Global mobile app downloads will reach nearly 18 billion this year with sales of $15.1 billion, nearly triple last year’s revenues, according to Gartner Research. How much of that $15.1B went into the pocket of carriers (versus Apple and Google)? We would expect that number to be close to zero!
Having missed the first wave of mobile ecosystem value creation, global telcos are coming to Silicon Valley in droves, looking to partner with entrepreneurial companies that are developing innovative technologies that might complement their networks. 15 of those telcos disclosed what they were looking for at the Sept 15, 2011 Telecom Council Carrier Connections (TC3) meeting in Mt. View, CA. Several of the telcos presenting were paired with partner startup companies to discuss their collaboration and process of engagement. This provided the audience with selected case studies of how startups could work with carriers to pursue meaningful partnership opportunities.
The TC3 conference was moderated by Derek Kerton, whose Kerton Group specializes in telecom strategy, marketing, business development, and consulting services. Always a very skilled and market savvy moderator, Derek was in top form at this conference. He often asked probing questions that subtly stretched the comfort zone of many of the panelists he was interviewing. Indeed, the mobile Internet is an area outside of the telcos’ domain of expertise and comfort zone. Their inability to move quickly in this growing market is a primary reason they are seeking relationships with Silicon Valley entrepreneurial companies (like web software start-ups) that can accelerate time to market for their solutions.
Mr. Kerton pointed out that while the larger telcos have, “a long business development cycle,” requiring a lot of testing and high reliability for hardware/software (not something web software companies pay much attention to), they still offer unmatched leverage and distribution for the small number of companies that can survive the long march. That represents a huge revenue opportunity! On the other hand, the smaller telcos (e.g. Jersey Telecom of the UK), don’t serve a massive territory, but they may be a whole lot easier to do business with. They also may be more nimble and faster to market with a third party startup solution.
Telcos in the Santa Clara (AKA Silicon) Valley:
The following are some of the telcos have established a presence in Silicon Valley (please see next section for a description of selected telco innovation activities noted here):
- Orange-FT has had a research lab in South San Francisco for over 10 years. Their partnership with Truviso and areas of interest are described below.
- Sprint has had an M2M Collaboration Center and Advanced Technology Lab in Burlingame that IEEE ComSocSCV visited in March 2011.
- NTT DoCoMo established its USA Labs in Palo Alto and also has a VC fund- DoCoMo Capital. They re-launched their Silicon Valley activities as “DoCoMo Innovations” this August.
- KDDI Labs in Palo Alto has expanded their “scouting activities.” Please see description below.
- Swisscom has a small office in Palo Alto and a Venture fund. They have made a “social community” partnership with Lithium Technologies and are looking for innovation in several new areas (described below).
- LightSquared has opened a “Developers Sandbox” for innovators in Mt. View, in conjunction with Nokia Siemens Networks. For more information please refer to this article: http://community.comsoc.org/blogs/ajwdct/lightsquared-announces-opening-developer-sandbox-mt-view-ca
- Verizon recently opened an Innovation Center in San Francisco (home to many web software companies, including Twitter). Please see description below
- AT&T just opened their “Foundry” in Palo Alto with Ericsson. This incubation center is focused on consumer technology and products. For example, apps for smart phones, tablets and IP-TV platforms for U-Verse. It is the third “Foundry” that AT&T has opened in 2011 (the other two are near Tel Aviv, Israel with AMDOCS and in Plano, TX with Alcatel-Lucent). The company says, “The AT&T Foundry™ innovation centers represent a $80 million investment from AT&T and technology providers.” For more information, please see: http://www.att.com/gen/press-room?pid=2949
- Comcast has a lab in Sunnyvale. They presented many interesting areas of innovation they are investigating at this year’s TC3 conference.
- Singtel added a venture capital fund.
- Deutsche Telekom opened a Lab and Advanced Technology Department in Palo Alto
- Vodafone just established an R&D center in Redwood Shores, which it will use as an incubation center for helping local startups develop and test products that operate on its world-wide wireless network.
