Innovation & Start-ups

Telcos need to learn how to work effectively with innovative tech start-ups.
This set the pattern of the tension between vendors and telcos, playing out in the crafting of these very extensive requirement documents while the vendors maintained control of the key vendor issues of margin and customer lock-in.

As electronic switching transitioned to packet switching, the packet core began emerging, and OSS appeared; the mechanistic view continued with systems packaged as “Appliances.” That is “boxes” that had certain functionality tied together by large on-going system integration contracts.

The telcos response to this environment was first to try to push for standards, and more recently, pin hope on Open Source groups. The vendors work productively on standards at the data plane, but resist standards at the control plane, trying to maintain customer lock-in, differentiation, and high margins. This results in a situation where telcos are constantly trying to squeeze something out of the vendors that the vendors don’t want to give. So, in addition to the mechanistic procurement processes, there came to be a kind of telco hero. The hero was a telco staff member who could claim to have squeezed something out of a vendor. This is the critical business practice. The vendors would allow themselves to be squeezed into doing free demonstration projects and participating in long drawn out projects in industry groups, standards organizations, and Open Source groups - talking about the future but preserving customer lock-in, high margin, and so on.

Some hope that Open Source groups will deliver the necessary innovation. The cloud computing companies found that Open Source was best suited to build on top of start-up delivered innovation. It is also interesting to note that support of Open Source by cloud computing companies has faded in the last few years. Also, when the telco Open Source groups are examined carefully, it can be seen that they are dominated by the same set of large vendors facing the same business practices and procurement processes.

Some telcos have invested in extensive internal “laboratories”. Sometimes these labs have been able to come up with interesting new technologies. But they have shown themselves to be incapable of commercializing them into products that have the desired effect. Other telcos have set up innovation centers, but these have tended to focus on interesting things that can be done with handsets, autonomous vehicles, and other emerging technology. Not how to actually achieve transformation: the software-centric network infrastructure vision.

Start-up driven innovation business structures

Meanwhile, start-ups that don’t know better, see the need for innovation and try to respond. They are first met with what appear to be promising overtures from telco advance technology groups. But after work and effort, the start-ups realize that they are caught up in the telco hero syndrome of getting something for nothing from vendors. These start-ups do not have the capital base to play the political games and work through the business practices and procurement procedures.

One of the leading industry analysts said recently that she, “had seen a large number of promising start-ups try to work with telcos; give up and go on to be successful in the enterprise market.” VCs (Venture Capitalists) have become reticent to invest in telco focused start-ups. One VC recently told me that he was asked by the CEO of a major telco why his company didn’t see more start-ups. The VC told him that it was because his company killed start-ups.

The way to get out of this deadly embrace is for telcos to create special budgets ear marked for working with innovative start-ups that could help the telcos achieve their transformation vision. These budgets would provide for a number of contracts to start-ups with innovative transformational technology ranging up to $500K – small numbers in the context of a large telco. These budgets can’t be managed by a something-for-nothing hero. There also needs to be a recognition that not all of these early funded efforts will produce fruit. Thus, a certain percentage of failure must be embraced and not feared. For those that do show promise, there must be a way for on-going financial support as they move through lab tests, field tests, and small deployments.


In today’s innovate-to-survive-and-prosper world, telcos need to learn how to work effectively with innovative tech start-ups that can provide the keys to reaching their transformation vision. Implementing business arrangements that support start-up driven innovation is critical to this. These include special budgetary structures to provide a small but reasonable cash flow to start-ups that are attempting to deliver innovation to telcos. If this is done, the future of today’s telcos looks rosy. If not, as one industry participant recently said to me, “the telcos will just sit and wait for someone to disrupt them out of existence.”


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