Why The Telcos Hate Innovation

from the it's-a-threat dept

Business Week is running a fascinating essay that highlights all the reasons why the telcos hate innovation. They're not technology companies, which is highlighted by how little they spend on research. They're in the business of extracting as much money as they can from their network right now -- which is a short-sighted and eventually self-destructive plan. They view real innovation as a threat, not an opportunity, because tech innovation is usually about driving down the cost of infrastructure. That doesn't help them squeeze more money out of it. As the writer of the essay points out, this is evident in the telcos continued fight against things like muni-WiFi, even as they quietly get involved in muni-WiFi projects themselves.

The article also highlights how this lack of technological innovation from within the telcos means that even in areas where they have every opportunity to innovate, such as IPTV, all they're doing is catching up to what the cable providers already deliver. They're missing the opportunity to do much more. In fact, this is a great way to view the net neutrality issue. If the telcos were really about promoting innovation (and the author makes fun of AT&T for claiming it needs to merge with BellSouth to be able to innovate), then network neutrality wouldn't be an issue at all. The company would focus on making its platform (the network) as accessible and as fast as possible -- to encourage more innovation and development from third parties. Instead, the telcos focus, not on encouraging innovation, but on setting up roadblocks. The roadblocks give them the power to squeeze more money out of the network -- but at the expense of actual innovation that would make their networks that much more valuable.

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  1. identicon
    David Siegel, 31 Jul 2006 @ 9:44am

    Re: Re: Same Channel, Same Content

    Um. Okay. How about Intel? They invest billions on each new chip without any guarantee of return. They do it, though, because they believe that's where the market is heading and they want to lead the market with innovation.

    Comparing the R&D costs at a hardware vendor and a services provider is like comparing apples and oranges. Intel's product came from R&D, and their next product will come from R&D. If they don't do R&D, then they have no next generation product.

    Contrast this with the telco. The telco is, in many senses, nothing more than a systems integrator. They take the products of hardware vendors (products that were the result of that vendors R&D), string them together, turn them on, and begin selling services off of them. Once they have acheived this, they face Clayton M. Christensen's Innovator's Dilemna just as any business does. They have to weigh the risk of cannabalizing their existing revenue, revenue which may be offsetting equipment that was capitalized and is still being depreciated (i.e. they are still paying for it on their books). This is basic business.

    The other question telco's ask themselves is what the output of the R&D will be. Since telco's don't build hardware themselves, the output is often given freely to vendors to use as input for their next R&D cycles, and revenue from patents rarely result in enough money to justify the expense of the R&D.

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