 7 November 1997.
**       Abolished on 7 November 1997.
***      Changed name to national calls (Sverigesamtal) on 7 November 1997.

Table 2: The value of fixed telephony services by operator, during the period from 1994 to 1998. Revenue from
interconnect traffic is excluded. Source: Stelacon 1994-1996, Stelacon and PwC 1997, PwC 1998.
Fixed telephony             1994            1995            1996           1997            1998
market (SEK m)
Total                       19 597          20 438          21 621         23 586          25 017
Telia                       19 100          19 561          20 225         21 656          22 621
Tele2                          450*            800*          1 250*          1 054*         1 196*
Other                            47             77             146             565          1 200
*        PwC is of the opinion, on the basis, in part, of new information obtained from Tele2, that the values
         reported in Stelacon’ 1997 analysis in respect of Tele2 for the years from 1994 to 1997 are slightly
         high. A correction has been made for 1997, resulting in the reduction in value from 1996 to 1997.

The statistical material for mobile telephony services in 1998 is based on the information collated by PwC
directly from the operators, from publicly available material, and on PwC’ assessments. The information for the
period from 1994 to 1996 is based on statistical material from Stelacon’ 1997 market analysis.

Table 3: The number of mobile telephony subscriptions in Sweden during the period from 1994 to 1998, broken
down into NMT and GSM, including prepaid cards. Source: Stelacon 1994-1997, PwC 1998.
Total no. subscriptions 1994            1995            1996          1997            1998
Total                   1 381 000       2 008 000       2 492 000     3 169 000       4 108 793
GSM market                422 000       1 033 000       1 571 000     2 414 000       3 605 388
NMT market                959 000         975 000         921 000        755 000        503 405

Table 4: The number of mobile telephony subscriptions in Sweden during the period from 1994 to 1998, NMT
and GSM, broken down by mobile operator. Source: Stelacon 1994-1997 , PwC 1998.
Percentage of    1994      1995      1996       1997       1997     1998       1998      1998      1998
total no.                                        inc.       ex.      inc.       inc.      ex.         ex.
subscriptions                                  prepaid prepaid prepaid prepaid prepaid              prepaid
                                                cards      cards    cards      cards     cards       cards
Total no.       1 381    2 008      2 492      3 169      2 934   4 109      4 109      3 086     3 086
Telia (NMT)     69%      49%        37%        24%        26%     12%           503     16%         503
Telia (GSM)     16%      23%        33%        37%        40%     42%        1 703      45%       1 390
Tele2           10%      21%        19%        26%        20%     31%        1 279      22%         664
Europolitan      5%       7%        11%        13%        14%     15%           624     17%         529

Table 5: The number of GSM mobile telephony subscriptions in Sweden during the period from 1994 to 1998,
broken down by mobile operator. Source: Stelacon 1994-1997 , PwC 1998.
Percentage of    1994      1995      1996       1997     1997      1998      1998       1998      1998
total no.                                        inc.     ex.       inc.      inc.       ex.       ex.
GSM                                            prepaid prepaid prepaid prepaid prepaid prepaid
subscriptions                                   cards    cards     cards     cards      cards    cards
Total no.         422    1 033      1 571      2 414    2 179     3 605     3 605     2 582     2 582
Telia           51%      45%        52%        49%      54%       47%       1 703     54%       1 390
Tele2           32%      41%        30%        34%      27%       36%       1 279     26%         664
Europolitan     17%      14%        18%        18%      19%       17%         624     20%         529

Table 6: The value of mobile telecommunications services during the period from 1994 to 1998, broken down
into NMT and GSM. The operators’interconnect revenues are excluded. Source: Stelacon 1994-1997, PwC
Mobile telephony         1994           1995            1996            1997            1998
market (SEK m)
Total                    4 340          6 050           7 420           8 420           11 349
GSM market               1 070          2 310           4 460           6 190            9 883
NMT market               3 270          3 740           2 960           2 230            1 466

Table 7: The market shares for the NMT and GSM mobile telecommunications services during the period from
1994 to 1998. The operators’interconnect revenues are excluded. Source: Stelacon 1994-1997, PwC 1998.
Mobile telephony         1994        1995         1996          1997         1998        1998
market (SEK m)
Total                    4 340       6 050        7 420         8 420        11 349      11 349
Telia (NMT)               75%         62%           40%          26%          13%         1 466
Telia (GSM)               12%         17%           32%          40%          50%         5 642
Tele2                      7%         13%           16%          17%          17%         1 964
Europolitan                6%           8%          13%          17%          20%         2 277

Table 8: The market shares for the GSM market during the period from 1994 to 1998. The operators’
interconnect revenues are excluded. Source: Stelacon 1994-1997, PwC 1998.
GSM market value          1994         1995         1996        1997        1998        1998
(SEK m)
Total                     1 070        2 310        4 460       6 190       9 883       9 883
Telia                      48%          45%          52%         54%         57%        5 642
Tele2                      28%          34%          26%         23%         20%        1 964
Europolitan                24%          21%          21%         23%         23%        2 277

Table 9: Number of prepaid cards sold and activated during the period from 1997 to 1998. Source: Stelacon
1994-1997, PwC 1998.
No. prepaid cards       1997                       1998                      1998
Total                   235 000                    1 023 000                 1 023 000
Telia                      0                         31%                       313 000
Tele2                   228 000                      60%                       615 000
Europolitan                 7 000                    9%                         95 000