Anthony J. Pennings, PhD

WRITINGS ON DIGITAL ECONOMICS, ENERGY STRATEGIES, AND GLOBAL COMMUNICATIONS

Deregulating U.S. Data Communications

Posted on | May 6, 2023 | No Comments

While deregulation has largely been seen as a phenomenon of the 1980s, tensions in the telecommunications policy structure can be traced back to 1959 when the FCC announced its Above 890 Decision. This determination held that other carriers besides AT&T were free to use the radio spectrum above 890 MHz. The FCC maintained that the spectrum above that level was large enough and technically available for other potential service providers. The fact that no one applied to use the frequencies until many years later does not lessen its significance–the FCC was responding to those who might use the spectrum for data communications and other new services. Because of the Above 890 Decision, part of the telecommunications spectrum was now deregulated for non-AT&T use.[1]

The Bell organization responded to the FCC’s decision with a discounted bulk private line service called Telpak. Although the FCC would declare AT&Ts low-end services (12 and 24 voice circuits) discriminatory in 1976 and illegal because of its extremely low pricing, Telpak (60 and 240 voice circuits) would persist until the middle of 1981. Users became accustomed to it and developed property rights in it over the years as it became part of their infrastructure. AT&T had offered Telpak to deter large users from building their own private telecommunications systems. The Above 890 Decision meant that large corporations such as General Motors could use the frequencies to connect facilities in several locations and even with clients and suppliers. The low tariffs, however, effectively undercut the costs of the private systems and convinced users to stay with Ma Bell.[2]

The Above 890 decision had its toll on the major carriers; however, one that would have far-reaching consequences for the development of national and international telecommunications. One consequence was an alliance between potential manufacturers of microwave equipment that could operate on these frequencies and the potential new bandwidth users. The National Association of Manufacturers had a special committee on radio manufacture that lobbied hard for permission to produce equipment that operated in these ranges. Retailers such as Montgomery Ward, for example, were investigating the potential of installing their own networks to connect their mail order houses, catalog stores, and retail stores which were dispersed widely around the country.[4]

The biggest success, however, occurred when a small company called MCI received permission to set up a microwave system between St. Louis and Chicago. The FCC was impressed with MCI’s market research that indicated large numbers of lower volume users were not being met by AT&T Telpak services. So, despite objections from AT&T, the FCC granted the tariffs for the new routes with both voice and customized data circuits. The MCI startup was the largest private venture initiative in Wall Street’s history up until that time.[5]

The Data Transmission Company (DATRAN) made a subsequent application to provide a nationwide data communication network that the Bell System was not offering. Other than providing a leased circuit with which the user could choose to transmit data, AT&T was not offering any specific data service. It provided its private line service in December of 1973 and switched data service in early 1975.[6] DATRAN ran into financial trouble and never became a threat to the Bell system. Unable to obtain funding, it ceased business in 1976. What it did do was stimulate AT&T into making a significant data-oriented response. In fact, it initiated a crash program at Bell Labs to develop data transmission solutions. AT&T soon came up with Data-Under-Voice, an adequate solution for the time that required only minor adjustments to its existing long-line microwave systems.[7]

The term “online” emerged as a way to avoid the FCC’s requirement to regulate all communications. While the nascent computer industry was experimenting with data transfer over telephone lines, it was coming to the attention of the FCC whose purview according to the Communications Act of 1934 was to regulate “all communication by air or wire.”[8]

The agency initiated a series of “Computer Inquiries” to determine what, if any, stance it should take regarding data communications. The First Computer Inquiry initiated during the 1960s investigated whether data communications should be excluded from government regulations. But just as important, it provided an early voice for the computer users to initiate change in the telecommunications network structure. It was after all, a time in which the only thing attached to the telephone network was a black rotary phone and few basic modems sanctioned by the Bell System. Computer One’s verdict in the early 1970s was to grant more power to corporate users to design and deploy a data communications infrastructure that would best suit their needs. The FCC subsequently created a distinction between unregulated computer services and regulated telecommunications.

Such a differentiation did not ensure however, the successful growth and modernization of network services for eager corporate computer users. A Second Computer Inquiry was initiated in 1976 amidst a widespread adoption of computer technologies by the Fortune 500. But they needed to use the basic telecommunications infrastructure which had been largely built by AT&T. Although AT&T’s Bell Labs had invented the transistor and connected SAGE’s radars over long distances to their central computers, they were not moving fast enough for corporate users. The Bell telephone network was preoccupied with offering universal telephone service and did not see connecting large mainframes as a major market, at first. Their hesitancy was also the result of previous regulation. The Consent Decree of 1956 had restricted AT&T from entering the computer business as well as engaging in any international activities.

The FCC’s decision at the conclusion of the Second Computer Inquiry allowed AT&T to move into the data communications area through an unregulated subsidiary. However, the ultimate fate of domestic data communications would require the resolution of a 1974 antitrust suit against AT&T. In 1982, the Justice Department’s Consent Decree settled against the domestic blue-chip monopoly and broke up the company. This action had a dramatic influence on the shaping of data communications and the Internet until the Telecommunications Act of 1996 created a whole new regulatory model.

In retrospect, Computer One and Computer Two determined that the FCC would continue to work in the interests of the corporate users and the development of data communications, even if that meant ruling against the dominant communications carrier.

Notes

[1] Schiller, D. (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation, p. 38.
[2] ibid, p. 42.
[3] Martin, J. (1976) Telecommunications and the Computer. New York: Prentice Hall, p. 348.
[4] Phister, M. (1979) Data Processing Technology and Economics. Santa Monica, CA: Digital Press.
[5] Phister, M. (1979) Data Processing Technology and Economics. Santa Monica, CA: Digital Press. p.79.
[6] ibid, p. 549.
[7] McGillem, C.D. and McLauchlan, W.P. (1978) Hermes Bound. IN: Purdue University Office of Publications. p. 173.
[8] The transition to “online” from Schiller, D. (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation.

Citation APA (7th Edition)

Pennings, A.J. (2023, May 6). Deregulating U.S. Data Communications. apennings.com https://apennings.com/how-it-came-to-rule-the-world/deregulating-telecommunications/

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AnthonybwAnthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. From 2002-2012 was on the faculty of New York University where he taught comparative political economy, digital economics, and traditional macroeconomics. He also taught in Digital Media MBA at St. Edwards University in Austin, Texas, where he lives when not in the Republic of Korea.

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    Professor at State University of New York (SUNY) Korea since 2016. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and strategic communications.

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