the fundamental split in the Bell System
As a result of divestiture, the fundamental split in the Bell System propelled AT&T (and its R&D arm Bell Labs) into a competitive landscape for the first time, with aggressive competitors such as MCI and Sprint seeking to compete for long-distance services—for both residential and business customers. Thus although a tax on telecommunications revenue remained as a source for funding R&D at Bell Labs, the prospects for increased competition, lower telecommunications prices, and decreasing telecommunications revenues for AT&T, as well as the regulatory pressures to lose market share to new competitors, led to the beginning of the reduction in the long-term, unfettered, fundamental research done at Bell Labs. Additionally, divestiture marked the beginning of a process of transforming the telecommunications industry in the United States from a vertically organized structure (where one body, the Bell System, had control over every aspect of the telecommunications process, from components, to boards, to systems, to services, to operations) to a horizontally organized structure (where multiple competitors existed at every level of the hierarchy and where no single entity had full responsibility for the network architecture, end-to-end network operations, or long-term fundamental research that would enable the creation of an evolutionary path into the future).
The full impact of these trends on long-term telecommunications research is probably not yet evident, as the industry continues to exploit fundamental knowledge gained over the past
This phenomenon is not new. See, for example, Rosenbloom et al., Engines of Innovation, Harvard Business School Press, Cambridge, Mass., 1996
several decades. The concern is that without substantial renewed investment in fundamental, long-term telecommunications research, the United States will eventually consume its own intellectual “seed corn” and thus run out of new ideas within the next decade or perhaps even sooner.
For roughly a century, the U.S. telecommunications infrastructure was largely defined by the Bell System, a telephony monopoly regulated under a series of consent decrees that gave it the right to operate, maintain, and expand the U.S. telephone system. The chief research and development arm of the Bell System, Bell Laboratories, was created in 1925, following demonstration in 1915 of the feasibility of coast-to-coast long-distance service and realization of the importance of a viable research and development laboratory to effective deployment. Successful nationwide implementation of long-distance service required, for example, a device with sufficient gain to offset the signal losses in the 3000-mile stretch of the U.S. transcontinental cable. The development of the vacuum tube amplifier for use in telephone circuits, which started in the 1910s, took many years of fundamental research and required extremely close cooperation between the research community that had originally invented the vacuum tube technology and the development community that introduced the vacuum tube amplifier into the telephone network.
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