Other articles in the series:
- History of the relay
- History of electronic computers
- History of the transistor
- Internet history
For about seventy years in a row, AT&T, the parent company of the Bell System, had almost no competition in American telecommunications. Its only significant rival was General Telephone, later known as GT&E and then simply GTE. But at the same time, by the middle of the 5th century, it had only two million telephone lines at its disposal, that is, no more than 1913% of the total market. The period of AT&T's dominance—from the gentlemen's agreement with the government in 1982 to when that same government dismembered it in XNUMX—roughly marks the beginning and end of a strange political era in the US; a time when citizens were able to trust in the benevolence and efficiency of a large bureaucratic system.
It's hard to argue with AT&T's external performance for this period. From 1955 to 1980, AT&T added almost one and a half billion miles of telephone lines for voice communications, most of which were microwave radios. The cost per kilometer of the line has fallen tenfold over this period. The decrease in cost resonated with consumers, who felt a constant decrease in the real (adjusted for inflation) value of telephone bills. Whether measured in the percentage of households that had their own telephone (90% by 1970), whether in terms of signal-to-noise ratio or reliability, the United States could consistently boast of the best telephone service in the world. At no time has AT&T given reason to believe that it is resting on the laurels of its existing telephone infrastructure. Its research arm, Bell Labs, has made fundamental contributions to the development of computers, solid-state electronics, lasers, fiber optics, satellite communications, and more. Only in comparison with the exceptional speed of development of the computer industry, AT&T could be called a slow-growing company. However, by the 1970s, the idea that AT&T was slow to innovate had gained enough political weight to lead to its temporary separation.
The disintegration of cooperation between AT&T and the US government was slow, and took several decades. It began when the US Federal Communications Commission (FCC) decided to tweak the system a little - remove one loose thread here, another there ... However, their attempts to restore order only unraveled more and more threads. By the mid-1970s, they looked on in confusion at the mess they had made. Then the Justice Department and federal courts stepped in with their scissors and closed the matter.
The main driver of this change external to the government was a small new firm called Microwave Communications, Incorporated. However, before we get to that, let's look at how AT&T and the federal government interacted during the happier 1950s.
Status quo
As we saw last time, in the 1934th century, there were two different types of laws behind the testing of industrial giants like AT&T. On the one hand, there was a regulatory law. In the case of AT&T, the overseer was the FCC, created by the Telecommunications Act of XNUMX. On the other side was the antitrust law, which was enforced by the Department of Justice. These two branches of the law differed quite significantly. If the FCC can be compared to a lathe that periodically meets to make small decisions that gradually shape the behavior of AT&T, then the antitrust law could be considered a fire ax: it is usually kept in a closet, but the results of its application are not particularly subtle.
By the 1950s, AT&T was receiving threats from both directions, but they were all resolved quite peacefully, with little impact on AT&T's core business. Neither the FCC nor the Justice Department argued that AT&T would remain the dominant provider of telephone equipment and services in the US.
Hush-a-phone
Consider first AT&T's relationship with the FCC using the example of a small and unusual third-party device case. Since the 1920s, a tiny Manhattan company called the Hush-a-Phone Corporation has made a living by selling a cup that plugs into the part of the phone that needs to be spoken into. The user, speaking directly into this device, could avoid eavesdropping by people nearby, as well as block out some background noise (for example, in the midst of a trading office). However, in the 1940s, AT&T began to put pressure on such third-party devices - that is, on any equipment connected to devices from the Bell System that the Bell System itself did not manufacture.
An early Hush-a-Phone connected to a vertical phone
According to AT&T, the humble Hush-a-Phone attachment was just such a third-party device, causing any subscriber using such a device with their phone to be disabled for violating the terms of use. As far as we know, this threat was never realized, but the possibility itself probably cost Hush-a-Phone some money, especially from retailers who were unwilling to purchase their equipment. Harry Tuttle, the inventor of the Hush-a-Phone and the "president" of the business (although his only employee besides himself was his secretary), decided to challenge this approach and filed a complaint with the FCC in December 1948.
