Telcos’ innovation strategies have been shown up in a new report, which laments a continued protection of their core business activities.

The report from management consultants AD Little, Match-Maker Ventures and The Telecom Council of Silicon Valley, noted that realising value from innovation remained “elusive”.

Over two-thirds (67 percent) of telco respondents said that innovation is among their top three strategic priorities, but only 34 said they were satisfied with their innovation activities.

The report noted that their approaches were often “shallow” and “scratching the surface”.

“Observing and mimicking often is the key, instead of true innovative thinking,” it said.

A desire to protect the status quo and shareholder pressure were two reasons for this, according to the report.

To get over this, operators continue to develop in-house venture capital arms and labs to leverage innovation from start-ups.

The report found that just 36 percent of start-ups said collaboration with telcos is “essential” and 41 percent said it is “helpful”.

It said customer interaction was the best area for operators and start-ups to work together, given both parties appear willing to collaborate here.

However, it noted: “Professional investors shy away today from start-ups whose business models build on telco collaboration, focusing instead on those disrupting the slow-moving giants.”

Telcos’ innovation efforts are focused on network technologies in the main, while start-ups are looking more at IT/enabling technologies.

The report highlighted the “low focus” that telcos put on IT innovation, with just five percent of market leaders and 12 percent of challengers saying it is a top priority.

“IT has never been perceived as a 'sexy' domain. It has been the 'painful black box' for many years, and that is most likely the single biggest reason telcos are still suffering from weak IT architecture,” the report said.

[Read more: Four telcos feature in new ranking of Europe’s corporate startup stars]

Overall, the biggest challenge to innovation at telcos is the ability to identify the “right” areas to focus on.

The report found that operators who perform better focus on areas such as big data and virtualisation of customer service.

Increasingly, telcos are working together with vendors on innovation efforts.

The report cited the IoT ChallengeUp! accelerator run by Deutsche Telekom, Cisco and Intel as an example.

For such arrangements to be successful, it said flexible partnerships with clearly articulated goals need to be developed.

The report was based on a survey of 236 respondents from the telco and start-up community, plus 50 in-depth interviews.

“Telecom operators have furthered their open innovation efforts but face headwinds to achieve meaningful scale or realise value, barring a few isolated examples,” the report concluded.

“On the other hand, start-ups and start-up-like entities continue to shun telecom operators as partners of choice.”

It added: “Telcos need to truly transform – this requires a radical relook from within and facing up to the unavoidable transformation challenge that pits core business needs against new-business imperatives.”

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