- Several other carriers with a presence in Silicon Valley (e.g China Mobile, NTT) are members of the Telecom Council. The complete list of Telecom Council members is at: http://www.telecomcouncil.com/memberlist.php
In addition to the above mentioned telcos, several smaller (and perhaps more nimble) carriers presented their innovation agendas at TC3. Three standouts were: Jersey Telecom (a UK protectorate off the coast of France), Leighton Telecom/NextGen (Australia), and Metro PCS (U.S. 4th largest wireless carrier and first to commercially deploy LTE in the U.S.).
Selected Highlights of Telco Presentations & Interviews
Orange-FT Labs has been doing research at their South San Francisco location (formerly known as France Telecom Research) for the past 10 years. They are now engaging with entrepreneurial companies like Truviso- a real time data analytics software company.
Orange’s collaboration with startups is predicated on shortening the time to market of innovative products or services. Their model is based on co-development of technologies that are two or three years away from commercialization. A prototype/demo is prepared to show to its business units.
For example, Orange (formerly known as France Telecom) Research Labs provided engineering resources to work with Truviso on their real time analytics software, which provides a rapid response to network issues that could affect subscribers.
Four areas are of particular interest to Orange:
- On line video (OTT), mobile TV, and IPTV with analytics.
- Location Based Services (LBS) to connect users and vendors, provide real time recommendations to mobile subscribers, etc.
- Personalized advertisements, based on subscriber preferences.
- Social media.
In addition to those above, a complete wish list of technologies was provided:
- Sensor Networks: Infrastructure, Back-end, & Data
- Big Data / Personal Informatics: Application platforms, Real-time Analytics, Location Analytics, Visualization
- Digital Media: New TV experience enablers, Home gateways of the future, New Business Model Enablers
- Radio: SDR, Cognitive Radio, Seamless Hand-off
- Business apps: – cloud based apps for SME’s, VAS for email platforms
- Social Consumption / Commerce: “like” vs. “link”, Reputation Management Personal data stores, & VRM systems
- Mobile traffic optimization: “CDNizing” mobile networks “end-to-end”, guaranteeing QoE, Peak load management of downloads
- Network: Virtualization & programmability to better support different services & logical architectures on the same physical infrastructure.
- Semantics: Tools, frameworks, & solutions.
- “Porous Enterprise”: Ad-hoc collaboration, cross-platform coupling, convergent social networks.
- Social Voice: Platforms, services, & business model enablers.
Swisscom Group spoke about a social “web community” of customers that help one another resolve network related issues, rather than contacting the Swiss carrier. This was described as a “customer loyalty and retention play.” The key to realizing this initiative is social network software from Lithium Technologies, which greatly improves Swisscom’s relationship with its customers.
In addition to social community software, there are several other areas of innovation that Swisscom Group is interested in:
- Technology and measurement tools to increase E2E reliability of the ICT infrastructure
- Identity, Data, and Security Management for their customers
- Tools to get more personalized, proactive and more valuable customer interactions
- Broadband Services for fiber and LTE
- Rich Communication without barriers
- Social and Crowd services to reduce costs
- Unified communication for SMB
- Market Place and Online Services for SMB
- Cloud Infrastructure
- M2M communications
- eHealth/ telemedicine
- Smart Energy/ Smart Grid
KDDI is expanding their presence in Silicon Valley. The Japanese wireless carrier wants to provide new experiences to their smartphone users. KDDI started selling Android phones in 2010. They take 12% of mobile app revenues (vs. Apple and Google’s 30% cut), but that’s much better than most carriers that receive no payments at all for mobile apps.
KDDI’s focus areas include:
- Innovative Consumer Services to create value on the Android platform
- Application suited to Mobile 4G
- Broadband Services that keep the customer experience simple
- Cross-device services which enrich multi-device experience
Verizon/Verizon Wireless is a self-proclaimed leader in delivering innovation in communications, information and entertainment over intelligent wireless (3G, LTE), broadband wire-line (FiOS) and global IP networks. The company is actively engaged in finding and testing outside innovation as well. In August, they opened an Innovation Center in San Francisco, presumably to be close to all the web software companies located there. Verizon made several bold claims at this conference:
“Our Innovation Centers inspire, enable, and showcase new innovations!”
