EP216 · Economy · first published 2023-10-17

Fibre takes over Finland | Heikki Kaunisto | Negotiator 216

NOTE: this episode was made in commercial collaboration with Valokuitunen Oy, and the guest is its CEO. This article separates the structural observations from the sales pitch and marks which is which. The parts that hold up are why Nokia's legacy explains Finland's lag in fibre, the difference between the open and closed network models — that is, that a free connection is paid for later in the service fee — and why competition happens before construction and therefore produces disappointed customers. The transcript is auto-captioning, which is disclosed.

Sami Miettinen · Sections: AI and the Economy + AI and Society

Fibre takes over Finland | Heikki Kaunisto | Negotiator 216

Summary: NOTE: this episode was made in commercial collaboration with Valokuitunen Oy, and the guest is its CEO. This article separates the structural observations from the sales pitch and marks which is which. The parts that hold up are why Nokia’s legacy explains Finland’s lag in fibre, the difference between the open and closed network models — that is, that a free connection is paid for later in the service fee — and why competition happens before construction and therefore produces disappointed customers. The transcript is auto-captioning, which is disclosed.

Commercial collaboration — read this first

This episode was made in commercial collaboration with Valokuitunen Oy. Both the publisher and the guest say so within the first minute, and it is the single most important fact in this article.

What follows from it:

• The guest is the company’s CEO and presents his own business model as the best option. That is the episode’s open purpose.
• This article is written so as to separate the two. Structural observations and checkable mechanisms are foregrounded; company-specific passages are marked and treated briefly. No service provider is recommended here.
• The host also has a professional stake in the subject. Sami Miettinen refers to his own work as an investment banker and compares fibre’s cash flow profile to the customer-acquisition logic of SaaS companies. That is relevant expertise and at the same time a connection worth knowing about.

One source note: there is no publisher caption track, so this article is based on YouTube auto-captioning. No verbatim quotation is used.

The recording is 17 October 2023.

1. Why Finland fell behind — and it is Nokia’s doing

This is the episode’s best single explanation, because it inverts the familiar story.

Sweden’s fibre coverage is around 90 per cent; Finland’s take-up rate is still lower than the other Nordics’. The usual reading would be that Finland is behind. Kaunisto’s explanation is different, and it is structural:

Finland fell behind in fibre because it succeeded in mobile.

The chain runs like this:

1. In the Nokia era Finland invested nationally in mobile networks, and the operators did the same.
2. Competition led to mobile data in Finland being effectively unlimited at no extra charge. In Sweden data has been paid for by usage.
3. When you have unlimited mobile at home, the need for a fixed connection feels smaller — and the fibre investment goes unmade.
4. In Sweden pricing steered people towards fibre, and Telia built a dominant position.

Kaunisto calls Finns mobile believers, and says plainly that the belief was justified: mobile really has been good in Finland.

As an argument this is strong, because it does not claim anyone made a mistake. It says that pricing structure steered two neighbouring countries into different infrastructure — and that as a result Finland now has headroom Sweden does not. It is also the core of the company’s own growth story, so it is worth reading both ways.

One follow-on point Kaunisto makes and that should be marked: he adds that Finland arrives at the fibre era later and therefore at a better time — the network gets built with current technology rather than the technology of ten years ago. Self-serving, but not wrong.

2. The hundred-megabit illusion

The episode’s most practical lesson, and it generalises to any comparison of connections.

A hundred megabits on mobile and a hundred megabits on fibre are two different products. Kaunisto’s distinction has three parts:

• Variance. Behind a hundred-megabit mobile promise, the realised speed can range from five to a hundred. On fibre the speed is steady.
• Direction. Mobile was designed originally for downloading rather than uploading. Fibre is symmetric.
• Freedom from interference. Fibre works well even at lower speeds, because the connection does not fluctuate.

Direction has grown in importance, and the reason is the change in work: in remote work it is the upload speed that decides. On a video call your own image goes outward. That is the bandwidth mobile architecture has not prioritised.

There are two homely examples in the episode, deliberately so: a child’s Counter-Strike latency, and a Taylor Swift ticket queue that tolerated no upload errors and could not be done on the summer cottage connection — they had to drive to a hotel’s network.

And here comes the passage that makes the episode more credible: Kaunisto says that providers readily push the maximum speed because that is where the margins are best — and that you do not necessarily need to go there. On his account a hundred-megabit fibre connection is already very good for most people. A seller who tells you where his own margins sit deserves to be quoted.

