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Bell Labs: Reviving an icon

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As the research arm of a monopoly, Bell Labs invented the communications world as we know it. But in today's competitive market, this venerable institution must redefine itself to survive

The grand foyer of Bell Laboratories in Murray Hill, N.J., is a vast space. Climbing to three stories and spanning the width of the building, the room would be an ideal place to honor the alumni and accomplishments of an august institution that has produced 11 Nobel Laureates and some of humanity's greatest scientific discoveries.

But in the 50 paces between the front doors and the reception desk, the floor and walls are bare, save for two statues flanking the entrance. The first is a bust of Alexander Graham Bell. The second is a bronze statue of a dapper yet serious man, brow furrowed and head bowed in contemplation. The man is Claude Shannon.

Shannon was the definition of an eccentric scientist. In the corridors of Bell Labs, he'd tool around unsteadily atop a unicycle — sometimes juggling — forcing colleagues to dive out of the way. Shannon came to Bell Labs in 1940 to apply the principles of Boolean algebra to the problem of switching telephone circuits, but in his 16 years there, he was just as apt to devote his energies to developing a calculator that computed only in Roman numerals or inventing a motorized pogo stick. Shannon was by every account a genius and considered one of the greatest scientists of the 20th century by his peers. But to the average person, his accomplishments aren't so obvious. Shannon never received the Nobel Prize, nor was he credited with any of Bell Labs' most famous inventions: the transistor, the laser or the communications satellite. What he did was develop a theory.

In 1948, Shannon postulated that all communication could be broken down into three components: a source, a communications path and a destination — or a transmitter, a channel and a receiver. Furthermore, he divorced the path from the message sent over it. A telephone call no longer had to be just a telephone call, in which a radio wave traveling over a wire is modulated exactly as the sound waves heard at the end of line. A telephone conversation — any communication — could be reduced down to the most basic data: a series of zeros and ones. What Shannon envisioned was the bit — the most basic unit of information.

We're inundated by the bit today. It measures our broadband speeds in megabits per second and the power of our computer and electronics processors. Shannon may have been dealing with telegraphs and telephones, but his basic definition of the transmitter encompasses the cell phone, the radio, the TV antenna and the Ethernet port in a computer terminal — even face-to-face human conversation. Anywhere information is exchanged, Shannon's equations govern them.

Shannon's theories opened a new era for Bell Labs. At the time it was owned by AT&T, a government-regulated monopoly that ran the nation's telephone network. AT&T and its manufacturing subsidiary, Western Electric, focused on communications technology, and suddenly Shannon had provided their research arm with the fundamental framework for communications innovation. Bell Labs ran with it.

In the next four decades, AT&T laid the first transatlantic cable and launched the first active communications satellite. Bell Labs' computer scientists invented the Unix operating system (OS) and the first fiber optic cables shone with light in Georgia. The labs hired thousands of researchers, who threw themselves not only into applied communications research, but also into many other purely scientific fields. The laurels soon followed, including six Nobel Prizes in physics.

AT&T kept the money spigot open. With no competition and a guaranteed income determined by rate-of-return regulation, AT&T had nothing to lose in funding Bell Labs' most ambitious projects, regardless of whether they yielded a commercial product.

That combination of assured funding and a culture of scientific inquiry produced what was perhaps the greatest research institution of the 20th century — certainly the world's most productive applied science laboratory. At its 1981 apex, Bell Labs had 24,078 employees and a budget of $1.6 billion. It encompassed all of the research, development and engineering of AT&T and Western Electric. The core science arm of the institution, Bell Labs Research, had more than 3000 Ph.D.s. Bell Labs had nearly 30,000 patents on record and was filing for new ones at a rate of 370 a year. One IT journal estimated that Bell Labs accounted for 15% of all R&D spending on information technology in the U.S. and 5% of all its intellectual property. Bell Labs was a scientific giant sheltered under the wing of monopoly.

Divestiture wasn't kind to Bell Labs. When AT&T split in 1984 and again in 1996, Bell Labs splintered with it, sending researchers off to the newly formed Bellcore in 1984 and to AT&T Labs 12 years later. Bell Labs and the majority of its researchers stayed with the newly created Lucent Technologies, but the organization faced new pressures. No longer protected by AT&T's monopoly and guaranteed stream of funding, Bell Labs depended on the fortunes of its parent company. After the telecom bubble burst in 2000, Lucent saw its revenues plummet and it began laying off staff companywide, including at Bell Labs. Those financial problems continue to this day as the newly merged Alctael-Lucent fights to regain its footing.

What's more, Bell Labs now faced immense pressure to direct its research toward commercial product lines. The great achievements of its heyday brought accolades, but in many cases did little to affect the bottom line.

In 2005, Jeong Kim took over Bell Labs as president, appointed by Pat Russo, CEO of Alctael-Lucent. Kim is the first Bell Labs president who didn't rise through the ranks. Instead, he is an entrepreneur who started a wireless switching business called Yurie Systems in 1992. Six years later, Lucent bought Yurie for $1 billion.

Kim signals a culture change. His experience lies in taking technology and bringing it to market, something Bell Labs often failed to do in the past. But turning Bell Labs into a product-generating division of Alcatel-Lucent risks turning this prodigious facility into just another R&D shop. Its culture and the key to its past successes have always rested on a bedrock of pure scientific research — uprooting that culture could cost Bell Labs its soul.

Though he may be an outsider, Kim recognizes the value of uninhibited scientific pursuit. He admits, however, that Bell Labs must come to terms with the fact it is a smaller and different entity now. Its researchers have been cut to 1000. Alcatel-Lucent's business focus is much narrower than AT&T's, and its funding vastly diminished.

“Part of AT&T's original vision was ubiquitous communications,” Kim said. “Bell Labs was chartered to do just about anything to fulfill that vision. As a result, there was a lot of freedom in Bell Labs. Alcatel-Lucent has a different vision, and Bell Labs is now structured to fulfill that vision.”

Kim has placed a much greater emphasis on turning research into something Alcatel-Lucent can commercialize, but Bell Labs will keep its core research groups in chemistry, physics and mathematics. Kim said that within those parameters, the culture of Bell Labs can still thrive.

“I can absolutely assure you, as head of Bell Labs, that scientists here are free to pursue whatever research they desire, but at the end of the day it has to benefit the company,” Kim said. “It can't just be science for science's sake. That's for academia.”

Next page: APPLYING THE SCIENCE

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© 2014 Penton Media Inc.

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