Twenty-two thousand and three hundred miles above the equator hang three twenty-foot-long satellites. Operated by AT&T, they transmit long-distance phone calls by catching microwaves beamed from the earth’s surface and bouncing them back again. The telephone company’s satellite technology is a far cry from the poles and wires so familiar to the Wichita lineman. But the purely technological side of Ma Bell’s satellites pales in comparison with two other aspects which have profound implications for the future of communications in this country. First, AT&T’s satellites can also transmit video and television images, facsimile and other graphic materials, and—perhaps most important—computer data. Second, in contrast with the monopoly it enjoys down on earth, the phone company won’t be alone in outer space. Sometime this summer, its satellites will be confronted by two competitors with similar capabilities, operated by a firm called Satellite Business Systems (SBS)—40 percent of which is owned by none other than IBM.
This corporate version of Star Wars, between the world’s largest communications carrier and a subsidiary of the world’s number one computer firm, is only the most recent, and most obvious, manifestation of a dramatic change in the communications industry. Over the past decade, a series of technological innovations has forced IBM and AT&T into conflict—a development neither company particularly wants, and one which was unthinkable twenty years ago. In the fifties, IBM and AT&T were partners in a separate-but-equal relationship based on the contiguity of their stilldistinct markets. Informal meetings of Bell and IBM executives allowed IBM to plan its products with the assurance of technical compatibility with the AT&T network. This was possible because each company knew what business it was in—computing or communications, but not both.
Times have changed. Computer science and telecommunications have merged in a new technology— data communications—and, as a result, like it or not, IBM and AT&T are now competitors in the same business. The immediate stakes for both are high. The data processing and telephone industries share about $60 billion in revenues each year, and each industry has been growing at about 12 percent annually. According to Howard Anderson, president of The Yankee Group, an influential research and consulting firm, the present struggle for the business communications market involves at least $4 billion in revenues annually, the largest part of each industry’s expected annual new growth.
But the long-run stakes for the public are even higher. While the business communications market is the major battleground today, data communications will soon play an increasingly important role in the home and in everyday life. To a limited extent, data communications is with us already: Citibank’s twenty-fourhour electronic banking service; supermarket and chain-store terminals that “see” prices, calculate discounts, update inventories, and prepare bills; and computer-assisted instruction in schools. But such applications arc only a prologue to the social metamorphosis that data communications technology is likely to induce. Through this technology, work-related travel could be cut to a minimum as millions of employees “go to work” at home, contact supervisors and staff via two-way video and voice facilities, and send and receive reports through printers. Shop-at-home programs would describe or show goods on request, take orders, deduct the purchase amount from the buyer’s bank balance, and credit it to the store’s. Newspapers would be printed and delivered, along with the mail, via the ubiquitous home computer.
Nor are such developments likely to occur only in the distant future. Consider Viewdata, a two-way data communications system now being operated experimentally by the British Post Office. Viewdata offers a mass text-communication system, including electronic mail, and links households—via modified TV sets and telephones—to a number of data banks owned by private firms. Users can request video scans of local property listings, airline reservations, vacation packages, and hotel and restaurant guides. Private firms are also developing data banks that people could use to place racing bets, while their children could do homework aided by computerized instruction.
The beginnings of such facilities have also appeared in the United States. John Wicklein’s article “Wired City, U.S.A.” (February 1979 Atlantic) reported on QUBE Television’s cable TV system in Columbus, Ohio. But before such systems become widespread in this country, the government—or the prospective providers of these services—will have to clear a complicated legal thicket. The obvious candidate as provider, because of its vast financial, technological, and manufacturing and marketing resources, and its transmission to virtually 100 percent of households, is AT&T. But whether the phone company is legally permitted to supply such systems is unclear.
The problem is the peculiar nature of the communications and computer/data processing industries. The telecommunications industry, regulated by the FCC, is virtually an AT&T monopoly. As a regulated utility, AT&T offers (and sets prices for) a new service by filing a tariff for it with the FCC. When the FCC approves, or “tariffs,” the service, the service is regulated, and therefore protected, by the FCC. The theory behind the regulatory body’s work is that AT&T will not maximize profits on any given service to any particular customer but will provide an array of telephone services to the general public at “reasonable” prices.
