R&D at TeliaSonera Finland, Organizing internal and external R&DJyrki Härkki

Historical outlook1885 - 2003

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TeliaSonera Finland’s roots

Posts and Telecommunications of Finland

Post and Telegraph Office

Temporary telegraph officeTelegraph

district of Finland

Telegraph line of Finland

1855 1859 1918 1927 1981

4

Part of the TeliaSonera Group, TeliaSonera Finland Oyj

Sonera Corporation

Telecom Finland Ltd

Posts and Tele-communications of Finland- Reform of State business enterprises

Posts and Tele-communications of Finland

- Telecommunications administration to Ministry of Transport and Communications

1987 1990 1994 1998 2003

TeliaSonera Finland’s roots

Organising R&D1994 - 1998

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Telekehityskeskus 94-97 – financing options

• Corporate funding (T&K neuvottelukunta)

– Cross-organisational projects

– Future (H2 technology) projects

– NBD projects initiated by Research Director

• Orders from BUs at low price to promote BU orders from TKK

• External financing

– EU and Eurescom projects

– TEKES funded PKT-Tele program– To promote SME networking (common web site, joint events, education)

– To promote operator – SME networking

– For Telecom Finland: to utilize innovativeness in SMEs

– TEKES funding for joint projects 30-50%

– For SMEs: to promote sales and R&D

• R&D Director funding

– Internal NBD cases based on vision

– Outsourced R&D: Case SSP/Intellitel based on vision

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Telecom Research 97-98

• Projects were grouped under larger technology programs for easier control

– Technology programs were of strategic importance for TF

– BUs gave guidance to these programs

– Funding of projects by Corporation (100%)– No BU funding for TR

• Strategic competencies were developed

– Sonera Service Software was established

– Software development was identified as a tool for an operator to climb up in the value chain

– SPICE maturity model was introduced for software processes

– DP model was introduced

• Technology Management was established to act as a “CTO’s Office”

• R&D Forums were established for networking and information sharing purposes for R&D and development units and people

TF = Telecom Finland, BU = Business Unit, DP = Decision Point, TR = Telecom Research

Corporate Venturing1998 - 2001

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New Communication Services 98-01– what is NCS

• Telecom Finland had a good track record in “incubating” other’s businesses, e.g. Nokia, Cisco, Tellabs (Martis), Tecnomen, and PacketVideo

• 1st in the world in numerous businesses (mobile, FR, ATM, mobile portal)

• New Communications Services was established in 1998 “on top of Telecom Research (or S3) and fuelled Sonera’s future growth by

• investing into technology and services businesses within mobile, media and Internet industries to boost new products and long term business development (Corporate Venture Capital)

• developing a whole new mobile-based businesses, corporate funding

• globalize and scale up existing mobile-, software and operator-based businesses to correspond to the challenges of the future

That work was supported by own platform and product development,which differentiated Sonera from other competitors by being a forerunner in technology.

FR = Frame Relay, S3 = Sonera Service Software

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NCS focus – 2nd and 3rd horizon

VENTURE

CAPITAL

NEW

CONSEPT

S

- welfare

- community

systems

- gaming

- entertain.

INCUBATO

R

- Mobile

payment

- Wireless

entertain.

START-

UPS

- ZedTravel

- New

learning

BUSINES

SUNITS

- Inlog

- Fleet

Comm.

- NEVA

- Intellite

l

- Tedasys

SONERA SERVICE SOFTWARE & TECHNOLOGY DEVELOPMENT TEAMPlatform & Product development, Technical consulting, Architecture design, Due diligence

G

R

O

W

T

H

Other ventures outside NCS included Zed, Smart Trust, Plaza and Juxto

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New business development model

IDEAS(hundreds)

EXPERIMENTS

(tens)

VENTURES(5-10)

BUSINESSES(5)

NCS

DP 1

DP 2

DP 3

DP 4

DP 5

DP 6

Screening the idea

Experiment Venturelaunch

Businesslaunch

Startcheck

Spin-offs

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New Communication Services – downsizing in 2001• NCS was created at the time of hype

• Venture targets were set high

• NCS was downsized due to the cost cutting program of Sonera in 2001

– Ventures not self supporting were in large extent downsized

– R&D and software development unit were left

• Two years was too short time to create new global businesses

• From the literature: risk / reward

• However, some major outcomes included e.g.:

– Mobile positioning platform

– Mobile payment platform

– Messaging gateways to Zed’s global business

– Information Logistics: telemetrics for safety

– Fleet communications: mobile logistics tool

• Formation of TSD (Technology and Service Development) as a new R&D unit for Sonera in 2002

– Scattered R&D units were put together

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Evolution of Sonera CVC

• Phase 1: fund investment start in 1997

• Phase 2: direct investments start in 1999

• Phase 3: investment board take over 2000

• Phase 4: CVC operations were spun off in 2001

• Phase 5: VC co-operation for the purpose of insourcing partners, technology, products, solutions, and business ideas starts in 2002

