Glocalnet

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Glocalnet was founded by Stefan Krook and Andrin Bachman in the 1997. Before that it had been a project within another telecom company, Netnet. At start the co-founders had 30% each of the company; Netnet owned the remaining 40%. The concept was to introduce Internet based telephony (Voice-over-IP), and thereby offer telephone services at lower rates.

Glocalnet started as a technology company offering their services to independent service providers who then had the contact with the end-customers. In Sweden different factors, mainly the equal access reform (“Förvalsreformen”)1) lead to that Glocalnet also took an end-user perspective and thereby acted as operator. In Sweden Glocalnet started with offering fixed telephony services and has later on completed the offering with mobile and Internet access services. The technology (Voice-over-IP) did not become the revolution that Glocalnet had expected and today the company has transformed from being a technology provider into a pure service provider. Glocalnet is one of the main contenders to the well-established telecom service providers, e.g. Telia and Tele 2.

Glocalnet have raised capital in several steps and went public in 2000. Catella joined as investor in 1998 and is today the biggest owner.

Glocalnet’s international expansion could be divided into two phases. The first deals with the period when the company had a technology provider focus and the second when they had changed to a service provider focus.

Being one of the pioneers in Internet based telephony; various international players frequently contacted Glocalnet regarding partnerships. This was often done by a local entrepreneur who was equally convinced of the advantages of the new technology.

This resulted in that Glocalnet in 1999 supplied the necessary technical infrastructure to local companies in Spain, Turkey and Greece. These companies were fully owned by the local entrepreneur and operated under their own brand name. These co-operations also included an option for Glocalnet to buy normally 30% of the local company for a symbolic amount.

These countries were chosen due to the relatively poor sound quality in regular telephony. One of the drawbacks with Internet based telephony was that this technology had not reached the same sound quality standards that clients are accustomed to in northern Europe.

In 1999 Glocalnet changed supplier of technology to get a more scalable and reliable network. The foreign companies did not follow this change, which indirectly lead to that the co-operation was terminated.

Even if this internationalization attempt was terminated, Glocalnet does not have any major regrets. The reason is that this phase of expansion was characterized by very low risk for Glocalnet. The local entrepreneurs took more or less all risk.

The second phase started during the beginning of 2000, in the middle of the prevailing Internet “hype”, the time when everybody wanted to see growth (Larsson, 2002). Glocalnet believed they needed to expand to other markets in order to become profitable. Management, board and owners all agreed that an expansion was the right thing to do. Yet, management was keen on being cautious and not to do it too fast. Two business developers and the CEO worked with the internationalization process. Glocalnet did not use external consultants during any phase of their international expansion.

Approximately 6 months of research was conducted before deciding which market to enter. In this process Glocalnet mainly looked at the other Nordic countries, and the final choice fell on Denmark. At this time the Danish market was relatively competitive. There were 4-5 serious players plus an array of additional minor players. During the expansion phase the market became even more competitive when it came to mobile telephony services.

In Denmark a fully owned subsidiary was started. The idea was to create another Glocalnet. Local management with extensive telecom background was recruited. The CEO, Stefan Krook, was present in Denmark one day a week and in his opinion they achieved to create a very good culture in the subsidiary. Still, cultural differences between Sweden and Denmark in attitudes and business conduct were experienced. This resulted in that the CEO sometimes had to act as a mediator between the subsidiary and the head-office.

Glocalnet were very close to signing a deal with a major player in Denmark (comparable with KF in Sweden). This would have made it much cheaper to market their services. This together with the general down turn on the financial markets in beginning of 2001 was seen as the main reasons for the shut down of operations in Denmark.

Since Glocalnet closed down the subsidiary in Denmark they obviously considered it being a failure. The main reason for the failure was the collapse of the financial markets. Closing a deal with a partner could have changed the situation, but not necessary to the positive. If Glocalnet had continued their Danish operations it may have resulted in further losses, especially considering the continued downturn in the economy that has followed the closedown.

In retrospect the company feels that the hype on the financial markets indirectly “forced” the expansion. The extremely high valuation of the company made Glocalnet think it was necessary to expand. Nevertheless, Glocalnet feels that they successfully managed to build a well functioning subsidiary even if the international expansion decision probably was not based on correct fundamentals.

Glocalnet believes it would have been better to sign up with a partner in Denmark before opening a local subsidiary. As it was done now there was too much risk in relation to the difficulties of getting a partner.

Another capital injection was done in the middle of 2001. Today Glocalnet have grown to become the third largest service provider on fixed telephony in Sweden (after Telia and Tele2). They have close to 100 000 customers and are on the brink of becoming cash flow positive. Glocalnet has no international presence at the moment.

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