While the phone company is a regulated monopoly, though, the computer/data processing industry is a business like any other unregulated industry, consisting of hundreds of firms of all sizes. And there’s the rub: an unregulated company such as IBM cannot ofTer transmission services and remain unregulated, and, theoretically, AT&T cannot offer data processing services. In fact, a 1956 consent decree explicitly prohibits Ma Bell from ottering such data processing products as computers, computer terminals, and services that process, or “change the semantic value of,” data, since these are ottered by an unregulated industry. The FCC reinforced the terms of the 1956 decree in a 1970 decision in which it declined to subject the data processing industry to regulation.
In 1956, the distinction between telecommunications and data processing was fairly clear. Moreover, there was the fear of predatory pricing or cross-subsidization by AT&T; that is, the possibility that the phone company would support its data processing offerings (which, regulated or not, would compete with similar products marketed by unregulated firms with no government-sponsored monopoly) by using the profits from its communications monopoly. This kind of cross-subsidization would enable AT&T to offer its data processing products below cost and thereby undercut competitors who could not subsidize their products in this way.
But 1956 is a thousand years ago in terms of technological advance. The phone network is now capable not only of transmitting information but of processing it; that is, rearranging, formatting, storing in memory, analyzing, selecting, and aggregating items of data and sending them anywhere, in any form. Furthermore, as communications technology has involved more and more data processing, so computer technology has increasingly involved communication. In times past, computer users had to go to a computer center, keypunch their request—and wait. The advent of distributed data processing changed this. In addition to one large computer, companies are now likely to have several minicomputers and computer terminals in each of their offices across the country—all of which can “talk” on the telephone. Thus, an executive in a Denver branch office can call up the central company computer in Detroit, type a report into a terminal for storage in the computer’s memory, and request and get an immediate computer analysis of tomorrow’s sales prospects, either printed on paper or shown on a cathode ray tube (CRT) screen—all transmitted over the phone lines.
The upshot is that at this point no one really knows where communications begins and data processing ends, or vice versa. (In fact, the FCC is now conducting its second “computer inquiry” in what seems to be a vain attempt to resolve that very issue.) The result of the uncertainty has been an all-out, if generally dignified, battle—in the courts, before the FCC, in Congress, and in the marketplace—for control of the new and enormously profitable market in data communications.
As an augury of what may be corning, consider the war for the business communications market, or for what the industry calls “the office of the future,” equipped with a mind-boggling array of superintelligent machines—computers, minicomputers, terminals, word processors, copiers, and video phones—that can communicate with each other via a network that transmits and processes any kind of information any person or machine can produce, including voice, video, facsimile, and computer data.
Ma Bell wants to provide the network, which seems a reasonable objective for a company with a government-sponsored near-monopoly in telecommunications. The phone company also wants to provide most of the machines—perhaps a less plausible objective for a communications carrier. Both objectives bring AT&T into conflict with IBM: as AT&T strikes at IBM’s traditional market in office equipment, IBM has counterattacked by moving into transmission- AT&T’s traditional monopoly—through its FCCregulated subsidiary, Satellite Business Systems.
IBM isn’t AT&T’s only rival, though it is probably the most dangerous one, for while Ma Bell has expanded into information processing, her own communications monopoly has crumbled in the face of competition in two important areas: interconnect equipment and special transmission services.
Interconnect equipment consists of the various kinds of hardware that can be connected to the phone network—computer terminals, private telephone exchanges (PBXs), modems (the “black boxes” that convert computer data into impulses the phone lines can accept as voice impulses), telephones, radio phones, and a host of other devices manufactured not only by AT&T-owned Western Electric but also by IBM and hundreds of other enterprises.
The FCC opened up the interconnect market to all comers in 1968 with its so-called “Carterfone decision.” The Carter Electronics Corporation wanted to hook up its mobile radio system with the telephone network, and the FCC ruled in its favor. This reversed a previous FCC ruling that no equipment not provided by AT&T could be connected to the AT&T network. The decision made it possible for people to buy nonAT&T-supplied decorator phones and have them connected to AT&T lines. More significant, it opened the door to a new industry in interconnect equipment.
