|Telecoms innovation talk may be nothing but hot air |
A history of squandered opportunity bodes ill for technology growth
Fildes AUGUST 13 2021
No expense was spared when Telefónica set up its London incubator a decade ago, as the Spanish telecoms group installed collaborative spaces, gaming pods and meeting rooms in the form of hot-air balloons. Staff from the company’s UK mobile network O2 were not even allowed in.
Telefónica Digital was dissolved after just two and a half years. But it stands as the sector’s boldest attempt to tap into start-up stardust.
Cash-rich telecoms companies with tens of millions of customers should be hothouses for innovation. But although the sector has been critical to the digital age, it has squandered the opportunity to be a tech trailblazer.
The industry has been exceptional at predicting the future but spectacularly bad at reaping the benefits. The first cloud storage, digital content, mobile payments and video conferencing services all bore telecoms brands and became highly lucrative ventures — for other companies.
The MP3 compression technology that drove the download market was invented by Telecom Italia staff. Three, the UK operator, pre-empted the era of YouTube and Spotify by launching successful video sharing and music platforms. Vodafone was ahead of the curve on mobile wallets and mobile commerce. Yet none paid off in extra profit.
Buying into the future hasn’t worked either. BT spied an opportunity to connect phone calls within apps when it bought promising US start up Ribbit in 2009. Ribbit quickly failed but rivals have blossomed. Twilio, for example, is now valued at $67bn — more than twice the current market value of BT.
The common theme on why these attempts to innovate fail is hierarchy. Telecoms companies are large, regulated, bureaucratic beasts that demand control and lack patience. Bright ideas are smothered at birth as boards have become risk averse.
That caution is evident at BT’s research labs. Adastral Park, which takes its name from the Latin per ardua ad astra (through adversity to the stars), is driven not by “moonshots” but “applied research”. That esoteric work may underpin huge advances in future telecoms networks but it is unlikely that BT’s consumers and investors will even notice.
It is a similar story at Bell Labs. The US research powerhouse, once the beating heart of then all-powerful AT&T, lays claim to inventing everything from transistors to information theory to the digital hearing aid. Yet author Douglas Coupland described finding a company under a “massive bell jar in which time has gone static” when he visited last decade.
A new generation of telecoms executives are once again talking up a big growth game in digital innovation based on 5G and full fibre. They paint a picture of networks at the heart of an even more connected world. Yet research & development spend sits between 1 per cent and 2 per cent of revenue at most large telecoms companies, according to MTN Consulting.
Even Telefónica relaunched a dedicated technology arm two years ago promising double-digit growth once again. As it tries to sell a stake in the business, the proceeds may tell us if the latest tech drive was worth the effort or just another case of hot air.