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TIA’s 2004 Telecommunications Market Review and Forecast (Telecommunications Industry Association, Arlington, Va., 2004) observes that (p. 33) “[t]he local exchange market is declining for the first time since the Great Depression. Consumers are beginning to cancel wireline services and rely on wireless, while DSL [digital subscriber line] and cable modem services are eliminating the need for second lines for Internet connectivity. Increased use of email and other messaging is cutting into call volumes.” It goes on to say (p. 45) that “landline toll service, like the local services market, is facing a long-term decline in overall usage.”from the local exchange carriers (e.g., Verizon, SBC (now called AT&T), and Bell South) and interexchange carriers (e.g., AT&T, MCI, and Sprint) to wireless and broadband access service providers (e.g., Comcast, Time-Warner, AOL, Cingular, Verizon Wireless, T-Mobile, and Sprint PCS). Unfortunately almost none of the wireless or broadband service providers have been funding long-term research, nor are there indications at present that any will undertake to do so in the foreseeable future.
All of the participants in the telecommunications value chain could, in principle, invest in research, but the nature of those investments would likely differ because of varying motivations and incentives. Traditionally, investments in research by end users (the demand side)15 seeking to improve the technologies available from providers and vendors (the supply side) have been the primary source of fundamental and long-time-horizon results that are much more likely to enter the public domain, making them available to all and increasing their impact. Open access to such results is particularly important for telecommunications, given that the value of a communications network grows with the number of its users, with more widely adopted and standardized technologies bringing greater benefits to all users.

As a result of the structural changes in the telecommunications industry, the source of funds for investing in research has shifted from the demand side—telephone customers who paid for Bell System research via a tax on telephony usage—to the vendors of equipment, software, and chips, although the U.S. military (through DARPA, the Army, the Navy, and the Air Force) continues to be a major source of investment in telecommunications research. Currently, end-user organizations and commercial intermediaries are investing very little in research (an exception is AT&T, which has maintained a vestige of Bell Labs but has cut that back substantially, due to dramatic reductions in traditional telecommunications revenues over the past 3 years, from a support level of close to $140 million in 2001 to a support level of below $60 million in 2004).

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