PRINT THIS PAGE Wireless software city is new venture capital
29/05/2001. Source:The Industry Standard. Rick Wray
The major telecoms have paid a fortune for their 3G licences, according to The Industry Standard - now they have to make them work. Software firms are springing up to supply the demand, and VCs are backing them. Venture capitalists have found something to be enthusiastic about. They are investing in the new breed of software companies that has sprung up to supply the next generation of wireless networks. The last VC fashion was for consumer web site dotcoms, but they proved notoriously unable to make any money. This time there is a real demand. The major telcos have spent fortunes on acquiring their 3G licences and they must make their systems attractive.
But it's a niche with risks. The market for creating the infrastructure to build the wireless future is currently dominated by companies such as Ericsson and Alcatel which are some of Europe's largest businesses. These Goliaths are already sealing multi-million-euro deals to provide the kit needed for the roll-out of third generation (UMTS) wireless services.
But Alasdair Warren, managing director of nCoTec Ventures and one of the venture capitalists at the forefront of this new investment movement, is unperturbed. He believes that the wireless infrastructure industry already has its hands full producing equipment for the current (GSM) generation of networks: 'Ericsson and the others will be vying for the big contracts, then they will want turnkey solutions they can easily drop into these networks,' he says.
There is already a host of venture capitalists looking at companies in the wireless internet industry. They want start-ups that are developing the software that sits between the physical nuts and bolts of the network and voice-and-data applications, rather than companies which are producing wireless content.
This so-called middleware will consist of applications such as billing systems and bandwidth management. Middleware applications are currently produced by companies such as EHPT, the joint venture between Nokia and Hewlett Packard. EHPT's software supports customer care and payment services. It had sales in 1999 of $200m (€236m), up 35 per cent on the previous year.
But Warren, who founded nCoTec in May with Tim Horlick, maintains that independent middleware companies will thrive because 3G is a 'disruptive technology'. It does not build on the technology that has gone before; everyone starts with a clean slate. But existing firms will have to continue to support their old customers using GSM technology. As a result: 'You are going to see the likes of Nokia outsourcing their research and development in an ad hoc manner,' Warren says.
Obviously nCoTec - which stands for enabling communications technology - is not the only firm to have spotted this niche. In November, investment giant Argo Global Capital linked up with Sweden's Northstream to set up Argnor, which has $50m (€58m) to invest in Scandinavian start-ups with innovative services or products for 3G networks. Argo is backed by wireless companies including France Telecom and VoiceStream.
Also chasing the wireless infrastructure market are global private equity group Apax Partners as well as Ignition, the wireless incubator founded in part by senior executives from Microsoft. But, in general, nCoTec's Warren believes that American investors have been slow to pick up on the European wireless infrastructure market. Founded with €17m, nCoTec is currently closing its first fund of up to €200m; less than ten per cent of that has come from the US.
| PLAYERS IN THE WIRELESS SOFTWARE MARKET |
| DIGITAL ROUTE |
MORPHICS TECHNOLOGY |
SOLID INFORMATION TECHNOLOGY |
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Description: Swedish-based Ericsson spin-out developing a 'mediation platform' that enables data networks, including 3G wireless, to be easily managed. The software will enable network operators to drop any service onto their networks with minimum fuss.
Investment: Ericsson, where nCoTec's chief technology officer Lars Lindell previously spent over ten years, is the first outside investor in the group. Its investment of €4m was made in October. |
Description: Silicon Valley-based communications systems semiconductor company. It has developed intellectual property that increases signal processing performance for 3G networks - especially important when trying to download rich content.
Investment: Second-round funding of $13.5m (€15.4m) was raised in July from investors including Crescendo Ventures, BCE Capital and GSM Capital - the first fund produced by Argo Global Capital. |
Description: Finland-based software firm that is developing system data management software. The product will enable the huge amount of data that will be carried on 3G networks to be easily managed.
Investment: Apax Partners, Intel and BancBoston Capital were among the backers secured in October for a €55m funding round. Apax said at the time that it could envisage Solid's technology becoming 'a de facto standard'. |
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© Standard Media Europe, December 2000
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