The FCC had the power to both make new rules as the legislature and resolve disputes as the judiciary. It was in the latter capacity that the commission made its decision in 1950 when considering Tuttle's complaint. Tuttle did not appear before the commission alone; he armed himself with expert witnesses from Cambridge, ready to testify that the acoustic qualities of Hush-a-Phone are superior to those of his handfull hand alternative (the experts were Leo Beranek and Joseph Carl Robnett Licklider, and in the future they will play a much more important role in this story than this small cameo). Hush-a-Phone's position was based on the facts that the design of its device was better than the only possible alternative, that, being a simple device connected to the phone, it could not harm the telephone network in any way, and that private users have the right to make their own decisions about using equipment they find comfortable.
From a modern point of view, these arguments seem irrefutable, and the position of AT&T is absurd; what right does a company have to prevent individuals from connecting anything to a telephone in their own home or office? Should Apple have the right to stop you from putting your iPhone in a case? However, AT&T had a plan not to press Hush-a-Phone specifically, but to defend the general principle of banning third-party gadgets. This principle was supported by several convincing arguments related both to the economic side of the matter and to the public interest. For starters, the use of a single telephone set was not a private matter, since it could connect to millions of other subscribers' phones, and anything that degraded call quality could potentially affect any of them. It's also worth remembering that at the time, telephone companies like AT&T owned the entire physical telephone network. Their holdings ranged from central switchboards to wires to the telephones themselves, which users rented. So it seemed reasonable from a private property standpoint that the telephone company should have the right to control what happened to its equipment. AT&T spent many decades investing millions of dollars in the development of the most complex machine known to mankind. How can every little huckster with a crazy idea claim to profit from these advances? Finally, it is worth considering that AT&T itself offered a variety of accessories to choose from, from signal lights to shoulder mounts, which were also rented (usually by enterprises), and the payment for which fell into AT&T chests, which helped to ensure low prices for basic services provided to ordinary subscribers. The redirection of these incomes into the pockets of private entrepreneurs would disrupt this system of redistribution.
No matter how you feel about these arguments, they convinced the commission - the FCC unanimously concluded that AT&T has the right to control everything that happens on the network, including devices that connect to the handset. However, in 1956, a federal appeals court overturned the FCC's decision. The judge ruled that if Hush-a-Phone degrades the quality of voice communication, but only those subscribers who use it, and AT&T have no reason to interfere with this private decision. Also, AT&T has neither the ability nor the intention to prevent users from muting their voices in other ways. “To say that a telephone subscriber can get the result in question by gathering a handful of his hand and talking into it,” the judge wrote, “but cannot do this with a device that leaves his hand free to write with it or do everything, whatever he pleases will be neither just nor reasonable.” And while the judges apparently didn't like AT&T's brashness in this case, their verdict was narrow - they didn't lift the entire ban on third-party gadgets, and only confirmed the right of subscribers to use Hush-a-Phone at will (in any case, The Hush-a-Phone did not last long - in the 1960s this device had to be redesigned due to changes in the design of the tubes, and for Tuttle, who at that time should have been already in his 60s or 70s, this was already too much) . AT&T has adjusted its rates to mean that the ban on third-party devices that are electrically or inductively connected to the phone remains. However, it was the first sign that other parts of the federal government might not necessarily be as lenient on AT&T as the FCC regulators.
Consent Decree
Meanwhile, in the same year that the Hush-a-Phone appeals trial was being held, the Justice Department dropped the AT&T antitrust investigation. This investigation originates in the same place as the FCC itself. Two main facts contributed to it: 1) Western Electric, an industrial giant in its own right, controlled 90% of the telephone equipment market and was the only supplier of such equipment to the Bell System, from telephone exchanges leased to end users, to coaxial cables and microwave towers used to transfer calls from one end of the country to another. And 2) the entire regulatory apparatus that kept AT&T's monopoly in check relied on limiting its profits as a percentage of its capital investment.
