The telephone has long been considered a 'lifeline' service, and established carriers have generally built there networks over decades, using the most solid engineering available to ensure reliability. The inter-exchange network is robust in that if any one path between exchanges fails, the exchanges automatically route calls through other functioning exchanges and links.
The telephone exchanges themselves are highly reliable pieces of equipment, considering the large number of connectors, circuit-boards and components they contain. Multiple redundant, hot-swappable CPU boards and power-supplies mean that the exchange can continue operation while almost any one part of it fails, or is being tested or replaced. The software which the multiple CPUs in the exchange runs to perform the exchange's functions is written by the exchange manufacturers, and is rigorously tested to ensure that it will run reliably and fast enough under a wide range of conditions.
While it would seem that the functions performed by an exchange are not particularly complex - basically receiving dial commands, setting up and closing calls, ringing customers telephones etc. - in fact there are many more tasks which must be performed with a very high reliability. Writing and testing software to achieve this, especially for a fault-tolerant multi-CPU architecture, in which different CPUs in different parts of the exchange must work together, is a demanding task. While carriers can request special features to be added to the software of their exchanges, even seemingly minor additional features can cost in excess of a million dollars to implement. So telephone exchanges are very much 'mainframe'-like devices. They perform certain functions reliably, but it can be very expensive to make them perform something new or different.
Each exchange maintains a substantial body of configuration data, as well as generating a continuous stream of billing and potentially fault-report data. These, and the software that the exchange CPUs run, is typically stored on hard-disk. Configuration data and operating software can be loaded locally or via the network and most modern exchanges can be managed remotely.
Since the hardware architectures of exchanges does not change a great deal in principle from one decade to another, and because they are capital-intensive devices with such high installation costs, the evolution of exchange features moves at a snail's pace compared to the lively development of software for Internet connected computers. Another factor is that carriers are generally more conservative than Internet Service Providers. This is partly a matter of corporate history, but also because the telephone is a service which must be provided with very high levels of reliability.
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