Service Provider R&D Spending is Low, for Reasons

Many will note that connectivity provider research and development spending is low, compared to spending by major app providers, for example. There are lots of reasons for that state of affairs.

In the U.S. market, for example, technology development in the monopoly era was conducted not by the operating units but by Western Electric, which after the Bell System breakup was separated out as part of AT&T, then privatized as Lucent, before sale to Alcatel and then to Nokia.

In the competitive era, most of the research and development has been done by industry suppliers, in part because that always was the way most such activity happened. That might be seen in R&D budgets for industry suppliers, as opposed to service providers.

Telco Research and Development Spending, $ Million
		2013	2014	2015	2016	2017
AT&T	R&D	1,488	1,730	1,693	1,649	1,503
	As % of sales	1.2%	1.3%	1.2%	1.0%	0.9%
BT	R&D	226	116	97	81	79
	As % of sales	0.9%	0.5%	0.4%	0.3%	0.2%
Deutsche Telekom	R&D	114	112	127	99	68
Orange	R&D	918	861	854	830	824
	As % of sales	1.9%	1.9%	1.8%	1.7%	1.7%
Telecom Italia	R&D	48	65	61	52	51
	As % of sales	0.2%	0.3%	0.3%	0.2%	0.2%
Telefónica	R&D	1,231	1,307	1,241	1,066	1,014
	As % of sales	1.8%	2.2%	1.9%	1.7%	1.7%
Ericsson	R&D	3,701	4,172	4,000	3,632	4,356
	As % of sales	14.1%	15.9%	14.1%	14.2%	18.8%
Huawei	R&D	4,632	6,168	9,001	11,536	13,544
	As % of sales	12.8%	14.2%	15.1%	14.6%	14.9%
Nokia	R&D	3,082	2,292	2,502	5,880	5,784
	As % of sales	20.6%	16.6%	17.0%	21.1%	21.2%
source: Light Reading

More recently, R&D investments have become less directly correlated with spending, however. One is the trend towards use of open source, which tends to mean development is less correlated with actual spending. Network functions virtualization also means that less capital has to be invested in hardware to achieve the benefits of software advances.

But some might note that connectivity providers simply have less profit from operations to invest in research or development. In a perfect world, with much-higher profits, service providers might have the ability to invest more. As a practical matter, they cannot.