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Meet the group trying to make AT&T very un-AT&T-like

The telecommunications giant has a reputation of moving at a plodding pace, but a deeper look inside the company shows a place where innovative ideas flourish.

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A flat-panel display welcomes visitors to AT&T’s foundry in Palo Alto, Calif.

Just a short bicycle ride from Stanford University, there’s a work space befitting any hip startup.

Squat, teardrop-shaped chairs and short, lime-green swivel chairs sit atop a colorful checkered carpet, across which a small dog casually pitter-patters. Lining the sparse ceiling are rows of florescent lights, wooden beams, and large ventilation tubes, adding an industrial-chic ambiance. On one side lies a sliding divider made up of strands of cable lines strung closely next to each other, while the other side features a movable row of hanging chains, creating a flexible space that can be manipulated as needed.

Aside from a corner filled with a few developers quietly typing away at their computers, it’s fairly empty in the middle of the afternoon. For most folks who work here, the afternoon is still early; people tend to flock in at unusual times, and all-nighters are a common routine. A week later, the place will be crammed with nearly 200 developers participating in a Facebook hackathon.

The office, a stone’s throw from the humble beginnings of startups such as Flipboard, is a magnet for venture capitalists and developers — Marc Andreessen is a familiar face. But it’s no pre-IPO startup. It’s AT&T’s application foundry, where the company has created a place and provided the resources for local developers to work on small projects with the potential to change the multibillion-dollar telecommunications giant.

What AT&T has been doing over the past few years is jump-starting a culture of innovation within the company. AT&T, far removed from its roots as a pioneer in communications technology, has spent the last few years bringing back some of that fearlessness in experimenting with new projects — crucial at a time when all the tech heavy-hitters have shown a willingness to try new things.

At the heart of AT&T’s innovation drive is its technology council, responsible for the creation of the foundry and several other key projects within the company. It’s a handpicked brain trust that’s helped the company shed some of the bad habits of a large corporation.

“We take on problems that (AT&T) inherently wasn’t going to address well because of our size,” John Donovan, senior executive vice president of technology and networks for AT&T, said in an interview with CNET.

The technology council is antithetical to the popular perception that AT&T is a slow and lumbering company unable to get even its cell phone reception issues under control. The group has been able to spark a legion of ideas through a massive crowd-sourcing effort; opened the company up to building more relationships with the startup community; and, yes, even helped to improve the network. Equally important, it’s redefined the meaning of speed within the company, and bolstered a willingness to experiment, even if it means failure.

“What it does is provide an organized channel to use the ingenuity of AT&T’s employees to bring these ideas quicker to use,” said Roger Entner, a consultant with Recon Analytics who follows telecommunications companies.

A change of pace 
AT&T’s willingness to look outside for help on projects is a change from its original preference to develop new services and products in-house, relying on its once formidable AT&T Labs business. Under Ma Bell, it had a massive research and development arm in what is now the Lucent part of Alcatel-Lucent.

AT&T has poured money into the new initiatives started by Donovan. The company doesn’t break out its investment in this area, or in research and development, but it’s a drop in the bucket relative to the roughly $20 billion it spends on capital expenditures each year. Still, the foundry has become a vital component of the R&D budget, Donovan said.

“We take on problems that (AT&T) inherently wasn’t going to address well because of our size.” –John Donovan, senior executive vice president of technology and networks for AT&T

AT&T isn’t innovating for innovation’s sake — at stake is its identity. If the company doesn’t stay in the cutting-edge game, it’ll lose its relevancy in a world filled with Apples, Googles, and Facebooks. Worse yet, it risks relegating itself to a dumb-pipe, or a basic connection over which all the lucrative services and applications ride, and which AT&T doesn’t get to take part in.

What started as a gradual break from its rigid structure as a traditional phone company has transformed into an intense effort to stay toe-to-toe with the most nimble companies in Silicon Valley.

The push comes as competitors such as Verizon Wireless and Sprint Nextel have similarly abandoned the notion of closing off their businesses, and more closely work with startups and companies they previously would have seen as threats, such as Google and Apple. AT&T’s exclusive access to the iPhone, for instance, drove Verizon to embrace Google and heavily push Android smartphones.

AT&T certainly isn’t without its share of issues, and its reputation for moving slowly is often justified. The company, for instance, took its time addressing the network problems that cropped up in the early years of the iPhone, wrecking its public image for years. Like the other carriers, it’s slow to provide the latest software updates to Android smartphones.

That doesn’t discount the early bets AT&T made with initiatives such as its U-Verse Internet-based television service, which suffered through many hiccups in the early years. It was also the first to move into a tiered data pricing structure for wireless plans, which created a lower-cost option for first-time smartphone buyers even as it irked hardcore subscribers who spent a lot of time — and downloaded a lot of data — on their mobile devices.

That innovation has fueled its most recent — and somewhat head-scratching — move into the home security and automation business.

The smartest minds in one (virtual) room 
One of the first things Donovan did when he joined AT&T in 2008 as chief technology officer was to ask the managers in the company to point out the brightest individuals “who weren’t afraid to speak the truth.” He wanted to bring together a group of people answerable only to him for the purposes of shining a spotlight on the blind spots within the company.

As much as AT&T has loosened up over the years, it’s fundamentally still a company in which suits are regularly worn, employees still use courtesy titles, and a strict chain of command is still observed. So it was an understandably nerve-racking experience for the first 16 people who were chosen to meet and serve with the newly hired executive.

Their fears were assuaged the first time they sat down with Donovan. “In the first few meetings, we were sweating bullets until we realized it was John, not Mr. Donovan,” said Adam Hersh, who helps commercialize new projects and ventures for AT&T, and was an original member of the tech council.

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