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Entrepreneurial Capitalism and Innovation:
A History of Computer Communications 1968-1988
By James Pelkey

Entrepreneurial Capitalism & Innovation:
History of Computer Communications
1968 -1988
By James Pelkey

This history is organized by three co-evolving market sectors and also standards making.
An overview of the schema is presented in the Introduction.

Ch. 1: Emergence
Ch. 3: Competition
Ch. 5: Market Order
Ch. 11: Adaptation

Ch. 2: Vision
Ch. 4: Arpanet
Ch. 6: Diffusion
Ch. 7: Emergence
Ch 8: Completion
Ch. 10: Market Order

Ch. 9: Creation

Ch. 12: Emergence



Chapter 11
Data Communications: WANs 1979-1986
Data Networks Become Wide Area Network


11.6   General DataComm

Founded in 1969, General DataComm Industries, Inc. (GDC) had a history of responding to customer needs, rather than anticipating them. Such was the case with T-1 multiplexers, a product they first introduced in 1977, years ahead of any competitor. Robert Smith, Vice-President recalls:

“There's this little oil company down in Texas called Texaco. They had a couple of data centers in Houston that were about eight miles apart, and some cross town lines running 230.4 kilobits per second, which was a standard channel offering of AT&T's at the time, and they were breaking down the data centers into low speed channels, and we had sold them a couple of 1251s multiplexers. One of the guys at Texaco, found that under the DDS [Digital Data Service] tariff, they had a thing called a DAL-3, which was 1.544 megabits, only available in the local metropolitan area. They found out that they could get a DAL-3 T1 pipe between their two data centers at some phenomenal saving over what they were paying for multiple 230.4s.  And they said to us:  "Look, we can buy lots of your 1251s to give us the low speed channels, but we'll only do it if you give us something that will allows us to put it into a T1 pipe." So we had a twelve channel multiplexer, and we kind of reengineered the back plane and the high-speed common card and cranked it up, and we came up with a 6 channel multiplexer that would run at 1.5 megabits per second. We plugged that in front of our 1251s and ran them at 256 into the channels and Texaco went with their T1 and that, as far as I know, was the first commercial T1 data application ever in the country.”

Then in 1981, GDC introduced their Megamux T-1 multiplexer, a design evolved from their early “kludge-like” products. The Megamux was a simple point-to-point multiplexer that relied on hardware switching that made frequent and dynamic reconfigurations of the input-output data lines difficult.[6] The Megamux also had minimal network management capabilities. In brief, it was a product that consolidated a number of expensive high-speed circuits into one T-1 circuit and thus saved customers money. But it lacked the software features that would be needed by customers to build networks, the just emerging need of corporations. When first introduced, the Megamux supported only data, not digitized voice, input lines, a deficiency corrected a year later. Smith recalls the progression:

“And we thought, well maybe we could sell a few more of these, so we built 20. Well, low and behold they sold, and we said: "Gee, we ought to crank up our build plan to about 80 units." And we did, and they went out pretty quick too. So we said: "Hey, maybe there's a market here," so we went out looking at this thing seriously, and we developed our Megamux and that was what hit the market in 1981. We found that there were people who had a lot of data channels, but couldn't quite justify a T1 line. If we could afford to put their voice tie lines in the same T-pipe, they could afford the T-pipe. So we came out with the CVSD voice channel card in 1982.”[7]

1981 and 1982, however, were traumatic years for GDC. Accustomed to greater than twenty percent per year sales growth, management struggled to understand sales growth of only 8% in 1981. The problems persisted into 1982 when sales growth remained a stagnant 6%. GDC would loose $1.2 million on revenue of over $60 million – the first of the major multiplexer companies to lose money. The principal reason: sales of equipment to telephone companies, especially to General Telephone & Telegraph, a key customer, plummeted. GDC management had little choice but to cut expenses. They slashed engineering costs by 10%, rather than increasingly them by the normal 10% or more. New projects were delayed or abandoned as monies were diverted to projects promising immediate sales. One product essentially abandoned was the Megamux. Smith remembers:

“We were OEMing [a statistical multiplexer from] Micom for several years, and we decided we should do our own. When we got done with Megamux, we threw engineering resources to that, and didn't focus on the T1.”

In 1983, the market for T-1 multiplexers soared to an unexpected $30M. GDC’s Megamux, still one of the few T-1 multiplexers available, contributed to a resurgence of sales. With sales growth of 43% in 1983, GDC returned to profitability.

At the time, only two firms posed viable competition: Avanti and Datatel. Essentially start-ups, they, like GDC, had innovated point-to-point T-1 multiplexers in response to customer demand, or having related technologies that were easily reconfigured into a T-1 multiplexer. Unlike GDC, they did not have established customer bases or distribution systems.

The success of GDC’s Megamux continued into 1984, garnering a 35% market share in a market that doubled to $60 million. GDC also captured a 10% market share in statistical multiplexers. However not investing in the Megamux left them with a vulnerable product, a vulnerability about to be exploited by their long-standing nemesis: Timeplex.

[6] Yankee Group, Building Blocks, July 1984, p. 132
[7] CVSD – continuously variable slope delta modulation. One advantage of CVSD modulation could be either 16 or 32 Kbits/s compression permitting two to four voice circuits per each DS-0 channel.