AT&T also faces competition in the form of a number of specialized transmission services offered by companies termed “specialized carriers" by the FCC and “cream-skimmers” by former AT&T chairman John deButts. Typically, the specialized carrier depends on AT&T’s local network to link customers to the carrier’s own transmission facilities, which then take over and transmit messages for prices lower than those charged by AT&T’s Long Lines department. Not unnaturally, AT&T objects strongly to these “piggybacked,” who threaten the phone company’s revenues from long-distance calls. Since Long Lines is one of AT&T’s most profitable departments, its revenues are vital to the phone company.
A prime example of AT&T’s reaction to this kind of competition is its behavior toward Datran, a short-lived company that offered computer communications largely for business use. Though several industry experts maintain that Datran failed simply because it was undercapitalized and overextended, Datran has become a cause celebre in the data processing industry, its fate frequently cited as a classic case of the efiects of a monopoly engaging in predatory pricing to drive a small competitor out of business. Datran’s board chairman, Sam Wyly, charged that Datran’s 1976 bankruptcy was induced by “a series of AT&T actions arising from AT&T’s determination to eliminate competition in telecommunications,” including “the improper introduction of services similar to Datran’s digital service at rates slashed 40 percent below Datran’s.”
In its ongoing antitrust suit against AT&T, the Justice Department endorsed Wyly’s accusations, citing Datran as an example of AT&T’s “systematic effort to exclude, restrict, and eliminate competition for intercity data transmission.” The Justice Department charged that AT&T sought to eliminate Datran by refusing it access to the local telephone loops necessary for transmission, and that it announced a comparable serviceDataphone Digital Servicewell in advance of its ability to implement it (even before an application for it was filed with the FCC), at rates which, since they were based on understated costs, only a monopoly—with its ability to cross-subsidize its offerings—could afford to offer. The FCC eventually decided, too late for Datran, that the proposed rates were indeed “unjust and unreasonable.”
Datran’s bid to compete with AT&T in longdistance communication stemmed from the FCC’s precedent-shattering decision in 1969 to authorize another small company. Microwave Communications, Inc. (MCI), to set up a communication service, initially between St. Louis and Chicago. In 1975, MCI launched Execunet, a microwave transmission service linking twenty-four cities across the country. Execunet depends on AT&T’s local telephone loops to connect users with MCI transmission centers, which then transmit messages via MCLs microwave lines, at rates considerably lower than those of AT&T’s comparable Message Toll service.
Naturally. MCLs low rates are at the root of AT&T’s ill-disguised fear and loathing of its small competitor, and the source of MCLs undeniable appeal to cost-conscious businesses. “The main advantage MCI has for us is cost-efficiency,” says Melvin Kreiner of Laventhol & Horwath, a Philadelphia-based CPA firm which uses Execunet for telephone calls among twenty-four of its offices around the country. Other Execunet users are even more enthusiastic: “We’ve cut our toll charges from $2000 to $1200 a month in the New York area alone,” exults George MacGoldrick of Oscar Mayer, the meat-packing firm. “One of our salesmen used to make $500 worth of calls every month. He’s only costing us $55 or $60 a month now.”
At Oscar Mayer’s east coast offices, Execunet is the linchpin of a sophisticated automatic ordering system. A salesperson out in the field dials a local Execunet center at any touch-tone telephone. Having reached the Execunet computer by grace of the Bell system, the caller then jilts Ma Bell in favor of Execunet’s microwave network, which carries the call to Oscar Mayer’s office in Philadelphia, where it is automatically recorded on tape. Just as automatically, the information contained on these tapes of ordinary voice telephone calls is entered into the company’s computer, which logs the order.
Apart from the bother of having to dial twenty-two digits instead of 10, Execunet clearly offers businesses a pretty good deal. Doubtless recognizing this, AT&T lodged an indignant protest against Execunet with the FCC, which ordered MCI to discontinue its offering, an order subsequently overturned by an appeals court. The Supreme Court’s recent refusal to hear the appeals of the FCC and AT&T was hailed as a victory for the MCI David over the AT&T Goliath: “The days of monopoly for monopoly’s sake are gone,”exulted MCI chairman William McGowan.
Of far greater significance, both to AT&T and its rivals and to the public, however, is the competition in data communications services. Although the 1956 consent decree prohibits AT&T from entering the data processing market, the data processing industryled by IBM — never lets slip an opportunity to point out to the FCC, to congressional committees, and to the Justice Department that many of AT&T’s services and equipment are, in fact, data processing services and equipment.
