Telcordia Technologies, Inc. History

Address:

445 South Street
Morristown, New Jersey 07960-6438
U.S.A.

Telephone: (973) 829-2000
Fax: (973) 829-3172

Wholly Owned Subsidiary of Science Applications International Corporation
Incorporated: 1984
Employees: 5,000
Sales: $1.08 billion (2003)
NAIC: 517110 Wired Telecommunications Carriers

Company Perspectives:

Telcordia is committed to understanding our customers' business, operational, and network challenges. Our world-class innovators, software developers, and consultants develop creative solutions to meet changing customer needs--delivering them faster and more responsively than ever. Our leadership team brings together experience across the global industry.

Key Dates:

1982:: AT&T agrees to court-ordered split into the new AT&T, devoted to long distance, and seven regional Bell operating companies.
1984:: Bellcore is formed as a research unit for seven regional Bells.
1995:: The regional Bells decide to sell Bellcore.
1997:: Science Applications International Corporation acquires the business.
1999:: Bellcore changes its name to Telcordia.
2002:: Matthew J. Desch is named chief executive officer. vey through its new name, of more importance to the future of the company, now free from the ownership of the Baby Bells, was how it adapted to its new free-agent status and how successfully it was able to market its services. In the wake of the name change, Telcordia introduced a suite of products called Next Generation Networks that allowed telephone carriers to integrate voice, video, and data services. The company was banking that the telecommunications industry would continue to experience deregulation, and also that circuit-based architectures would give way to packet-based architectures.

What Telcordia did not anticipate was the meltdown of the entire telecommunications industry at the start of the new century and a severe downturn in the economy that resulted in major cutbacks in equipment sales and telecommunications services in the corporate world. In 2001 Telcordia suffered a major setback when Sprint terminated its On-Demand Network project, a long-term effort to integrate voice and data. Subsequently, Telcordia slashed its head count, eliminating 2,000 employees from a workforce that at its peak numbered 7,000. In 2002 these cuts were matched with changes at the top. Jerry Roberto, a board member and group president, retired, followed by the ouster of Chief Operating Officer Harold Smith and Chief Executive Officer Richard Smith, Jr., who had headed Telcordia for five years. In July 2002 Matthew J. Desch was named the company's new CEO. Desch received a B.S. in Computer Science from The Ohio State University and worked on assignment at Bell Labs, where he was initially involved in software development and was later transferred to Chicago to work in large-scale systems software development. Desch then returned to school, earning an M.B.A. from the University of Chicago in 1987. He returned to Bell Labs, but was dissatisfied with the available assignments following the AT&T breakup. In 1991 he went to work for Northern Telecom to head product management for a new wireless division, and over the next dozen years held a number of senior management positions at Nortel Networks. Serving as president from 1996 to 1999, he was instrumental in growing Nortel's Wireless Solutions division from $1 billion a year in revenues to more than $4.5 billion.

Desch took over a company in Telcordia that was having difficulty changing directions. It was still struggling to shed a prevailing image that it was so devoted to pure research that the customer was regarded as a nuisance. In the meantime, the competition was decidedly customer-oriented. Moreover, Telcordia also had lost touch with the new directions taken by the telecom industry. It was predominantly a North American wireline company and was only taking the initial and necessary steps to recast itself as a global multi-service company. The choice of Desch, with his extensive background in wireless, was a sure indication that the company was committed to this change in business focus. Desch quickly moved to restructure the organization, eliminating some 500 employees, half at the management level, and bringing in outsiders to assume key management positions. As part of the makeover Desch put all software developers in one unit, thereby altering the company's traditional centers of decision making and aiding in changing Telcordia's focus to sales and the company's customers. Desch also made it clear that going forward Telcordia was going to emphasize wireless and cable, and look more to overseas growth. He even indicated that he might rebrand the business, which received little value from the Telcordia name.

