The impact of unicorns - start-ups that grow to reach a valuation of £1 billion or more - on a country’s economy cannot be underestimated. As well as being instrumental to economic growth, having a healthy system that supports start and scale-ups can be linked to prosperous employment and progression.
Sweden has famously reaped the benefits that start-ups can bring. Stockholm has often been labelled ‘the unicorn factory’, second only to the infamous Silicon Valley. The city has successfully created household names such as Spotify and Skype, Minecraft creator Mojang, and King, the company behind Candy Crush Saga. Stockholm also birthed an enviable fintech scene, including disruptors Klarna and iZettle.
Sweden attributes its success to its early adoption of technology and its progressive values which drive creativity and openness to new ideas. Both, key indicators of a successful start-up. But, arguably, there is an important asset that is essential to driving the growth of a tech start-up, one that Sweden has in abundance: connectivity. In 1994 Stockholm built the world’s largest open-access full-fibre network. Currently, around 70 per cent of homes and businesses are passed by fibre, with approximately 50 per cent connected. With in-built connectivity, Stockholm’s roads are quite literally paved with ‘unicorn’ success.
So, how can the UK learn from and emulate the Swedish success?
The UK is fully attuned to the economic benefits an innovative digital (or unicorn) economy can offer. In the most recent OECD global rankings of the number of start-ups created, the UK came a respectable third. It may not have made it into the top ten for start-ups that grew into established, medium-sized companies having a lasting effect on an economy, but according to the Tech Nation 2020 report, in a single year the tech sector alone grew nearly six times as fast as that of the whole UK economy. It employed 9 per cent of the national workforce and created 2.93 million jobs.
The UK government clearly understands the importance of investing in both the tech and the start-up sector. It is something we are likely to see as the country begins its economic recovery following the COVID-19 pandemic. Back in December, the Conservative election manifesto focused on ‘unleashing Britain’s potential’. The party pledged to support and build the UK’s economic future by tapping into the digital economy, enabling the country to become a nation of start-ups and successful scale-ups. But there is one thing that Sweden has that the UK doesn’t – ample connectivity. According to Ofcom’s Connected Nations 2019 UK Report at present three million homes and businesses (10 per cent) have access to full-fibre broadband connections – for the UK to be the next unicorn factory, this needs to be addressed.
Boris Johnson (pre-leadership and General Election) promised to turbo charging the broadband revolution, giving all UK businesses and homes access to full-fibre by 2025 (the original target was 2033). To plan for tomorrow’s prosperity and back companies to innovate and grow, there is no question that access to ubiquitous connectivity from Land’s End to John O’Groats is needed. For every premise to have fibre served directly to it - not to mention the necessary fibre infrastructure to support 5G networks - the UK needs to replace the current copper infrastructure. A network which is no longer fit to deliver the UK’s digital future.
In the first post-Brexit Budget in March with the Chancellor Rishi Sunak promised to commit £5 billion to support the rollout of gigabit-capable broadband in the most difficult to reach areas of the country, so that all areas are able to benefit. Following from this, Ofcom’s four-point plan focused on tackling the remaining roadblocks to investment and supporting competition within the industry; and then there was the Shared Rural Network announcement. But there is a lot of work to do with a £5 billion budget.
To have the necessary impact the government must continue to play its vital role as a catalyst for full-fibre deployment. Funding schemes, as well as addressing policies/regulations that acted as a bottleneck in deployment (e.g. Barrier Busting Taskforce), have been positive steps taken by the UK government to support the industry. But one of the major challenges that it will continue to face in rolling out fibre is financing. For the UK to achieve any full-fibre coverage target, there needs to be collaboration and investment from both the public and private sector. Support will be needed from other sectors of society and perhaps those who potentially will gain profusely from the economic benefits connectivity brings. And this is again where the UK can learn from its Swedish cousins.
Learning from Sweden: An open access model
Sweden chose an open-access full-fibre network to address the country’s connectivity. In the context of telecommunications networks, “open access” typically means the access granted to multiple service providers to wholesale services in the local access network. This enables them to reach the subscriber without the need to deploy a new fibre access network. There are a number of business models that exist depending on which role the different stakeholders’ take-up. But one thing is for sure, aside from lowering the costs for service providers, open access can deliver what end-users want: choice of providers, choice of services, competitive pricing and high performance.
This shift in approach means that up to date and innovative fibre infrastructure is no longer really about telecommunications. Instead, it is about digital connectivity. By taking the telco operator out of the equation, investments can be made into the infrastructure becoming in itself a physical strategic asset as tangible as bricks and mortar. It’s an approach that has facilitated the fast roll out of fibre connectivity in the unicorn factory itself, Sweden, across further areas of Europe as well as South Africa. Essentially, investment will open-up individual regional or local infrastructure projects to multiple external investors and power the UK’s race to deliver universal high-speed broadband.
The Open Access model presents a scalable opportunity to deploy a greater take-up of fibre which in turn, will enable and support market-beating technology start-ups in the UK. Technology investors and start-ups will go where they can function most efficiently – in technology terms this translates to the fastest internet services. Sweden proves this to be true, a moderately sized country, which not only attracts tech talent but promotes digital natives who have grown up with a familiarity for computing and broadband.
Investing in the future unicorn factory
The UK government has a lot on its plate, but it certainly will not rest on its laurels when it comes to the country’s long-term economic future. As it stands telecommunications has been designated “key worker” status by the government – this could change – but at the moment it means critical work can still take place, as long as employees are safe.
One thing is for sure, the UK has a bold vision for technology and full-fibre gigabit connectivity– and for harnessing the digital economy to create a country of start-ups and successful scale-ups. But by listening, learning, and accepting a little help (or advice) from its Swedish friends, and collaboration between the government, the industry and the investor community, the UK could cultivate a lucrative unicorn breeding ground in the UK. Which will certainly bring us a lot closer to achieving our digital destiny.
Mikael Sandberg, Chairman, VX Fiber