use of private microwave networks in the "over 890 solution", the US Federal Communications Commission (FCC) may have hoped it could corner all these private networks in its quiet corner of the market and forget about them. However, it quickly became clear that this was not possible.
New faces and organizations appeared, insisting on changing the existing regulatory platform. They proposed many new ways to use or sell telecommunications services, and claimed that the existing companies that expropriated this area were hindering their development. The FCC responded by gradually chipping away at AT&T's monopoly, allowing competitors into various areas of the telecommunications market.
In response, AT&T took certain actions and made statements that were supposed to counter or at least reduce the influence of new competitors: offered to publicly discuss their objections to the FCC's actions, assigned new tariffs that reduced possible profits to zero. From the company's point of view, this was a natural reaction to new competitive threats, but from the outside they served as evidence of the need for more serious measures to curb the insidious monopolist. Regulators pushing for competition in telecoms weren't about to encourage a dominance battle between companies that would have to be won by the strongest. Instead, they wanted to create and maintain long-term alternatives for AT&T. AT&T's attempts to break free from the snares tightening around it only further confused the company.
New threats have come from both the edge and the center of the AT&T network, severing the company's control over the terminal equipment connected to its lines by its customers and over the long-distance lines that linked the United States into a single telephone system. Each of the threats began with lawsuits filed by two small, seemingly unimportant companies: Carter Electronics and Microwave Communications, Incorporated (MCI), respectively. However, the FCC not only decided the case in favor of the young companies, but also decided to interpret their cases in a generalized way as satisfying the needs of a new class of competitors that AT&T must accept and respect.
And yet, in terms of the legal platform, little has changed since the Hush-a-Phone case in the 1950s. At the time, the FCC firmly rejected applications from much more harmless competitors than Carter or MCI. The same Communications Act of 1934 that created the FCC itself still governed its operation in the 1960s and 70s. The change in FCC policy did not come from new actions in Congress, but from a change in political philosophy within the FCC itself. And this change, in turn, was caused by the advent of electronic computers. The emerging hybridization of computers and communication networks helped create the conditions for its own development.
Information society
For decades, the FCC has made it its primary responsibility to maximize access and honest operation in a relatively stable and homogeneous telecommunications system. However, from the mid-60s, a different vision of their mission began to emerge among the commission's staff as they began to focus more and more on maximizing innovation in a dynamic and diverse marketplace. Much of this change can be attributed to the emergence of a new, albeit relatively small, market for information services.
The information services industry initially had nothing to do with the telecommunications business. She was born in service desks, in companies that processed data for their customers and then sent them the results; this concept predates modern computers by several decades. For example, since the 1930s, IBM has offered custom data processing to customers who could not afford to rent their own mechanical tabulators. In 1957, as part of an antitrust deal with the US Department of Justice, they spun off the business into a separate division, the Service Bureau Corporation, which then operated on modern electronic computers. Similarly, Automatic Data Processing (ADP) began as a manual data processing business in the late 1940s before moving to computers in the late 1950s. But in the 1960s, the first online information desks began to appear, allowing users to interact with a remote computer through a terminal over a private, leased telephone line. The most famous of these was the SABER system, a derivative of SAGE, which made it possible to reserve tickets for American Airlines planes using IBM computers.
Just like what happened with the early time-sharing systems, when you have multiple users talking to one computer, it was a very small step before allowing them to talk to each other. It was this new way of using computers as mailboxes that brought them to the attention of the FCC.
In 1964, Bunker-Ramo, the company best known as a contractor for the Department of Defense, decided to diversify its information services by purchasing the Teleregister. Among the latter's activities was a service called Telequote, which has been providing stockbrokers with trading information over telephone lines since 1928. However, Teleregister did not have a license for telecommunication services. It relied on Western Union to connect users to the data center.
Telequote III terminal from Bunker-Ramo. It could show information about stocks on demand, and gave out general market data.
An advanced system from Telequote in the 1960s, Telequote III, allowed users to use a terminal with a tiny CRT screen and query the value of shares stored on Telequote's remote computer. In 1965, Bunker-Ramo introduced its next generation, the Telequote IV, with an additional feature that allowed brokers to issue buy and sell orders to each other using terminals. However, Western Union refused to make their lines available for such use. She argued that using a computer to send messages between users would turn a seemingly private line into a public messaging service (similar to the telegraph service from WU itself), which means that the FCC should regulate the operation of the operator of this service (Bunker-Ramo).
