What Does it Take for Telcos to Innovate?

Whether larger service providers can successfully innovate, or  not, remains a key question as service providers look for additional ways to “move up the value chain.”

On one hand, Bell Labs has won many Nobel prizes. On the other hand, many efforts by tier-one service providers have not worked out, said Rajan Mathews, Cellular Operators Association of India director general.

That might be one good reason why most tier-one service providers have grown by acquisition. The trick is to avoid destroying the value of the asset once that happens. How larger companies can cultivate innovation by startups is another story.

“Alignment of the whole ecosystem” is the only way we will connect everyone to the Internet, and also is the only way mobile service providers can prosper, according to Mohammed Shafi, CEO of Multinet Pakistan.

“From the private sector side it is a business; while the government sees communications as a service,” said Shafi at the Spectrum Futures conference. And there are many ways the ecosystem can be improperly aligned.

There is a mismatch between demand and supply, but that mismatch is not inevitable. “Competition would help,” said Shafi. “But costs are high because the government taxes every step of the way.”

Alignment also can be an issue when application providers try to work with telcos and Internet service providers or mobile operators, suggested Dennis Wong, a venture capital analyst with Golden Equator Capital. “Do ISPs really have the interests of start-ups at heart?” he rhetorically asked.

Even communication is an issue. “Large companies always speak a different language” from entrepreneurs and startup leaders, argued Shrinith V., a venture capitalist who advises startups.

For those reasons, perhaps the best way larger telcos and ISPs can participate in the startup business is as limited partners who supply money, but do not exercise management control, suggested Kenrick Drijkoningen, Golden Gate Ventures expert in residence. “It’s hard to bridge the cultural gap,” he said.