The problem was the following. A suspicious person could easily imagine that there was a conspiracy within the Bell System to take advantage of these facts. Western Electric could inflate prices for the rest of the Bell System (for example, by charging $5 for a cable of a certain length when its fair price was $4), while increasing its dollar-based capital investment, and with it, the company's absolute profit. Assume, for example, that the Indiana Regulatory Commission has set a maximum return on investment for Indiana Bell of 7%. Suppose Western Electric asked for $10 in 000 for new equipment. The company would then be able to make $000 in profits—however, if the fair price of this equipment were $1934, it would only have to make $700.
Congress, concerned about the development of such a fraudulent scheme, conducted an investigation into the relationship between Western Electric and operating companies included in the original FCC mandate. The study spanned five years and spanned 700 pages, detailing the history of the Bell System, its corporate, technological and financial structure, and all of its operations, both foreign and domestic. In regards to the original question, the authors of the study found that it was essentially impossible to determine whether Western Electric's pricing was fair or not—there was no comparable example. However, they recommended the introduction of forced competition in the telephony market to ensure fair practices and encourage efficiency gains.
Seven members of the FCC commission in 1937. Damn beauties.
However, by the time the report was completed in 1939, war was on the horizon. At a time like this, no one wanted to interfere with the country's backbone communications network. Ten years later, however, Truman's Justice Department renewed suspicions about the relationship between Western Electric and the rest of the Bell System. Instead of voluminous and vague reports, these suspicions have escalated into a much more active form of antitrust lawsuit. It required AT&T not only to carve out Western Electric, but also to split it into three different companies, thus creating a competitive market for telephone equipment by court order.
AT&T had at least two reasons to be worried. First, the Truman administration has shown its aggressive nature in enforcing antitrust laws. In 1949 alone, in addition to the AT&T trial, the Justice Department and the Federal Trade Commission filed lawsuits against Eastman Kodak, the large grocery chain A&P, Bausch and Lomb, the American Can Company, the Yellow Cab Company, and many others. Secondly, there was the precedent of the US v. Pullman Company. The Pullman Company, like AT&T, had a service division that maintained railroad sleeping cars and a manufacturing division that assembled them. And, as with AT&T, the popularity of the Pullman service and the fact that it served only Pullman-made cars could not have rivals on the production side. And just like AT&T, despite the suspicious relationship of the companies, Pullman showed no evidence of price abuse, nor did it have disgruntled customers. And yet, in 1943, a federal court ruled that Pullman violated antitrust law and was required to separate production and service.
But in the end, AT&T avoided dismemberment and never appeared in court. After many years in limbo, in 1956 she agreed to enter into an agreement with the new Eisenhower administration to end the proceedings. In particular, the change in administration contributed to the change in the government's approach to this issue. Republicans were much more loyal to big business than Democrats, who advocated "". However, changing economic conditions should not be ignored either - the war-driven steady growth of the economy has disproved popular New Deal arguments that the dominance of big business in the economy inevitably leads to recessions, stifling competition and keeping prices from falling. Finally, the growing scope of the Cold War with the Soviet Union also played a role. AT&T roughly served the military and navy during World War II, and continued to work with their successor, the US Department of Defense. Specifically, in the same year that the antitrust lawsuit was filed, Western Electric began operations in in Albuquerque (New Mexico). Without this laboratory, the United States would not be able to develop and create new nuclear weapons, and without nuclear weapons, they could not pose a significant threat to the USSR in Eastern Europe. Therefore, the Department of Defense had no desire to weaken AT&T, and its lobbyists stood up to the administration for their contractor.
The terms of the agreement obligated AT&T to limit its work in the regulated telecommunications business. The Justice Department allowed a few exceptions, mostly to work for the government - it wasn't going to ban the company from the Sandia Laboratories. The government also required AT&T to license and provide technical advice on all existing and future patents at a reasonable cost to any local company. Given the variety of innovations that were forged at Bell Labs, such a relaxation in the area of licensing will help fuel the development of American high-tech companies for several decades on end. Both of these requirements greatly influenced the formation of computer networks in the United States, but they did not change the role of AT&T as the de facto monopoly provider of local telecommunications services. The fire ax was temporarily returned to its closet. But very soon a new threat will come from an unexpected part of the FCC. The lathe, which has always worked so smoothly and gradually, will suddenly begin to bite deeper.
