Packaging design, cost, manufacturing complexity, reliability. LEDs require a breach on the case for the lens. This requires a couple components plus sealing plus testing. Affects IP seal rating.

The PCB now has LEDs on the edge thdr need special assembly care like the three buttons do.

Most people put protective cases on phones so edges aren’t available.

The top is all screen. The bottom sees the desk/table.

Haptics, screen, vibration do so much the loss of the LEDs is pretty minimal.

Don’t be surprised if the power and up/down buttons go away sometime soon.

Headphone jacks are a huge problem as is USB and speakers.

I’m not convinced by this argument: at the back of the phone is a built-in LED (used as the flash). Which could be used for notifications too.
Phones with OLED screens could use part of the screen as a notification as well. Both of these can be accomplished in software. Currently you have to notice that something happens as it happens, otherwise you need to at leas activate the screen. The notification LED was useful in that you could glance at your phone and see if you missed something.

I use an app on my Pixel 7 that uses a small portion of the OLED around the front facing camera cutout to generate customer colored notifications. This is similar to how dynamic island on Apple works and since I do not use the always on display it mimics an LED light for my purposes.