3. Fibre does not age — the terminal equipment does

This is the episode’s technical core and it is easy to verify elsewhere.

The fibre’s own lifespan is estimated in the market at around 50 years, and Kaunisto says honestly that nobody knows exactly, because there is no longer experience than that.

Capacity is increased not by replacing the fibre but by replacing the equipment at each end. From which follows the thing that separates fibre sharply from mobile:

Mobile has generations; fibre does not. Across the transitions 3G → EDGE → 4G → 5G the old networks are retired surprisingly fast, and the transition shows up both as forced device replacement and as price spikes. On fibre, going from a hundred megabits to a gigabit and from a gigabit to ten is not a technological break but an upgrade.

From which also follows the thing that is the same for investor and consumer alike: the expensive one-off is the digging, not the technology. Kaunisto uses the industry’s own term, the last mile problem — that final stretch to the building is what costs.

4. Open or closed model — the episode’s most important structural distinction

This is the episode’s load-bearing argument, and it is a genuine structural claim rather than an opinion.

Openness means one thing: who you may buy the internet service from. The network is the same; the question is whether the builder of the network is also the only service provider.

And from that comes the episode’s single clearest line: there are no free lunches and no free connections. The cost of building fibre has done nothing over the years but rise. If the connection is given away “free”, the return is taken back in the service fee over time — perfectly logical business, but it means the closed structure gets more expensive as the years pass.

Kaunisto’s analogy is good and worth carrying away: building a road versus a toll road. In both cases the road gets paid for. The difference is whether anyone may drive on it afterwards.

The episode uses Norway as the comparison, where the closed model prevails and where, on Kaunisto’s account, prices have risen enough that regulatory intervention has become a deterrent. Sweden is the example of the open model.

Two caveats a reader should keep in mind:

• This is an open-model operator’s argument about the open model. It is structurally correctly presented, but it is also the selling point of his product.
• Price comparisons deserve caution, and Kaunisto says so himself: he describes a comparison in which a notional operator had been assigned to his company. If the assumptions in a comparison are artificial, so is the result. The same caveat applies to his own comparisons.

The practical advice that follows is the most useful thing in the episode: do not lock in your speed at build time. In the open model you can buy the broadband service when you actually need it, at market terms. In the closed model, a two-year fixed contract signed alongside the connection can in effect lock you five years out at that moment’s prices and speeds.

5. Competition happens before construction — and that is where the industry’s reputation problem comes from

This is the episode’s most honest section, and it deals with a question Sami raises from Ivan Puopolo’s MTV3 interview and from the competition authority’s angle.

Kaunisto begins by comparing with the electricity grid, and the difference matters. In the electricity grid an area has a regulated monopoly: there is no competition, but there is also no uncertainty about whether the network gets built.

Fibre is different. The competition is fought before construction, over the area. Several operators collect orders from the same area’s residents, and the one who assembles sufficient demand gets to build.

From which follows an unpleasant mechanism for the consumer:

1. You sign with operator A.
2. Operator A fails to reach a sufficient order book in the area.
3. A does not build, and your contract is cancelled.
4. You have to move to operator B’s network — or go without.

Sami’s question here is exactly the right one and does not get a full answer: how is the consumer supposed to know in advance who will win? They cannot. It is a structural flaw in the industry, not in any one company.

Kaunisto’s own answer is a way of operating rather than a solution, and it should be read as such: his company defines and plans its fibre areas carefully before the area goes on sale, which makes delivery reliability high. That reduces his own company’s cancellations. It does not remove the fact that the losing bidder’s customers are disappointed.

He adds one observation that explains the industry’s reputation more generally: individual cases spoil the whole sector’s name. When an installation goes wrong or a promised network goes unbuilt, it does not stay one company’s problem.

Money buys exceptions. If a customer lies outside a fibre area, the job is priced separately and carried out if the customer accepts the price. The same applies to special sites such as ski resorts. That is an honest answer about what “availability” means.

6. Financing — company-specific, with one generalisable lesson

The financing section is company-specific, but it contains two passages whose logic applies more widely.

Background: a Kauppalehti article about Finnet had questioned how the interest costs on a package of some €400 million could be covered. Kaunisto’s answer is the basic shape of infrastructure: the build period is long and cash flow only begins years later. That is the right answer to that question, but it is not an answer to whether the cash flows will ultimately suffice — and the episode does not show that separately.

