Hell's Bells: A Radio History of the Telephone; No. 3

Ensign, I love standing on this bridge, sir, because everything I see is AT&T. Write that down, ensign. And because I was young and adventuresome and a troublemaker at the time, it was my view that we ought to have competition in the telephone business. Again, we weren't used to competition and we created the telephone, we created the telephone network. No one quite knew what Hal Green might do. If he decides this case. No one knew how he might carve it up, he might cut people in half. Up periscope: Up periscope!. Hell's bells. A radio history of the telephone. You've got to see what's been happening here, you look 20 years before divestiture

occurred itself to see what was happening, what the environment was in which it occurred. Professor A. Michael Knowles of the Annenberg School for Communications at the University of Southern California. , the beginnings of this where the attacks on AT&T took control of terminal equipment. These are the days when the telephone instrument in your home was owned by AT&T. These were the days that if you attached an armrest to the telephone handset that was considered a foreign attachment to the telephone, not allowed. These were the days if you put a plastic cover over a phone book that wasn't allowed because the phone book was owned by the phone company. How dare you modify it in any way whatsoever? Those were those days they owned it. People sat in their homes with terror. That telephone company employees might sweep into their homes with a search to see if you had an illegal phone, an illegal extension or an illegal attachment to a phone book or an illegal attachment to a handset. Things of this variety that change because a man named Carter, the Carter phone decision, which was in essence a radio telephone

system that connected directly to the phone network through an acoustic coupler, and this worked its way through the courts. And this was the beginning of the opening up of owning your own phones. People forget there was a day when you could not go out and buy telephone, just take it home and plug it in like you go home by a lamp and take it home and plug it in. It was a day when that was not possible. Now we take that for granted. All of a sudden was like we have this PBX competition and other people can connect to the network. And, you know, it was kind of, you know, I think I think we felt very, very protective of what we had in terms of the service that we provided. Pacific Bell marketing executive Kathy Blankenship. And of course, there was all the information in the press and the huge lobbying effort that the Bell system put on about, you know, interconnection in need of protective devices. And the CWA would have ads about the impact to the network. A lot of lobbying effort around those days of damage

to the public switch network by being able to just take any old telephone set that who knows who manufactured and plugged it in. You know, who knows what would happen to the network by having that device on their bell. Labs testified to damage John, but who was then? The chairman of AT&T had a tremendous lobbying effort around that. And John was a very hardheaded guy. And he he believed thoroughly and the basic doctrine of AT&T that one carrier was all you needed, that everything else was wasteful, and that you should just have one good telephone company and that would take care of everybody's needs. Former FCC commissioner Kenneth Cox, and I guess it was in nineteen seventy two, he went out to the NRA convention. That's the Organization of State Commissioners.

And they were actually meeting in my hometown of Seattle that year. And he made a fiery speech, sort of like Churchill, saying they were going to fight an agent in the commission and fight in the courts and would never give up because this was contrary to the public interest. And he did fight. He fought very, very vigorously all the time. He remained chairman. There was a local kind of grassroots lobbying effort that was undertaken, employees calling their local legislators employees, groups going to Washington, his delegations and meeting with legislators and state legislators, Kiwanis meetings, you know, every opportunity to kind of say, you know, this this is the wrong thing to to be happening. You know, we felt like we were under siege, really. We weren't used to competition.

You know, we created the telephone. We created the telephone network. And to all of a sudden have these other upstart companies coming in and saying, well, you know, we've made this thing and we think we should be able to connect. And it's as good as Western Electric was a real change for us. Nineteen sixty one or 62, Jack Goken, a young mobile radio salesman and repairman out in Aurora, Illinois, had, to his great credit, conceived the idea of. Establishing a competing common carrier, he had rather modest ideas, he was was going to build one between Chicago and St. Louis because his customers were truckers operating up and down the highways. Between those two cities are boat operators on the Illinois River.

And so. He thought he'd go into business and see if he could compete with the with AT&T and with its operating companies on AT&T and United Telephone, and they all came in and opposed him. Well, we had an application from a little outfit nobody'd ever heard of it wanted to put in a private microwave system between St. Louis and Chicago. Nicholas Johnson was an FCC commissioner during the late 60s and early 70s. He wrote the original Carter phone decision and the AT&T, which controlled all the telephone business in the country at the time, not just microwaves, but the telephone instruments themselves, the wiring inside your house and everything else obviously felt very challenged by the the notion that there would be somebody else providing a communications service because this outfit proposed to lease space on this microwave

