Soaring demand for faster Internet has sparked a race for fiber-optic capacity in Sweden with EQT Partners AB challenging broadband market leader TeliaSonera AB (TLSN), according to the private-equity firm’s managing partner.
EQT, part-owned by the Wallenberg family and sporting about 7 billion euros ($9.5 billion) in available funds, has spent recent months acquiring fiber assets to consolidate the country’s more than 200 local networks, just as more Swedes start using streaming services such as Netflix. That contrasts with Colorado billionaire John Malone’s Liberty Global Plc (LBTYA:US) and Vodafone Group Plc (VOD), which have spent billions in the past year gobbling up continental European cable assets.
“If you’re going to lay something in the ground today it’s fiber,” Thomas von Koch, EQT’s managing partner, said in his office overseeing Stockholm’s harbor. “We invest with the trend and we have money.”
Fiber can transfer data as pulses of light over long distances with little signal loss and with higher bandwidths, providing faster access than older systems such as coaxial cable and copper, which can struggle to stream movies and live sport. About half of Sweden’s 9.5 million population could access fiber-optic services last year, leaving room for growth.
EQT acquired IP-Only last year, using the unit to chase Sweden’s municipalities to cede control of local networks. IP-Only bought a network from the local utility in Kristinehamn in December and will expand fiber with speeds of 1 gigabit per second to residents. That’s fast enough to download a high-definition movie in half a minute.
IP-Only has also signed deals with Jarfalla, Sigtuna and Grums municipalities and plans to connect about 30,000 households this year.
The company is targeting consumers such as Tommie Johansson. When the software engineer’s daughters got hooked on Netflix, he paid $2,000 to install speedier Internet at the family home in Haninge to relieve the data crunch. After contractors dug up his driveway to extend the neighborhood network to his front door, he now enjoys download speeds of up to 1 gigabit per second.
“It’s like redoing a bathroom or kitchen, it’s just one of those investments you need to make to improve your house,” Johansson said. “We noticed the videos were buffering too often. Who wants to sit through that? Fiber is a must.”
While Sweden’s municipalities were tempted by tax breaks to build their fiber networks, the operation and development hasn’t been optimal as health-care and education investments often take precedence, von Koch said. Local governments have also had little incentive to combine the numerous networks’ management to cut costs, he said.
While that neglect has validated IP-Only’s business model, TeliaSonera, Sweden’s biggest carrier, is investing 5 billion kronor ($730 million) until the end of 2015, partly to expand its 850,000 fiber-user base. Telenor ASA (TEL), the No. 2 fiber carrier, has 730,000 customers after buying Tele2 AB (TEL2B)’s network last year.
Further south, Vodafone is on an acquisition binge. The most recent of these deals was the 7.2 billion-euro purchase of Spanish cable operator Grupo Corporativo Ono SA in March. Last year, it beat Malone’s Liberty Global to buy Kabel Deutschland Holding AG (KD8) for more than $10 billion. Liberty took over Virgin Media Inc. a year ago for $16 billion in cash and stock and is vying to take control of Dutch operator Ziggo NV.
For von Koch however, “copper is dead” and fiber is the future for EQT. The pace at which fiber is replacing other fixed-line technologies is accelerating, according to Sweden’s telecommunication authority. Last year, the number of fiber accounts grew 15 percent and represented all of the growth in fixed-line connections.
“Streaming video services like Netflix, Viaplay and SVT Play fuel demand for fast broadband,” said Thomas Heath, an analyst at Handelsbanken in Stockholm. “Customers know that fiber is a future-proof technology and operators want to position themselves to match their preferences.”
Success in Sweden and in Norway may also allow EQT to turn its eyes back to a fatter prize: Germany and the rest of continental Europe.
EQT sold Germany’s Kabel Baden-Wuerttemberg GmbH to Liberty Global for about 3.16 billion euros in 2011 after offloading Sweden’s largest cable operator, Com Hem, five years earlier.
“If we can find the golden recipe up here, we can export it quickly to other geographic regions: Benelux, the Netherlands, Germany, maybe Poland,” von Koch said. “We can always scale it 10 times when we go to Germany.”
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