World's Digital Dynamos: Finns Leaders in mobile phones

Sasu Ristimaki, a technology analyst, pulls out his mobile phone, punches in a number, and holds it up. "Look," he says. "I've downloaded my e-mail."

When it comes to being digital, Finland is the world leader: Nearly 1 in 2 Finns uses mobile phones, and more than 2 in 5 are connected to the Internet.

And while most mobile phones in America use analog technology, in Finland, they're digital, allowing computer-like functions. "We're the first real wired country," brags Jyrki Harkki of the Finnish Ministry of Foreign Trade.

Soon, says Martin Mickos, head of Intellitel Communications, "We will no longer have a telephone number tied to a physical spot. We will only have a phone that follows us around wherever we go."

How did Finland get this way? In part, because it is sparsely populated - mobile phones are cheaper than fixed-line ones.

In the most isolated parts of the forested countryside, many teenagers sport their own mobiles. An increasing number of families get by with only mobile connections. Surveys suggest 90 percent of Finns will own a mobile phone by 2000.

Intellitel has developed the world's first mobile-telephone switch, which allows offices to use only mobiles and still dial simple four-digit extensions.

In this remote country, which borders Russia and the Arctic Circle, the plunge into the information age was a necessity. "Wireless phones came here early because we had so much open space," recalls Jari Jaakkola, vice president at Telecom Finland, a state-owned telephone operator that is being privatized.

In touch with the world

The Internet also has proved to be a much needed connection to civilization.

Farmer Hannu Assamaki lives 10 miles from the nearest village. Last year, he bought a computer. "My daughter uses it for her [high school] research," he says. Mr. Assamaki has plans to advertise his lakeside vacation cottages on the Net.

Judicious government intervention proved crucial to pushing forward the digital age. Early on, Nordic governments sponsored mobile-phone research.

While the US was unable to agree on a common digital mobile phone norm, Europe settled on the GSM standard in the late 1980s.

"Like with almost every issue, we start from two different philosophical standpoints," says one American diplomat. "We champion an industry-led, private-sector, minimal-government regulation approach. The Europeans say, 'No, we need order, a clear set of government guidelines so business knows where they stand.' "

In this case, the European approach worked best. While American cross-country service remains rare and expensive, in Europe, the same mobile phone works throughout the entire Continent. And while charges remain high in the US, they've been falling fast in Europe.

Role of competition

Along with setting early standards, fierce competition also played an important role in Finland's success. Throughout much of the continent, state monopolies have kept telephone prices high.

Finland has been different. It deregulated telephone service at the beginning of the 1980s, and two almost-equal-sized companies fight hard for customers.

"We even have more competition than the US where AT&T remained dominant for so long," says Mr. Ristimaki, analyst at Davy Protos Stockbrokers in Helsinki.

Finland's smallness was an edge for mobile phone businesses. Unlike European competitors who could sell to big state telephone monopolies, Nokia had to export to survive.

"We never had the free lunch as a captive supplier to a national champion," says Nokia's Chairman Jorma Ollila. "That made us stay lean and mean."

Not to mention fast. Conventional wisdom in telecommunications long held that bigger was better, and that giant companies had to invest millions developing ultrasophisticated telephone switches. But Nokia has shown that small, flexible companies are better suited to markets.

"In the 1990s, size has not been important," says Mr. Ollila. "Speed has been the key."

A new standard chosen this past January will allow data transmission speeds more than 200 times faster than those of cellular telephones. That's faster than any fixed line and as good as Web and cable TV.

Nokia and its Nordic neighbor, Sweden's Ericsson, championed the winning standard. The companies are way ahead in imagining so-called third-generation cellular terminals that will be able to support such exotic features as Internet browsing and video conferencing.

Telecommunicatons and forests

Thanks to such innovation, telecommunications and electronics now rival forestry as Finland's largest exports. Nokia, which long specialized in producing rubber boots and industrial cables, didn't make a single telephone before 1981. Today it is the world's No. 2 mobile-phone producer - and zooming in fast on faltering leader Motorola.

Small startups are sprouting up alongside this giant. "For most businesses, Finland is isolated, off in that far corner of Europe, but when it comes to mobiles, we're in the center of everything," says Jukka Kotovirta, a Director at Data Fellows, a company that specializes in encryption and virus detection software.

His company racked up sales of $38 million last year and is growing at 100 percent annually.

Or consider Elcoteq. When the company was created in 1984, it specialized in flat panel displays for televisions and computers. Since Japan dominated this technology, Elcoteq didn't get far until it began using its expertise for mobile-phone manufacturing.

Today, the company manufactures mobile telephones for both Nokia and Ericsson.

"We saw an opening," says CEO Piippo. Five years ago, the company employed 170 people and had a turnover of $13.6 million. It now employs 2,800 and sales reached $303 million last year.

This success is important for all of Northern Europe. In 1992, Piippo took over a bankrupt television factory just across the Baltic Sea in the newly independent Estonia.

Last year, Elcoteq accounted for an astounding 6.3 percent of all Estonian exports. Estonian wages run only one-eighth the level of Finnish labor costs.

"Many of our competitors went to Asia for labor costs," Piippo says. "We found the same advantage right in our backyard."

Piippo insists the quality of Estonian-made telephones equal those made in Western Europe and now is building a new factory in nearby St. Petersburg, Russia.

In one hand, he holds up a shiny new Ericsson digital mobile phone. It is smaller than his palm. In another, he holds up a Nokia Communicator, which offers direct Internet and fax connections.

"We made both of these," he says.

America may have Silicon Valley. But Finland and the Baltics may soon be known as the Mobile Sea.