network, this link between St. Louis and Chicago to customers who would like to use it. Well, I looked AT&T like the telephone business. They took the position that there should not be any competitor in the private microwave business. And so just as they had fought Tom Carter and his Carter phone in Texas, they fought this little outfit that wanted to put in the private microwave between St. Louis and Chicago. Once again, for reasons unbeknownst to me, the case got assigned to me to write as an FCC commissioner. And once again, for reasons also unknown to me, my colleagues went along with the decision. And because I was young and adventuresome and a troublemaker at the time, it was my view that we ought to have competition in the telephone business and that therefore I didn't see any reason why this outfit shouldn't be permitted to provide the service. And if that provided some competition, maybe produce some innovation,

drive prices down, whatever, that was a good thing. And I was all for it and and I got the majority to go along with me. Well, as you may suspect, that that little fly by night outfit that wanted to put in that private microwave between St. Louis and Chicago is today what we call MCI and has grown to become one of the largest of our telephone systems in this country. Dial Tone Theater Presents Dust Bells Chapter one The Year 1973. The S.S. AT&T rules the waves of telecommunication huge, proud, powerful. Nothing disturbs its smooth course. Enson I love standing on this bridge. Beiser Because everything I see is AT&T. Write that down. Answer Yes, sir. Yes, sir. But does power lead to complacency?

How the hell do I know? Bridge, sir, we're getting a suspicious blip on the radar. Don't worry, sailor, it's merely a competitor. If we can't buy it, we'll crush it and write that down. Answer yes. Meanwhile, aboard the top secret sub MCI Periscope stop Scouter. You know what I hate about looking through this periscope shoe polish on the IP, sir? No, Kutter. Everything I see is AT&T. Not for long, skipper. No. Let's disconnect that bloated BMF, shall we retain lawyers, file application applications, activate antitrust her interest. Will you stop using our lawsuits and stand by for filing? Standing by, sir. Ready, file one. What's in store for the AT&T? Why does Carter repeat so much and what's a BMF anyway?

Find out in Chapter two of dust bells. While the MCI case was pending before the FCC, others thought it might be a good idea to enter the long distance business, including cable companies AT&T and Southern Pacific Railroad, with its extensive rights of way, SP's name lives on in the first two letters of the long distance company it founded Sprint. The commission was inundated with some 17 hundred microwave tower applications. So after struggling with the MCI case for seven years, it didn't want to deal with each case separately. So it proposed a broad policy that would allow qualified applicants to build competing systems, faced now with the prospect of wide open competition. AT&T pulled out all the stops and again, all of the telephone companies opposed some of their friends, including, oddly enough, some agricultural interests who thought they might be

injured if they're telephone friends were hurt. The telephone company was extraordinarily powerful politically. I mean, as I used to characterize it, there was seldom a Cub Scout meeting in America at which there was not an AT&T representative present in a conference or convention, any organization, whatever, AT&T was there. Now, again, in fairness to him, I think that a lot of the folks involved in those activities looked upon it as a as a matter of public service, community service, whatever, that if you have United Fund drive or whatever is going on in the community there, AT&T, people there helping out and so forth. But the other side of it was that it did give them an extraordinarily powerful political resource, that they could bring pressure to bear on every member of Congress from every district in this country. It was, I suspect, the country's largest employer.

Were there some 800000 AT&T employees? I believe I mean, it was it was absolutely enormous political campaign contributions. And then, of course, the capacity of the telephone company to cooperate or not with the FBI or others who like to wiretap and so forth. So it gave them that kind of almost the kind of power that the FBI would have. It was another factor that was involved in it. But the combination of votes of capacity to influence their customers in political causes, that building envelope that could carry information to millions of people, the the number, the sheer numbers of people who could vote and the very substantial campaign contributions meant that they were used to getting pretty much whatever they wanted.

Lots of hearings, congressional hearings were going on prior to the MF J. You know, as it progressed into the MCI coming into the market and, you know, MCI first kinds of statements were, well, were were capturing a different kind of market than the public switch network. The private line networks point to point market with exact unit in their particular services that they offer. It wasn't they MCI was saying this isn't cream skimming. We're creating a more robust marketplace. And of course, the the Bell system was saying, no, you're taking away the profitable margin, long distance services, the want to be into the switch public network soon. And that is going to take away the subsidy from local services because, of course, that had been a deliberately created kind of environment, most especially in California, where usage and long distance

usage subsidized the below basic rate. Corporations were beginning to realize that they could slash millions of dollars from their phone bills each year by managing their own networks of private leased lines and private branch exchanges, or PBX. For many industries, sophisticated voice and data networks became strategic competitive weapons to speed transactions, track inventory and improve customer service. Now, corporations needed not only lower prices and more features, they demanded minute by minute control over these powerful new strategic assets. It was amazing. There was an enormous outpouring of support from businesses or for competition. And essentially what they said was, look, there's competition for most of the things we have to buy, whether it's service or product. When it comes to telephone, there's only one place to go and we don't think we're being well taken.

