Carrier Evolution

Sometimes firms in big, established industries can find that the best way to create new products is to rely on the culturally relevant ways they always have done so. Large telcos are no different.

It is not a secret that tier-one telcos have not been the fastest-moving firms where it comes to rapid creation of new services and applications. In fairness, very large organizations built on global standards, with many legacy systems to support and lots of government and regulatory oversight, have lots of reasons to move more slowly when making changes, only to avoid the danger of inadvertently “breaking something” that was not planned.

So you might argue that as large telcos set up separate development groups and venture capital units, they are breaking from tradition. In fact, that might be among the time-tested and traditional ways to foster innovation in the business.

Historically, telcos have essentially outsourced technology and services innovation to third parties, be they AT&T Bell Laboratories, Bell Communications Research, leading industry suppliers and global standards groups. Only after creation by the external research and development units was technology “tossed over the wall” to the operating companies.

So the recent trend of large telcos creating new venture capital organizations is not out of character. In fact, it positively is the traditional way telcos have done so.

T-Venture, the venture fund owned by Deutsche Telekom, has a total budget of about 450 million euros ($566 million) for investments.

Deutsche Telekom’s T-Venture so far has assets worth 750 million euros invested in about 80 companies. But Deutsche Telekom now wants T-Venture to make faster decisions and take majority stakes in firms.

Aside from any internal discussions about the speed with which any of the larger telcos is “getting to market,” there always are going to be questions about how any smaller app or service is going to “move the revenue needle” for any entity that routinely books scores of billions in annual revenue.

In Spain,Telefonica runs a program dubbed “Wayra,” which nurtures companies in Europe and Latin America. Telefonica receives a 10 percent stake in each business and a preference right to buy a successful product.

Telefonica has also started Amerigo, an international network of technology venture capital funds, supported by the governments of Spain, Colombia, Chile and Brazil, as well as financial institutions, the company said in a statement today.

Though it certainly is correct to note that telcos might do better by insulating venture efforts from the day to day operating units, it also is correct to note that this is the traditional way larger telcos have innovated in the past.

The perhaps growing issue, as more such activity occurs, is how fast the innovations will have a significant revenue impact for the sponsoring telcos.