(gigaom.com) -- It’s hard to believe that it’s been less than five years since Apple introduced the App Store, launching a multi-billion dollar industry around content and services for mobile devices. Since then mobile apps have helped propel smartphone sales through the stratosphere, with shipments topping 720 million units last year. Meanwhile NPD predicts 2013 could be the year tablets outsell notebooks.
Correspondingly T-Mobile has said that smartphone users are consuming as much as 30 times more data than just a few years ago, and that appetite grows each year. Cisco estimates that global mobile data traffic is nearly doubling each year and will grow 13-fold in the next 5 years. As that growth comes at larger and larger scale, network operators are finding themselves at overcapacity. While the FCC is exploring ways to make more spectrum available, there is simply not enough to go around in the short term, and it’s only going to get worse.More from gigaom.com
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This “mobile data crunch,” as we at Bessemer (and others) refer to it, offers one of the best investment opportunities there has ever been around telecom infrastructure. Here’s a look at a few key sectors we believe will experience outsize growth, and are investing accordingly. (Disclosure: Bessemer has investments in or a relationship with two of the companies mentioned in this piece; see below for those disclosures.)
So if more spectrum isn’t available, how can carriers get more capacity out of existing airwaves? Many are looking to add new cell sites, as cellular spectrum can be “reused” at multiple locations if there is enough separation between sites. Carriers are very excited about moving to a “HetNet,” which will incorporate thousands of small cells – or low-powered radio access nodes that provide the same functionality as a larger tower for a small region. The HetNet will make the network vastly more complex, with the small cells adding thousands more points of interference that will need to be managed.
Companies like Ubiquisys are building intelligent software for small cells to make them more manageable within the Radio Access Network (RAN). Small cells also introduce complications with backhaul (that is, returning the signal to the core network). For all of their flexibility, they are often placed in locations where traditional methods of backhaul like fiber cables or line-of-sight-microwave are impractical or unavailable. Blinq Networks and Siklu are among the companies working on new methods of backhaul for otherwise hard-to-reach small cell deployments.
An easier way for carriers to ease the spectrum crunch is simply to get rid of as much data traffic over their networks as possible, enabled by the use of Wi-Fi offload technologies from companies like AirSense, WeFi, and Devicescape.
Ralph de la Vega, CEO of AT&T Mobility, told an audience he “has been preaching about” this for some time. But he’s done more than that – AT&T now owns hotspots at some 30,000 McDonald’s and Starbucks locations, which handle traffic from the network’s customers when they are in the store. This is more difficult than it may seem, as carriers need to ensure that the consumer experience on Wi-Fi is as good or better than using the mobile network. Bringing awareness of which hotspots are accessible and have a strong signal as well as being able to seamlessly transition a user between the cellular and Wi-Fi network without interrupting service are critical areas being addressed by new companies.
Finally, some startups are going directly at the core network with software solutions that optimize the flow of mobile data traffic. This is perhaps the area we are most excited about, as evidenced by our investments in Intucell and Vasona Networks (Note: Intucell was recently sold to Cisco, but I remain on the board of directors; Bessemer still maintains an investment in Vasona Networks).
Earlier this year, Intucell signed a multi-million dollar deal to deploy its self-optimizing network technology across AT&T’s entire U.S. network. Intucell’s solution optimizes the RAN by identifying in real time faulty or underutilized cells and adjusting their configuration automatically to provide the optimal level of coverage. Similarly, Vasona is leveraging its position as software in the network to deliver IP video and data at the appropriate time and bit rate over a given cell.
What makes us particularly excited about this last category? Carriers can test software solutions on their network at a low upfront cost and see proven results in a short time before committing to a more substantial order. From an investor perspective, this means shorter sales cycles and a more capital-efficient business: We are now seeing startups that have never raised money before yet have already completed successful trials with major operators.
Bob Goodman is a partner at Bessemer Venture Partners.
Photo courtesy of E.O./Shutterstock.com.
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