And so that was one of the reasons why the majority of the commission voted to and this time I think there was only one dissent, I think six of the commissioners voted to permit the grant of competing applications. Meanwhile, MCI had filed its antitrust case against AT&T and its affiliates in Chicago and later filed a second one. And in Washington, MCI sued AT&T because the monopoly stubbornly refused to connect MCI calls coming to and from MCI long distance lines. The commission had ordered AT&T to offer comparable connections, service of the same quality and cost to competing long distance networks. MCI argued that AT&T was not acting in good faith. By this time, Ken Cox had been recruited away from the FCC by MCI Chairman Bill McGowan into MCI to lead its legal team in the battle against AT&T in the construction of the first facility

was had problems, but it was it was built and it began to operate on January one, 1973. Meanwhile, of course, we were still trying to get the rest of the system built and we encountered enormous problems because. The FCC had sort of assumed that AT&T would interconnect freely with with MCI or Sprint whenever we got to a city where we needed local distribution while they wouldn't. That meant we had customers and we couldn't get to facilities to them. There are all kinds of anti-competitive things, thousands and thousands of things you can do to make life more difficult for your competitor, including getting access to because by definition, is AT&T, when it was the entire phone company, would have to know who were the MCI subscribers in order to set them up with these MCI. Well, then they can put their marketing people on them and call the MCI subscribers and

say, wouldn't you, like, switched AT&T? Or they can provide MCI a line that's not as good a quality or they can delay in how long it takes to fix the lines when they go down. I mean, they're just thousands of things you can do when someone who's providing a service is also providing a service to their competitor. They wouldn't let us participate in some large networks that they had, even though their customer might want to transfer some of the traffic to us. And so we pressed the FCC and got orders from them to require them to do this, and they still refused to do it. That, of course, was one of the main bases of our antitrust suit, Chicago, that they had inhibited the development of our of our private lives service. Dial Tone Theater Presents, Dust Bells, Chapter two, the proud ship AT&T is under attack from all sides.

What was that? And another MCI lawsuit, sir. Don't they ever run out of lawyers who currently go on the flight deck, apparently go on the flight deck for tariff charges? We're all out of tariff charges. Our congressional committee of the pork barrel profits of another lobbyist out of N.S.A., maybe. How are you? How are you looking right now? Let's do some. What do you think, Skipper? It's close. Carter, damn close. We've got lawyers, they've got lawyers, we've got long lines. They've got longer lines. But there's one thing we've got that they haven't got better marketing, hunger, Carter, hunger. We'll see if there's some strawberries in the mess hall, skipper. Now, if I can only get some FCC air support, we just might pull this one out. What the hell was that? FCC surveillance plane, sir? Brant, weather reports are negative. Public opinion swell heading right for us. And soon it looks back. Prepare lifeboats and try to get a signal to Judge Green. I'm going down with the ship. Oh, you're very brave, sir.

It's what the stockholders pay me for and write that down. Yes, sir. Will the AT&T live to fight another day? And how much do they pay the captain? Stay tuned for Chapter three of dust bells. So now you have this cage rattling around down there and Justice Department perhaps not pursuing it as vigorously as the judge would like. I would imagine that after a while, everybody was pretty much confused by it on what it all meant. Over time, Judge Green developed an enormous expertize in telecommunications, and the more he knew, the more closely he scrutinized AT&T sophisticated maneuvers. It was bothering AT&T more and more because nobody knew what the outcome would be. So AT&T had this cloud of uncertainty is black cloud of uncertainty over its head. And what's the outcome of this case? What how might it be broke up? What businesses might it be allowed in in the future? What businesses might be for close to it?

One business opportunity that had AT&T executives salivating was personal computers. The desktop revolution was at hand. The market growth initiated by Apple and others exploded with the introduction of the IBM PC in 1982, AT&T had set its sights on the green grass of computing on the other side of the fence. But the origin of that fence, the original consent decree, goes back a generation. In the 1950s, the Justice Department's antitrust attorneys went after the AT&T monopoly and tried to split off the Western Electric manufacturing arm. But Western had powerful friends in the emerging military industrial complex. It had designed and manufactured 57000 radar units during World War Two. Later, during the Cold War, it was the prime contractor on the Nike Ajax missile system and helped build and operate the Dew Line early warning radar system. When the University of California decided to unload its management responsibilities for Sandia Labs, the only outfit deemed

