Buy me, supply me

The process of procuring network equipment was once a methodical and fairly standard one. Companies developed new technologies and products, they attempted to sell those products to telcos by showing in an open, public marketplace how they might improve telco networks. Telcos agreed to buy the products and then spent the next several months — or years — exhaustively testing the gear. Finally, telcos would deploy the gear. This process repeated itself many, many times over many generations. No one said it was exciting.

However, that traditional procurement process is on the verge of becoming just another telecom industry relic. The relationship between carriers and their vendors can sometimes still be simply described as that of a buyer and a supplier, but increasingly, it's a relationship that is being complicated by a number of different variables. In some cases, competition and a new urgency to own competitively differentiated technology is inspiring carriers to form more exclusive arrangements with vendors much earlier in the technology development process. Sprint did this last year when it forged an agreement with Motorola to co-develop and test a Mobile WiMAX system. These arrangements could even involve strategic investments — one example of that being AT&T's recent investments in vendors 2Wire and Akimbo.

The advantages are obvious for carriers, which gain an active voice and possibly much more control and influence over technology development. They can potentially manipulate a developing technology to address their most pressing needs, while keeping other service providers at bay. And if an investment or revenue-sharing agreement is involved, they can realize financial gain even after that technology is exposed to the broader market.

The new arrangements run both ways. Big vendors occasionally have made investments in service providers, buying themselves guaranteed deployment venues for technologies in which they are heavily invested. In doing so, such vendors may be able to effectively lock themselves in as preferred suppliers.

This era of new relationships is reflective of an environment in which consolidation has tightened competition and limited the opportunities that carriers have to differentiate their offerings, and that vendors have to make a carrier sale. But the trend could have further negative effects. Innovation could be stifled by companies directing their development efforts to please the whims of a single, major partner, or by the lack broader industry debate that typically contributes valuable guidance to the development of a particular technology. Meanwhile, a vendor heavily invested in a single service provider may have trouble selling to others, and a carrier tied to one big vendor may miss out on other solutions. Buyers and suppliers beware.