TCS Daily

The Finnish Revolution

By Benedikt Koehler - May 9, 2005 12:00 AM

Finns do not top of the list of people known for hot-blooded radicalism. You look in vain in Finnish history books for stories of citizens storming a Bastille just to let authorities know how they feel. Yet time and again Finns show they know when the time has come to ditch old ways of doing things and rewrite rules. Think of telcos. Few places can claim having challenged Silicon Valley and won. A tiny land on the fringe of Europe is home to Nokia, which did just that. Finns have a knack for spreading innovation.

Right now, Finnish consumers are seeing the first stirrings of another initiative which at first looks innocuous, but which has the potential to overturn a key rationale for keeping public services under public control. Moves are under way to make Finland the first European country without public pay phones. A small step for Finns, a big step for markets.

Orthodox opinion holds governments need to intervene in markets to make sure everyone has access to essential services. The point of reference is Universal Service Obligations. USOs are a British invention. In Victorian England railroads were money-spinners. Parliament required railroad companies to offer discounts to the lower classes. That way, benefits would trickle down to everyone.

There are times and places where USOs make sense, because they raise public welfare. Yet the day comes when USOs outlive their usefulness. From that point on they block innovation and put a brake on growth. In public transport, railroad USOs, once set up to spread benefits, are a roadblock for innovation. Everyone knows that, yet any European politician contemplating closure of a local railroad station is an easy target for the opposition.

Railroads were our great-grandfathers' biggest network economy. USOs were one of the reasons for the industry's decline. Telephony is today's biggest network economy. Assuming we want our great-grandchildren to inherit a vibrant sector rather than the drag of a stagnant one, we need to review USOs. Finns are blazing a trail.

When telephones were first invented, they were sold in pairs. The reason was that on its own a phone was useless because there was nobody to call. Eventually ownership spread and phone buyers could expect they knew someone else who already had one. From then on phone sets were sold singly. The more people owned one, the more useful phones proved.

Even so, for a long time many people were left behind. Telephones put people in touch and that promotes growth. That is when installation of public pay phones increased welfare. Today, in emerging countries there is much to be said for a roll out of public pay phones and for telephony USOs.

Telephony has always been a money-spinner and hence subject to public scrutiny. It did not take long and scrutiny developed into regulation. In the US, AT&T became a private sector monopoly but was expected to offer local calls for free. This concession is in the spirit of USOs.

USOs make sense in the early stages of an industry's growth. Once industries mature, technological innovation and market forces remove the need for public intervention. In public telephony this process is well under way. In Finland public payphone have been an endangered species for some time. Finnish telco Elisa now operates fewer than 1,000, when a decade ago it had 5,000 in Helsinki alone. Now its rival TeliaSonera has announced it will dismantle all of its remaining pay phones by 2006.

In Nordic countries the commitment to public services runs deep. On this occasion, no grumbles have been heard, at least not yet. TeliaSonera prefers not to wake sleeping dogs. Juhani Tapiola, director of TeliaSonera's pay phone unit, told Finnish daily Iltalehti, "I'm not going to make any comments about this." Ringing rhetoric is not Finnish style. Yet make no mistake, once the last public pay phone has gone, the telco sector may mark the day as the outbreak of a Finnish Revolution.


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