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.

It is notoriously difficult to compile definitive data on support for industry research and development, but the situation described in testimony to the committee is clear—industry support for telecommunications research has decreased (as measured in dollars, numbers of researchers, and publications), and the work that is funded now has become increasingly
Recently, there have been several mergers between what were historically local exchange carriers and interexchange carriers, leading to greater vertical integration—but not integration between service providers and equipment vendors.

short-term in focus—evolutionary rather than revolutionary—at a time when global competitors of the United States have placed a priority on long-term research in this area. Anecdotal reports indicate that basic research scientists in industry are being shifted to development work and that publication by industry researchers in telecommunications journals has decreased.
In many critical technology areas, industry can look to the federal government to help support fundamental long-term research. Despite the decline in funding for research following the restructuring of the Bell System, however, the federal government did not assume this traditional funding role for telecommunications, thus contributing to the current gap in support for long-term telecommunications research.
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