AT&T claims that such items as its Dataspeed, a machine that looks and acts amazingly like a computer terminal, and certain of its data transmission services that can do quite a lot more to data than simply transmit it are merely “incidental to transmission.” Moreover, AT&T says, these services process not “data” but “information.” Frequently, the FCC has seen things AT&T’s way and has approved tariffs for such offerings. IBM complains that this represents a “double standard” of regulation: AT&T is offering services under regulatory protection which others already provide on an unregulated, competitive basis. Indeed, IBM told a Senate subcommittee that this “distorts and interferes with normal business behavior,” tends to “inhibit flexibility and innovation,” and, worst of all, “almost inevitably results in a creeping regulation of the entire field.”
The Yankee Group surmises that IBM’s fear of “creeping regulation” stems from the fact that once a service is regulated, then, theoretically, only the utilities may offer it. Hence, according to this interpretation, IBM fears that the utilities “may go back to their regulators and rightly or wrongly claim that ‘the public interest is being hurt. This is a tariffed service and we are a natural monopoly. Please order this upstart firm (IBM) to cease and desist.’ ” It is even possible that if AT&T were allowed to sell computers under regulation, the phone company could eventually claim computer manufacturing as part of its natural monopoly and get the FCC to order IBM either to stop making computers or to submit to regulation.
Unlikely as this scenario appears, IBM’s fears seem valid. Over the past decade, AT&T has built up a “total” data communications system for businesses, a system which could without much difficulty be adapted for use in the home.
One of AT&T’s first ventures into the business market—and its answer to Datran—was the Dataphone Digital Service, which lets business machines communicate with one another via the phone lines. The Transaction Network Service (TNS) goes further. It appeals to banks or retailers who want to query their own and other participants’ data bases to verify or authorize credit, transfer funds, prepare bills, and compile inventories. AT&T’s Transaction Terminals, on which TNS depends, look very much like computer terminals and the service itself certainly seems a form of data processing.
The data processing industry’s fears were confirmed when AT&T filed a tariff for its Dataspeed 40, which most people agree is a computer terminal and which the consent decree prohibits AT&T from manufacturing. AT&T’s strategy for getting Dataspeed tariffed seemed to many observers an ominous indication of Ma Bell’s ability to thwart the Justice Department, which issued the decree, and hoodwink the FCC.
The FCC initially refused to tariff Dataspeed on the grounds that it is data processing equipment. Undaunted, AT&T proceeded to woo the states for intrastate approval, which it gained almost unanimously within little more than a month. The FCC then allowed itself to be persuaded that what it called Dataspeed’s “data processing characteristics” did not render it a piece of data processing equipment, since these characteristics would merely facilitate “efficient transmission of data over the communication links.”
The climax of AT&T’s efforts in data communication services is Ma Bell’s latest offering, the Advanced Communication Service (ACS). The data processing industry claims that ACS puts Ma Bell squarely into data processing, and AT&T’s competitors believe that if AT&T gets the FCC’s approval for nationwide ACS service, then Ma Bell will be in a position to gulp down virtually the entire market for data communications for business.
Basically, ACS is a very sophisticated means of making a company’s various data processing machines talk to one another. At present, most companies have quite chaotic communication networks, built up piecemeal to fit particular purposes, and lacking any coherent design. IBM’s Systems Network Architecture offers a way to unify these networks and gain much easier access to data bases—and so does ACS. Commenting on ACS to the FCC, IBM cited numerous examples of unregulated services, including its own, with which ACS would compete. According to IBM, ACS is clearly a data processing service, which AT&T cannot legally offer on a regulated basis.
But if the phone company is busy implementing what IBM bitterly calls “AT&T’s cradle-tograve definition of message-switching,” the computer giant seems equally eager to become the nation’s leading one-stop shop for communications needs.
Speculation about IBM’s marketing plans tends to be something of an industry in itself. Observers pay particular attention to the following pieces of intelligence:
• IBM is building innovative communications facilities into its new lines of office machines and computer hardware, and these facilities seem designed to exploit SBS’s transmission capabilities for voice, data, facsimile, and video.
• IBM has been slashing some computer and other office machine prices, possibly in an attempt to sell off’ inventory that will shortly be outdated.
