A peek inside Silicon Valley's telecom startup ecosystem

Innovation in the telecom sector is guided by a driving force in Silicon Valley.

Silicon Valley dominates the venture investment in the telecom segment. So it is not a surprise that the Telecom Council of Silicon Valley (TCSV) convenes for three to four meetings per month to promote the exchange of ideas among four strategic actors in the Silicon Valley telecom ecosystem: telecommunications service providers, vendors, venture capitalists, and entrepreneurs. It’s important for people engaged in mobile, telecom, and related fields such as networking, internet, and advertising to understand the dynamics of this unique Silicon Valley ecosystem that orbits the TCSV.

The TCSV was founded just moments before the internet-and-telecom bubble burst in 2000. At that time, Austin, Boston, San Diego, and Vancouver all had similar organizations to promote the telecom sectors in their local economies, which had either changed focus and identity, merged into other technology organizations, or ceased to operate.

The TCSV survived the post-bubble telecom nuclear winter, when revenues and investment plummeted, because it remained true to its original goal of bringing entrepreneurs and innovation together with telecommunications service providers. It started as a monthly lunch meeting attended by a wireless telecom consultancy, the Kerton Group and British Telecom, Nokia, SK Telecom, and Telecom Italia. They met monthly to share insights into local startups. Pretty quickly, though, they opted for a more efficient approach and invited entrepreneurs to present. Entrepreneurs pitching large companies seeking innovation? What could be more fitting in Silicon Valley?

Given the efficiency of the TCSV model for scouting innovation and talent, many telecommunications service providers joined, such as Docomo, KDDI, and Vodafone. They were soon followed by corporate venture capital firms, such as Intel, Juniper, Nokia, and Qualcomm, and private venture firms like Norwest and ComVentures.

There are 25 major telecommunications service provider TCSV members that have a base of operations in Silicon Valley to scout new technologies and invest in promising startups. The telecommunications industry, like every other major industry, has outposts and scouts in Silicon Valley to identify trends and keep its major players from missing the next disruptive technology. Considering the transformation mobile and internet technologies caused for telecommunications service providers, they need to be in Silicon Valley to ensure they engage the next large technological wave.

The precipitating factors that make the ecosystem work are the incentives service providers establish for those that cooperate with one another. These are amplified by the Silicon Valley environment of business risk tolerance and openness to partnership.

A telecommunications service provider might find a startup with innovation that piques its curiosity. It may invest money, or, more importantly its time, providing a test bed and acting as a lead user to validate and fully define the startup’s product or service. If that testing is successful, the telecommunications service provider doesn’t want the exclusive competitive advantage of the startup’s product, because telecommunications service providers tend to buy large amounts, implement over a multi-year timeframe, and become operationally dependent on the new product for five to seven years. Limiting the startups’ market with exclusivity could cause it to fail, leaving the telecommunications service provider with an obsolete and unserviceable component in its network. So the telecommunications service provider’s only alternative to reduce its risk and gain the benefit of the startup’s technology is to promote the startup to other telecommunications service providers, venture capitalists, and equipment vendors.

The TCSV is an efficient venue for growing awareness of promising startups. The startup may find a channel to sell to the telecommunications service provider directly or through an equipment vendor. In both instances, the startup is better positioned to attract diversified revenues from multiple customers and raise further capital. Examples of successful companies that participated in TCSV events and won innovation awards include Ruckus Wireless (Nasdaq: RKUS) and Jajah,which was acquired by Telefonica.

Asked about the reasons for TCSV’s success and growth, founder and President Liz Kerton said "our analysts and the TCSV board puts together business meetings around relevant technical, market, and startup innovations that are important for the industry – because of this, we always get the right dealmakers in the room for those meetings."

TSCV is a Silicon Valley phenomenon that succeeds by executing its plan to deliver high-value content and great networking to the telecom ecosystem. It could not be created elsewhere in the world right now because nowhere else in the world is there such a critical mass of innovation, a concentration of technology leaders, a large amount of risk capital, and, of course, a community of entrepreneurs.

The world’s telecommunications service providers have to participate in the innovation and disruption of Silicon Valley, or risk being late to market with new products and services; and, as long as this is the case, the TCSV will be an innovation hub for the world’s telecom industry.

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