Newcomers Set Their Sights on LTE
LTE will define the future of the wireless industry, allowing an ever-increasing array of applications, services and content to run over mobile broadband networks.
And along with that seismic technological shift come opportunities for small, nimble companies with new ideas about network technology. Surging data use and the advent of LTE are creating a whole new set of needs for wireless operators, and entrepreneurs are working to capitalize on that.
But it won't be easy to gain traction in a market already dominated by industry heavyweights. Companies like Ericsson, Alcatel-Lucent and Nokia Siemens Networks already have long-standing relationships with Tier 1 operators, and smaller players will have to come up with compelling products to get their foot in the door.
Stoking the Flames
Take mobile broadband gateway maker Stoke, which was founded in 2004. The company landed a high-profile contract with Japanese operator NTT DoCoMo in 2009 to provide mobile broadband gateways for its LTE network. The startup company won the contract despite heavy competition from larger vendors and says it has other undisclosed contracts with operators.
"DoCoMo looked at everyone in the market, all of the usual players. They found nothing that had the performance and provides the security they needed and made the bold decision to go with a startup," says Stoke CEO Vikash Varma. "We have to be an order of magnitude better than the competition to be selected by a company like DoCoMo."
Stoke's key to success is performance. Varma says the company's products outperform the competition because they're purpose built for the capacity, processing and security requirements of LTE and 3G, versus repurposing existing gear to fit new needs.
By providing equipment that's faster and more secure than the competition, Stoke hopes to convince operators to take a more piecemeal approach to their LTE builds versus going with a single vendor's end-to-end solution.
Where Stoke saw a need for purpose-built, high-performance mobile broadband gateways, Blinq Networks is working to capitalize on operators' growing backhaul needs. Backhaul is a promising market for infrastructure vendors, but there's plenty of competition.
Blinq Networks was formed from the remains of bankrupt infrastructure vendor Nortel in June 2010 when it bought some of company's intellectual property and assets on mobile backhaul.
Since then, the company has landed $7.4 million in venture capital funding and shored up its executive team with the appointment of former Andrew Corporation wireless head Mickey Miller as CEO and Redline Communications co-founder Radu Selea as chief technology officer, with RF guru Chris Zappala heading business development. About one-third of Blinq's workforce is comprised of former Nortel employees who worked on the company's backhaul assets before they were purchased by Blinq.
Blinq is going after a very specific niche in the mobile backhaul market: non-line-of-sight backhaul for small cell deployments.
The company is aiming to cash in on a shift toward high-density, small cell deployments. Operators are looking for ways to get critical backhaul connections to those cells, and Blinq says it has the technology to match.
"Microwave backhaul is line of sight. Our backhaul solution is non-line-of-sight, and is developed specifically for smaller base stations," Miller says, calling the Nortel assets underpinning Blinq's backhaul technology "a diamond in the rough." "We've been able to leverage a lot of the work that Nortel did – we're a startup, but Nortel's assets give us the advantage of several years of many man hours on this one problem."
Small cells deployments of the type targeted by Blinq Networks are expected to be a growing area in the coming years, and Blinq isn't the only new company looking to cash in on the space.
The trend toward small cells caught the attention of AirHop Communications founder and CEO Yan Hui, who saw that coordinating traffic between myriad cells in a wireless network would require self-organized network (SON) technology. Hui set out in 2007 with software aimed at making it easier for operators to direct, provision and manage traffic across their small cell deployments.
When AirHop first arrived on the scene four years ago, it was sometimes difficult to convince vendors to consider incorporating its SON technology into their femtocells and picocells. "We spent a lot of effort trying to educate the market," Hui says.
That changed as vendors came to more fully understand the logistical complexities of incorporating small cells into operators' existing networks. Now, makers of femtocells and picocells not only agree with the need for embedded SON technology, they're encouraging its more widespread use.
AirHop's timing may have presented a bit of a learning curve for its potential customers, but being ahead of the market ultimately helped the company set its products apart from technology later introduced by its larger competitors.
The company announced last October that picoChip would be using its technology in its chips for HSPA+ femtocells and signed another femtocell deal with Argela in February.
AirHop's SON technology also attracted the attention of another small cell startup, Wazco, which has incorporated the software in its MetroStorm LTE metrocells. The MetroStorm was just announced in May, and while Wazco hasn't announced any buyers for the metrocell yet, it says it's in "active discussion with lead customers."
Market positioning has been particularly important to Israel-based chipmaker Altair Semiconductor, which was founded in 2007. The company got its start in WiMAX chips before transitioning to LTE in 2009.
Altair faces its fare share of competition in the LTE chip space from semiconductor behemoths like Qualcomm and ST-Ericsson. However, Altair has been able to carve out a niche for itself in smaller markets that its larger competitors aren't as interested in.
Instead of focusing on the high-end smartphone market, where it would be difficult to compete against established chip vendors, Altair is focusing on emerging markets.
The company says TD-LTE is particularly promising because the technology is less common than the FDD variety used by operators like Verizon Wireless and AT&T, and consequently less attractive to top-tier chip vendors.
"The dynamics in the TD-LTE market are such that it renders the advantage a company like Qualcomm might have from a multimode perspective less important," says Altair co-founder Eran Eshed, citing a preference for low-cost, single-mode devices in emerging markets where TD-LTE is set to become the de facto standard for mobile broadband.