The FCC decided to turn this debate into an opportunity to answer a more general question: how to deal with the growing segment of online data access services versus telecommunications regulation? Now this investigation is known under the name of "computer investigation". The final findings of the investigation are not as important to us at this time as their impact on the mentality of the FCC staff. Long-standing boundaries and definitions appear to be subject to revision or abandonment, and this shake-up set the FCC's mindset for future challenges. Over the previous decades, new communication technologies have emerged from time to time. Each of them developed independently and acquired its own character and its own rules of regulation: telegraphy, telephony, radio, television. But with the advent of computers, these separate lines of development began to converge on an imaginary horizon, turning into an intertwined information society.
Not only the FCC, but the entire intelligentsia as a whole expected big changes to come. Sociologist Daniel Bell has written of an emerging "post-industrial society"; management expert Peter Drucker has spoken of "knowledge workers" and an "era of discontinuity." Books, scientific papers and conferences on the topic of the coming world based on information and knowledge, and not on material production, flowed like a river in the second half of the 1960s. The authors of these works often referred to the advent of high-speed general purpose computers and the new ways of transmitting and processing data in communication networks that they will make possible in the coming decades.
Some of the new FCC commissioners appointed by Presidents Kennedy and Johnson moved in these intellectual circles themselves. Kenneth Cox and Nicholas Johnson participated in the Brooklyn Institution Symposium on Computers, Communications, and the Public Interest, whose chairman envisioned “a national or regional communications network connecting video and computer centers at universities with homes and classrooms in the field… Citizens will be able to remain disciples “from the cradle to the grave.” Johnson would later write a book on the possibilities of using computers to transform broadcast television into an interactive medium, titled«.
Outside of these general intellectual currents that have steered communications regulation in new directions, one individual has been particularly keen to steer regulation in a new direction and has played a major role in changing the FCC's attitude towards what is happening. Bernard Strasbourg belonged to that section of the FCC bureaucracy that was a notch below the seven commissioners appointed by politicians. The civil servants that made up the majority of the FCC were divided into bureaus based on the technology areas they regulated. The commissioners relied on the bureau's legal and technical expertise to set the rules. The area of responsibility of the Bureau of Public Communications Systems, to which Strasbourg belonged, was for wired telephone lines and the telegraph, and mainly consisted of AT&T and Western Union.
Strasburg joined the Bureau of Public Communications Systems during World War II, and rose to chairman by 1963, playing a major role in the FCC's attempts to undermine AT&T's dominance in the following decades. His distrust of AT&T stemmed from an antitrust lawsuit filed by the Justice Department against the company in 1949. As we have mentioned, the question at the time was whether Western Electric, AT&T's manufacturing arm, was inflating prices in order to allow AT&T to artificially inflate its profits. During this study, Strasbourg became convinced that this question could not be answered, due to the current situation in the telephone equipment market. due to AT&T. There was no market for telephone equipment against which anything could be compared to determine price fairness. He decided that AT&T was too big and powerful to regulate. Much of his board advice in later years can be traced back to his belief that the AT&T world needed to be forced into competition to reduce it to a manageable state.
Call Center: MCI
The first major challenge to AT&T's intercity lines since their inception in the early XNUMXth century came from an unlikely person to fill the role. John Goeken was a salesman and small businessman whose prudence gave way to his enthusiasm. As a young man, like many of his peers, he became interested in radio equipment. After graduating from high school, he went to serve in the army in the radio force, and after finishing his service, he got a job selling radio equipment for the General Electric Company (GE) in Illinois. However, his full-time job did not satisfy his passion for entrepreneurship, so he opened a side business, selling more radios with a group of friends in other parts of Illinois outside of his territory.
Jack Goken in the mid-90s when he was working on an airplane phone
When GE found out about what was happening and closed shop in 1963, Gouken began to look for new ways to increase revenue. He decided to build a microwave link from Chicago to St. Louis, and sell radio access to truckers, riverboat captains, flower delivery vans, and other small businesses who used the road and needed low-cost cellphones. He believed that AT&T's private line rental services were too fancy—too many people worked on them and too complicated to engineer—and that if he saved on building the line, he could offer lower prices and better service to users who were ignored by a large company.
