Is Innovation Too Tough for Big Telecom?

DUBLIN -- Management World 2012 -- Innovation is something the TM Forum is pushing hard on this year, but a panel of industry experts here this morning gave a skeptical view of whether telecom operators are even capable of innovation.

Minutes after Martin Creaner, president and CEO of TM Forum, outlined the innovation acceleration program on tap for 2012, Heavy Reading's Chief Analyst Graham Finnie pointed to the telecom industry's failure to reorganize internally to enable innovation, even though they claim to want it.

The same companies that ignored advice several years to adopt an applications ecosystem and open APIs -- ahead of Apple -- are still giving too much weight to their network operations, over their IT and software development arms, Finnie said.

"Do they have assets that are valuable and defensible -- yes," Finnie said. "They have assets in the sense of providing a very rich set of context for delivering applications. Do they have the will and the means to exploit those assets? I have severe doubts."

Finnie added that innovative thinkers employed by big telecom companies often get frustrated and quit after hitting a brick wall internally, losing the battle to network operations and BSS/OSS resistance to change.

Hannes Wittig, telecom analyst with JP Morgan, insisted the investment community will reward innovators and those with long-term plans for growth but admitted the risks must be managed. Moving too early in the technology cycle can be too risky for investors, he said.

One approach is to spin off a separate unit of the larger company to innovate, as Telefónica SA (NYSE: TEF) has done with Telefónica Digital, offered TM Forum Chairman Keith Willetts, who took time off from promoting his book to participate in the session.

"I will be interested to see how much freedom they have, whether they are allowed to compete against the parent, which they have to do," said Willetts, author of Unzipping the Digital World, which goes on sale this week.

Lawrence Sugarman, head of telecoms for Liberum Capital, said such spinoffs face "very big issues around how much autonomy you are willing to give," adding that they can be burdened with high expectations for profits. He believes big telecom is better off looking for partnerships with outside innovators.

Willetts warned, however, that all large companies -- not just telecom players -- face an innovation challenge and must be prepared to sacrifice their current product lines. Some companies, such as Kodak, have lost everything because of an unwillingness to sacrifice its existing business (film) to support what was next (digital cameras), Willetts said.

Wittig singled out Xavier Niel, CEO of Free Mobile , as an innovator in the telecom space for radically reinventing the mobile value chain and offering service that is 90 percent cheaper than existing French players. The company has added more than 2 million subs since January of this year with its new model.

Finding innovation at a smaller, newer player is much easier than finding it within telecom operators, Sugarman said.

Ultimately, a major culture change is required for telecom operators to have any hope of incorporating innovation into their business models, Finnie added. He believes they can still take advantage of the vast stores of information on their networks and their customers to provide context for applications, but doing so requires a transfer of power to the IT/software side of the telecom house, and Finnie is not sure that is going to happen.

— Carol Wilson, Chief Editor, Events, Light Reading

philgr99 12/5/2012 | 5:32:30 PM
re: Is Innovation Too Tough for Big Telecom?

I agree that the biggest inhibitor to innovation is often the organizational structure and reluctance to let go of control of some information/resources. One way we are seeing our large customers get around this is by teaming with a smaller, trusted outside company to drive development of solutions that might normally be the purview of a different department. Thsi way the originiators can direct development but not have to give up control to inside associates.

paolo.franzoi 12/5/2012 | 5:32:29 PM
re: Is Innovation Too Tough for Big Telecom?


This is a sincere question.  To run a network profitably, you need to drive cost out of services.  Innovation - especially Apple/Internet style - adds complexity and change to networks and services.  This seems completely at odds with the way on making money on a network.

Let me use Openflow as an example - Are you seriously expecting me to believe a carrier will allow a customer to mess with its routing plan?  ESPECIALLY given the possibility of Anonymous taking down a network through an Openflow attack?  If you answer no (and I think almost all of you did) than SDN becomes a tool for carriers to control their infrastructure IF they can find services to create from it that can make them more money (or a way of saving cost).

The three networks that have been built to scale and run to vast profits - and remember we are talking about companies that are hugely profitable:

- Phone Network - Fixed point to point calling deterministic performance

- Cable Broadcast - Fixed distribution network

- Internet - Flexible connectivity with indeterminate performance

Everything in the middle has been troubled or of relatively small scale.  Those have all been built out to 100s of millions of endpoints.

As I have told folks here, lately I have been in a SaaS email business.  This network has challenges even when it is operating properly.  User equipment - Other providers - Spammers - All real world things interact.  The more complicated it is and the more end user programmable it is the tougher things get.

If the carriers want application arms - buy Salesforce.com.  Do you see how different that is in its creation from a carrier?  There are two completely different things here.  One offs - Special Circumstances - Unique Setups are the bane of serving a vast customer base.

What I think the carriers should be doing is relentlessly driving cost out of the network and network operations.  This is NOT an attractive thing for the IT folks as it limits their addressable market (Nobody is paying $10/sub for IT kit unless it can make them more money than that).



Flook 12/5/2012 | 5:32:29 PM
re: Is Innovation Too Tough for Big Telecom?

Carriers, I'm talking telcos here, have the mindset of a utility company. They're not going to change unless they come under great pressure to change--but that's not the kind of a company that will embrace innovation.


Assume for a moment AT&T/VZ could buy Apple--they'd mess up Apple in short time. Different culture, different mindset, different ball games.

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