Altair also has positioned itself to make its chips attractive to manufacturers that want to avoid the royalty costs associated with incumbent semiconductor providers.
"There are some pretty powerful chip vendors out there and some of the OEMs are just not comfortable with that," Eshed says. "We are much smaller, so we have shorter design cycles, we're more flexible and our chip costs are lower because there are no crazy corporate overheads."
That doesn't mean that Altair is resting on its laurels. The company had the foresight to move to LTE before many of its WiMAX competitors did, and maintains its forward-looking approach to development. By Eshed's estimates, Altair's TD-LTE development is about six months ahead some of its larger competitors.
"By definition, if we're not ahead of the curve, we cannot survive and sustain a business," Eshed says. "We have to think five steps ahead, do things more efficiently - if we just offer a chip with the same specs as one of the big guys, it's not going to be a very successful product. It has to have more features, better performance, lower cost."
Fighting the Incumbent Gridlock
New companies hoping to break into the network equipment space need to have compelling products, perfect timing and sufficient venture capital funding. Even then, there's another huge obstacle to success: the incumbent advantage.
Established infrastructure vendors push operators to buy all-inclusive, end-to-end solutions that leave little room for third-party equipment. They claim operators are better off with an end-to-end contract because it simplifies deployment, interoperability and network management. By this logic, a piecemeal approach that favors a more diverse selection of best-in-class equipment breeds complexity.
"Even though LTE is simpler, flatter, the reality is that in order to be able to manage capacity, scaling, traffic flow, quality of service – it requires an end-to-end view of the network, and alignment of the various components on the network," says Alcatel-Lucent LTE marketing director Danny Locklear. Introducing third-party gear into the mix not only complicates deployment, it can have an impact on an operator's visibility into their networks and add expense, Locklear claims. "We believe there's incremental value the more you have common components that have been reintegrated into the network."
Locklear dismisses the "best-in-breed versus single vendor" argument, saying Alcatel-Lucent's products are plenty innovative.
"The general thought is that smaller companies are more innovative and more flexible. We have continued to try to maintain that type of a framework even though we're a larger company," Locklear says, citing Alcatel-Lucent's lightRadio products and its Bell Labs research and development unit. "We're constantly out there driving the standards."
Nokia Siemens Networks mobile broadband marketing executive Kai Sahala echoed Locklear's statement, saying operators feel more comfortable going with their tried and true equipment providers.
"Especially when there's a new technology, it's a much more safe and reliable way of going forward for the operator," Sahala says. "We know the service is working from the device all the way through the network."
As demonstrated by recent LTE deployments in the United States, operators often favor established equipment providers because they serve as a one-stop shop for equipment, construction and services.
AT&T specifically cited "compatibility between the suppliers' existing 3G equipment and forthcoming LTE upgrades" when it announced that Alcatel-Lucent and Ericsson would be the equipment suppliers for its LTE network. Both vendors previously provided equipment for the operator's 3G network. AT&T did not say whether equipment from other vendors would be incorporated into the network.
Verizon Wireless also selected Alcatel-Lucent and Ericsson as the primary vendors for its LTE network and is using Starent for its packet core and Nokia Siemens for its IMS components. It did not list any other suppliers.
Operators' continued preference for top-tier vendors can make it beneficial for smaller players to be acquired by larger, more entrenched companies.
Consider WiChorus, for example. The network intelligence company was bought out by Tellabs in 2009 for $165 million in cash. Not only was the deal a boon to WiChorus' venture capital investors, it gave the company the clout it needed to compete with its larger rivals.
"The premise of any merger like this is synergies. The WiChorus team is a stellar technology team, and Tellabs is a stellar backhaul provider," says WiChorus founder Rehan Jalil, who now works in Tellabs' mobile Internet unit. "We could bring in the technology; they could bring in the sales channels."
Though top-tier vendors loom large over the infrastructure space, there is still room for optimism.
Operators planning to launch LTE aren't locked into legacy equipment and are open to suggestions about what components will net them the best network. There will be plenty of opportunities for newcomers to hawk their wares as global LTE deployments ramp in the coming months and years.
This has been especially noticeable at Stoke, which provides gear for both UMTS/HSPA and LTE networks.
"The attitude when we sell our 3G solution is drastically different from when we're selling our LTE solution. It's an opportunity for the carrier to design the best network from the ground up," Vikash says. "The tolerance level for inserting anything new in a 3G network is far lower than for an LTE network."
Yankee Group analyst Jennifer Pigg tends to agree with Vikash. There are lots of corollary markets for new companies in the LTE space because of performance gaps between legacy solutions and the best-of-breed technologies being developed by newcomers, Pigg says.
The pattern is familiar to many who follow the tech industry, since it's not necessarily in the best interests of established corporations to take the risk of being first to market with a new technology.
"They can afford to overhang the market, see how it plays out and either do internal development or purchase a smaller vendor down the road. Their value add is stable, robust, integrated services. They're technologically innovated, but it's not the story they lead with," Pigg says. "There is opportunity for innovation in the 4G market beyond the goliath mobile infrastructure vendors, and that's the bottom line."