novate. Phone companies do not innovate. They have essentially been selling the same service - 3 kilohertz switched phone service - for 120 years. There are a handful of new digital services which businesses, if you're lucky to be located in the right place at the right time, can get T-1, digital Centrex, etc. But the list is miser- ably small. With only a handful of exceptions, the phone industry's new product marketing efforts have failed. Even touch-tone service, introduced into North America in 1963 (over 30 years ago), still has less than 70% penetration. In other words, over 30% of Americans have found touch- tone SO unappealing they don't have it. The irony is that having its customers on touch-tone actually benefits the phone com- panies enormously because it lets them buy cheaper switching equipment and run their equipment fast and more economi- cally. (They should be giving touch-tone away for free). Engineering. There is innovation in the phone industry. It's just that it's internally focused. The phone industry has been quick to buy modern equipment which works better, more reliably, saves labor, etc. Testimony to this is that phone con- versations today sound a lot better than they did ten years ago. And phone systems break a lot less often. As a result, the phone industry (AT&T, the Baby Bells and GTE) have fired over 250,000 people since divestiture, bringing down their costs. You and I, as customers, haven't seen those cost The Telecom Handbook xix THE TELECOM HANDBOOK savings in our bills (with the single exception of long dis- tance phone bills). Think of the cost/speed/performance improvement in your PC over the past ten years; think of the cost/speed/performance in your telephone bills over the same ten years. You should have had a commensurate improve- ment in telephone services. The two technologies are the same. Yet the industries are very different. What happened to all those freed-up monies in the phone industry? Try high sala- ries, waste, large expense accounts and all the millions lost