capable to do the job was Bell Labs. Reluctantly, in September of 1949, Bell formed Sandia Corp., a fully owned subsidiary of Western Electric. So just four years after the atomic bombing of Hiroshima and Nagasaki, the phone company was in charge of the top secret facility near Albuquerque, New Mexico. Its mission was to design and build America's nuclear stockpile. In accepting the responsibility, Bell Labs made it clear to Washington that the Justice Department's antitrust suit stood in the way without Western Electric. They said the arrangement might not work out as planned. Its intentions may have been entirely honorable and patriotic. But coincidentally, as Western's contract was renewed and Sandia's nuclear stockpile grew, the DOJ backed off and the antitrust suit was settled in 1956. This is where our story comes back to information services. The consent decree placed only one restriction on AT&T.

It would forever be barred from information services, a field which was only embryonic at the time. A quarter century later, computers were taking off and AT&T would be eager to escape from the information services restriction. AT&T was starting to develop this vision of the information age while others had developed it. So maybe we should say more fairly. AT&T was now discovering this vision of others of the information age. A lot of us felt that the vision had passed by. The storm was finally over and the clouds cleared. But AT&T somehow just saw the storm coming, the information and somehow wanted to get into it. Information services, information age products. AT&T was also convinced, I think still back then that it had to be a manufacturer, that manufacturing was essential to its future, perhaps because its manufacturer, Western Electric, produced. A lot of people who rose up into the ranks of AT&T were now very big, important people at AT&T.

There was a Western electric mentality pervaded the upper management of AT&T. They had to protect Western Electric. They had to keep Western Electric, being a manufacturer, being in the product business. The supposed myth of the efficiencies and low prices of Western Electric had now predominated into the minds of AT&T top officials. They believed their own propaganda. The myth that there were a lot of ideas for new business, new businesses, new products, new services, that these ideas were in the cupboards of Bell Laboratories. And if only AT&T were freed to be into all these new businesses, not just telecommunications, that this would be a new AT&T, a high venture, high risk new products, new businesses, a whole new world would doing. And this was believed to by the people at the top of AT&T. And the case was rattling along and

the case didn't seem to be going any place. No one quite knew what Hal Greene might do if he decided this case. No one knew how he might carve it up. He might cut people in half who knew what would happen. And there was this fear and the case wasn't closing. And in this environment, you I think you can now understand how AT&T and the Justice Department could get together and invent a solution. AT&T wrote its own breakup plan, one which had hoped would reduce its size, satisfying regulators, while at the same time freeing it to enter the world of computing and information services and releasing it from what it thought were the weakest parts of its business. And much to everybody's surprise, particularly how Green surprised because he was not in Washington, D.C., the Justice Department and AT&T came up with the modification of the preceding final judgment was a very short document, and it just simply said we get rid of the phone companies

and we, AT&T, are free to do whatever we wish to do. And meanwhile, a lot of restrictions were placed on the phone companies. If anything, the tone of that merger was to punish the phone companies, that they were the evil doers and their punishment was to be disbanded from the Garden of the Bell system and to be forbidden from manufacturing, to be forbidden from long distance service. That was their punishment is interesting because the case was against AT&T in Western Electric. The phone companies were sort of secondary in this case. So it's interesting that the secondary party gets blamed. Well, I guess if you're not there, you know, it's like, you know, meeting if you're not at the meeting, you get a job to do. So in this case, it's the phone companies weren't really there. And Judge Green's court, all right, they get blamed and punished in everybody's view, and that's how it happened. Dial Tone Theater presents Dust Bells.

Chapter three. The battle of the AT&T was over who really won? Only time would tell. But in a dark gin mill in a forgotten area code, a lone sailor spun his yarn. It was heartbreaking. Seven little life boats paddling off into the sunset and the AT&T just superstructures showing above the waterline. It must have been terrible. Freshen that drink Swaby. Why not? You know, the last thing the captain said before he went down with the ship death before divestiture and he got his wish. And for what? Free market competition. Don't make me laugh. We were the biggest and d'abord. We were the best. Hey, you mind if I made a phone call, please? Oh sure. Right over there by that stuffed pelican. Oh, thanks. Please enter your MCI number now.

Hell's Bells, a radio history of the telephone, was written and produced by Gregg McVicar of Pacific Multimedia. With research by Tony Read and original theme music by Larry Council. The satirical sketches were written and produced by World in Your Face. The project director was Leo Lee, funding was provided by the Telecommunications Education Trust, established by the California Public Utilities Commission. To order audiocassettes or written transcripts of the series, send us a fax at five one zero nine three eight two eight five oh, that's five one zero nine three eight 28 50. And thanks for listening.

This is Western Public Radio.