Swedish Telecom

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Swedish Telecom

S-123 86 Farsta
Sweden
(0) 8-713 10 00
Fax: (0) 8-713 3333

State-Owned Company
Incorporated: 1853 as Kongl. Elektriska Telegraf-Verket
Employees: 47,971
Sales: SKr31.42 billion (US$5.67 billion)

Swedish Telecom is a state-owned public utility, responsible for Sweden’s telecommunications system, providing a national and international telephone service as well as telex, telegraph, data, and radio communications services. Swedish Telecom is considered to be one of the most successful and efficient telecommunications organizations in the world, due to its highly saturated market. No country has a higher telephone penetration than Sweden. The company is one of the largest employers in the country, with approximately 1 % of Sweden’s work force employed by Swedish Telecom or its subsidiaries.

Swedish Telecom began in 1853, established by the Swedish government as Kongl. Elektriska Telegraf-Verket when an electric telegraph line using the Morse system was opened between Stockholm and Uppsala. Since then the company has operated under a variety of names, including Telegrafverket after 1860 and Televerket since 1953. The opening of the initial electric telegraph line was followed by the rapid development of a widespread telegraph network, consisting initially of single-wire telegraph lines. By 1854 the first telegraph line to the continent via a submarine cable was opened, and by 1857 a telegraph line was completed between Ystad and Haparanda, linking Sweden from north to south. In 1877 the first telephone line was installed, only one year after Alexander Graham Bell’s invention. At the beginning of that year it was demonstrated in Sweden to King Oscar at the Royal Castle in Stockholm. By the 1880s private telephone societies were founded in most of Sweden’s large towns. By 1885 Stockholm had more telephones than any other city in the world. By the turn of the century, Telegrafverket had installed 62,000 telephones, plus several exchanges of varying sizes. In 1918 there was a major change in the company’s status when it purchased the telecommunications firm Stockholms Allmänna Telefon AB, which was responsible for the largest telephone exchange in Sweden. Telegrafverket had for some time challenged this company’s dominance in taking over telephone subscriptions and long-distance calls. Although the market was still formally open, the buy-out resulted in a national de facto monopoly, as no other competitor seemed to have the financial means or technical resources to mount a challenge.

Swedish Telecom has always placed a high value on research and development and, from the late 1800s, manufactured its own telephone exchanges and instruments, in competition with private industry. This provided about one-third of the company’s needs. At the 1900 World Fair in Paris, one of Swedish Telecom’s engineers, G.A. Betulander, jointly won a gold medal for his design for an automatic exchange. In 1910 Telegrafverket collaborated with the privately owned Swedish company LM Ericsson to develop the 500-line selector system. The most exciting technical milestone, however, came when Betulander, in collaboration with another engineer, Nils Palmgren, designed the crossbar switch, and the country’s first exchange using the crossbar switching system opened in 1926.

The switch was a revolution in telecommunications, not only providing the impetus for the automation of the Swedish telephone system, but also attracting wide interest from around the world. The 1926 experimental installation resulted in 1931 in the crossbar switch being used to automate small rural exchanges. In 1921 Swedish Telecom began laying the first of its long-distance cables, which has since developed into an extensive network. Until 1935 these cables were used exclusively for the transfer of regular low-frequency signals but in that year Swedish Telecom began to apply carrier frequency systems to long-distance cables. Initially, loaded circuits with single channel operation that provided one additional facility were used, but from 1939 an unloaded circuits with multichannel system operation (Westcoast cable) came into use, which allowed 18 simultaneous conversations.

During the first few years after World War II, Swedish Telecom enjoyed a marked increase in investment, compensating for the lack of such cash injections during the war. The money invested, however, did not keep pace with the rise in the number of subscribers connected or the increase in telegraph or telephone traffic, which had accelerated sharply after the war. In 1947 alone, 111,000 new telephone users were connected. Although the government increased the connection fee threefold to limit applications, this inevitably reduced investment. Shortages of material and labor during the war limited the amount of cable laid, a problem that was rectified during the three following years, when the company extended its network by implementing circuits that would have measured to the moon and back.

In 1938 the number of overseas calls to the United States was only 320, but by 1947 the number had risen to 4,800, due mainly to the reduction in rates when the direct radio telephone route to North America, via New York, was opened that year. During the mid-1940s a fully automatic Telex service was introduced. By 1948, 60% of all telephones in Sweden were fully automated, with the remaining percentage due for automation over the next 24 years, using the crossbar switch or the 500-line selector system. This automation not only gave subscribers a more efficient and reliable service but meant lower operating costs, since the cost of staffing manual exchanges had risen faster than the cost of maintaining, operating, and investing in the automatic exchanges.

The 1960s and 1970s were a period of strong growth for the company. Beginning in the mid-1960s the automatic network grew at a rate of more than 160 new exchanges each year, and new trunk exchanges were installed in the Stockholm area to deal with trunk and transit traffic. In 1965 the data communications service was introduced in Sweden. In April 1970 Swedish Telecom consolidated its strong relationship with LM Ericsson by signing agreements to set up a jointly owned research and development company, Ellemtel, which would develop advanced electronic communications systems and products. One of the first such projects was the development of electronic switching systems—the AXE system—together with equipment for data networks, electronic private exchanges, telephone systems based on the integrated system technique, and advanced electronic telephone instruments. The last manual exchange was taken out of service in 1972.

