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Chapter 13 - Data Communications: Adaptation 1979-1986

13.0 Overview

In 1982, AT&T, again facing the unstoppable advance of digital technologies and the press of market competition, filed for, and received, tariffs to lease high-speed digital circuits. To be become known simply as T-1, corporate customers could replace twenty-four of the highest speed analog circuits then available with one 1.544 million bits per second digital circuit. The cost savings were irresistible. In 1983, the sales of the multiplexers needed to interconnect slower speed data circuits to a T-1 circuit totaled an astonishing $30 million. In 1984, sales of T-1 multiplexers doubled to $60 million. What began as an opportunity to save costs quickly became a strategic rationale for corporations to begin building their own wide area communication networks, or WANs, in a phenomenon known as “Be Your Own Bell.”

The first Data Communication firms to introduce T-1 multiplexers did so not out of grand strategic visions but because customers wanted inexpensive products to consolidate their data lines and save costs. Only later did these first firms offer the add-on cards needed to support digitized voice channels, again being pulled into the larger market of voice communications rather than attacking it as a ripe opportunity waiting to be picked. As more Data Communication firms entered the market, their products reflected incremental innovations, not the radically new multiplexers required by corporations to manage their increasingly complex data and voice WANs.

Others read the future correctly. In 1981-1982, Tymnet, a value-added network provider, initiated a project with Satellite Business Systems to provide a cross-country high-speed digital service completely by-passing AT&T. A number of the people involved with the project quickly recognized the need for a sophisticated T-1 multiplexer that did not then exist. They proposed that Tymnet build and sell such a product, but management did not envision themselves as sellers of equipment and turned the business proposal down. Convinced of the correctness of their insight, four people soon resigned from Tymnet to become entrepreneurs. Within a year, former Tymnet employees will start three new T-1 multiplexer companies.

Only one leading Data Communication firm, Timeplex, resisted entering the fast growing T-1 multiplexer market through an acquisition or OEM arrangement. Codex attempted to develop a project internally but by 1984 had resigned themselves to failure. They then signed an OEM agreement to sell a first generation product from a start-up. Two years later, Codex switched to a more sophisticated product OEMed from a different start-up. Micom management, distracted by the complications of the dataPBX business, belatedly acquired a T-1 company. By 1988, sales of T-1 multiplexers totaled nearly $400 million, far exceeding those of statistical multiplexers. Yet only two of the high profile T-1 multiplexer start-ups avoided failure or acquisition. What happened?