There was a huge push to move on from the in-house PLEX to industry standard software engineering. Object orientation, component architecture, UML, design patterns, etc.; think of a software engineering kool-aid from that time period, they were drinking it. And C++ was the industrial strength vehicle to deliver all of this.
AXE-N wasn't just a project that flopped, it was the crown jewel of this giant effort to switch to the new "industry standard" way to write telephony software. So the failure was a giant cultural shock.
But even after the AXE-N failure, the phalanx behind it weren't done for, and apparently it was they who managed to push through a ban on Erlang, that embarrassing thorn in their side.
As for what happened later, I don't know. Anybody who knows what language Ericsson is currently using to program their exchanges?