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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 Five
Data Communications: Market Order 1973-1979
LSI Modems, Statistical Multiplexers and Networks

5.2    The Justice Department: IBM and AT&T

As late as 1968, the commercial future of information technologies seemed securely controlled by IBM and AT&T. If they had had their way, the opportunities for all independent communication firms would have been severely constrained. The efforts of the Federal Government, by way of the Justice Department, to keep the markets for computers and communications open and competitive, began in 1969 with the filing of an antitrust lawsuit against IBM. While little progress had been made by 1973, a number of corporations had joined in filing antitrust lawsuits and, if nothing else, IBM was on its best behavior - witness its revised software unbundling policy. Would AT&T escape the logic of competition being forced by information technologies? These issues framed the macro-conditions of data communications.

On April 1, 1972, John D. deButts succeeded H. I. Romnes as Chairman and CEO of AT&T. Unlike Romnes, deButts had risen through the operating companies and abhorred competition. He wanted to return AT&T to the glory days of Theodore N. Vail when ‘One System, One Policy, Universal Service’ breathed life into work. In September 1973, deButts delivered a rousng speech entitled “An Unusual Obligation” to a meeting of the members of the National Association of Regulatory Utility Commissioners (NARUC). In words no one could misunderstand, deButts said his objective was to:

“take to the public the case for the common carrier principle and thereby implication to oppose competition, espouse
monopoly.” [17]

He knew his speech would inflame those in government intent on change. He couldn’t have cared less, having an appetite for all the fight anyone might want to begin. DeButts got his wish in March 1974 when MCI filed an antitrust lawsuit charging twenty-two counts of unlawful activity. Then Congress acted. In 1974, Senator Phillip A. Hart, Chairman of the Senate Judiciary Antitrust and Monopoly Subcommittee, held hearings on his Industrial Reorganization Act that would restructure seven industries - including telecommunications - to make them more competitive,. Appearing before the Subcommittee, Clay T. Whitehead, Director of the Office of Telecommunications Policy, [18] testified:

“a restructuring of the communications industry may be necessary if competition and monopoly are to coexist constructively.” [19]

Big Business was falling under public scrutiny. Failures such as the Vietnam War, the threat of President Richard M. Nixon’s impeachment (Watergate), and inescapable inflation all contributed to a social climate where people doubted whether large organizations and institutions could solve much of anything. Within the Federal Government this had the effect of weakening the authority of political appointments and strengthening the power of permanent staff. In the case of the Justice Department, staff that had harbored resentment towards the 1956 AT&T Consent Decree saw an opportunity to seize the initiative and win in the courts what had been lost in private negotiations by political operatives. President Ford fostered such action when on October 20, 1974 he gave a speech calling for tougher antitrust enforcement. [20]

On November 20, 1974, the Justice Department initiated its fourth major assault on AT&T in filing the antitrust lawsuit: United States v. AT&T Co. [21] More extensive than the 1949 suit, the broad complaint charged that AT&T had monopolized and conspired to monopolize various telecommunication markets: including customer-provided equipment. [22] The relief sought was for AT&T to divest itself of Western Electric (WE), for WE to be divided into multiple companies, and for some or all of the Bell Operating Companies to be split from AT&T Long Lines. President deButts wrote shareholders that AT&T was not in violation of the law, that the lawsuit was hostile to the public interest, and AT&T would fight it to the end.

In November 1975, AT&T responded by championing a bill introduced in both houses of Congress amending the Communications Act of 1934. Carrying the formal title of the Consumer Communications Reform Act (CCRA) and known as the “Bell bill,” it aimed to return telecommunications and AT&T to the nostalgic state existing before the Carterfone case. Heavy-handed and showing no room for compromise, the bill nevertheless received respectable support. [23]

The antitrust lawsuit progressed slowly, victim of delaying legal maneuverings. In the summer of 1978, poor health forced reassignment of Judge Joseph C. Waddy’s cases. The AT&T case was assigned to a newly appointed District Judge, Harold H. Greene. In September 1978, Greene issued orders for a trial to start in September 1980.

Showing no signs that it was going to be denied control of data communications, AT&T announced its Advanced Communications Service (ACS), an intelligent data network intended to be as easy to use as telephones. [24] ACS would obviate the need for modems or for any user to have to be concerned with interconnecting incompatible computer devices.

In February 1979, Charles L. Brown succeeded deButts as Chairman and CEO of AT&T. Having experienced enough combativeness, Brown announced a new management philosophy acknowledging and accepting competition:

“I am a competitor and I look forward with anticipation and confidence to the excitement of the marketplace.” [25]

As slowly as the AT&T lawsuit had been progressing, the one filed against IBM seemed motionless in 1979; notwithstanding the fact numerous corporations had joined the fray: Telex, Greyhound Leasing, Hudson General, Transamerica, Memorex, and Forro Precision. [26] Only the Telex case had been decided: in favor of IBM, but only after a Appeals Court over-ruling. An Appeals Court also overruled in the Greyhound Leasing case, but this time against dismissal, hence against IBM. Who could guess the outcome?

As of year end 1979, the Justice Department still had pending uncertain and controversial antitrust cases against the two dominant companies in technology and the two companies viewed as most important to the future of computer communications: AT&T and IBM.

[17]Temin, p. 96

[18] Part of the Executive Branch

[19]Stone, p. 283

[20]Stone, p. 284

[21]The first three assaults were: the Kingsbury Commitment, the Special Telephone Investigation, and United States v. Western Electric.

[22]Stone, p. 288 : “The charges included that (1) Western Electric supplied the telecommunications equipment needs of the Bell system, thereby eliminating competition from other manufacturers and suppliers; (2) AT&T obstructed the interconnection of SCCs and other carriers; and (3) AT&T obstructed the interconnection of customer-provided CPE into the Bell system.”

[23]Legislation would remain undecided until 1985, before dying a quiet death.

[24]“Seeds of network change planted during past year.” Datamation Dec. 1978, pp. 37-38 .

[25]Temin, p. 175

[26]Datamation, January 1978, p. 91