IMS, fibre deployment appealing telecom investments for VCs

Growing demand for multimedia applications is driving investment trends in the telecommunications industry, according to two venture capital (VC) firms. They say companies looking to expand bandwidth and encourage convergence with the wireless industry are getting looks from the investment community. Nazmin Alani, director of telecom venture capital for BDC Venture Capital's Ottawa branch, says that a lot of pressure is being exerted on telecom infrastructure and VCs are looking to invest in solutions that will relieve some of that stress."Traffic demand is certainly growing at a pretty significant rate," Alani tells Network Letter. He adds that current reports suggest network traffic is growing between 50% and 80% per year, most of which he contributes to growth in the wireless industry. "That is already putting a significant strain of the network in terms of being able to support this kind of traffic," he says.Alani notes that a positive solution to this problem would be expanding the reach of fibre, which is considered a promising investment."I think fibre to the home is certainly an area of growth," he says. "There's been significant fibre deployment in what we call the long haul networks, but in the metro area networks there isn't as much penetration of fibre."Fixed mobile convergence (FMC) and the IP Multimedia Subsystem (IMS) are also catching VCs' attention as the telecom and wireless industries continue to blend. According to Larry Perron, a partner with Skypoint Capital Corp., this shift is inspiring more investment in alternative network designs."They're trying to migrate all of these access plays into one platform," Perron says of the convergence trend. "So you're seeing the commoditization of the infrastructure. You're looking at getting rid of custom hardware and moving towards a more generic platform that would have multiple access technologies. That's what IMS is all about. It's going to become an open environment. "It's partitioning the typical central office into a switching fabric and a control fabric and a management plain," he notes. "All of these different facets of the telephone network are now being pushed to an open architecture. It's going to become generic compute platforms and then you can lay on top of that your specific application that enables those capabilities."Alani notes that IMS and FMC could address the bandwidth constrain issue. "What IMS and FMC do is allow the carriers to have this converged network in order to become operationally more efficient. I think the trend is already happening," says Alani. " from our service provider network perspective, to transition from a legacy to this FMC or an IMS network is not a trivial task. But it is happening."IMS is only one piece of the puzzle carriers are considering to address with respect to network design, says Alani. He adds that this change must occur to accommodate the popularity of things like streaming, IPTV and music downloading, and to lighten the load on bandwidth. However, he mentions that migrating to a new business model from the traditional legacy services model hasn't been proven yet. "Carriers are faced with a huge challenge, which is revenue per bit continues to fall and their operational expenses are not falling as fast, so it's a complex Rubik's Cube that has to be figured out," he says. "But I think the demand is there and the opportunity is there, so it's just a question of figuring out what's the best way of getting there."Whether a carrier decides to shift to IMS architecture or invest further in its existing infrastructure, Alani says there is one question that must always be considered first: "As a carrier, how do I look at this and can I monetize this in a way that allows me to justify the investment in my network and still make money?"VCs consider a similar question when contemplating an investment in new telecom infrastructure. Because these business models aren't proven yet, firms are hesitant to pursue risky investments. They also don't play favourites; instead, they invest in companies promising the biggest possible return. As Perron explains, Skypoint funds two sides of a telecom equipment equation."We've made investments in the arms dealers," he says, referring to the chip suppliers. "We've made investments in the silicon suppliers that actually supply this solution to the multiple network equipment manufacturers. That's basically a way of hedging your bets, supplying arms to the arms dealers. So you have a broader customer base trying to address the full network deployment."

IMS, fibre deployment appealing telecom investments for VCs

News | 04/02/2007 7:24 pm EDT

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us