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Chapter 5 - Data Communications: Market Competition 1969-1972

5.0 Overview

By year-end 1968, the decisions by the management of Codex and Milgo, to broaden out of their government contracting businesses and sell modems, showed markings of genius. Both companies were now public with cash in the bank and growth in their strategic plans. Even the multiplexer start-up, American Data Systems (ADS), had reason to be giddy. They had innovated the next generation time-division multiplexer and signed a million dollar contract to supply product to IBM. The managements of all three firms were so overwhelmed they had little time to worry about new competition or speculate as to how government policies might affect future sales. Which proved fortunate, for if they had, they might have doubted what they were doing and lost the very nerve that had them looking like early winners.

The opportunities in data communication had become obvious by 1972, with over one hundred new competitors fielding products. Certain of these entrants had histories closely intertwined with those of Codex Milgo and ADS. The entrepreneurs founding Infotron, General DataComm, Timeplex, Paradyne, Vadic and Universal Data Systems, all acted for very personal, or local, reasons not because they saw weaknesses in those who had preceded them or because they possessed some grand vision of the future.

Which was probably a good thing, for if they had, the drastic economic brakes the Federal Government applied in January 1969 would have scared off all but the most committed. Concerned about inflation and an over-heating economy, the Government raised interest rates, increased the tax rates on capital gains, and filed an anti-trust suit against IBM. The days of ever-rising stocks prices would soon end, especially for technology stocks, and years of economic uncertainty would dampen investment and purchases of technology products including data communication products.

Not all the news was depressing however. The continual saga between AT&T and the FCC pointed towards more market competition and less market regulation. Not that AT&T was rolling over without a fight. One attempt to stifle competition resulted in the banding together of the modem manufacturers into a trade association, the Independent Data Communication Manufacturer’s Association (IDCMA). This group would prove instrumental in countering the immense market power of AT&T.

Notwithstanding all of the uncertainty surrounding them, the fates of Codex, Milgo and ADS continued to be decided more by their internal decisions and actions than by market forces or economic conditions. By the end of 1972, Codex and Milgo would have succeeded in their transitions to profitable companies while ADS would be struggling.