• IBM is developing the satellite communications controller for use in SBS’s ground stations.
• IBM recently announced a new series of computers—the E Series—and a new “Information Distributor,” a product that combines word-processing and data communications capabilities. IBM calls the latter “a step toward the office of the future.”
Industry experts suggest that such developments portend a major new IBM-controlled information system, to be announced in the early 80s. IBM and SBS, they predict, will offer a worldwide communications system for voice, data, facsimile, and video, combined with sophisticated computing facilities—in other words, a “cradle-to-grave” communications network, including transmission.
IBM vice president Wallace Doud concedes, “There’s some truth in these statements, up to the prediction of an 1BM-SBS joint effort in producing a communication system.” This can’t happen, Doud says, because the FCC requires that the two companies maintain an arm’s-length relationship.
However, there’s nothing to prevent IBM and SBS designers from making sure that their respective offerings dovetail neatly; and the FCC can’t regulate away businesses’ perception of IBM and SBS as complementary parts of a single communications system. “IBM is serious about its intention to be Number One as a total data communications giant,” comments Jack Biddle, president of the Computer and Communications Industry Association. “SBS has just applied for a third satellite, which would give them a third to half the market in business communications. The ground stations are being designed by IBM—and I’ll bet a Honeywell computer won’t be able to talk quite as easily over SBS as an IBM computer; IBM doesn’t have a history of encouraging the interconnection of competitors’ equipment.”
What happens when two corporate giants, each accustomed to enjoying a virtual monopolywhether de jure, as in AT&T’s case, or de facto, as in IBM’s—suddenly find themselves in competition for a market of vital importance to each?
“There’ll be a galactic clash,” prophesies Charles Lecht, president of Advanced Computer Techniques Corporation. “They’re like two planets set on an inevitable course, or like two ocean-going tankers lumbering toward each other. And each wants to survive.”
While they don’t care for Lecht’s imagery, AT&T and IBM executives basically agree with him: “We’ll be in direct competition with SBS for industrial customers,” predicts Bob Latter, AT&T’s director of transmission and planning, who promises to “give IBM all the competition they want.” “Of course IBM is a competitor in business,” says Edward Goldstein, AT&T’s financial officer, adding that “in two or three years there’ll be much more competition: ACS will clearly compete with IBM’s offerings, and SBS will compete with us in transmission.”
“We sure agree,” rejoins IBM’s Mr. Doud. “I’m glad they finally realized it. We’ve been saying for a long time that they’re in competition with us. Dataspeed 40/4 was designed to replace one of our most popular terminals; their Transaction Network Service competes with our services; their new’ teletype terminals are all essentially data processing terminals; and ACS would compete with services we provide.”
Will IBM and AT&T compete in providing data communications services and equipment to households? “If we find that we have the technical and marketing capabilities, I would expect that we’d be in that market,” Doud concedes, adding that, whiie company policy forbids advance announcement of IBM’s marketing plans, “we’re not writing off the home market.”
If IBM plans to enter the home services market, it had better not wait too long. For. according to Goldstein, AT&T expects to offer a Viewdata-like service to households in one location in 1980. The service would be offered in conjunction with a yet unnamed newspaper chain. If this should happen, it’s unlikely that AT&T would pass up the opportunity to extend such a service as far and as fast as possible.
“I don’t think the regulatory agencies will let us get too big,” says Goldstein. But Doud is not so sure: “It all depends on the manner in which AT&T is permitted to provide its services. If they provide them under tariff, it would be very difficult for people to compete with them.”
Clearly, IBM feels seriously threatened by the possibility that the entire computer and data processing industry will be drawn under the regulatory umbrella. IBM constantly cites the example of the regulated railroads which, faced with competition from the trucking industry, persuaded the government to regulate the truckers. Doud asserts that not only is The Yankee Group’s scenario—that AT&T may persuade the FCC to tell IBM to stop making computers or submit to regulation—“entirely possible,” but that the future of the American way of doing business is at stake here. “Either we believe in the competitive system or we don’t,” he declares. “1 think we still do. The government should regulate only what’s essential. The issue here is what’s appropriate for regulation and what’s not.”
