When you find your 14 year-old son in the middle of the living room with a guilty look on his face, a screwdriver in his hand and your nifty new UMTS cell phone in a million pieces on the floor, hold off on blowing up for a second – the pieces you see represent the achievements of some of today’s greatest European start-ups. And there’s opportunity in them thar parts.
“We make the software that runs OC layers one through three of the handset,” said Clifford Dong, CTO at Zesium, a Munich start-up that last year received a seed investment of €2 million from 3i. He’s referring to the “seven layer” stack concept which includes level 1, the ‘physical layer’ which actually sucks and blows bits into the airwaves; layer 2, responsible for guaranteeing the safe delivery and receipt of data, and layer 3, which deals with what data will be transferred along with mobility management, radio resources and call control.
3i says that because Zesium’s business is personnel, not finance, intensive, they don’t expect to have to sink any further money into Zesium any time soon – even though the company is making extraordinary headway and faces little competition to date. “They have very specialized know-how,” said Peter Boehringer, investment manager at 3i, “and there are several large manufacturers who would rather buy the software than build it, and Zesium is very good at building this software.”
Some larger handset manufacturers, Boehringer said, are committed to building it themselves, but Boehringer thinks that those companies might not have the manpower they would like, and therefore even they might end up at Zesium’s door. “We’ll just build it and see what happens,” Boehringer said.
VCs say that this kind of guts-building is exactly where small start-ups can benefit best from the spending frenzy as European telcos prepare to invest what Commerzbank estimates will be &euro87.5 billion over the next four years and a total of €175 billion over ten years.
“We see a trend,” said Max Oppersdorff, Vice President of EM Warburg Pincus in Munich, “that hardware vendors are acting more like general contractors. The major part of what they supply they make in house, but they’re trying to buy from third parties that are out on the edges of advanced technilogy where perhaps the vendors are not as advanced – and sometimes the customers themselves are even demanding this.”
Much of the spending flurry will be focused on issues of infrastructure, and while much of the backbone and base station action is likely to be taken up by the Nokias, Lucents and Ericssons of the world, there are literally dozens of niche areas in which small, independent and fast moving technology companies can move in and own the space.
Take, for example, base station amplifiers. The frequency and bandwidth used by the next generation of mobile phones pushes the envelope of the specs of existing base station transmitter equipment, and there is an enormous and immeiate need for more efficient linear amplifiers. Amps, in the boxes at the bottom of base stations, currently require fans and other cooling technology, and must be constantly monitored. The infrastructure cost associated with all this coddling can add up.
“Telecoms spend tens of millions of pounds in any year on electricity,” said Dave Cheesman at Advent Venture Partners, “and a lot of that goes to wasted power in amplifiers .”
Advent is backing, along with Deutsche Bank and 3i, a company called Wireless Systems, which makes range of patented, next generation, wide-band linear, high efficiency amplifiers. Wireless just closed its third funding round for $23 million.
New hardware and software technologies – or even new applications of existing technologies – are also absolutely essential. Squeeze any portion of the mobile world and an opportunity just might pop out: the next generation of mobile phones, and their increased bandwidth, means that handset range given the available power will decrease. To combat this, handsets require far more efficient antennas in order to provide services without sucking dry batteries in the dialing process.
Consider, too, the humble handset. The amount of technology crammed into those tiny little buggers is astounding: aside from the chips, switches and other hardware, today’s typical handset already contains around 2MB of code. That is expected to quadruple in size as mobile devices become more complex.
Or ponder the very deployment of base stations. New generation mobile cells will be smaller, and therefore more will be required. Companies that make a new generation of network planning software will be of intense interest to telecoms looking to maximize the efficiency of physical placement of base stations, and even the angle at which to point the antennas to squeeze every gram of coverage possible out of the new systems.
Even backlighting technology is being reconsidered: Advent’s Cheesman says that current systems, which use light emitting diodes (LEDs) and molded acrylic light guides to sorta – shove the light where it’s needed are less than perfect. “They use lots of power and don’t supply even lighting,” said A. Kianin, Technical Director for Elumin in Wales. Elumin uses electro-luminescent material for a range of applications, from private jet refurbishments to escape lighting on aircraft, to night vision devices and, of course, mobile telephone handsets.
EL’s nothing new in the world, but it is relatively new to handsets. It uses a light-emitting phosphor sandwiched between layers of insulation and conducting electrodes which are then laminated together. The result is a light that can produce various brightness with negligible heat. Advent has recently invested more than €2.5 million into Elumin, which Kianin says, expects to begin production for “a big company” of their backlighting products as early as November.