Company History:

Telcordia Technologies, Inc., based in Morristown, New Jersey, is the former research unit of the Baby Bells, the seven regional telephone companies that resulted from the breakup of AT&T. Although it is now owned by San Diego-based Science Applications International Corporation (SAIC), Telcordia continues to serve many of its erstwhile owners as well as other telecommunications customers. The company is involved in network systems, operations support systems, and business support systems, serving both wireline and wireless service providers as well as cable operators. Telcordia is little known by the general population, but its products and services are widespread. It is estimated that 80 percent of all U.S. telecommunications networks rely on Telcordia software. The company holds hundreds of significant patents, many connected to such broadband data communications technologies as ASDL, ATM, ISDN, Frame Relay, SONET, and video-on-demand. Through a wholly owned subsidiary, Telcordia Venture Capital Corporation, the company is able to spin off start-up companies to take full advantage of Telcordia's intellectual property.

Forming in the Wake of the 1984 AT&T Breakup

The origins of Telcordia can be traced back to the invention of the telephone, Alexander Graham Bell, and the American Bell Telephone Company that was created to exploit the device. In 1885 American Telephone and Telegraph Company was created as a subsidiary to build and operate the first long distance telephone network. AT&T became the parent company of the Bell System, which had a monopoly on telephone service in the United States, and eventually grew into the largest corporation in the world. Advances in technology made it possible for competitors to emerge, especially in general long distance, so that by the 1970s the U.S. government concluded that it was in the best interests of the public that the power of AT&T be curtailed. In 1974 the Justice Department filed an antitrust lawsuit against the company, a case so complicated and heavily litigated that the pretrial discovery process dragged on for more than six years. With U.S. District Court Judge Harold H. Greene presiding, the trial commenced in 1981. After a year the two parties announced they had reached a settlement, but another six months would pass before Judge Greene accepted the concept of AT&T dividing itself into local telephone companies, and an additional year before he issued a Modification of Final Judgment (MFJ). In August 1982 AT&T agreed to his conditions calling for AT&T to be split into eight separate companies: the new AT&T, devoted to long distance service, and seven regional Bell operating companies offering local service. The so-called Baby Bells were Ameritech, NYNEX, Bell Atlantic, Pacific Telesis, Bell South, US West, and Southwestern Bell. The divestiture took place on January 1, 1984. As part of the AT&T breakup, Judge Greene allowed AT&T to retain much of its world-renowned research unit, Bell Labs, and also mandated that because of national security and emergency preparedness, the new regional Bells were required to create a common research and development operation. Originally called the Central Service Organization, this new lab became known as Bell Communications Research Inc., a name soon shortened to Bellcore--and ultimately Telcordia.

The scope of Bellcore's business was spelled out in detail by Greene's MFJ. It was forbidden to manufacture or even design equipment, nor could it certify that equipment designed and manufactured by outside companies was acceptable to the regional Bells. At best, Bellcore could produce prototypes for its collection of captive customers. Essentially by default, Bellcore was devoted to the creation of intellectual property, in particular the software that supported the exchange access operations of the Baby Bells, as well as various administrative, reporting, and gateway applications. The seven regional telephone companies were mandated to financially support the activities of Bellcore, each signing a five-year contract in a relationship that required advance notification before cancellation. But the amount of support varied between the seven, who were given the option to select the research projects in which they were interested. Work mandated by the MFJ was termed "core research," amounting to about 40 percent of the lab's activities, with the balance referred to as "client programs."

The bulk of Bellcore's personnel, some 4,000, was drawn from the ranks of Bell Labs. Rumors circulated in telecommunications circles that the ex-Bell Lab scientists and engineers were involuntarily transferred to Bellcore and were essentially unwanted Bell castoffs, but in truth these people were volunteers. According to Irwin Dorros, a Bell Labs technical chief who took a top position at Bellcore, "It was the pioneering types who wanted to go into this thing called Bellcore, so we got some really go-getter people." It did not take long, however, before many of these enterprising employees grew frustrated with life at Bellcore. Scientific curiosity was artificially limited by Judge Greene's strictures, prompting an in-house joke that if lab personnel made a prototype look too good they could get in trouble with Judge Greene. In addition, the regional Bells were not overly enthusiastic in their support for Bellcore. The common R&D unit was originally seen as an important tool for the Baby Bells to ward off potential competitors in local telephone service, but in short order the regional telephone companies began to see each other as competitors and took steps to establish their own labs. Within two years rumors began to circulate that some of the regional Bells might withdraw from Bellcore.