Goken's concept did not fit into the then FCC rules - the decision "over 890" gave the right to private companies to build microwave systems for their own use. Yielding to pressure from small businesses that did not have the funds to build their own complete system, a rule was issued in 1966 allowing multiple businesses to share one private microwave system. However, it still did not give them the right to provide communication services for money to third parties.
Moreover, the reason why AT&T's tariffs seemed excessive was not because of big spending, but because of the regulation of average prices. AT&T charged private line service according to call distance and number of lines, whether they were along the densely populated Chicago-St. . Regulators and telephone companies deliberately designed this structure to level the playing field for areas with different population densities. Thus, MCI proposed to play on the fare difference - to take advantage of the difference between the market and the regulated price on routes with a large load in order to extract guaranteed profits. AT&T called it skimming, and that term would become the basis of their rhetoric in future debates.
It is unknown if Gouken was originally aware of these facts, or chose to ignore them with a pure heart. In any case, he seized on the idea with gusto, with a modest budget organized largely through the use of credit cards. He and his partners of equally modest means decided to form a company to challenge the all-powerful AT&T, and they named it Microwave Communications, Inc. Gouken flew all over the country looking for investors with deeper pockets, but with little success. However, he was more successful in defending the position of his company MCI before the FCC.
The first hearings on the case began in 1967. Strasbourg was intrigued. He saw MCI as an opportunity to achieve his goal of weakening AT&T by further opening up the market for private lines. However, at first he hesitated. Gouken did not impress him as a serious and efficient businessman. He was worried that MCI might not be the best test case possible. It was an economist at the University of New Hampshire named Manly Irwin who pushed him to the decision. Irwin worked regularly as a consultant for the public communications systems bureau, and helped define the terms "computer investigation." He convinced Strasbourg that the nascent market for online information services uncovered by this investigation needed companies like MCI with new offerings; that AT&T itself will never be able to realize the full potential of the emerging information society. Strasbourg later recalled that "the negative effects of the computer investigation confirmed MCI's claims that its entry into the specialized long-distance market would serve the public interest."
With the blessing of the Bureau of Public Communications Systems, MCI passed the initial hearing with ease, then squeezed its way into the full commission hearing in 1968, where the votes were split 4 to 3 by party. All Democrats (including Cox and Johnson) voted to approve the MCI license. . The Republicans, led by the chairman, Roselle Hyde, voted against.
The Republicans did not want to disrupt a well-balanced regulatory system with a scheme concocted by speculators of controversial technical and entrepreneurial qualities. They pointed out that this decision, although seemingly limited to one company and one route, will have significant consequences that will transform the telecommunications market. Strasburg and others who supported the project saw the MCI case as an experiment to test whether the business could successfully parallel AT&T in the private communications market. However, in reality, this was a precedent, and after its approval, dozens of other companies will immediately run to submit their own applications. The Republicans believed that it would be impossible to reverse the experiment. Moreover, MCI and similar new entrants are unlikely to be able to stay afloat with a small set of scattered and unconnected lines, such as the route from Chicago to St. Louis. They will demand a connection with AT&T and force the FCC to make new changes to the regulatory structure.
And the collapse predicted by Hyde and other Republicans actually happened—in the two years after the MCI decision was made, thirty-one other companies sent a total of 1713 applications for microwave links totaling 65 kilometers. The FCC didn't have the ability to hold separate hearings on each of the filings, so the FCC brought them all together in a single hearing list for specialized communications companies. In May 000, when Hyde resigned from the commission, a unanimous decision was made to fully open the market to competition.
Meanwhile, MCI, still having money problems, found a new wealthy investor to improve their business - William K. McGowan. McGowan was almost the opposite of Goken, a sophisticated and established businessman with a Harvard degree who built successful consulting and venture capital ventures in New York. Within a few years, McGowan essentially took control of MCI and ousted Goken from the company. He had a completely different idea of the future of the company. He had no plans to tinker with river shipping or flower delivery, living on the fringes of the telecommunications market, where AT&T would not honor him. He wanted to go straight to the heart of the regulated network, and compete directly in all forms of long distance communications.
Bill McGowan as an adult
The stakes and implications of the original MCI experiment continued to escalate. The FCC, determined to make MCI a success, now found itself harnessed to the business as Magkovan's inquiries grew steadily. He, while arguing (predictably) that MCI would not survive as a small collection of unrelated routes, he demanded a large number of communication rights over the AT&T network; for example, the right to connect with the so-called. "outside switch", which would allow the MCI network to connect directly to local AT&T switches where MCI's own lines terminated.