Not unnaturally, AT&T doesn’t endorse IBM’s analysis of what is at issue: “IBM can get very sanctimonious about this,” sighs one AT&T spokesman. According to AT&T, it’s not a question of free enterprise being at risk, but just business as usual: “Cherchcz les bucks,” comments Goldstein. “It’s like a chess game. Occasionally they’ll knock off a piece of ours. Occasionally we’ll knock off a piece of theirs. But you don’t want to wipe out your opponent. You get so much trouble from the Justice Department, it’s just not worth it.”
Clearly, it suits AT&T’s purpose to portray its own activities in data communications and IBM’s opposition to these activities as just another basically friendly business rivalry. And IBM would, evidently, like to be viewed as the champion of free enterprise against the dread menace of government control. There is a certain irony in all this, especially since both are defendants in a number of antitrust suits, the most important of which have been brought by the Justice Department, which alleges that both companies have monopolized their respective markets.
The seriousness of Justice’s challenge lies in the remedies sought: apparently, the government would like to break up both IBM and AT&T. Justice’s goal is viewed with misgivings by many Americans, and with utter incomprehension by most foreign observers. “Why,” they ask, “do you want to break up the best phone system in the world, and to cripple the world’s leading computer company—especially when U.S. economic and technological leadership is under challenge as never before?”
The question reveals much about our ambivalent attitude toward the giants of modern corporate capitalism: an uncertainty both about the extent to which sheer size leads to economic efficiency and to monopoly, and about the extent to which gains in efficiency stemming from the size of megacorporations such as IBM and AT&T justify an increase in their power. There seems little doubt that both firms have come to dominate their respective markets and that this has had adverse consequences for these markets. In its suit against AT&T, for example, the Justice Department has produced reams of documentation describing Ma Bell’s “conspiracy to monopolize” the telecommunications market by such tried and true tactics as predatory pricing, refusal to buy equipment from manufacturers other than Western Electric, restricting competitors’ access to the Bell system network, and unfair marketing practices. Likewise, Justice argues that IBM has monopolized the general-purpose computer market; has used its economic strength to attack competing manufacturers; and, in consequence, succeeded in blocking new firms from entering this market in the late sixties and early seventies.
In both cases, the final inference seems clear: owing to their sheer size and market dominance, IBM and AT&T have been able, at least to some extent, to set prices without having to pay more than passing attention to the bracing winds of competition, so that, as a result, we live in a less innovative and less efficient economy.
Or do we? IBM and AT&T appear to believe that their size permits them to be much more innovative and efficient than would otherwise be possible. They argue—along with many observers—that it would be catastrophic to dismember the country’s two acknowledged leaders in technological advance at a time when our technological superiority is being undermined (for example, by Japanese computer technology) and when there is much concern about our balance of payments.
In contrast, the underlying rationale of the Justice Department’s attack (indeed, of much antitrust activity) and of its proposed remedy, divestiture, is a belief that competitive industries are almost always inherently more efficient and innovative than concentrated industries.
But whether this is actually so is a very complicated empirical question, one on which there is hardly much agreement. If AT&T and IBM are eventually split into several smaller (though still enormous) companies, society will certainly have to pay a price: probably some job dislocation, some disruption in the supply of goods and services, some price changes (though it’s not clear in which direction), and perhaps even a weakening of the country’s technological leadership. AT&T and IBM warn that these disruptions would be serious and more or less permanent; the pro-divestiture forces are equally certain that they would be minor and temporary, and that in the long term the result would be an even more innovative and efficient computer/ communications industry.
But lurking under the surface of these issues is an equally crucial problem: arc the courts really the best place to decide such complex matters, which are of major significance to the U.S. economy and to the country’s international position?
For one thing, jurors—and even judges-are frequently totally bemused by issues involving such complexities as market share, cross-elasticity of demand, plug-compatible equipment, software interfaces, and the like. Still more questionable than the competence of those called on to assess such technicalities is the assumption that the fate of an industry so important to our society should be determined in total isolation from either the political process or the regulatory agency set up to govern one of the companies concerned.