Lesson 1: a bank syndicate is itself a due diligence signal. Kaunisto says that raising roughly €285 million of bank debt required a process in which every detail of the business was gone through. His inference is that if the financing comes together, the business is probably on credible footing.

That is a good argument with one caveat a reader should supply themselves: a bank assesses the repayment of its loan, not the return on equity. Secured debt can be well protected even where the shareholder’s return turns out poor.

Lesson 2: the “cheapness” of equity is an illusion. This is the episode’s best passage of finance theory, and it is put unusually clearly. The common thought is that equity burdens cash flow less, because dividends can be stopped at any time. That is true as far as cash flow goes.

But it does not make equity cheap, and the reason is the priority waterfall: equity is last in the queue, so its expected return is higher. Flexibility is not a discount; it is the price of risk.

Kaunisto adds that interest rate risk is hedged, so the future cost of the debt is known precisely. That is particularly relevant in exactly this kind of long-lived, front-loaded infrastructure project, and it is worth reading as the answer to the interest-rate question the previous episode did not ask.

Owners: CapMan Infra and Telia. Kaunisto’s argument is about capability rather than capital: Telia’s backbone network covers the whole country, which gives a different build capability from most others in the market. The connection is worth noticing: the company competes on behalf of the open model, and its owner is the largest closed-model operator in Sweden.

7. Municipalities, cottages, and what has actually changed

The episode’s most concrete societal section, and two things in it survive being lifted out of the advertising context.

Municipalities. Fibre construction in sparsely populated areas attracts significant state support, and on Kaunisto’s account joint projects with municipalities have been fruitful both ways: the municipality gets comprehensive coverage, the builder an efficient rollout. For a small locality fibre can be a strategic project — infrastructure that affects where people move.

The open-model argument is at its strongest here from the municipality’s point of view, and it is about procurement rather than technology: the municipality does not tie itself to a single service provider for decades; residents can competitively tender their broadband on top of the network. In the closed model the municipality’s procurement decision also binds its residents’ future service purchases.

Cottages. This is the episode’s best single observation about what has actually changed: people renting out cottages are now routinely asked what the internet connection is like. There is a concrete reason behind the question — can you stay two weeks instead of one and work remotely for the second.

That is also the answer to why fibre is no longer only an urban product: the connection determines how long a person can be somewhere.

8. The industry: headroom, labour, and what the numbers do not show

A few observations useful regardless of what you make of the company.

The concepts are muddled. Kaunisto notes that market figures are hard to make sense of, because “availability” means different things to different operators — network availability in an area is not the same as connection availability at an address, which is not the same as a built connection. His own suggested basis for comparison is the financial statements: they show who actually invests in network.

The market is not zero-sum. Because mobile in Finland has been so good and so comprehensive, fibre take-up is low — and that is precisely the source of growth. The constraint is not demand but construction resourcing, which is currently difficult.

From which comes the episode’s most interesting aside: growth in fibre construction is offsetting the general construction downturn. With housebuilding in a slump, skilled labour moves into fibre projects and the employment rate holds up better. Kaunisto also notes how remarkably little fibre construction is discussed relative to how much construction is discussed in general.

Customer service by address. A small but apt point: the company’s interface works by address, not through a chatbot. Sami compares this with Telia’s ChatGPT customer bot. The justification is industry logic: in fibre every question comes back to whether it has been built to this particular address — where a bot adds nothing and an address lookup adds everything.

9. Finally: hubcaps, making do, and the surprising concession

The episode ends on two notes, one of which is advertising and one of which is not.

Hubcaps. Kaunisto compares the fibre investment to the details of a car: if you care about cars, you want the small things right. The theme of his advertising campaign is that the Finn is a make-do-er — “I’ll manage with what I’ve got” — and that the idea of quality of life drowns in that. This is sales talk, and it is marked as such here.

And then what you would not expect from a fibre company’s CEO. Kaunisto’s closing conclusion is not that mobile is bad. It is cooperation, and the reasoning is technical:

When households’ enormous data use moves onto the fixed network, that frees capacity on the mobile network — which improves mobile connections for everyone.

The argument is correct and not obvious. Mobile network capacity is a shared resource, and household streaming is a significant load on it. If that moves to fibre, mobile improves exactly where it is genuinely needed: on the move.

It is the episode’s best place to end, because it is the one argument that does not require the consumer to pick a side.

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