• Phase 6: consolidation of the VC related operations within TeliaSonera in 2003

CVC = Corporate Venture Capital

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Phase 1: fund investments

• In the year 1997, 1st fund investments were made

– Fund investments were made from the Sonera balance sheet (HQ)

– This provided the deal flow for Sonera

– This provided a co-investment possibilities

– This provided an easy access to innovative companies widely

• An employee was sent to the country of origin and in the premises of the fund invested

– This provided an easy international presence and closeness to the deal flow companies for evaluation

– This provided a solid basis for establishing relationships to other VCs, too

– Local presence provided, in the course of time, direct deal flow to Sonera

• The fund investments enabled Sonera to gain VC related competencies and to develop the utilization of the VC tool

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Phase 2: direct investments start

• Direct investments (from the Balance Sheet) started in 1999

• Local presence had provided Sonera international deal flow

• For evaluation of the target companies resources from business units were utilized

• The deal flow also increased significantly

• The investment decisions needed business unit approvals

– BUs were more involved than in previous phase

– the investments occurred mostly in H1 supporting the business of a BU

– BUs did not support financially good investments, per se, but often appreciated business benefits, too

– Business benefits of BUs and financial targets of the CVC team caused sometimes challenges to fit these two targets together

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Phase 3: investment board established

• The investment board was established in 2001 and the members represented mostly HQ like CTO, Corporate Strategy, CFO, etc.

• The focus shifted more to H2 and H3 i.e. to future technologies and future options

• Commitment to the investments was needed only from a few people, especially from CTO

– Decision process was simplified and speeded up

– investment focus was broadened in some extent

– this led to increased communication with the Investment Board but – in some extent - in lesser communication with Sonera businesses,

– CVC was applied to gain more strategic benefits, less operational benefits

– Due to CVC, the thinking of e.g. CTO developed and CVC contributed in long term planning

– Due to the new focus, no conflicts of interest with BUs

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Phase 4: spinning off the VC activities• After February 2001 no new investment decisions were made due to

the cost cutting program at Sonera

– Some of the 15 people transferred to venture spin-offs

– reasoning for outsourcing the portfolio management and VC fund operations became relevant

• CVC operations were spun off in September 2001

– Independent fund could raise funds from other sources than Sonera, too

– This would enable a larger “Sonera dedicated” fund with larger and focused deal flow (c. five to ten folded)

– Autonomy was seen as a tool to increase efficiency and motivation (of the CVC team)

– Outsourced portfolio management was seen as a tool to cut cost, too

– => SNV first took over the portfolio management

– => cooperation agreement between SNRA and SNV

SNV = SNV Partners, SNRA = Sonera

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Old way: the push of VC deals and info

Fund 1Fund 1 Fund 2Fund 2 Fund nFund nFund 3Fund 3

Screening layer of 15 sonerians (Helsinki, London, Boston, Silicon Valley, Tel Aviv, Tokyo)

Screening layer of 15 sonerians (Helsinki, London, Boston, Silicon Valley, Tel Aviv, Tokyo)

ZedZed SmartTrust

SmartTrust

JuxtoJuxto PlazaPlaza NCSNCS

Deal flow of 2000-4000 companies annually

MOMO Telecom

Start-ups seeking for finance (in Europe, Israel, and U.S)

Request for evaluation and support for investments

CTO’soffice

CTO’soffice

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portfolio

Phase 5: The opposite way: pull of new ideas (H2) VC Cooperation model

CSDCSD MITMIT CRDCRD MADMAD SPSSPS OSYSOSYS CTO’soffice

CTO’soffice

BUsBUs

Fund 1Fund 1 Fund 2Fund 2 Fund nFund nFund 3Fund 3

intermediary layer of two sonerians in CTO’s office (in Helsinki)

intermediary layer of two sonerians in CTO’s office (in Helsinki)

Request for information on companies

Start-ups seeking for finance (in Europe, Israel, and U.S)

MediaLab

MediaLab

Request for information in their specific focus areas

portfolio portfolio portfolio

Companyinformationto a specific

focusarea ofSonera

Comments back to VC’s valuable for them in terms of evaluation or possible business

co-operation withSonera

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Phase 6: consolidation of the VC related operations within TeliaSonera in 2003

• Portfolio management at Sonera and Telia were taken over by centralised MAD (M&A and Divestments)

– Investments were judged important if ownership was essential for cooperation with the investee company

– Decision not to further invest in minority shares was confirmed

– VC cooperation model was supported

• VC cooperation model on TS CTO’s responsibility

– Similar modes of cooperation was established both in TSF and TSS to handle “on demand” needs from BUs and ad hoc inquires as well as use it as a strategic tool

M&A = Mergers & Acquisitions, TS = TeliaSonera, TSF = TeliaSonera Finland, TSS = TeliaSonera Sweden

Merger of Telia and Sonera2003

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TeliaSonera Corporation

MPSCTO’ s office

TSS R&D TSF R&D

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Strategy

Business

Technology

Corporate R&D programs

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Strategic view

R&D-program view for substance and vision based steering

Efficiency

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