Patterns of collaborative innovation in the US telecommunications industry after divestiture

This paper examines the implications of institutional change on collaborative innovation in the US telephone service industry. The analysis relies on a database covering cooperative ventures in which two groups of firms were involved in the 1984–1990 period, i.e. the Regional Holding Companies and the Independent Holding Companies in the post-Divestiture phase. First, it is shown that restrictions imposed on diversification may represent a strong mechanism inducing firms to collaborate with equipment suppliers and other service carriers. Through international cooperation, companies attempt to exploit technological and market opportunities they cannot gain access to on the national arena. Moreover, they take part in a number of agreements as a means to aggressively modernize their network equipment and to increase their own innovative capabilities on the markets they are allowed to enter. Second, the paper discusses the consequences of the breaking up of R&D-manufacturer-user integration on equipment procurement strategies. On the one hand, firms which were constrained in their vertical integration appear to have increased the number of sources as a protection against suppliers' opportunistic behaviour. On the other hand, they tend to get involved into a larger and growing number of supply contracts which also have some collaborative implications in order to capture the value of their internally produced software. It is further suggested that these areas of institutional intervention should be closely examined when discussing actual and potential patterns of collaborative ventures and innovation in other industrial contexts as well.