UK fixed-line telcos cut R&D investment as profits soar

Government figures show an eight percent year-on-year drop in fixed-line telecoms R&D expenditure in 2009, despite a 513 percent increase in operating profits over the same period

The UK's fixed-line telecoms industry decreased its year-on-year research and development spending by eight percent in 2009, despite a 513 percent increase in operating profits, according to government research.

The Department for Business, Innovation & Skills's (BIS) 2010 R&D Scoreboard (PDF), the twentieth and last version of the annual publication, was published on Thursday. BIS is scrapping the scoreboard as part of wider government cuts. In the words of science and innovation minister David Willetts, in the introduction to the 2010 report, the publication is no longer necessary because "today's companies better understand the importance of R&D to their long-term success".

The report shows that, despite the global economic downturn being at its worst in 2009, research and development (R&D) investment by the top 1,000 UK R&D-performing companies (the UK1000) was only 0.6 percent lower than in 2008, totalling £25.3bn. This drop was a result of decreased spending by companies in the fixed-line telecommunications, banking and aerospace and defence sectors, the report stated.

In the fixed-line telecoms sector, investment was 48 percent less than its operating profit. Companies in the sector cut R&D spending by just over eight percent — the report pointed out that this closely mirrored the decrease in BT's R&D expenditure — but its operating profits grew by 513 percent. In the same period, sales in this sector fell by 2.7 percent.

The report suggested that the fixed-line and mobile telecoms sectors respectively represented the ninth and fourteenth-largest contributors to R&D in the UK1000 during 2009.

"BT and Vodafone dominated the fixed-line and mobile telecoms sectors," the report stated. "Together, they account for 92.5 percent of the sector total for R&D investment and five percent of overall UK1000 spend.

"Both BT and Vodafone recorded an increase in operating profit in 2009, of 370 percent and 64 percent, respectively," the report added.

The UK software and computer services sector did better than the hardware and equipment sector in 2009, according to the scoreboard. The software and computer services sector invested 115 percent of its profits, while the hardware and equipment sector invested 335 percent of its profits.

"After years of growth, technology hardware and equipment and automobiles and parts suffered a significant decline in R&D investment in 2009," the report noted. "Investment in R&D grew faster than sales only in the software and computer services sector. Sales decreased among automobiles and parts and technology hardware and equipment firms. However, these sectors increased R&D investment over 2008 by nine percent and over two percent, respectively."

According to BIS's figures, there are 152 software and computer companies in the UK1000, which is more than any other sector, but only six of the 74 such companies in the list of the global top 1000 R&D-investing companies (G1000) are from the UK. Globally speaking, the third-top R&D investor is Microsoft, while IBM takes the number 22 spot. The top UK software and computer services company in the G1000 is Sage, at number 337.

"Similarly to 2008, R&D expenditure in the UK software and computer services sector grew more quickly than sales in 2009," the report states. "Of the six companies that invested more than £100m in R&D in this sector, Amdocs is the only one to reduce its R&D spend. However, only Sage and Misys managed to grow sales."