• Resistance to attack by malevolent actors, including nation-states and well-funded criminal networks.

• Service persistence through successive waves of technology obsolescence and evolution.

• Compliance with often-onerous regulatory obligations and uncertainty.

In the face of these expectations, telcos have evolved a conservative mindset characterized by risk aversion, organizational stasis and nepotistic relationships with a small number of vendors large enough to shoulder the development and procurement risks. Smaller vendors are locked out or exploited just for ideation.

What can be done about it?

We considered the following questions:

• What does innovation mean in the context of the telecom industry?

• How can supply chain diversity be encouraged and supported?

• What are the barriers to innovation, and how can they be overcome?

• How can investment risk be reduced?

In 2021-22, we held a series of private colloquiums with leading telecom industry veterans. The discussions were under Chatham House Rules to encourage candor and resulted in our publication in November 2020 of a “code of conduct” to encourage adoption of best practices for telco engagement with vendors. We followed this up with a series of published articles by invited authors who described their experiences. Our recommendations are detailed below.

Funding

The scale of telecommunications networks leads to investment cycles of years if not decades. This has an effect on the vendor ecosystem where the return on investment (ROI) on new products extends well beyond the timeline for smaller vendors to survive, or for large vendors to build a business case. It is therefore difficult for start-ups in the telecom sector to attract venture capital. Larger vendors also need an ROI to justify investment in new products and to maintain profitability. Telcos should: 

• Allocate at least 5 percent of all procurement funds for start-ups and smaller vendors.

• Engage existing investment entities to boost enthusiasm for investment in the telecom sector.

• Set up named investment funds, possibly per telecom sector, with a specific investment size, along with sustained PR to advertise the funds.

• Fund infrastructure and middleware vendors, not just (or only) over-the-top start-ups.

• Lead in at least half of the deals in investment rounds and plan to make multiple-round funding commitments for each investment.

• Establish partnerships with VCs and financial institutions for joint funding and raising debt where needed.

• Commit to non-trivial investments in Series B/C rounds (e.g., >$2M).