Bellcore To Its Owners: Don't Hang Up

It's bad enough that Bellcore CEO George H. Heilmeier has seven boss-

es. What's worse is that they often disagree. In the past year, the seven Baby Bells that own Bellcore, the $1 billion-a-year research-and-engineering consortium, have gone from rivalrous siblings to outright combatants.

So is Heilmeier ducking out of the line of fire? Not a bit. This demanding Pentagon veteran is actually raising his sights for Bellcore. He wants the Livingston (N.J.) consortium to be the architect of the coming Information Superhighway. Bellcore, he says, could coordinate U.S. industry's development of the highway in much the same way as TRW Inc. coordinated development of the first intercontinental ballistic missiles in the 1950s.

Like a daring chess player who strikes from a vulnerable position, Heilmeier is reaching for a larger role at a time when his organization is under tremendous pressure. Its seven owners are pushing Bellcore to economize, and they are cutting back on jointly funded work--while warning that they will take their business elsewhere if Bellcore can't supply the software they need for futuristic networks.

WORKER BEES. Grabbing a central role in designing the Information Superhighway could give Bellcore fresh relevance. Heilmeier expects soon to announce a "Collaboratory," in which phone companies and others will study technical issues surrounding the highway. And he says the Collaboratory will be more consumer-oriented and broader in impact than the National Information Infrastructure Testbed led by American Telephone & Telegraph Co.

Whether Heilmeier can accomplish his grand plan is far from clear. He has done a lot of things right since March, 1991, when he took over a consortium that suffered from bloated costs and a lack of business focus. He has pared expenses, slashed employment 16% without cutting the worker-bee technical staff, and tailored more work to the needs of each Bell company--in response to their demands to reduce the amount of work that all seven must pay for (charts). Bellcore ably writes software, tests products, and helps develop communications standards. Still, turning it into a master architect is another matter.

The next half-year will tell a lot. A study group of the owners recently concluded that the Bellcore board needs to hammer out a new system of governance in the next six months. While the group's preliminary report is secret, Heilmeier predicts that the new rules will make it easier for the Bells to work one-on-one with Bellcore. Today, they're discouraged from cooperating on anything sensitive--because 18 months after a project is completed, any other Bell can view the results for a price. That just doesn't cut it in these competitive times.

There's a drawback, however, to more custom jobs: Bellcore can't defray its costs among multiple clients. Vice-President Robert W. Lucky, a star recruit from AT&T Bell Laboratories who runs Bellcore's applied research, speaks of trying to preserve a "precious middle ground" where the Bells can keep cooperating. Unfortunately, he says, "the area of true mutuality is shrinking."

TARNISHED JEWELS. The Bellcore study group is wrestling with another dilemma: Can Bellcore win industry's recognition as a trusted, neutral info-highway architect while competing with the likes of AT&T and Electronic Data Systems Corp. to sell software for parts of the highway--such as video on demand? Rivals argue that Bellcore will be tempted to steer standards in a direction that favors its own products. Says AT&T Operations Systems President David L. Stone: "If they try to be competitive in the product marketplace, then they will have the kind of biases that would violate their neutrality." Heilmeier replies that Bellcore doesn't aspire to control standards, only to contribute to them. But the issue remains. "It's a difficult question" to resolve, says David A. Kettler, executive vice-president for science and technology at BellSouth Corp.

Customization and neutrality aren't the only issues Heilmeier has to grapple with. The consent decree that broke up the Bell System continues to bar Bellcore from the vital fields of long distance and hardware design. Moreover, Bellcore's crown jewels--55 million lines of code for equipping and running local phone networks--are losing their luster. The hot action is moving into such fields as custom-tailored billing and interactive video, where the consortium has no special expertise. For those, the Bells may turn to other suppliers--and spend less at Bellcore. Says Edward J. Hendrick, strategy implementation officer at U S West Advanced Technologies: "I don't want to pay one-seventh of anything I don't need."

"BUNCH OF IDIOTS." To the gung-ho Heilmeier, all of this is more challenge than threat. He came to Bellcore with a sterling resum : a PhD from Princeton University in solid-state materials, pioneering work in liquid-crystal displays at RCA, two years as director of the Pentagon's elite Advanced Research Projects Agency, and a stint as chief technical officer at Texas Instruments Inc. He worked to eradicate Bellcore's academic style and increase responsiveness to its Bell customers. Along the way, he hurt some feelings. Complains one midlevel manager: "There was a sense from him that 'you guys down there are all a bunch of idiots. We up here know what to do, and you're not doing it.'"

Heilmeier forged ahead, however. He bulked up Bellcore's expertise in software while slashing work in the physical sciences, in which the seven owners had little interest. He based managers' pay on their ability to meet budgets and satisfy customers. Bellcore's costs have come in under budget for the past three years. And sales to non-Bell customers--such as GTE Corp. and Sprint Corp.--have risen to 13% of total revenues, up from 8% in 1990. As for the critics, Heilmeier says: "There are some people who will never forgive you for building a great company without them."

Despite Heilmeier's efforts to rally Bellcore, the centrifugal forces working on it are powerful. Bell Atlantic Chairman Raymond W. Smith, who says he's happy with Bellcore, nonetheless maintains that when Bell Atlantic wants something unique--as it increasingly does--"we go elsewhere." He predicts that in coming years "there may be fewer than seven owners." Bellcore is too important to disappear. For Heilmeier, though, taking on the Information Superhighway will be a lot tougher than, say, putting together an ICBM.

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