Keywords: AT&, T, Baby Bells, Bellcore, core competencies, deregulation of telecommunications, technological innovation, telecommunication policy, telecommunications services
Innovation in the "Baby Bell" companies: a comparative longitudinal analysis
The worldwide trend of deregulating monopolistic service industries, and in particular established telecommunication companies, raises a major issue: how do the former protected and implementation-minded companies compete with the new entrepreneurial entrants? How are these companies building their innovation capabilities? This paper addresses the question: how is innovation associated with organisational strategy, change and structure within an industry, given the same past history, and similar environments and resources? It investigates the case of the seven "Baby Bells" that were set up by court order in 1984 after the divestiture of AT&T. These companies had shared the same company history for almost a century, had similar resources and were subject to the same regulatory and market environments. Given this similarity of origins, regulatory and market environment and the original common R&D base, the case of the "Baby Bells" provides a natural unique environment for studying the process of building innovation capabilities and the results of this process. Three dependent variables were selected to represent tangible results of innovation: number of patents, new services offered, and diversification as expressed by non-telephone, non-regulated revenues; and eleven independent variables, ranging from R&D expenditures to the utilisation of equipment with advanced technology such as digital switches and fibre-optic channels, plus organisation measures, such as rate of technical and administrative change, professional intensity, inter-firm linkages and joint developments. The data were collected for a period of eleven years (1984–94) from a variety of sources, and analysed by Spearman correlation, multiple regression and canonical correlation. The principal results of this research show that, with other factors constant: (1) acquisition of patents is positively related to joint development, emphasising product differentiation, and technical change, (2) acquisition of patents is negatively related to inter-firm linkages (inter-firm interactions excluding joint developments), (3) the introduction of new services is positively related to joint development, emphasising core competencies, and administrative change, (4) promotion of non-regulated revenues is positively related to emphasising core competencies, and (5) innovation is negatively related to management intensity. The paper concludes with implications for managers of telecommunication companies.