Occam's Razor

My new syndicated column in ScienceBusiness

ScienceBusiness is a great new online magazine covering Europe and how IP is turned into winning SMEs. Richard Hudson who is one ScienceBusiness founder convinced me to produce a bi-weekly colum on what we at Occam see happenidng on the groun here. The first installement can be found here or below in the post.

Online, down the line
I had the opportunity to take part as a speaker on an investor panel at the recent Total Telecom World Telecommunications Congress in Geneva. The panel was interesting - a strange dialogue between happy VCs funding disruptive telecommunication technologies (VoIP, IP convergence etc…) and troubled telecom executives. The key lessons from the conference can be structured as follows (those note are based on the minutes/comments taken by E. Jouanne from Occam Conseil).

Network infrastructure
The industry in experiencing cycles of maturation with similar patterns:  “Invest → chase volume → price down → competition eliminated → consolidation”,  today the number of “Baby Bells” is down to 2.5. The price of bandwidth is continues to fall, even if we are now for the first time seeing price stabilisation in some areas. The “must-haves” in the environment are Service Level Agreements and secure/reliable networks. Key stats: +65%  - IP traffic last year +100% - forecast for this year’s IP traffic, based on +25% this quarter. raffic structure “95% of the traffic is data. Video. Flat rate ”

P2P impact on biz models

Video bandwidth, Services entertainment, “5% is voice. VoIP accelerates changes (main driver in Business: to replace PBX)”, Value-added managed services, Tech to monetise and measure “what customers use”, customer centric measurement.

Access

Evolution in the mid term: Dynamic Frequency Allocation. Convergent networks: Intelligent Management Systems.

VoIP

“Voice revenue will disappear for sure. The only question is when will it be 18 months or 5 years?”. In the future three main areas of concern for the customers: “Quality of service: pricing will be key” Quality for pay: right lane, left lane.  Internet Service Providers will have to be forced by local regulations to disclose any IP delay management (used to slow down VoIP applications) “Security issue”

Mobile operators

“Today turnover for mobile is 80% voice, 14% SMS, 6 % data “→ “Ultimately it will be like fixed access turnover”. “There will more Instant Messaging usage (IM is the killer app for teenagers. IM will be bundled with VOIP), therefore more data traffic.”

TV/Quadruple play

Huge potential, could be called not quadruple play, but infinite play . Pricing. Flat rate vs. pay: you need to measure whether you charge or not, because there are costs associated to those events. Video on Demand most disruptive for the content industry and small TV stations. Digital Rights Management, secure network, quality

So what? Three cool innovative companies to watch

Checkpoint (VoIP security)
Baracoda (telecom churn management via Bluetooth-based services)
Zenops (mobile gaming)

Voice revenues are melting fast

Over the next five years, VoIP usage should drain $100 billion from carriers' PSTN revenues, according to U.K. research house Informa Telecoms & Media.

• By 2010 PSTN revenues should no longer be carriers' primary source of revenue,
• In the developed world, carrier PSTN revenue will drop 16.7 percent by 2011.
• Because carriers have invested heavily in broadband, VoIP revenues should help to offset PSTN losses.
• Because VoIP services tend to be priced lower than PSTN-based services, carriers may still face a net revenue loss as VoIP.
• Carriers will face fierce competition from dedicated VoIP services such as Skype and Vonage.

For more information on VoIP/PSTN usage trends, read the InformationWeek article.

Telecom M&A

Comverse Technology Inc. (Nasdaq: CMVT) has agreed to acquire Netcentrex SA, a French provider of network-based software-enabling voice-video-data and fixed-mobile convergence solutions to service providers.

The deal is valued at approximately $164 million in cash, plus up to an additional $16 million in milestone payments.

Netcentrex has raised VC funding from firms like CDC Entreprises Innovation, Innovacom, Crescendo Ventures, Newbury Ventures, T-Venture, VPSA and Intel Capital. 

Recent European funding rounds

Two European recent funding round that I had missed:

Red-M Group United Kingdom who Red-M Group provides services for managing wireless infrastructure raised $8.1M from Pi Capital, Octopus Asset Management

Appear Networks Sweden who is a provider of wireless communication platforms raised $7.2M for a second round of funding from Northzone Ventures.

VoIP operator B3G raise 16M€

B3G Telecom (the VoIP operator used by Occam Capital in our Paris office) just raised 16M€ from Axa Private Equity, Société Centrale d’Investissements (BNP Paribas) and Partech International who now collectively own around 33% of the equity. This follows the 1M€ seed round of 2003 lead by Iperium.

B3G revenue in 2005 was 60M€ for a small but positive EBITDA. More than 50M€ of those 60M€ was based on call termination, and only 11M€ based on VoIP services (5M€ for French SMEs).

10M$ D round NFC fundraising

INSIDE Contactless (Aix en Provence, France) announced yesterday (15/12/05) the closing of a € 9 million ($10.6 million) D round (following the 1996 A round of Alta Berkeley, the 1998 B round of GIMV and 3i, and the 1999 C round of Siparex, Vertex and NIF) led by three new investors: Sofinnova, Vertex Venture Capital (Israel) and Visa International. Prior round investors GIMV, Vertex Singapore and Siparex have also participated.

