Value Chain in Telecommunications

[value chain diagram]

The diagram above illustrates the basic value chain for residential broadband providers. In terms of the three broad areas of innovations described in the previous section, the most important players are equipment manufacturers and network operators. The figures below show the major actors in each category along with their 2007 revenues and R&D expenditures.

[players and revenue tables]

The interaction between the operators and equipment manufacturers is complicated, dynamic, and situation dependent. Innovation in the sector is neither simply manufacturer-driven nor operator-driven. Rather, operators have a set of market imperatives and competitive pressures that lead them to seek specific capabilities from manufacturers. These needs may be communicated in informal interactions, in formalized requests for proposals, or collectively through various industry associations. At the same time, equipment manufacturers constantly strive to develop new products that anticipate coming needs, or give providers new capabilities. To a certain extent, network operators also do their own R&D, in part through collaborative consortia. The industry advances through the dynamic interaction of this push and pull.

To a large extent, the relationship between vendors and operators is shaped by standards processes. Operators want assurance that they will be able to buy interoperable equipment for different parts of their network from different vendors, and vendors want the large markets and economies of scale that come from building to broadly accepted standards. Therefore, both parties have reason to support standardization processes. Once a technical standard is adopted, it imposes a profound, durable effect on the industry, determining the specifications that vendors build to, and the capabilities that system operators offer to end users. A number of different organizations lead standards efforts, each with a different membership and focus that shapes its work.

[associations, research consortia, and standards bodies]

As for all highly innovative industries, public sector research is never far in the background of telecommunications of R&D. Both military and university research constitutes a major resource that constantly feeds the innovation pipeline.

[chart of sample major university and military innovations in telecommunications]

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