The continuing decline in venture capital (VC) investment in telecom startups could mean less innovation, says a new paper by Ovum.

 

The research firm says that while telecom vendors continue to spend around 13%–14% of revenue on R&D, VC funding of vendor startups has fallen steadily in the last few years.

 

VC telecom investment shrank from $1.82 billion for the four quarters ended 3Q08 to just $1.18 billion in the 2Q09–1Q10 period, Ovum principal analyst Matt Walker said.

 

He revealed Ovum’s research into investment by ten large vendors over the past three years found that VC funding for telecom startups had declined from 5.6% in 3Q08 to just over 4.0% in 1Q10.

 

“We believe this poses a substantial risk to carriers in the level of innovation they will be able to internalize by working with, acquiring, or even copying successful startups,” Walker said.

 

He said that while vendors were maintaining research spending for the moment, recent market consolidation and cost pressures big US and European vendors are cutting back staff and closing facilities.