Mobile operators from across the world are beating a path to Silicon Valley to hook up with start-ups as they seek to better compete with Apple, Google and Nokia, according to Greg Tarr, founding partner of Cross Pacific Capital and an advisor to several operators.

Tarr says that 20 operators from around the world now either have a presence in northern California or a representative based there and a further 20 are considering taking a similar step. Moreover, he expects the launch of five operator-backed venture funds in the next 12 months as operators seek to tap promising new technologies.

Of course, the Valley's software expertise has long been a draw for mobile equipment vendors and some, such Nokia and Ericsson, are well-established there.  Jan Uddenfeldt, an Ericsson senior vice president and senior technology advisor to Ericsson's CEO, moved to San Jose, California, in August 2008 to head up a new Ericsson research facility.

Vodafone Ventures - 10 years old

And some mobile operators, notably Vodafone, already have long-standing venture funds. A whole decade ago, Vodafone allocated £100 million to a global venture fund targeted primarily at first and second stage investment opportunities.  Chris Gent, then CEO of Vodafone, said at the time: "We are determined to maintain our position as the global leader in wireless communication and to lead the way in wireless internet service development.  The creation of this fund is a critical step in this direction."

But Tarr says many operators have only recently started actively courting start-ups, prompted by the growing competition from web companies offering rival communications services. "It is only in the last 18 months that most operators have taken seriously the need to do a better job of integrating and co-operating with start-ups," Tarr says.  "I am an arms dealer selling start-ups to operators that need to defend themselves against Nokia, Google and Apple."

He says that one of operators' main areas of interest is applications that can exploit their triple-play or quad-play assets - mobile, broadband, fixed-line telephony and television services - to give them an advantage over rival service offerings.

Scale, reach and expertise

Give the huge explosion in mobile apps and IP-based mobile services, it makes sense for mobile operators to stake out a presence in the nerve centre of Internet innovation. But even if they invest in or partner with the right start-ups, the big question is whether mobile operators have the scale, reach and expertise to nurture web services and applications that can compete with those from Google, Apple, Nokia and Amazon.

Some of largest telecoms companies, such as AT&T, China Mobile, Deutsche Telekom, France Telecom, NTT DOCOMO, Telefonica and Vodafone, probably do have the necessary resources and know-how to become software and web services companies.  But smaller operators may find it tough to raise the funds and harness the expertise that would be needed to turn the Silicon Valley innovation engine to their advantage.  They will probably have to settle for tactical partnerships with startups that give them a short-term edge, rather than game-changing investments that yield a sustainable advantage.