5.1 Finland in a changing world economy
5.2 What is the National Economy invested in?
5.3 R&D and internationalization
5.4 ICT Finland
5.5 Nokia - a big company in a small country
5.6 ICT cluster in Finland - A historical perspective
5.7 The World's most competitive nation?

5.6 ICT cluster in Finland - A historical perspective

There is no single explanation for the success story of Nokia and the Finnish ICT cluster. Rather, the interplay between various technological and economic factors contributed to the birth and growth of the sector. Despite the prominent role the telecommunications equipment industry has played in Finland's recent industrial transformation, history reveals that it was network operations - rather than equipment manufacturing - that set the stage for the sector's development.

The major factors behind the success have been a decentralised industrial structure and the early liberalization of telecom operations. The fragmented market structure was originally a political outcome. When the first cables were laid in the 1800s, Finland was an autonomous Grand Duchy of Russia. In order to complicate the potential seizure of the national telephony by the Russian Tsar, the Finnish Senate granted many telephone operating licences.

The first companies were established in the late 1870s, mostly by domestic equipment suppliers. The number of private independent operators increased throughout the early twentieth century. Moves were made to nationalize and harmonize the network, in order to promote interconnection and technical progress. Still, the sector remained decentralized. Nationalization proposals were fiercely rejected by the Parliament. The number of operators peaked at 800 in the 1930s. It declined to some 50 by the mid-90s. The large number of operators meant that equipment suppliers were put into constant competition with each other. Different terminals formed a challenge to interconnection and automation of exchanges. Unlike in most other countries, domestic equipment producers were not sheltered from foreign competition.

The real competition between the operators started in the mid-80s when long distance operations were opened to competition. By 1994, local and long-distance call provisions as well as international telecommunications were opened to practically full competition.

Today, the number of operators has been reduced significantly as a consequence of mergers and acquisitions. Nokia and other equipment suppliers are globally competitive, partly as a result of the free equipment market and demanding and advanced customers in the operators sector.

Industrial, technology and educational policies have played a role too. Industrial policies changed decisively in the early '90s. The role of innovation policies was underlined, along with the need to set national priorities in allocating scarce R&D resources. At the same time it was emphasized that the market should pick the winners in the product market. ICT was seen as a national stronghold.

Following these general guidelines, information and telecommunication technologies have been priority areas for the National Technology Agency (Tekes). ICT has also received special attention in higher education.