In 1971 a satellite earth station was installed near Goteburg in the western province of Bohuslan, as part of Intelsat (International Telecommunications Satellite Organisation), which owns and operates satellites used for public international telecommunications. The Nordic earth station, as it was known, was a joint undertaking between Sweden, Norway, Finland, and Denmark to provide themselves with an international network. In early 1979, Swedish Telecom established its own Videotext trial service. The establishment of a joint public data network, Nordic Data Network, and the introduction of the Database-300 service in the United States in March 1980 enabled Swedish users to gain access to a large number of host computers in the U.S. Tymnet and GTE Telenet networks. By 1980 nearly 98% of domestic calls were dialed directly by Swedish telephone subscribers, and the proportion of international long-distance direct dialing was increasing steadily. More than 58% of such calls were handled automatically during the fiscal year 1969–1970, compared to 39% the previous year. In addition, this period saw domestic long-distance and international calls increasing faster than local traffic.

The 1980s saw great changes for Swedish Telecom, the most significant being the gradual removal of its monopoly. The deregulation of the Swedish telecommunications market was virtually completed in 1989, with the abolition of Swedish Telecom’s monopoly on large and medium-sized PABXs (private automatic branch exchanges), resulting in one of the most open telecommunications markets in the world. In response to the need for further competition, Televerket sought permission from the government to set up a holding company called Teleinvest that would own and administer the share capital of Televerket’s subsidiary companies. Permission for this was granted.

Deregulation, however, has had a devastating effect on Swedish Telecom’s production market. Teli, the company’s subsidiary responsible for the production of telephones, was forced to lay off almost 780 workers at the end of 1988 when it decided to cease production after showing a series of annual losses of almost SKr100 million. No longer part of a monopoly, the company found itself unable to compete with countries where wages were only one-tenth of those in Sweden. The company had stressed, however, that its other products, particularly technically advanced ones, were then profitable.

In 1984 Swedish Telecom was further challenged when it was separated from the national budget and forced to seek funding on the open market. In 1991 Swedish Telecom financed most of its investments from profits and for the fiscal year 1984–1985, Televerket was empowered by the Swedish Parliament to take out loans on the open market. The company invests over SKr5 billion a year on the expansion and modernization of its telecommunications network, which began in the early 1980s. The computerized AXE system is gradually replacing Sweden’s electromechanical telephone exchanges. In addition, optical fiber cable is making a major contribution to network quality and capacity enhancement. The company had consequently become one of the largest borrowers on the Swedish credit market, financing loans by issuing TeleCertificates and TeleBonds. It also incorporated a central finance unit that is responsible for raising loan capital and redistributing surplus funds.

Swedish Telecom International AB was formed in October 1991 as a wholly owned subsidiary of Teleinvest AB, which will market the company’s international network services.

In the early 1990s however, the biggest change for the company may yet lie ahead. In 1990 the director general of Swedish Telecom, Tony Hagstrom, called for the telecommunications company to be opened up to private ownership, via a stock market flotation. This will enable it to have sufficient risk capital to meet growing competition from a deregulated European market. Hagstrom believes that there will only be three or four telecommunications companies in Europe after 1992 and that Swedish Telecom needs more risk capital if it is to persist, extending its business into world markets through cooperation and alliances with other companies as well as direct acquisitions. He has proposed selling up to 45% of the company, which could yield the government as much as US$3.5 billion, or about half the groups’ value. Before proceeding, however, the company has to secure the backing of both the Swedish government and Parliament. Under existing proposals, Swedish Telecom would retain 55% of the company, with the rest being sold to the public, pension funds, private insurance companies, and other investors. The sale is, however, unlikely to take place in the near future.

Hagstrom also wants Swedish Telecom to become an international company in the 1990s through the acquisition of shares in foreign telecommunications companies. In an open letter to the company’s employees, he described telecommunications as one of the most dynamic and strategic areas of European industrial growth, shaped by the emerging internal market of the European Community. “Old national monopolies and national boundaries are disappearing,” he wrote. “We must follow our customers out into the world and Europe.” Recognizing that Swedish Telecom is handicapped by its small size, he emphasized that the company must compensate for this by being more flexible by building up strategic alliances and consortiums with overseas companies. Swedish Telecom faces the toughest time in its more-than-100-year history. The company’s earlier success, however, should provide a solid basis for future prosperity.

Principal Subsidiaries

Teleinvest AB; Teli AB; Telefinans AB; TeleLarm AB; Telemedia AB; Tele Control Communications AB; Swedtel AB; TeleDelta AB; TeleNova AB; Diab Data AB; Infologics AB; Infivix AB; Mimer Software AB; Scandinavian Telecom Trading AB; Swedish Telecom International AB; Televerket Data AB.