First the bandwidth, now the software

Out of the rubble of so much communications infrastructure investing comes news that the time is nigh for the communications software sector.

Crescendo Ventures, the US venture fund that specialises in the communications and Internet sector, has just released a research report that puts a new spin on which businesses are set to prosper from the recent massive investment in communications infrastructure.

In the report, described as being based on 'extensive interaction with several carriers and software vendors', it is predicted that demand for the software necessary to maximise the efficient utilisation of the new broadband networks will take off over the next 12 to 24 months.

Said research analyst Shiv Puri: 'US carriers have spent over $200bn dollars on their network buildout in the past five years. Although this investment has delivered massive increases in bandwidth, it has done little to help carriers deploy and manage new packet-based services inexpensively and efficiently. This has negatively impacted their payback period.'

As the indebted communications companies search for ways to reduce operating costs they must also be creating new value-added services to sell customers says the report, as 'carriers realise that Internet connectivity revenues will continue to decline.' The study says that the result will be a growing range of tailored products and services such as VPNs, network-based firewalls, ASP performance monitoring and dynamic bandwidth provisioning.

The research suggests that communications software has represented only seven to ten percent of service providers' total capital expenditures over the past five years but predicts that this will rise to about 10 to 15 per cent this year.

Puri [and Crescendo] see this trend as presenting a unique opportunity. The analyst is reported as saying that: 'communications software will reduce the service providers' path to profitability and we are at an inflection point where the relative allocations to telecom hardware and software will shift dramatically. This should translate into a very opportunistic area for investment.'

Founded in 1993, Crescendo Ventures manages more than $1bn from its headquarters in Palo Alto, California and offices in Minneapolis and London.