The U.S. telecommunications industry’s transformation reflects both the series of breakups of the Bell System (divestiture and subsequent reorganization and spin-offs) and the entry of new, non-vertically-integrated telecommunications firms such as cable system operators, Internet service providers, and wireless carriers. At the same time, new, often Internet-focused companies have also introduced products and services that help account for the broadening scope of telecommunications
Some had hoped that the former Bell constituents (Lucent Bell Labs, Bellcore, and AT&T Research) could sustain a high level of long-term, fundamental research investments, but this proved impossible given the profound changes occurring in the industry.
The telephone companies, facing growing competition, all but eliminated long-term, fundamental research programs, leaving responsibility for technological innovation to their equipment vendors. New telecommunications operators in cable, wireless, and digital subscriber line (DSL) services, lacking dominance and a high-margin foundation, generally adopted the same approach. The cable industry launched its own cooperative research and development activity, CableLabs, which focuses on such matters as standards development and conformance testing and does not support a broad, long-term research program.
An important drawback of the vendor-based research paradigm is that it is much more susceptible to economic cycles than is carrier-based research support, because vendor revenues are linked to the rate of carrier capital expenditure, which has tended to fluctuate and then fell sharply in recent years, rather than to subscriber fees, which tend to be more stable.
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