many of the major telecommunications
Despite venture capital’s important role in the U.S. innovation system and its many contributions to U.S. leadership in high technology, including telecommunications, its role is not to supply the basic and applied R&D that has fueled many of the major telecommunications advances mentioned in this report and elsewhere. Instead, it seeks to fund specific product innovation that can deliver short-term returns. Venture capital funds typically have a lifetime of 5 to 7 years, and investors seek significant commercial returns in that time frame. In contrast, major telecommunication advances can require longer-term efforts often continuing for a decade or more and requiring risk-taking, broad-based, interdisciplinary, multifaceted support—such as that historically provided by the Bell System or provided today when federal agencies fund long-term academic research. Over the long term, the venture capital model itself depends heavily on being able to select promising areas for investment from a stream of results from long-term research
Another major change in the telecommunications industry has been a major shift from basic, high-margin, wireline telephony services provided by the public switched telephone network (PSTN) to wireless and broadband services that both complement and compete with the traditional services and are associated with lower margins.14 As a result, revenue is shifting
TIA’s 2004 Telecommunications Market Review and Forecast (Telecommunications Industry Association, Arlington, Va., 2004) observes that (p. 33) “[t]he local exchange market is declining for the first time since the Great Depression. Consumers are beginning to cancel wireline services and rely on wireless, while DSL [digital subscriber line] and cable modem services are eliminating the need for second lines for Internet connectivity. Increased use of email and other messaging is cutting into call volumes.” It goes on to say (p. 45) that “landline toll service, like the local services market, is facing a long-term decline in overall usage.”from the local exchange carriers (e.g., Verizon, SBC (now called AT&T), and Bell South) and interexchange carriers (e.g., AT&T, MCI, and Sprint) to wireless and broadband access service providers (e.g., Comcast, Time-Warner, AOL, Cingular, Verizon Wireless, T-Mobile, and Sprint PCS). Unfortunately almost none of the wireless or broadband service providers have been funding long-term research, nor are there indications at present that any will undertake to do so in the foreseeable future.
All of the participants in the telecommunications value chain could, in principle, invest in research, but the nature of those investments would likely differ because of varying motivations and incentives. Traditionally, investments in research by end users (the demand side)15 seeking to improve the technologies available from providers and vendors (the supply side) have been the primary source of fundamental and long-time-horizon results that are much more likely to enter the public domain, making them available to all and increasing their impact. Open access to such results is particularly important for telecommunications, given that the value of a communications network grows with the number of its users, with more widely adopted and standardized technologies bringing greater benefits to all users.
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