David Belanger AT&T Labs Chief Scientist, and Information & Software Systems Research V.P.

AT&T’s Approach to Defining Invention, Incubation, and Innovation, ProcessesSATM Conference, May 19, 2005 David Belanger AT&T Labs Chief Scientist, and Information & Software Systems Research V.P.

AT&T Labs The Innovation Engine Behind AT&T’s World-Class Technology • 4,200 of the world’s best scientists and engineers • AT&T’s patent portfolio includes 2,069 U.S. issued patents and 1,162 Global issued patents • 120 years of technology breakthroughs and product/service innovation • Over 78% of our scientists & technologists hold a PhD or other advanced • degree • Currently involved with over 50 U.S. & international universities: • 12 active research collaborations • 40 informal research exchanges & collaborations Middletown, NJ Menlo Park, CA Florham Park, NJ

Outline • A Strategic Process • Product Development Process (One-Process) • Innovation Process • Incubation Processes • Summary

New Services and Operations Combined Processes Business Strategy & Roadmap Technology Strategy & Roadmap Business Strategic Analysis & Product Planning Integration of Information by CTO Sources of Technical Information Sources of Market & Product Information CTO Process Examples: E-Contact, Concept of 0/1, … Technical Planning Process Product Planning Process Sources = Customers + Suppliers + R&D + Consultants + Universities + Start-ups + Venture Companies + Trade/Professional Relationships + …

Product Development Cycle • AT&T’s Core Competency is to develop products and implement them into a production environment. Examples of our products include, but are not limited to: • Connectivity: Voice and Data • Managed Solutions: Desktop, IP, Hosting • Local Services: Voice and Private Line • Various access networks (e.g., Cable, DSL, Fixed Wireless, Dial, PSTN, Wireless, Fiber, PL/OC-X, ATM/FR, Ethernet and IP) • Tools to manage these networks (e.g., Asset Management, Fault Management, Capacity Management, Configuration Management, Performance Management, and Element Management) • AT&T excelled in systematically bringing people, technologies and processes together to rapidly deliver the highest-quality services. Our approach underscores the need to not only maximize customer satisfaction and minimize cost, but to constantly provide innovative solutions in a dynamic market environment.

A phased process that defines how all components for services are realized • 6 Phases with 5 major business decision points (Decision Gates) • 9 Service Gates (5 support Decision Gates) for technical readiness decisions • Serial gates for managing risk of any concurrent operation Concept: Defines a high level view of the service idea and associated time and cost Needs Request DG-1 Concept Feasibility: Determines the specification of the solution for the service SG-13 SG-14 DG-2 Feasibility Definition: Defines the detailed plan and requirements needed to implement the service Feasibility Report SG-11 DG-3 Definition Service Gates (Can We Go Forward) SG-14 Start SG-13 Start Feasibility SG-11 Start Definition SG-9 Start Development SG-5 Start Verification SG-4 Start Service Test SG-2 Start ORT SG-1 Start Introduction SG-0 End Introduction Reserved SGs are not shown Development: Creates the physical realization that implements the given requirements Proj Plan SG-9 Development Service Test: Tests the service against the test plan in simulated and live environments SW/HW, Test Plans SG-5 DG-4 Service Test Introduction: Introduce as required and begin Life Cycle Management SG-4 Test Results SG-2 SG-1 DG-5 Introduction Decision Gates (Should We Go Forward) DG-1 Proceed with Feasibility DG-2 Proceed with Definition DG-3 Proceed with Development DG-4 Proceed with Introduction DG-5 Proceed with Life Cycle General Availability, Controlled Introduction, Market or Technical Trial – as required SG-0 AT&T’s PDP Process

Concept-of-One/Zero Definition High quality network and operations yield a more efficient cost structure and improved customer experience

Concept-of-One Modular Platform Shared Data Bases of Record, Common Data Model Policy-Based Configuration Web Services / Customer Control Concept-of-One Systems Data Bases of Record “Concept of One” System Customer Relationship Management Customer Sales & Account Mgmt Billing and Financial Mgmt e-enabled Interfaces to Customers, Employees & Partners Service Management Services Network Management FaultManagement CapacityManagement Configuration Management PerformanceManagement Network Element Management Customer Prem.. Network Global MPLS / Optical Network Access

High Level Innovation Process Prospect Evaluate Select Trial / Prototype Introduction Worth Evaluation? Strategic Opportunity? $$$ for Trial? Trial Objectives Met? Identify new technologies, emerging needs, or firms Determine strengths, weaknesses, market potential Winnow down for further evaluation or investment Validate new technologies or firms Put through GMSP or OneProcess for market launch - Business Case - Market Sensing - Strategic Fit - Platforms - Clear Trial Goals - Focused Time Bucket - Stage-Gate Investment Plan - Outline Business, Technical, & Operational Term Sheet - Determine ITB Expense and Capital Requirements - Architecture Fit - Market Size - Fit with Core Business / Strategy - Synergies - Customer Franchise - Customer Interest - Competitive Advantage - Research - Product Drivers - Academia - Press - Analysts - Consultants - Customers - Vendors - Partners - VCs - Start-Ups

Technologies Market Incubation Offers PIP Mission/Goal/Scope • Project Incubation Process (PIP) tracks all AT&T incubation projects in the Concept or Feasibility stages of OneProcess life cycle. It provides a dashboard view of all projects by organizations, technology areas, funding organizations, vendors, and business impacts. • Define portfolio of new, innovative services to incubate in alignment with strategic direction driven by BU initiatives and customer/market needs not yet in product plans • Provides a dashboard view of all projects to SLTby organizations, technology areas, funding organizations, vendors, and business impacts. • Manage Incubation activities across AT&T • Starting with viable ideas and proposed concepts • Escorting concepts and innovation through technical trials and feasibility validation • Ending with technology services • Identify and exploit synergies:bridge the gap between ideas and technologies emanating from Customers, Development, Offer, Operations, Product, Research or Sales of new services; avoid duplication & share resources, experiences and expertise • Reduce new technology introduction cycleinto AT&T and accelerate Time-to-Market and Time-to-Volume

