With the TC3 Summit, the annual meeting of global carriers and startups and vendors, just weeks away – Derek Kerton, Chairman of the Telecom Council of Silicon Valley examines the historically rocky relationship between startups and telcos, and asks the question, is forming a partnership worth the hassle?

Since the late 90s, the pendulum has swung back and forth for startups considering partnering with phone companies. Early this century, many VCs, dot com, and Internet companies were drawn to the allure of the mobile Internet. But the network operators were so clumsy at partnering with nimble startups that most of the potential deals went rotten before they bore fruit.

This caused a good deal of resentment from startups and VCs, who by 2005 were adamant that any business plan with “telco” in it was DOA. That carried on through 2008, but the pendulum was already swinging back with excitement around the iPhone and the smartphone ecosystems. By 2009, investors and entrepreneurs were back at the table with telecom deals, but this time, armed with much more realistic expectations of how long these deals can take. Startups were expected to have at least 18 months of runway, both to weather the recession, but also to survive the long telco sales cycle.

But, while Silicon Valley VCs and startups were coming back to the table, ready to withstand a long and grueling telco deal process, a funny thing happened. The telcos also weren’t satisfied with their own performance. They were acutely aware that many of their deal making teams often came back empty-handed, and they, too, were evaluated on having successful signed deals. This prompted introspection and a return to innovation scouting, but with better processes set-in-stone for on-boarding potential partners, both large and small.

The carriers had also become aware through the first decade of the century that their ability to successfully “go it alone” was highly suspect. They had lost music, they had lost video, they had lost the OS platforms, they were losing app stores, they were losing messaging, and OTT was just over the horizon, too!  Their former Not-Invented-Here approach was abandoned in favor of a hunger to strike a deal with best-of-breed partners. They had caught the VC disease: FOMO – the Fear of Missing Out.

So, where are we today? Both the entrepreneurs and the telcos have come a long way to meet in the middle. The startup community is much more aware of the telco process, often hiring telecom veterans. Telcos have evolved mechanisms like scouts, Incubators, formal internal review processes, VC groups, and now have proven results. OK, there’s less friction. But what’s the upside? Why should a startup or vendor seek a deal with a carrier?

The answer is distribution and scale. If you’re one of the lucky ones, a carrier deal can turn your dripping revenue faucet into a fire hydrant. For vendors selling into telecom, there is a staggering $5.6 Trillion market for equipment and solutions. (Yeah, trillions. Billions are for chumps.) For companies seeking to sell direct to consumers, carriers can provide distribution and access to millions of customers in a rapid stroke. And that applies to startups small and large. For example, Uber (not a company in need of publicity) just struck a deal with Bharti Airtel to work together on ride sharing in India.

Derek Kerton

Chairman

Telecom Council of Silicon Valley

  

Most of the news coverage of that deal mistakenly focuses on the free Wi-Fi that Airtel will provide in Uber cars. But the real meat of the deal is that Uber will leverage Airtel Money, the carrier’s payment solution, to smooth payment from regular Indians, many of whom may not have a credit card. Uber could address the Indian market OTT and direct-to-consumer, but with the carrier’s partnership, they can leverage Airtel’s reach and attack more quickly.

So, the answer to my title question is: maybe. A deal with a carrier is still a major investment in time and resources. Entrepreneurs should be careful to make sure what they propose is a good fit for both parties. But if the fit is right, there is a tremendous pot of money for vendors, and huge distribution and marketing advantages to working with the carriers. If you choose to go for it, pack a lunch, and get ready for a ride.

The Telecom Council of Silicon Valley hosts TC3 Summit each fall – its biggest annual meeting of global carriers and startups and vendors, all focused on making the kinds of deals discussed in the article. MEF Members get 15% discount on delegate passes – Visit the MEF website for more information.