“We help companies develop: Non-traditional devices, applications, and services that utilize our 3G and 4G LTE networks.”
“Innovation is through collaboration!”
Verizon Wireless (VZW), a joint venture of Verizon and Vodafone, intends to bring wireless technology to several new markets, including:
- Local commerce and loyalty
- Health, wellness, and fitness
- Energy and connected home
- Other adjacent markets leverage key technology trends
Verizon touts their industry leading “4G -LTE” latencies and speeds. They’d like to create new, “sticky value” for smartphones and drive adoption of new classes of connected devices.
The company says their objective is “to seek innovative solutions that leverage our key assets to identify new market opportunities and key strategic partnerships.”
The complete list of companies presenting at TC3 is listed in the Agenda:
Observation and Reality Check:
We were somewhat surprised that there was no discussion of technologies for some of the hotter areas of telecom research, e.g. nano-cells, multi-mode (frequency & RAN) base stations via software defined radio, cognitive radio, self organizing networks (SON), optimized delivery of mobile video, improved microwave backhaul capacity, etc for wireless; 40G/100G Ethernet switching, Optical Transport Network (OTN) multiplexing, Reconfigurable Optical Add Drop Multiplexor (ROADM), WDM Passive Optical Network (PON), DWDM fiber backhaul from/to cell towers, All Optical long haul transport (without OEO repeaters), Optical Fault Detection and Restoration, Faster and longer reach ADSL/VDSL, coax cable & twisted pair HANs, BoPL/ EoPL, smart grid networks, etc.
Instead, the telcos seem to be looking for ancillary technologies (e.g. Real Time Data Analytics/ Big Data, Networked Attached Flash Memory Arrays, Touch Screen Keyboards, Community Wide Social Networks, Innovative Mobile Devices & Services, etc) that complement their broadband wireless and wireline networks. In fact there was nothing specific to either type of network that was described at TC3.
Violin Memory’s flash memory array (networked attached storage replacing disk drives) is a great example of a non-telecom technology being adopted by telcos. Violin hopes to lead a trend towards solid-state storage in datacenters instead of the conventional spinning platters – meaning using flash memory instead of disk drives. It’s used primarily as a Fiber Channel or SCSI attached “appliance” for virtualized servers (when in an I/O wait state mode) and for real time analytics storage. Both Singtel and Rogers (Canada) venture funds have invested in Violin Memory. The carriers that are using or plan to use their technology were not disclosed.
Evidently, the telcos still look to their large vendors (Ericsson, Huawei, Alcatel-Lucent, NSN) for almost all of the network resident technology and equipment they need. Of course, this is one reason for the dearth in funding of telecom and networking startups – the VCs don’t see any opportunity there so don’t invest in those types of companies as much anymore. The startups that succeed in winning “pull” from telcos are often routed to partner with one of the telco’s existing vendors. This is bittersweet, as it forces a sharing of profits, but also opens up wider distribution with a larger established sales force.
For more on this dilemma for new telecom technology & networking companies, please see:
It sure looks better to be a startup that creates value (via software) on top of the underlying transport network, or complements it with non-telecom equipment (e.g. array storage) or customer owned devices (e.g. touch screen keyboards, mobile consumer gadgets) or M2M communications & Internet of Things.
In summing up the TC3 Conference, Derek Kerton wrote in an email, “Telcos and Silicon Valley have had a troubled relationship for the past decade or more. But the outlook is bright. Telcos have learned that they need the innovators, and have invested serious money and effort in being better partners. They know that the telcos that partner best with innovators can gain a competitive advantage. Meanwhile, tech startups have learned a lot more about interacting with telcos, and in 2011, seem better prepared for how to approach, and interact with the big telcos. Ultimately, a telco partnership isn’t for everyone, but carriers are the collection and distribution point for a tremendous amount of money for the entire industry.”
Thank you Derek! This author sincerely thanks Mr. Kerton for the diligent review of this article, his editorial corrections and closing comment.