Prioritize, Filter, Select Incubate, Manage Incubation Process Flow PIP Reports, KPI Incubation Tracking Vendor Track Foundation Arch Updates Management Data Internal (E-enabled Channels) Product, Business, SLT, … Arch, Eng, Develop, CTO/RFX, SMD External Vendors,VCs, SCP, … Incubation Management Team, SLT Drop

Last ,First PIP Report – Default View

AT&T InfoLab The objective of the InfoLab is to revolutionize the way AT&T uses information to operate and compete.

AT&T Data Mining Approach NETWORK Application Specific Knowledge Efficient, Reliable, Secure Data Transport DATA MANAGEMENT Fraud, Customer Focused Operations, AT&T Switched Network, Frame Relay, Retail Marketing, . . . Storage and processing architectures That operate at scale, and in real time DATA ANALYSIS Industry leading Information Mining Technology for Transactional Data DATA INFORMATION VISUALIZATION Semi -Structured Data - WEB Unstructured Data The most effective ways to deliver Information & Alerts to decision makers? Text Speech Image Video Data Spectrum Structured Data - RDBMS Sensors Packet Nets Collectors

Power Wall Learning and New Questions SWIFT Streamer Hancock COI Analysis InfoLab Databases Collector Collector Collector Collector Global Fraud Mgmt System Billing 450 Switches Reports Alerts Vetter Signatures AMA Processor SCAMP COI Displays Data Barn AT&T InfoLab End-to-End Data Mining Interpretation & Presentation Output Storage & DB Management Input (Raw Data) Cleaning, Validation & Serialization Transformation & Augmentation Mining & Analysis Collection Pzip’d Call Detail Analysts Cases Strategic Decision- Making Fixed-format Call Records Fraud Case Managers Operationalization: -Procedural -Automated Call Detail Analysts AMA Data from switches -350M calls/day -60 Gb data/day -150 bytes/record Further Investigation (Queries) 2 minutes

610- xxxxxxx 661-xxx xxxx 215- xxxxxxx 215- xxxxxxx 215- xxxxxxx 215- xxxxxxx 215- xxxxxxx 267- xxxxxxx 215- xxxxxxx 610- xxxxxxx 215- xxxxxxx 215- xxxxxxx 610- xxxxxxx 215- xxxxxxx 610- xxxxxxx 215- xxxxxxx A Proven Model for Technology Transition * * * * * * * * * * * * * * * * * Research Systems Operations

Background • Bridging research prototypes and tools into production systems provides competitive advantage for AT&T • In 2000, a formal incubation process was established for Information Mining • The result is over 10 production systems have successfully been incubated and deployed.

Rapid* Incubation Process Project Management Customer Presentations Documentation Testing Research Developed Technology/Prototype User Support Help Desk User Admin Training Production level environment Stable/scalable code Stable/redundant physical architecture Release Management Production controls/alerts/audits Data security/privacy * New technology incubated, hardened and deployed commercially in 2 -5 months

Rapid Technology Infusion and Productization Research Production Systems Business Impact • Smart Sampling • Streamer, COI, Daytona • MVS2PC • Deployed in TAS • Utilized in GFMS, XRICS, Government projects, TAS. Planned for OCDD rearchiatecture • Planned for several major billing system re platforms • TAS: Revenue and retention for key customers • GFMS: World class fraud rate of under 1% plus averted losses measured in tens of millions • XRICS: $NN millions savings per year • OCDD: Savings of $NN m • Per Billing System: Savings estimated to be $NN millions per year. • VIT/VIP: Savings of $NN m

Rapid - Seamless Technology Infusion

Challenges for R to D for Information Systems • Prototypes or Proof of Concepts have hurdles to overcome to go directly into a development process • Need to have Operations Plan developed • Need Performance Mgmt/Controls to be implemented • Limited or no documentation exist in the PoC phase • Need production level hardware and software architecture • Need testing plans, environments and test cases • Need integrated security plan developed and implemented • Many of these systems utilize niche products due to the size and speed of the information management needed to support the business. Transition and training to the development group needs to be done

Process for R to D for Information Systems Proof of Concept Incubate Development Transitioned Operations Transitioned Output: PoC complete, PoC confirmed that the technology works and PoC meets the business needs. Output: System on production HW, Documentation complete, OTP complete, Test plan and system complete, ETE performance controls in place Output: System Operation fully transitioned to new organization, team trained, documentation provided. Output: Development fully transitioned to new organization, team trained, documentation provided.

The Innovation Process Fits Within a Broader Context Segment Marketing Foundation Architecture Cost and Capital Reduction CFO / Budgeting Marketing Comms Corporate Strategy Public / Analyst Relations Innovation Process ABS Strategy Current Service Extension Strategic Go-To-Market Alliances Sales One-Off Deals GMSP Process

Summary • One Process – For Well Understood Processes • Iteration – For the Innovation Process • Model Transfer – Incubation Processes • Measurement – The Key to Controlled and Optimized Processes • Feedback Control – No Process Should Run Open Loop • Scale – Of Services, Of Processes

David Belanger AT&T Labs Chief Scientist, and Information & Software Systems Research V.P.