Monday, February 11, 2019

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%

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.

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