Laying the Groundwork for Growth

I had the opportunity to moderate a very interesting panel last week at the IEEE's GLOBECOM 2007 conference and expo, where I was able to discuss the effects of regulation and legislation on our industry with top policy executives from several major communications companies, including Bechtel, Corning and Nortel. Although we addressed a good number of topics that day, one seemed to resonate more than the others, to draw the most impassioned comments from the panel and the audience alike.  American commitment to research and development (R&D) was clearly the number one priority on the minds of the Ph.Ds, engineers, patent holders and product developers on hand at Globecom.

In short, many fear that the U.S. government's commitment to competitiveness in the research sector is waning, which would have unwelcome consequences for our industry domestically.

That's not to say U.S. manufacturers aren't working relentlessly to innovate and stay ahead of the pack. In fact, our communications and ICT industry faces the research challenges it does precisely because the pressure to compete is so intense. Wall Street is ever-present, with shareholders demanding ever-increasing profits. Consolidation and regulatory changes have reduced the number of buyers. At the product level, companies fight just to get out the newest handset.

Largely due to the realities of this competitive environment, our industry will be hard-pressed to increase spending on R&D, whether through labs, jobs or materials, without a sense of permamnence about how much it's all going to cost. While the kind of long-term R&D that made the former Bell Labs the top research facility of its kind in the world is extremely beneficial for the long-term health of the industry and even the U.S. economy, that system was propped up by a government-funded monopoly.  Now, in an era of consumer choice, improving service and falling rates, it's increasingly difficult to allocate the resources as an industry to conduct that kind of research. 

As I write this, the EU is outspending the United States by billions of dollars annually on communications research – that's billions, with a 'b.' R&D funding has dropped in the United States in each of the last few years, falling 7 percent last year alone. 

This is why the U.S. government has such an important role to play. While new policies are clearly needed, they may take some time. In the meantime, there is one step Congress can take that is clear and uncontroversial. It can make permanent a 20 percenttax credit on all U.S. research and development and put an end to all the budgeting uncertainty our members face every year. In its current form, the tax credit exists at several different tiers and expires at the end of this year, with temporary extensions passed sporadically and usually just in time.  While the credit itself is a powerful tool, it is only as useful as it can be counted on.  It would lead to far more domestic investment in R&D if the vendor community knew it could count on that tax credit into perpetuity. 

That's why, even as we applaud Congress' effort to renew the credit, we will continue to educate members and their staffs about the need for a permanent credit. It wouldn't be a silver bullet that restores U.S. research dominance, but it certainly would help.

Thank you,
Grant Seiffert
President
TIA