Thanks to pal Andy Abramson, I caught Mike's post Why The Telcos Hate Innvation over on TechDirt. I might have missed it otherwise. Andy noted that Mike is indeed right on with his analysis, but I'd like to expand on the issue just a bit. Having spent nearly two decades working in that telco universe, I think I can poke around with a flashlight in a couple of dark corners and shed just a little light into why innovation is at such a low point among the telcos.

Let's start with a snippet from Mike, who points back to the great Business Week essay that caught so much buzz -

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.

This really gets to the crux of things.

• Telcos are not technology companies.
• They're in the business of extracting revenue from past investments (note, investments, not innovations).
• The view innovation as threat. Innovation drives cost of infrastructure down.

None of this is new. First let's look at innovation in the telecom industry. Where did it go? The root source of innovation in the telco world was centered at Bell Labs. Bell Labs, through at least 3 decades, provided hundreds of innovations and patents, but most weren't directly implemented in the telecom industry itself really. Think about that most touted of all Bell Labs inventions, the transistor. Where was it most used? Int he decade following its invention, the transistor radio became the hot comsunmer electronics device of the day.

Where's Bell Labs today? Do you know? It's not part of AT&T. When AT&T spun off Lucent Technologies as an independent equipment manufacturer, Bell Labs we to Lucent. Today that's where we find them [link]. And they aren' just in Holmdell these days. Bell Lbas has research centers in China (Beijing), India (Bangalore) and Ireland (Blanchardstown, Dublin).

But the truth, the roots of the death of telco innovation go deeper. In 1984 AT&T went through divestiture. On the surface, divestiture was a split of the local and long distance businesses, but there were other factors, other events all going on around the same time. The customer premise equipment business was ripped away from the Bell system (and the independent telcos) and given to the customer. In those days, we didn't buy phones at the local electronics shop. We didn't buy routers for premise connections. A CSU/DSU to terminate a circuit was the property of the telco back then. A shift began.

The shift, or split, was in two directions. Consumers got to purchase their own termination equipment, and they began to buy it from other vendors. The other vendors, Cisco and the like, were, at that time, nimble and innovative. They were entrepreneurial. They were industrious. Nobody ever accused a telco of being nimble. And the telcos, focused inward. They lost all focus on customer service and focused two things, reducing the infrastructure cost, lowering OPEX,  and the local looop. They knew they had a stanglehold on customers attached via a local loop. That was 20 years ago.

In 1997, David Isenberg's Rise of the Stupid Network was published (and David left AT&T shortly thereafter). Today, it's clear that Isenberg's paper really heralded two more shifts. The telephone network (PSTN) was built around a smart core, with unintelligent devices (phones) at the edge. The "stupid network" was really the Internet, with intelligent end points (computers) and a core network that was intent on efficiently moving traffic. While that shift has taken a long time to circle back around to telephony services at a high volume (VoIP, IPT, unified communications), the telcos remained focused inward.

During the late 90s, we saw a spurt of telco competition. CLECs and DLECs enetered the DSL business, trying to deploy early broadband data, but they wanted to use the telco's existing local loop facilities. This met with great resistance from the telcos. They resisted through political process, their strong hold over the FCC, and through bureaucracy. They dragged their feet and literally stalled many a CLEC into starvation. Focused inward.

The telcos had left the technology business entirely. They were in the business of protectionism and trying to maintain their strangehold on customers. What had been a franchise for ubiquitous dial tone became their rallying cry for everything. They were going to deliver televsion and crush the cable companies (but never did). They were going to deliver consolitdated data and directory services ( but never did). They had become so focused on process, so intent on maintaining status quo, that from 1984 to 2000 they completely forgot how to create...to innovate...to build. They didn't know how to build anything but local loop cable plant.

Of course innovation was a threat. They no longer knew how. They'd lost their most talented people to competitive tech sector companies. For many of them (the RBOCs in particular), those old Bell System Practices (BSPs) were a manual for the past. They lived in historical context so long the corproate culture of real innovation, real customer service, real creativity was lost. They'd become business oriented. Not service oriented. Not technology oriented. Business process oriented, focused on protecting the only business they knew.

To their credit, some of them broadened out. They bought cellular companies. A protectionist move hoping to squash the possible shrinking minutes of use. That backfired, but many of them adapted. They bought Internet backbone providers. But again, in a protectionist move. In both cases, rather than create new service industries, the telco legacy did everything possible to pound the round peg of new technology and services into the old square hole of protecting the local loop.

And many of you probably feel I'm being harsh with the telcos.  Maybe, but I'm also dead on target in many ways. The fundamental mindset behind the telecom industry, especially the large legacy telcos, is to protect the money stream, not to innovate.What's the last innovation you saw from your telco provider? Star 69 automatic callback or CallerID? The telcos quit being a center for technology innovation of telecommunications in the 1980's. The locus of innovation, the vortex, if you will, shifted left, and the telcos shifted right following protection of their revenue stream.

Today they don't innovate because in the past 20 years that kind of innovation has become a facet of their corporate culture that's missing. They don't know how. And before they can become innovators, they're going to have to rebuild an entrepreneurial, customer serving, "cannablize your own revenue base" mindset they just don't have today. Whether they'll survive long enough to reinvent themselves is a question I've been watching for an answer to since 1984. I don't believe the question has been answered yet, but in the life of a telco, 20 years isn't a very long time really.


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