First thread
AT&T had long offered a private line service that allowed a customer (usually a large company or department of government) to lease one or more phone lines for exclusive use. For many organizations that needed to actively communicate internally—television networks, major oil companies, railroad operators, the US Department of Defense—this option seemed more convenient, cost-effective, and secure than using the public network.
Bell engineers set up a private radiotelephone line for a power company in 1953.
The proliferation of microwave relay towers in the 1950s reduced the cost of entry for long-distance telephony operators so much that it simply became more profitable for many organizations to build their own networks rather than rent a network from AT&T. The policy philosophy of the FCC, established by many of its rules, was to prohibit competition in the telecommunications industry unless the existing operator was unable or unwilling to provide an equivalent service to customers. Otherwise, the FCC would have encouraged waste of resources and disrupted the carefully balanced system of regulation and rate averaging that kept AT&T in check while maximizing the level of service to the public. The set precedent made it impossible to open private microwave communications to everyone. As long as AT&T was willing and able to offer private phone lines, other operators were not allowed to enter the business.
Then an alliance of stakeholders decided to challenge this precedent. Almost all of them were large corporations that had their own funds to build and maintain their own networks. Among the most prominent was the oil recovery industry (represented by the American Petroleum Institute, API). Industry pipelines snaked across entire continents, wells were scattered across vast and remote deposits, research vessels and drilling sites were scattered across the globe, so industry representatives wanted to organize their own communication systems that suited their specific needs. Companies like Sinclair and Humble Oil wanted to use microwave networks to monitor pipeline status, remotely control oil rig motors, communicate with offshore rigs, and didn't want to wait for permission from AT&T. But the oil industry was not alone. Virtually every form of big business, from railroads and freight forwarders to retailers and automakers, petitioned the FCC to allow private microwave systems.
In the face of such pressure, the FCC opened hearings in November 1956 to decide whether a new frequency band (around 890 MHz) should be opened up for such networks. Considering that private microwave networks were almost exclusively opposed by telecom operators themselves, the decision on this issue was easy to make. Even the Justice Department, believing that AT&T had somehow swindled them when they signed the last agreement, was in favor of private microwave networks. And it became a habit—for the next twenty years, the Justice Department kept poking its nose into the FCC, time after time obstructing AT&T and defending new market entrants.
AT&T's strongest counterargument, to which it kept coming back, was that newcomers were bound to upset the delicate balance of the regulatory system by trying to skim the cream. That is, large businesses are looking to create their own networks along routes where the cost of laying is low and traffic is high (the most profitable routes for AT&T), and then rent private lines from AT&T where they are most expensive to build. As a result, ordinary subscribers will pay for everything, the low level of tariffs for which can only be maintained at the expense of very profitable long-distance telecommunications services, for which large companies will not pay.
However, the FCC in 1959 in the so-called. “resolution over 890” [that is, over the frequency range above 890 MHz / approx. transl.] decided that every newcomer to business can create their own private long-distance network. It was a watershed in federal politics. He challenged the fundamental assumption that AT&T should operate as a redistributive mechanism, charging rich customers in order to offer low-cost telephone service to users in small towns, rural areas, and poor areas. However, the FCC still continued to believe that it could eat a fish and not climb into the pond. She convinced herself that this change was insignificant. It affected only a small percentage of AT&T's traffic, and did not affect the core of the public service philosophy that had governed telephony regulation for decades. After all, the FCC just cut one protruding thread. Indeed, the “over 890” decision itself had little effect. However, it launched a chain of events that led to a real revolution in the structure of American telecommunications.
What else to read
- Fred W. Henck and Bernard Strassburg, A Slippery Slope (1988)
- Alan Stone, Wrong Number (1989)
- Peter Temin with Louis Galambos, The Fall of the Bell System (1987)
- Tim Wu, The Master Switch (2010)
Source: habr.com