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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
December 8th, 2006

By Brent Holliday
Greenstone Venture Partners

Requiem For Innovation?

“And I hope when I get old
I don't sit around thinking about it
But I probably will…
Well time slips away
And leaves you with nothing mister but
Boring stories of Glory days.”
– Bruce Springsteen, Glory Days

Lucent merged with Alcatel in case you missed it.  Headquarters will be in France and it is by far the biggest telecommunications equipment company in the world.  Yes, this news is old, but the impact is starting to be felt.  Just last week, it was announced that Bell Labs would be broken up to focus on applied customer-driven product development in different areas and that all direction will come from Paris.  That got me thinking.  Here’s why:

In Bell Labs’ 85 year history, its scientists have collectively have won six Nobel Prizes in Physics, nine U.S. Medals of Science, seven U.S. Medals of Technology, two Draper Prizes and a Grammy award, for many achievements in sound technology.

The lab has been granted 32,031 U.S. patents, 15,000 of which are still active.

A look at some key advances:

•1925: First demonstration of a facsimile machine sending pictures over telephone wires.

•1926: First synchronization system for sound movies.

•1927: First long-distance television transmission, sending live images of President Hoover from Washington, D.C., to New York.

•1939: First binary digital computer.

•1947: John Bardeen, Walter Brattain and William Shockley invent the transistor, leading to the electronic-age of portable radios, touchtone phones, computer microchips and color and high-definition television; they share 1956 Nobel Prize.

•1951: Direct dialing of domestic long-distance calls.

•1954: Solar battery cell to convert sunlight into electricity.

•1956: First transatlantic telephone cable, handling up to 36 calls.

•1958: Arthur Schawlow and brother-in-law Charles Townes invent the laser (short for light amplification by stimulated emission of radiation), now used in fiber-optic communications networks and as a cutting tool in surgery and industry. Each later won a Nobel related to the research.

•1962: Demonstrated cellular technology, tested the first paging system, produced the first orbiting communications satellite (Telstar I) and invented light-emitting diodes, now widely used in imaging systems.

•1965: Arno Penzias and Bob Wilson stumble upon cosmetic background radiation while using a highly sensitive "horn antenna" in radio astronomy experiments; they win 1978 Nobel Prize. The static noise they heard was the strongest evidence supporting the Edwin Hubble/George Lemaitre theory the universe was created in a "Big Bang" explosion.

•1969: UNIX operating system, software that made open computer systems possible and became the Internet's foundation.

•1979: Digital signal processor, enabling cellular phones and modems.

•1980: Digital cellphone technology.

•1988: First fiber-optic transatlantic cable, handling up to 40,000 phone calls at once.

•1992: Invented compression technology needed for digital radio.

•1995: First prototype system supporting wireless Internet.

•1998: First switch allowing Internet telephone traffic, faster Internet access.

•2005: First Internet Protocol transmission at 100 gigabits per second, 10 times the current speed and critical for future services such as IPTV.

In summary, many of the fundamental inventions in electronics have come from Murray Hill, NJ as well as a side benefit of proving the Big Bang theory.  And now it is part of a broader trend in the US and Canada to eliminate funded research parks sponsored by corporations.  With the notable exception of Microsoft and its $1B a year research arm, IBM shed Almaden, Xerox closed PARC a long time ago, HP broke up and with the split came the dumping of their fundamental research and now the venerable giant of research in telecommunications is done.  In Canada, Bell Northern Labs and MPR Teltech were huge innovation engines that Nortel and BC Tel respectively broke up in the 1990’s.

At the end of the day it comes down to ROI.  Return on invested dollar for the company is usually diametrically opposed to really cool research that a bunch of terrifyingly smart people come up with on bean bag chairs.  Anyone who has worked at a research park says that having a bunch of exceedingly bright folks can still create dynamics in the workplace similar to The Office or Dilbert.  A lot of time and money gets wasted, say the critics.  And the Board Room demands innovation that leads to profits.  Makes sense for the company to shed some fat and cut back the nerd playground. 

But is this good for North America?  Japan and Europe (and soon China) are picking up the fundamental research ball.  Not just in public R&D, but in corporate funded parks like the one that just “moved” to France. How can we innovate on the product side if we are not funding the places where monumental discoveries like the transistor happen? 

Look at Vancouver’s technology history as an anecdote on this issue… MPR Teltech was, like many other research parks, a fairly dysfunctional place.  It had many bright engineers and a few good leaders, but not the same urgency that a product company like Newbridge or Nortel had. I don’t have the numbers that BC Tel actually spent on the place from when it opened in the late 70’s to when they sold that last bit in the late 90’s, but it was probably a combined $100M or so.  They probably got 10% back in their fire sale.  But out of there came Newbridge’s highest selling product ever, Sierra Wireless’ early team and PMC, which Sierra Semi got for a song.  Did BC Tel waste their money on frivolous research?  Clearly not, as the combined market value of what came out of there was in the billions of dollars.  Did BC Tel fail to recognize what they had and/or find it was not useful in their business?  Clearly yes. Did some savvy entrepreneurs make hay and get a big return on BC Tel’s investment?  Absolutely.  Did we as a society benefit from BC Tel’s investment?  Based on improved telecommunications and faster networks that these innovations helped, I’d argue yes.

MPR Teltech’s story is a mini-Bell Labs.  There was lost of wasted time and research there, but it attracted the brightest people, like Ted Darcie, now of UVic, but a twenty year veteran of Bell Labs and a highly recognized contributor (AT&T and IEEE Fellow).  Ted was working on data transmission over cable systems at Bell Labs in the late 1980’s.  His name is on some of the most important patents around Hybrid Fiber Coaxial Transmission or HFC, the basic architecture of the cable data plant that delivers your broadband via Shaw today.  Now wait a minute.  Bell Labs was owned by AT&T from the early part of the last century.  That’s a phone company.  In 1984, it was broken up into the Baby Bells because it was too dominant in telephony.  And Ted was working on… cable?  AT&T did not have a single line of coaxial cable anywhere but in his lab.  His research and the growing requirement for television and later Internet access drove AT&T into becoming a cable company when it bought TCI and then MediaOne in the mid-90s.  By investing in wireless and other research beyond the telephone and proving out new technologies, Bell Labs helped spur future cash streams for AT&T.  But, what now for the old AT&T which is merged with SBC, one of its “babies”?  Where is the innovation coming from?  Its equipment arm Lucent is now French.  And Bell Labs is a product development division. 

With fewer and fewer of these creative places to do world-class research in North America, we may be setting ourselves up for a decline in innovation.  And fewer places for great ideas means fewer start-ups, which is why I have a particular concern beyond the social good.

Am I Chicken Little here?  Is the sky falling? Or is there a new model for innovation in North America that doesn’t require the corporate funded parks of old…

What Do You Think? Talk Back To Brent Holliday

Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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