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Nakina CEO Sees OSS Innovation Gap

Lack of investment in innovative communications software startups spells bad news for service providers, reckons CEO of OSS specialist

May 8, 2009

4 Min Read
Nakina CEO Sees OSS Innovation Gap

NICE, France -- Management World 2009 -- The communications software sector is in the midst of an innovation crisis that will ultimately hit carriers as they introduce new technologies, such as carrier Ethernet, IPTV, and LTE (Long Term Evolution), into their networks, according to Jay Borden, CEO of OSS specialist Nakina Systems Inc.

Speaking here in Nice, Borden, who has extensive experience in the telecom software sector, says the crisis "is not getting much visibility -- it's not in many people's interests to talk about it." (See Borden's Back.)

Borden's main argument is that true innovation comes from startups ("market leaders rarely innovate") and those startups need funding, which has traditionally come from the venture capital (VC) sector. But that funding has dried up -- communications software firms are risky investments for VCs -- with what little funding there has been in the past few years being pumped into a few existing independent firms rather than startups with new, and innovative, technologies.

"There has been a pattern and structure to innovation in the communications software sector in the past, and that pattern is now broken," Borden tells Light Reading.

In the past, network infrastructure innovation has usually been accompanied by innovation in the OSS world. For example, the introduction of digital wireless technology led to "operations gaps" that were filled by new communications software from the likes of Micromuse Inc. (Nasdaq: MUSE) and Objective Systems Integrators Inc. (OSI) . (See IBM Tiptoes to Telecom With Micromuse.)

Similarly the introduction of DSL led to "operations gaps" that required object-oriented inventory management and workflow software to enable flowthrough provisioning that could cope with mass market uptake. That led to innovation by startups such as Cramer Systems, Granite Systems, and Syndesis Ltd. (See Subex Targets OSS Giants, Amdocs Snaps Up Cramer, and Telcordia Nearly Blew Granite Deal.)

Now, though, new network innovation, such as the development of LTE and the introduction of new Carrier Ethernet and video service enabling technologies, has not been accompanied by the funding of innovative startups -- such as, for next-generation all-IP mobile networks, OSS tools that will enable the re-grooming of packet-enabled backhaul connections.

"Carriers should be worried about this trend," says Borden, who believes that new companies should have been funded and started in 2006 to address the emergence of these new network technologies.

"Do the LTE equipment vendors have the management software to manage LTE? I don't see it. For IPTV? I don't see it."

What happens next?
Borden believes that innovation will eventually return to the communications software sector, but with different models and players. Whereas VCs had funded mostly startups based in California and Massachusetts in the past (because that was close to the VCs' offices!), the Nakina man believes "new innovation will emerge outside of North America and outside the traditional telecom leaders.

As examples he cites Chinese vendor Huawei Technologies Co. Ltd. ; Indian firms Tata Consultancy Services Ltd. and Tejas Networks India Ltd. ; Web services players such as Google (Nasdaq: GOOG); the data center sector; and the likes of Akamai Technologies Inc. (Nasdaq: AKAM) from the content delivery network (CDN) sector.

"We're going to see more innovation from the Internet sector than from the traditional telephony players," he believes.

He also believes that, instead of totally new startups -- the "three men in a garage" model -- spinoffs (from larger vendors or carrier R&D labs) might be more attractive to investors, or be able to find alternative sources of funding. That's because spinoffs already have some business and some history: "Investors don't want to fund a startup sales team for three years to see if they can come up with a Tier 1 deal or not."

But he also believes new models of engagement are needed for smaller companies to engage with the Tier 1 carriers that are commanding a greater portion of the global capex total.

That's in the future, though. In the near term, "The breakdown in the software innovation process will impact the rollouts of Ethernet and LTE, and other new network technologies -- the market will develop a new innovation model, but not quickly. That creates a great opportunity for some software companies but creates enormous peril for all existing service providers."

— Ray Le Maistre, International News Editor, Light Reading

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