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Chapter 5 - Data Communications: Market Competition 1969-1972

5.3 AT&T and Computer Inquiry I 1969

The Carterfone decision of the Federal Communications Commission (FCC) in 1968 prompted, or likely forced, AT&T to change its prohibition on foreign attachments, and file new tariffs that became effective January 1, 1969. While these new “protective connecting arrangements” (PCAs) tariffs opened the door for entrepreneurs eyeing the opportunity to sell dial-up modems against AT&T, the struggle to obtain unobstructed market competition would take years of effort. At the time, however, the founders of Vadic, UDS and dozens of other start-ups saw only the opening.

The PCA tariffs for modems were called Data Access Arrangements, or DAAs. DAAs had two primary functions: first to assure the telephone network integrity by limiting the signal power of attached modems to a level that would not exceed the power-level of the network, and second to maintain exclusive Bell control of all network signaling functions.11 Installable only by Bell personnel for a modest amount, and a continuing $2 to $4 per month fee, DAAs were a single circuit board that came with a separate telephone set having a voice/data switch. All network connections had to be made manually, and there were no provisions for either automatic dialing or unattended answering; even though Bell modems possessed these functions. So while the DAAs made it possible for independent manufacturers’ to connect their modems to the switched telephone network, they severely constrained their functionality and introduced costs over those of Bell modems.

Protests sounded immediately. Why should modems of independent manufacturers be burdened with extra costs and reduced functionality? Bell was up to its old tricks again. Only now there were competitors not willing to let Bell get away with it. What seemed particularly preposterous to the independent manufacturers selling modems to telephone companies was that their modems would now have to be re-engineered to work with DAAs. Where was the logic that made it possible for independent manufacturers to sell a modem to a telephone company, which could sell it to a customer, while that very same modem manufacturer could not sell the same modem to that same customer? In response, AT&T claimed: “If we provide it, we maintain it and we know it’s going to work right. If the customer provides it, he might not maintain it, and a short might cause a voltage surge on the line which might kill somebody.”12

As sympathetic as the Common Carrier Bureau (CCB) staff was, the new AT&T tariffs were already more liberal than anyone would have thought possible only months earlier, and too much was at risk to proceed ‘willy-nilly.’ Bernard Strassburg, Chairman of the CCB, remembers telling those complaining:

Well, you may be right, but this is where it is right now, and until we find a better alternative, this is where it’s going to stay, because we’re not going to open up the network to indiscriminate connections for fear that this would degrade the performance of the network.

Standing arm-in-arm with AT&T might have been past practice, but now the CCB wanted an independent assessment of alternatives to PCAs, freeing them from their dependence on AT&T’s recommendations. Seeking the most impartial, technically competent organization, the FCC contracted with the National Academy of Sciences (NAS) to study the tariffs and to recommend alternatives.13 A report was expected in about a year, with hearings scheduled for September.

During this same period, in February 1969, the FCC received the Stanford Research Institute report commissioned to analyze the responses to the Notice of Inquiry.14 The report was too technical and detailed to be understood by anyone at the FCC or CCB. So Strassburg once again sought out Paul Baran, who had since left Rand and started the Institute for the Future (IF).15 Baran agreed to interpret the report.

Shortly after taking the assignment, AT&T offered Baran’s IF a lucrative, and interesting, consulting contract. Needing the work, Baran notified the FCC of his potential conflict of interest and ceased being a consultant.16 Baran remembers:

I think it was very useful because they were able to get some inputs in how they are really perceived…..and that their real problem is going to come from the data communication entrepreneurs, because now, for the first time, they had a constituency who might perceived it worth their while going after AT&T. The old constituency in the past was never big enough, or had enough interest, to attend hearings or doing anything, but now you have these new entrepreneurs coming along and that you’re probably better off giving in to them and not threaten the rest of your system.

In May, the FCC issued the Report and Further Notice of Inquiry to solicit opinions on the SRI study. Respondents’ comments would add little to the FCC’s understanding.17 The CCB now had the task of deciding what actions they should, and would, take as a result of collecting the comments and materials through its Inquiry.

  • [11]

    Data Pro 1970, Computer Conversions Inc., All About Modems, 70F-300-01b

  • [12]

    Thomas Thompson Interview: “This is the type of horror stories they always raised. So that was what we were stuck with. We were stuck with the DAA.”

  • [13]

    Henck, p. 107 : “NAS had its Computer Sciences and Engineering Board set up a fourteen-member panel to analyze the considerable amount of written material submitted to the FCC. The fact that panel members were not ‘pure’ scientists in the sense that they drew paychecks immediately caused criticism. It was a symbol of changing attitudes that most objections were raised because two of the fourteen panelists were officials of the Bell System. The others were employed by nonprofit and/or government organizations, non-Bell manufacturers, independent telephone companies, or large users of communication services.”

  • [14]

    Stanford Research Institute, Policies and Issues Presented By the Interdependence of Computer and Communications Services (Report Nos. 7379B0. 7 vols.

  • [15]

    Romnes, Chairman of AT&T, was a member of IF’s Board of Trustees.

  • [16]

    Baran interview: “Here I was working for the FCC and along came this contract from AT&T, for the Institute for the Future, and we needed that work, so I told my friends at FCC that I would no longer be able to be a consultant to them, and they said: “Well, we understand, but why don’t you become a general consultant to us on research and development, because we’re not doing a very good job with research and development at the FCC and we could use some help, and that should be clean and shouldn’t give you any problem with conflict of interest.” So I said, “OK.” And I said: “First of all, how much are we paying, what would have been the Chief Engineer.” They said $25,000. And I said: “Well, that’s not enough money to get the sort of person you really need for that top position.” They said: “We know, but the Congress dictated that. It’s in the legislation, and that was done purposely, because about 25% of the congressmen had some interest or other in a broadcast station, or TV, a very high correlation. It was very important to their political position. So, there was a nice strong political constituency that wanted to see the FCC weak for some time, and so that was a constraint. So I said: “Well, no, until you get this problem fixed, there’s hardly very much you can do,” cause the people they had were just, they were technicians. So I didn’t do a lot more consulting after that one.”

  • [17]

    Regulatory and Economic Issues in Computer Communications, “IEEE vol. 60, pp 1256, November 1972.