Chapter Five
Data Communications: Market Order 1973-1979
LSI Modems, Statistical Multiplexers and Networks

5.0 Overview

Entering 1973, most experts expected the robust growth of data communications revenues to continue at 40-50% per annum. [1] Lower prices and increased competition, especially in the high-speed modem category where AT&T had finally introduced product, were seen as driving demand. By 1974, a sagging economy and merciless competition had firms struggling to break even. Without new applications, such as point-of-sale and credit authorization terminals, sales of modems were projected to be flat. [2] No one imagined that in a short few years an announcement of a microprocessor in November 1971 would energize unprecedented opportunities for modems and multiplexers. By the late 1970’s, corporations were installing data communication networks in unimaginable numbers.

As advances in semiconductor technology, such as microprocessors, invigorated growth from the ground up, institutional rearrangements sought by the Justice Department promised to open markets once closed. In 1974, an antitrust lawsuit filed against AT&T echoed the same demand as the 1969 antitrust lawsuit against IBM, for their respective breakups. These legalistic grand plays failed to deter those wanting immediate change from challenging the FCC however. The pesky entrepreneurs of data communications saw no reason to be satisfied with the PCA tariffs of 1969 and clamored for attachment rights equal to those of AT&T. The giant firms of data processing railed against the fuzziness of Hybrid Services as defined in Computer Inquiry I and fought to keep AT&T with its immense economic power from entering their competitively decided markets.

Against this backdrop, Codex, ADS and the other data communication start-ups, labored to find the right combination of technological investment, product innovation and marketing/sales. To succeed would mean incorporating LSI-semiconductors, microprocessors, innovating network management and, in the case of multiplexers, mastering the discontinuous jump to statistical multiplexing. These product advances would enable corporations to integrate their ad hoc point-to-point networks into on-line networks to support their burgeoning distributed data processing requirements. Not all firms would clear these hurdles. Codex would, but ADS stumbled, reeling from technologies not leading to products and the disappearance of timesharing. Pushed into bankruptcy, ADS would emerge as a new firm, Micom, that after multiple brushes with failure came upon a product idea so simple and timely, management’s biggest concerns became: could they build them fast enough and remain focused? Codex and Milgo, meanwhile, welcomed corporate marriages for very different reasons. By 1979, the surprising opportunities in data communications dispelled fears that markets had topped out, as revenues headed inexorably to the unthinkable $1 billion.