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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 8
Networking: Turbulence 1981-1982
The PBX, the IBM PC and the Chaos of Competition

8.6   The Office of the Future, the PBX to CBX, and AT&T

The grandiloquent, yet vague, vision expressed as The Office of the Future cast a presentable spin on what was largely white-collar automation. As a vision it served exactly the same purpose as Licklider’s InterGalactic Network: to guide the coalescence of the creators and users of technology into a shared future.  There was little doubt about the need for information automation. Lewis Brascomb, Chief Scientist of IBM, would write as late as 1983: [1]

"One consultant estimates that there are eight file drawers containing 18,000 documents for every white-collar worker in the United States…The information explosion, it seems, is proceeding at the rate of two file drawers per office worker per year.”

In 1981, the Office of the Future vision did not need to be precise, or understood, for many of the technologies and user needs remained undefined. What seemed assured, however, was that all the voice, data and, even, video information of the office would somehow be brought together into some profound new productivity that would justify the massive investment needed both to create and then purchase and use these new products and services. Central to making the vision a reality was what technology would switch data flowing between the information appliances such as computers, terminals and peripherals, telephones, and the yet-to-be-invented. The two key candidates were shaping up to be the traditional voice PBX or the just emerging LANs.

The PBX, first introduced in 1879, seemed the most obvious choice. [2] The PBX is an on-premises telephone exchange, or switch, that enables a large number of local telephones to interconnect to each other without involving an outside telephone service provider such as AT&T. (See Exhibit 8.0 The PBX.)


Exhibit 8.0 The PBX

ex 8.0


Electrical wires, generally “twisted-pair,” run from a PBX to every desktop telephone, wiring already in place to handle any needed data needs, or at least that what the PBX manufacturers wanted themselves and the world to believe.

In 1980 the annual sales of PBXs totaled $2.65 billion. AT&T dominated the market with a 45% market share, down drastically from its 100% share in 1968. The same Carterfone decision that had freed foreign attachments from the monopolistic control of AT&T made market competition possible in PBXs. While other firms entered the market, at first they did little but incrementally improve on the well-known PBX architecture of AT&T. A major transition occurred in 1976, when a new entrant, Rolm, introduced the first computer-based PBX, or CBX. While offering many improvements, it remained essentially a cross-point switch with analog links to the telephones. In 1978, Northern Telecom, a major corporation, not a struggling small firm like Rolm, introduced a CBX, the SL-1. The significant advantages of the CBX began taking their toll and in 1980, 22% of all PBX’s sold were CBXs.

Yet AT&T could not sell a CBX. In 1977, the FCC thwarted even their efforts to introduce computer-like features in their Dimension PBX, believing it was enforcing Computer Inquiry I. In 1980, Computer Inquiry II made it clear AT&T could not sell products with imbedded information technology, unless they did so through a separate subsidiary. AT&T began creating a subsidiary; to be named American Bell, while they continued to fight for their right to maintain their monopoly in telecommunications as well as compete in unregulated markets - read computers. Lawyers argued that a separate subsidiary denied them the use of their significant economic resources that was not in the public interest.

While AT&T delayed, others entered the seemingly lucrative CBX market, believing that all new sales of PBXs would be CBXs, the entire installed base of over $10 billion would convert to CBXs, and the coming need to interconnect computer equipment would be best met with CBXs. In 1981, AT&T’s market share had dropped to 38%. (See Exhibit 8.1 PBX Market Shares 1980 to 1983)


Exhibit 8.1 PBX Market Shares 1980 to 1983
($ Millions)

Company 1980 Market Share 1981 Market Share 1982 Market Share 1983 Market Share
AT&T 1,200 45.3 1,150 38.3 950 29.7 850 25.0
GTE Corp 135 5.1 150 5.0 130 4,1 135 4.0
Northern Telecom 200 7.5 250 8.3 450 14.1 590 17.4
Rolm 285 10.8 350 11.7 450 14.1 550 16.2
Mitel Corp 225 8.5 325 10.8 370 11.6 405 11.9
Intecom         30 0.9 70 2.1
Other 605 22.8 775 25.8 820 25.6 800 23.5
2,650 100.0 3,000 100.0 3,200 100.0 3,400 100.0
Market Growth
    13.2%   6.7%   6.3%  

Source of Data: Smith Barney Research: Telecommunications October 10, 1985

In 1981, Datapoint, announced a CBX, the Information Switching Exchange (ISX). The ISX was not only a CBX but could connect to Datapoint’s proprietary Arcnet LAN. It foreshadowed a new fourth generation of PBXs, ones merging the features of CBXs and LANs. The opportunity was not lost on venture capitalists. In 1981 a number of venture capital funded companies were formed, the three most famous being CXC Corporation, Ztel and Prolink.

In 1981-1982, the trade press ran numerous articles weighing the advantages of the CBX vs. the LAN for interconnecting voice and data communication needs. [3] Experts could be found on both sides of the argument with no one really knowing the answer; CBX firms were just introducing limited data support and LAN firms were embroiled in arguments over which technology was best, let alone which had proven able to handle both data and voice communications. And then there were the growing chorus of voices extolling the benefits of integrating CBXs and LANs. The vast confusion of what technology was best tottered on the unbelievable with few fully comprehending the impact of personal computers, a category of products validated when IBM introduced its own personal computer: the IBM PC.

[1] “Networks for the Nineties.” IEEE Communications Magazine, Oct. 1983, pp. 38-43

[2] Fagan, Early Years. pp. 659-693

[3] “The office’s future: CBX or local net?” Data Communications, Feb. 1981, pp.30-32; “Controlling the electronic office: PBXs make their move,” Electronics, April 7, 1981, pp. 139-148; CBX unveilings continue at a fast pace,” Data Communications, July 1981, pp. 44-45; “Which technology will rule the automated office?” Data Communications, November 1981, pp. 66-79; “The Integrated CBX revolution,” Data Communications, Dec. 1981, p.156; “Comparing the CBX to the local network – and the winner is?” Data Communications, July 1982, pp. 103-113.