AT&T's response to the new specialized telecom operators didn't help the company. In response to the intrusion of competitors, it introduced reduced fares on busy routes, abandoning the average prices set by regulators. If she thought she would satisfy the FCC in this way, showing a competitive spirit, then she misunderstood the purpose of the FCC. Strasburg and his associates weren't trying to help consumers by lowering their phone prices—at least not directly. They were trying to help new companies enter the market by weakening AT&T's power. Therefore, AT&T's new competitive tariffs were viewed by the FCC and other observers, especially the Justice Department, as vindictive and anti-competitive because they threatened the financial stability of new market entrants like MCI.
AT&T's new militant president, John Debates, has not improved his position either, reacting with aggressive rhetoric to the intrusion of competitors. In a 1973 speech to a national association of regulators, he criticized the FCC, calling for a "moratorium on further economic experimentation." This uncompromising attitude angered Strasbourg and further convinced him of the need to rein in AT&T. The FCC readily ordered MCI to provide the network access it requested in 1974.
The escalation of the conflict with McGowan reached its peak with the release of Execunet the following year. The service was advertised as a new kind of paid service for sharing private lines between small businesses, but it gradually became clear to the FCC and AT&T that Execunet was in fact one of the competing long distance telephone networks. It allowed a customer in one city to pick up the phone, dial a number, and call any customer in another city (taking advantage of an "outside switchboard" and paying for the service based on the distance and duration of the call. And no leased lines from point A to point B.
Execunet connected MCI customers to any AT&T user in any major city
And then, finally, the FCC balked. She was going to use the MCI as a bludgeon against AT&T's total dominance, but the blow proved too strong. By this time, however, AT&T had other allies in the courts and the Justice Department, and continued to develop the case. Once the AT&T monopoly began to unravel, it was hard to stop.
Problems on the periphery: Carterfone
As the MCI case unfolded, another threat appeared on the horizon. The similarities between the stories of Carterfone and MCI are striking. In both cases, the budding entrepreneur — whose business intuition was less developed than his wits and toughness — successfully took on the largest corporation in the United States. However, both of these people - Jack Goken and our new hero, Tom Carter - were soon eliminated from their own companies by more cunning entrepreneurs, and disappeared into oblivion. Both started as heroes and ended up as pawns.
Tom Carter was born in 1924 in Mabank, Texas. He also became interested in radio at a young age, joined the army at 19, and, like Gouken, became a radio technician. During the later years of World War II, he operated the Juneau Broadcasting Station, providing news and entertainment to troops at outposts across Alaska. After the war, he returned to Texas and founded the Carter Electronics Corporation in Dallas, operating a two-way radio station that he rented out to other delivery van florists; oil producers with rig operators. Carter constantly received requests from customers to come up with a way to directly connect their walkie-talkies to the telephone network so that they would not have to transmit messages to people in the city through the base station operator.
Carter developed a tool for this purpose, which he named Carterfone. It consisted of a black plastic rhombus with a complex-shaped cover, into which a telephone handset with a microphone and speaker was inserted. Both parts were connected to the receiving / transmitting station. In order to connect someone in the field with someone on the phone, the base station operator would have to make the call manually, but could then place the handset on the stand, after which the two parties could talk without interference. The radio's transmit/receive switch was activated by voice, and sent speech when the person on the phone spoke, and then received it when the person in the field spoke. He began selling the device in 1959, and the entire production was in a small brick building in Dallas, where retirees assembled Carterfone on simple wooden tables.
When a tube was placed on the stand, it activated the device with a button on top
Carter's invention was not original. Bell had his own radio/telephone service, which the firm first offered to customers in St. Louis in 1946. Twenty years later, he served 30 customers. But there was plenty of room for competitors like Carter—AT&T offered the service in about a third of the US, and you could queue up for it for years. In addition, Carter offered much cheaper rates if (a serious drawback) the buyer already had access to a radio tower: $000 one-time fee compared to $248-$50 per month for a Bell mobile phone.
