Data Communications: Emergence 1956-1968
Modems and Multiplexers
Innovation of information technologies became
a priority for the military after World War II. In funding the SAGE
(Semiautomatic Ground Environment) air defense system beginning in
1951, the Air Force accelerated technological change in ways that
could never have been imagined. One modest subcontract called for
AT&T to innovate a device to transmit digital information over
telephone lines. That device would be later modified and introduced
commercially as a modem by AT&T in February 1958. It marked the
beginnings of the economic history of computer communications.
AT&T had the nascent modem market to itself
until the mid-1960s. Then growing demand for faster modems than those
supplied by AT&T led to a surge in entrepreneurism and competition.
Two of the first new entrants, Codex and Milgo, would enter the modem
business to escape their uncertain futures as military contractors.
Yet even as competition emerged, the regulated
AT&T had the power to prohibit connection of equipment other
than its own to the telephone network. In 1965, Thomas Carter filed
an antitrust lawsuit against AT&T challenging those rights. Carter
proved to be but the tip of an iceberg, one whose hidden importance
was being shaped by the explosive growth in the use of computers
by corporations. Concerned that the regulatory protection AT&T
enjoyed might thwart the emergence of data processing, the Federal
Communication Commission (FCC) launched a public inquiry into the
issues in 1966.
The growing use of computers, abetted by the commercialization
of time-sharing, drove the growth and innovation of not only modems
but also multiplexers. In 1968, a start-up, American Data Systems,
introduced a second-generation multiplexer; dramatically increasing
the number of computer devices, primarily terminals, that could share
a telephone line.
By 1967, years of aggressive government spending
raised inflation concerns and financial investors turned to stocks
for price appreciation, not just dividends, and in the process drove
the prices of technology stocks to unprecedented levels. Aggressive
investors funneled market profits into venture capital funds that
in turn sought investments in exciting technologies, especially those
related to computers.
The clash between those wanting to connect innovative
equipment to the telephone network and the long-standing regulatory
policy supporting AT&T sped to an unexpected outcome by the end
of 1968. The history of data, and thus computer, communications was
about to become significantly more complex, and