While at the standard level Bluetooth is moving toward NFC and UWB compatibility, it will be interesting to watch the game between Bluetooth software vendors like Baracoda and pure player on the NFC like INSIDE Contactless.

INSIDE Contactless is a provider of semiconductor chips (memory and microprocessor) and hardware platforms (couplers and readers) related to 13.56 Mhz contactless technology. Delivering cost-effective, reliable and secure technology for both contactless cards and readers, INSIDE provides high performance, open standard solutions for Payment, ID and Access Control. Headquartered in France with a global presence in China, Singapore and the US, INSIDE's worldwide customer portfolio includes providing MicroPass chips for Visa's contactless payment initiative and serving as the exclusive provider of smart card reader technology for HID's iCLASS access control solution.

Nordic M&A : Spectralink buys Kirk Telecom

SpectraLink (independent provider of mobile voice and messaging applications to businesses) has agreed to buy Kirk Telecom (Danish privately owned manufacturer of wireless applications for businesses in Europe and Asia-Pacific) for $61.3 million (fairly conservative multiples, as i its last fiscal year ended April, 30, 2005, Kirk had revenues of $35.9 million and net income of $2.7 million) .

Bluetooth standard push

More than 600M Bluetooth enabled devices have been shipped by the various members of the Bluetooth Special Interest Group.

New standardization work has started to increase this market by enabling co-operating more closely with the Wi-Fi, Ultra-wideband (UWB) and Near Field Communications (NFC) wireless standards.

·         Bluetooth is used mainly for short-range wireless networks, and has a prime application in connecting wireless headsets to mobile phones, while Wi-Fi is the standard in wireless networking for laptops and home networks.

·         Near Field Communications (NFC) is a less common technology sending a signal over a distance of just a few centimetres.

·         UWB is an emerging standard commonly referred to as 'wireless USB' for its ability to transmit large amounts of data over a distance of up to 10 metres.

[Source VNUNET.COM]

This could be a big push for European startups like parrot or baracoda that are developping bluetooth based solutions.

UPDATE No 1: more on this on tonight's CNET posting  .

SMAC is down

SMAC - Siemens Acceleration in Communications (21 FTE for 24 companies in the portfolio...) is rumored to be shutting down and to plan to sell off its portfolio companies within the next three weeks.

Corporate parent Siemens AG has recently instituted a major restructuring of its information and communications activities. It announced plans to lay off 5,400 employees, reportedly agreed to sell its Product-Related Services business to Fujitsu Siemens Computers and actually paid BenQ Corp. to acquire its money-hemorrhaging mobile handset unit. The shutdown of Siemens Acceleration in Communications is just another part of the restructuring, with the corporate upside of near-immediate liquidity. It is unclear if Siemens also will look to sell some of its other venture capital endeavors, like the Communications Fund unit of Siemens Venture Capital, or its fund of funds portfolio.

SMAC portfolio companies includes 3Dis, UK ; Dblur, Israel ; Exit Games, Germany ; FonJax, USA ; GO Networks, USA/Israel ; Jentro Technologies, Germany ; Ki-Bi Technologies Ltd., Israel ; LinkRich, China ; Magus Soft Ltd., China ; Mobile2win, India/China ; Mobixell, Israel ; MotionBridge, France ; NordNav, Sweden ; Oplayo, Finland ; OverSi, Israel ; PhoneBites, USA ; PurpleACE, Singapore ; Realeyes 3D, France ; Rock Mobile, Taiwan/China ; Scaraboo GmbH, Germany ; SVOX AG, Switzerland ; V-Enable, USA ; Xingtone, USA ; Zero Global, China/USA 

Enterprise VoIP : The Tipping Point..

Two good articles pointing to the same enterprise VoIP tipping point :

• CRN article

Enterprise VoIP system sales are now far outpacing those of legacy systems, finds a new Merrill Lynch research report. As of last June, VoIP system sales showed 31 percent growth over the year before, while sales of traditional voice systems fell by 20 percent during the same period. The two fastest growing VoIP system vendors, according to the study, are Cisco Systems and Avaya. As of June, quarter-over-quarter market share for Cisco's pure-play VoIP products grew 15 percent, while market share for Avaya's hybrid VoIP products grew 14 percent during the same three month period, claims the report. Meanwhile, VoIP system vendors Alcatel, NEC, Nortel, and Siemens are all treading water,.

• Global Sources press release

Global Sources is projecting that worldwide PBX revenue is set to decline 1.4 percent in 2005. In 2004, the market's total revenue was $8.5 billion. The firm notes that the sector might hit a low of $8.38 billion in 2005. On the other hand, IP PBX is showing an upward trend, thanks to VoIP growth. IP PBX revenue is projected to grow by at least 15 percent to reach $2.88 billion, says the company. Total revenue from converged PBXs will likely grow by 10 percent to $1.38 billion. The combined revenue of $4.26 billion from IP PBX sales and converged PBX sales is expected to exceed the traditional PBX revenue of $4.12 billion for the first time in 2005, according to Global Sources.