Is ‘telecom innovation’ an oxymoron?

Historically, telecom innovation happened in distributed labs around the world. And despite some phenomenal inventions, the overall pace was languid. In just the past 15 years though, increasing competition has put the spurs to this sector and meshed it with the swifter high-tech industry. In that time, the telecom industry has become a fast-moving, energetic market, with explosive growth that attracts some of the best entrepreneurs and investors in the world. In an accelerating industry, innovations rule. And the innovations that link telecom investors and entrepreneurs worldwide find their nexus in the Silicon Valley.

From an outside perspective, the changes occurring in Silicon Valley may look disastrous. The venture capital industry is undergoing massive changes on the heels of the global financial meltdown. There is less money to invest now and fewer cases of successful equity exits. The amount invested in each start-up has shrunk from the heydays of venture capital. While one might conclude that innovation has been dampened or even stopped by the crisis, the fact that innovation thrives in hard times is obvious for those here in Silicon Valley.

Three things, at least, have conspired in favor of telecom start-ups:

• The number of “loose teams” (made up of people who trade work for equity) increases as smart people are laid off from their jobs and look for other ways to employ their skills. These “free radicals” reduce a start-up’s cash-burn rate and allow a longer development cycle on a smaller initial investment.
• The cost of launching many new telecom services is much lower than before because so many small business services are offered in the cloud at cost-effective prices. As long as team members have broadband, the business doesn’t need their own servers, phone lines, software licenses or even office space.
• Even in this recession, consumers are still spending on their communication services. Not only do American consumers consider their phone service non-expendable, in the same category as rent and food, they are actually increasing their spend on broadband and wireless services. Even sales of smartphones, which can be easily substituted by free feature phones with a carrier subsidy, are selling in unpredicted volumes.

These garage-stage startups tend to exist below the radar of the industry and telecom investors -- you really need to be in Silicon Valley to see them. And you need to be networked in the Valley as well; they don't advertise in trade journals. Telecom innovation is happening across the Valley – from the moonlighting mobile application developer to a founder team working on fiber-to-the-home services. The Telecom Council of Silicon Valley, the organization that connects telecom companies with innovation, actually saw more startups in 2009 than 2008.

The Silicon Valley plays host to more telcos, telecom vendors, telecom investors, and telecom startups than anywhere other region. From British Telecom and China Mobile to Verizon and Vodafone, carriers who are looking for innovation have people stationed here for the same reason that telecom vendors like Qualcomm, Huawei, Ericsson, Motorola, and Cisco (to name a few) do: because an increasing share of telecom innovation happens in the Valley, and that trend hasn't been affected by financial crises or volcano dust.

When the Telecom Council of Silicon Valley was being launched to facilitate innovation in telecom, our Board of Directors, which then included Orange/France Telecom, Swisscom, Microsoft, Norwest Venture Partners, and Fuse Capital, struggled with the name because “telecom” is historically antithetical to innovation. But regardless of its history of slow-moving, PTT government-regulated companies, telecom - literally “communication over distance” - is still the best descriptor for our industry. Telecom is not just voice, it's about anything that helps connect people and things.

Another vote that the words "innovation" and "telecom" aren't juxtaposed came last week when the CEA announced that they were expanding their annual CES tradeshow – the leading show for consumer product innovations – to include a “Telecom Pavilion.” CES is increasing its exhibition space dedicated to innovative telecom products.

Of course, not everything about today’s tough climate is good for telecom innovation. Many startups are vulnerable to the contraction in VC funding, especially capital-intensive hardware and component companies. And allowing the VC community to decide which startups survive is an imperfect science, but overall, we find Darwinism at work here. The thinning of the herd makes the herd stronger; and in a dynamic place like Silicon Valley, a dead start-up only means that a bunch of entrepreneurs just got released back to the primordial HR tide pool, certain not to make the same mistakes the next time. Despite macro-economic challenges, the innovation cycle here remains short, brutal, and rewards the successful. How great is that?

Liz Kerton, President of the Telecom Council of Silicon Valley and Principal of the Marketing Practice at the Kerton Group wireless consultancy, has a 20-year entrepreneurial history building and launching telecom businesses.