The competence of the FCC in this matter may also evoke doubt. AT&T has been able to circumvent the consent decree and enter the “competitive” market for data processing equipment—and has done so, ironically enough, under the FCC’s regulatory protection. The record of antitrust activity in this industry is hardly more reassuring. Antitrust actions against AT&T (twenty-seven were pending in 1976 alone) are incredibly long, drawn-out affairs. The Justice Department filed suit against the phone company in 1974, and AT&T doesn’t expect the case to come to trial until 1982if then. Likewise, the Justice Department’s suit against IBM (again, just one of several antitrust actions IBM has had to face recently) is already nine years old, and IBM has yet to unleash the full force of its defense. Such actions seem a highly inefficient and inordinately expensive means of controlling a company’s behavior. Moreover, given the pace of technological advance, the charges to be resolved by the suits will be anachronistic before any decisions are made.
Since both regulatory and judicial means of checking the excesses of big business are largely inadequate, new legislation may be needed, and the 1934 Communications Act is currently up for rewrite. The rewriting started back in 1976 with an AT&T-sponsored version commonly known as “the Bell bill,”which the phone company persuaded 180 congressmen and senators to support. According to industry lobbyists, the thrust of the Bell bill was anticompetitive; it sought not only to reaffirm AT&T’s traditional monopoly but to extend that monopoly over the entire data communications field.
Though it wasn’t passed, the Bell bill provoked enough interest in communications to stimulate further attempts to rewrite the 1934 act. California Representative Lionel Van Deerlin, chairman of the House Subcommittee on Communications, introduced a complete rewrite into the last Congress. For AT&T and its rivals, the Van Deerlin bill’s two key provisions were Section 332. which provided for a relaxation of the 1956 consent decree to allow’ AT&T to offer services and products such as ACS and Dataspeed through a separate subsidiary, and Section 333, which called for AT&T’s divestiture of its wholly owned manufacturing subsidiary, Western Electric. The FCC’s successor agency, the Communications Regulatory Commission, would apparently have considerable discretion to decide whether or not to regulate AT&T’s data communications offerings.
At this writing. Van Deerlin’s revision of the 1934 act is itself being revised. Observers believe that Section 332 will survive essentially unchanged, but speculate that Section 333 may be modified. In any case, some of Van Deerlin’s thunder has already been stolen by Senator Ernest F. Hollings of South Carolina, chairman of the Senate Subcommittee on Communications, who introduced his own bill in March. The Hollings bill does not require AT&T’s divestiture of Western Electric, but would require that, in order to prevent possible cross-subsidization, Western become a fully separate and unregulated subsidiary of AT&T.
The Hollings bill also provides for the repeal of the 1956 consent decree, to allow AT&T to offer data communications services, again through a separate subsidiary. The thrust of the bill is decidedly procompetitive and anti-regulation. The FCC w’ould continue to regulate basic telephone service, which is unlikely to be provided competitively, at least in the foreseeable future, and would regulate mixed services involving both transmission and data processing only if the provider of these services controls one third or more of the market.
Neither bill seems likely to enjoy a swift or smooth passage through Congress, for the issues are enormously complex, and only extremists claim to know all the answers to the questions raised by the emergence of the data communications industry. Moreover, the problem of what to do about data communications is compounded by the problem of what to do about AT&T and IBM.
Consider the current size of these companies; AT&T employs nearly 100,000 individuals; it has 3 million shareholders, assets of $94 billion, and its gross revenues amounted to $36.5 billion in 1977. IBM has over 300,000 employees worldwide, assets of nearly $19 billion, and a gross income in 1977 of more than $ 1 8 billion.
Both companies are integral to our economy. Telephone service is basic to our culture and way of doing business, and IBM, which supplies between 60 and 70 percent of the nation’s computers—to government, defense agencies, banks, the stock market, and businesses—is part of the central nervous system of the economy. In the coming decade, these two corporate titans—and others, such as Texas Instruments, Xerox, RCA, and Radio Shack, which also supply the data communications marketwill increase their size and multiply their inlluence in society.
In the last century, new communications links— canals, roads, railways—literally paved the way for an industrial revolution and ultimately for a new industrial society. In this century, we are witnessing the forging of equally radical communications links and the launching of a technology that promises to be every bit as revolutionary in its social effects as the steam engine and the cotton gin. But, while the Industrial Revolution was accomplished through the efforts of hundreds of small entrepreneurs, the coming technological revolution will be qualitatively different. For there is a very strong likelihood that it will be largely controlled by, at best, less than a dozen major companies and, at worst, by just one or two mammoth corporations. □