Among the Baby Bells, US West proved to be, in the words of Forbes, "the cowboy in the group." It served formal notice that it would sever its relationship with Bellcore when its funding commitment expired in 1990, and it planned to sell its one-seventh equity interest in the R&D unit. "As it turned out," according to Forbes, "US West's threat amounted to nothing more than a temper tantrum designed to get the Bellcore board to change some of its rules." In particular, Bellcore agreed to do private work for individual regional Bells. Previously, Bellcore would have allowed its other six owners an opportunity to participate at any time during development. Under the new conditions such proprietary work would be kept under wraps for two years before being shared with the Bell siblings. In addition, Bellcore cut back some layers of bureaucracy. Instead of 100 groups overseeing a core research project, now just five fulfilled the same function. The company also took steps to offer some customer care to the regional telephone companies, sending out teams to receive feedback.

In the early years of its existence, Bellcore achieved a number of advances in such areas as superconductors and ISDN, but it continued to come up short in customer service. A study the company conducted in 1993 revealed that it had a customer satisfaction rating of only 71 percent. Over the next couple of years, Bellcore took steps to rectify that shortcoming and made some improvements, but by the mid-1990s it was apparent that the original conceit for the business was simply not viable. To ensure secrecy, the regional Bells increasingly turned to telephone equipment manufacturers and others to conduct proprietary work. Moreover, they built up their own research units, often raiding Bellcore for key personnel.

Up for Sale in 1995

In April 1995 the Baby Bells announced that they planned to sell Bellcore, maintaining that the jointly owned business "no longer makes sense." As a result, Morgan Stanley Inc. was retained to sort through the available options, which included an outright sale of the entire business, the selling of a major interest, or a public offering. The matter lingered for the next 18 months, with a number of companies rumored to be potential buyers, including Electronic Data Systems Corp. and IBM. Finally, in November 1996 an agreement was announced that Bellcore would be sold for some $700 million to Science Applications International Corp.. What SAIC was getting, according to Bellcore's CEO, was a $650 million-a-year software business and a $350 million-a-year professional services business. The approval process for the deal was arduous, passing muster with seven owners and nine state regulatory agencies, so that the sale was not completed until November 1997.

SAIC was founded in 1969 by Dr. J. Robert Beyster, a physicist who worked at Los Alamos National Laboratory during the 1950s before going to work for General Atomics (GA) in San Diego. When GA was sold to Gulf Oil in 1968 and underwent a change in management, Beyster became disenchanted with the company's move away from small research projects, opting instead to focus on the manufacture of large nuclear reactors. Over the years, a number of his colleagues had left to launch start-up companies, and now in his early 40s Beyster decided to join their ranks. He established SAIC as a research and engineering firm, a key element of which was his insistence on making the company employee-owned and sharing the rewards on an equitable basis. To many, Beyster's employee-ownership ideas were little more than a hobby horse and an indication that he simply did not care to make money. By handsomely rewarding employees for generating new business, however, Beyster in effect bred a host of aspiring entrepreneurs. By the time it acquired Telcordia, SAIC was a government contractor, primarily involved in defense, generating more than $2.1 billion in annual revenues. Telcordia's expertise in telecommunications presented SAIC with new areas for growth in the private sector.

A condition of the sale called for Bellcore to drop "Bell" from its name. The New York consulting firm of Lister Butler was hired to help in the process of coining a new name for the company. In the end, a hybrid was formed out of employee suggestions. The "Tel" for Telcordia referred to telecommunications, while "cordia" was to connote accord with the company's customers. No matter what the company hoped to con-

Telcordia Technologies, Inc. History

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