From AT&T's point of view, the Carterfone was a "third-party gadget," a device designed by third parties connected to the company's network, which it forbade. In the early Hush-a-Phone case, the courts forced AT&T to allow the use of simple mechanical devices, but the Carterfone did not fall into that category because it connected to the network acoustically—that is, it sent and received sound over a telephone line. Due to the small scale of Carter's operation, AT&T noticed it after two years, after which it began to warn Carterfone salespeople that their customers were at risk of being disconnected from the phone - the same threats that were made against Hush-a-Phone ten years ago. With such tactics, AT&T pushed Carter out of one market after another. Unable to reach an agreement with competitors, Carter decided to sue them in 1965.
The big Dallas firms didn't want to get involved, so Carter ended up in Walter Steele's small office with just three employees. One of them, Ray Bezin, later described a portrait of a man who arrived at their office:
He considered himself handsome, as evidenced by the way his white hair was combed to the side, the whiteness of which was enhanced by hair dye, but his canvas suit and cowboy boots created a different image. He was self-taught, easily handling any electronics, radio or telephone equipment. The businessman from him was so-so. Strict attitude to the family and a strict wife. However, he tried to look like a cool and successful entrepreneur, although, in fact, he was bankrupt.
Preliminary hearings before the FCC took place in 1967. AT&T and its allies (mainly other small telephone companies and state regulatory agencies) argued that the Carterfone was not a mere gadget, but a crosstalk equipment that illegally linked AT&T networks to local mobile radio networks. . This violated the company's responsibility for communication within the system.
But, as with MCI, the Bureau of Public Communications Systems ruled in favor of Carter. Again played the belief in the approach of the world of digital information services, both interconnected and diverse. How could one monopoly service provider foresee and meet all the needs of the market for terminals and other equipment for all possible applications?
The final decision of the commission, issued on June 26, 1968, was an agreement with the bureau, and a ruling that the AT&T rule regarding third-party equipment was not only illegal, but had been illegal since its inception - in connection with which Carter could count on compensation. According to the FCC, AT&T failed to correctly separate potentially harmful devices (which, for example, can send erroneous control signals to the network) and harmless devices like the Carterfone. AT&T was required to immediately authorize the use of Carterfone and develop technical standards for the secure communication of third-party devices.
Shortly after this decision, Carter tried to capitalize on this success by going into business with two partners, including one of his own lawyers, to form the Carterfone Corporation. By ousting Carter from the company, his partners made millions in sales to the British giant Cable and Wireless. Carterphone disappeared; the company continued to sell teletypes and computer terminals.
The Carter story had an amusing epilogue. In 1974, he went into business with Jack Gaucken, founding Florist Transworld Delivery, an on-demand flower delivery company. It was in this market - telecommunications to support small businesses - that both entrepreneurs wanted to work from the very beginning. However, Carter soon left the company and moved back to his hometown, southeast of Dallas, where he ran a small radiotelephone company, Carter Mobilefone, in the mid-80s. He worked there until his death in 1991.
Disintegration
The FCC, like Carter and Gouken, gave rise to powers it could neither control nor fully understand. By the mid-1970s, Congress, the Justice Department, and the courts had removed the FCC from arguing over the future of AT&T. The culmination of AT&T's great breakup, of course, was in 1984, at the time of its split. However, we have jumped ahead in our history.
The world of computer networks didn't feel the full impact of MCI's victory and the emergence of competition in the long-distance communications market until the 1990s, when private information networks began to develop. Solutions related to terminal equipment played faster. Now anyone could manufacture acoustic modems and connect them to Bell's system under the guise of the Carterfone decision, making them cheaper and more common.
However, the most important consequences of the collapse of AT&T are related to the larger picture, and not to the particular moments of individual decisions. Many of those early predictors of the information age envisioned a single American computer communications network under the auspices of AT&T, or perhaps the federal government itself. Instead, computer networks evolved piecemeal, fragmented, and provided connectivity only within themselves. No single corporation controlled the various subnets, as was the case with Bell and local companies; they were related to each other not as a boss and a subordinate, but as equals.
However, here we are getting ahead of ourselves. To continue our story, we need to go back to the mid-1960s, during the advent of the first computer networks.
What else to read:
- Ray G. Bessing, Who Broke Up AT&T? (2000)
- Philip L. Cantelon, The History of MCI: The Early Years (1993)
- Peter Temin with Louis Galambos, The Fall of the Bell System: A Study in Prices and Politics (1987)
- Richard HK Vietor, Contrived Competition: Regulation and Deregulation in America (1994)
Source: habr.com