Chapter Five
Data Communications: Market Order 1973-1979
LSI Modems, Statistical Multiplexers and Networks
5.2 The Justice Department: IBM and AT&T
As late as 1968, the commercial
future of information technologies seemed securely controlled by IBM and
AT&T. If they had had their way, the opportunities for all independent
communication firms would have been severely constrained. The efforts of the
Federal Government, by way of the Justice Department, to keep the markets for
computers and communications open and competitive, began in 1969 with the
filing of an antitrust lawsuit against IBM. While little progress had been made
by 1973, a number of corporations had joined in filing antitrust lawsuits and,
if nothing else, IBM was on its best behavior - witness its revised software
unbundling policy. Would AT&T escape the logic of competition being forced
by information technologies? These issues framed the macro-conditions of data
communications.
On April 1, 1972, John D. deButts succeeded H. I. Romnes
as Chairman and CEO of AT&T. Unlike Romnes, deButts had risen through the
operating companies and abhorred competition. He wanted to return AT&T to
the glory days of Theodore N. Vail when ‘One System, One Policy, Universal
Service’ breathed life into work. In September 1973, deButts delivered a rousng
speech entitled “An Unusual Obligation” to a meeting of the members of the
National Association of Regulatory Utility Commissioners (NARUC). In words no
one could misunderstand, deButts said his objective was to:
“take to the public the case for the common carrier
principle and thereby implication to oppose competition, espouse
monopoly.”
[17]
He knew his speech would inflame those in government
intent on change. He couldn’t have cared less, having an appetite for all the
fight anyone might want to begin. DeButts got his wish in March 1974 when MCI
filed an antitrust lawsuit charging twenty-two counts of unlawful activity.
Then Congress acted. In 1974, Senator Phillip A. Hart, Chairman of the Senate
Judiciary Antitrust and Monopoly Subcommittee, held hearings on his Industrial
Reorganization Act that would restructure seven industries - including
telecommunications - to make them more competitive,. Appearing before the
Subcommittee, Clay T. Whitehead, Director of the Office of Telecommunications
Policy, testified:
“a
restructuring of the communications industry may be necessary if competition
and monopoly are to coexist constructively.”
Big Business was falling under
public scrutiny. Failures such as the Vietnam War, the threat of President
Richard M. Nixon’s impeachment (Watergate), and inescapable inflation all
contributed to a social climate where people doubted whether large
organizations and institutions could solve much of anything. Within the Federal
Government this had the effect of weakening the authority of political
appointments and strengthening the power of permanent staff. In the case of the
Justice Department, staff that had harbored resentment towards the 1956
AT&T Consent Decree saw an opportunity to seize the initiative and win in
the courts what had been lost in private negotiations by political operatives.
President Ford fostered such action when on October 20, 1974 he gave a speech
calling for tougher antitrust enforcement.
On November 20, 1974, the Justice
Department initiated its fourth major assault on AT&T in filing the
antitrust lawsuit: United States v.
AT&T Co. More extensive than the 1949 suit, the broad complaint charged that AT&T
had monopolized and conspired to monopolize various telecommunication markets:
including customer-provided equipment. The relief sought was for AT&T to divest itself of Western Electric (WE),
for WE to be divided into multiple companies, and for some or all of the Bell
Operating Companies to be split from AT&T Long Lines. President deButts
wrote shareholders that AT&T was not in violation of the law, that the
lawsuit was hostile to the public interest, and AT&T would fight it to the
end.
In November 1975, AT&T
responded by championing a bill introduced in both houses of Congress amending
the Communications Act of 1934. Carrying the formal title of the Consumer
Communications Reform Act (CCRA) and known as the “Bell bill,” it aimed to return telecommunications and AT&T
to the nostalgic state existing before the Carterfone case. Heavy-handed and
showing no room for compromise, the bill nevertheless received respectable
support.
The antitrust lawsuit progressed
slowly, victim of delaying legal maneuverings. In the summer of 1978, poor
health forced reassignment of Judge Joseph C. Waddy’s cases. The AT&T case
was assigned to a newly appointed District Judge, Harold H. Greene. In
September 1978, Greene issued orders for a trial to start in September 1980.
Showing no signs that it was
going to be denied control of data communications, AT&T announced its
Advanced Communications Service (ACS), an intelligent data network intended to
be as easy to use as telephones. ACS would obviate the need for modems or for any user to have to be concerned
with interconnecting incompatible computer devices.
In February 1979, Charles L.
Brown succeeded deButts as Chairman and CEO of AT&T. Having experienced
enough combativeness, Brown announced a new management philosophy acknowledging
and accepting competition:
“I am a competitor and I look forward with
anticipation and confidence to the excitement of the marketplace.”
As slowly as the AT&T lawsuit
had been progressing, the one filed against IBM seemed motionless in 1979;
notwithstanding the fact numerous corporations had joined the fray: Telex,
Greyhound Leasing, Hudson General, Transamerica, Memorex, and Forro Precision. Only the Telex case had been decided: in favor
of IBM, but only after a Appeals Court over-ruling. An Appeals Court also
overruled in the Greyhound Leasing case, but this time against dismissal, hence
against IBM. Who could guess the outcome?
As of year end 1979, the Justice
Department still had pending uncertain and controversial antitrust cases
against the two dominant companies in technology and the two companies viewed
as most important to the future of computer communications: AT&T and IBM.
