The number of “online” systems increased from about 30 systems in 1960 to over 2300 by 1966. The number of data terminals was estimated to have climbed from 520 in 1956 to some 45,663 in 1966. New innovations such as time-sharing allowed many people to use the same computer via telecommunications. “Computer applications, in other words, had come to depend more upon communication links, including privately owned microwave hookups, dedicated leased lines, and regular common carrier circuits.”[1] Consequently, the FCC sent out an invitation to computer users to describe their current utilization of computers and telecommunications and how they expected these systems to be used in the future. The following is a list of some of the corporations and trade associations that responded:

Aetna Life and Casuality Co.
American Bankers Association
American Business Press, Inc.
American Petroleum Institute
Credit Data Corp.
Eastern Airlines
Lockheed Aircraft Corp.
McGraw-Hill, Inc.
Societe Internationale de Telecommunications
Aeronautique (SITA)
United Airlines.

This initial study became known as the FCC’s First Computer Inquiry. It marked the initial attempt by a government regulatory agency in the U.S. to address the policy implications of the new computer systems utilizing telecommunications and specifically the emerging needs and concerns of its users.[2] By the time the First Computer Inquiry got under way in 1966, over half the installed computer systems were located in corporate industries such airlines, banking, computer services bureaus and manufacturing.”

Comments to the First Computer Inquiry from the American Bankers Association indicated that automated banking services and electronic funds transfer systems were going to grow very rapidly. The physical transfer of checks was being replaced by information transport over wire and radio. Already over 1000 banks throughout the country had computers on their premises, and another 2000 used commercial data processing bureaus. Banks were very concerned about computerizing bank functions such as account reconciliation, correspondent bank services, internal accounting, labor distribution, and professional billing.

It became clear that users were developing sophisticated computer systems that were going to be increasingly dependent on data communication services. Aetna Life and Causality stated that telecommunications services for businesses were going to be “the limiting factor in the planning of new business systems.” The First Computer Inquiry was probably the most important reevaluation of telecommunications policy since the New Deal. While this period also included the AT&T antitrust case, which regulated the giant company out of the computer business, the First Computer Inquiry addressed new concerns. For the first time, corporate needs for telecommunications systems to facilitate their computerization processes were addressed.

Much of the debate focused on the capabilities of the status quo telecommunications network and its tariff structure. Business users charged that the telephone industry and its networks were simply not up to the task of providing the sophisticated technical services they required. They complained to the FCC that they needed new types of equipment and services from the common carriers to maximize the use of their computers. The technical standards that had emerged in the regulated telegraph and telephone systems differed from those required by computer systems. Corporate users wanted to interconnect their facilities, whether they owned them or just leased them, with common carrier facilities. Of particular concern were the prohibitions against the use of foreign attachments such as modems to the telephone network. They were also pressing the FCC to allow the shared use and resale of common carrier equipment and services. As computers were still quite slow, full capacity was not always reached on circuit. Users wanted to attach their own private equipment to the AT&T network in order to combine the data and send over a single line. For example, a bank might want to purchase multiplexing equipment that could draw in the data from a number of computers and retransmit the information through a single telecommunications line leased from a carrier to a receiving facility. They also wanted these carriers to provide telecommunications circuits that were conditioned to sufficient quality so that they could transmit information through them with a high degree of accuracy and efficiency. The First Computer Inquiry began to reveal the future importance of new communications services and the limitations in the current network infrastructure.[4]

That AT&T became one of the biggest obstacles to the development of data communications can be attributed at least to four factors. First, the number of computers in operation was quite small and they were not yet perceived as popular devices, even for businesses. Computers were used almost exclusively by government and large corporate users and the need to connect them via telephone lines was uncertain. Second, the demand for voice communications was quite large. The government’s concern for universal service meant that regulated telephone companies had to address issues involved in wiring wide geographic areas for domestic telephone use. Third, the Bell system was adamant that customers be restricted from attaching non-telephone terminal equipment to the network. The telephone grid and its electrical signals were fairly fragile and their safety and clarity were seen to be at risk if unsanctioned equipment could be connected. Fourth, the Consent Decree of 1956 had restricted AT&T’s entry into the computer field and so it had very little incentive to address issues affecting this market. So despite the growing need, AT&T’s reluctance to upgrade its technical facilities and tariff structure came largely from the fact that data communication traffic volumes simply did not compare with voice. AT&T was structured by investment and regulation to provide voice services, which were growing at post-war rates faster than previously anticipated. So not only was the market for computer communications small and difficult to forecast, but AT&T had their hands full just handling voice communications.

The huge monopoly was very defensive at the time about user demands to liberalize the equipment that could be connected to the telecommunications network. Initially only the standard black rotary telephone could be attached and it was illegal to attach any non-Bell system equipment to the network such as computer terminals and other data communications devices such as modems. Responding to corporate requests, AT&T did make available “data sets” or modems after 1962 that allowed data transmission rates at 1200 to 2400 bits per second over special communication lines acquired by dialing. By the mid-60s, rates up to 250,000 bits per second were available.[5] Still, users were uneasy with the situation.

It was the burgeoning mobile telephone industry that broke the network’s monopoly on connecting outside equipment. In what would be the FCC’s Carterphone Decision of 1968, equipment other than that designed by the Bell Telephone Company could finally be attached to the network. The “Carterphone Ruling” allowed a small radiotelephone company, Carter Electronics Corporation, to link its mobile radio system to the AT&T public-switched network. The ruling set a precedent as the FCC concluded that any customer who desires to use an interconnecting device should be able to, as long as it did not “adversely affect the telephone company’s operations or the telephone system’s utility for others….”[6] The FCC’s decision allowed a large industry to grow as computers, decorator phones, modems, network monitoring equipment, and entire telephone exchanges began to be connected to the network. This action would allow individual corporations to design and implement an entire telecommunications facility outside the network and would set the legal foundation for long-distance interconnect companies to be able to link to local telephone companies.[7]

Another aspect of the phone company’s reluctance to provide telecommunications for computers was that despite the fact that Bell Labs had designed the transistor and other seminal computer technology, it was effectively restricted from entering that field. The Consent Decree obtained from the Department of Justice in 1956 barred AT&T from competing in unregulated areas including computers and international data service. AT&T was directed to focus on domestic common carriage exclusively and that meant not selling computers and not building telecommunications systems in other countries. Despite extraordinary computer developments at its Bell Labs, including the invention of the transistor, data communication capabilities did not register as a top priority for AT&T.

These issues did not go unapprised when the FCC released its First Computer Inquiry conclusions. In its final decision, the FCC opted not to regulate data communication and processing services. While legally the FCC could regulate any communication, it decided to retreat from major intervention in the face of such strong corporate pressure. While computers were not as sexy as they would be in the age of the Internet, they nonetheless were proving too useful for corporations to allow the enactment of dubious regulations. What the FCC did do in its final First Computer Inquiry decision was to make distinctions between communications networks and “online” timesharing computer systems. The computer users had argued that, despite the Communications Act of 1934; the FCC could only regulate the communications business and should not be regulating, in effect, the business of other industries. The Aerospace Industries Association even argued that “they were no more subject to regulation under the Act than the voices of telephone users.” As a result, the term “online” subsequently achieved a high rate of circulation as it was used to linguistically protect computer networks from possible FCC regulation.[8]

While the distinctions proved to be arbitrary and did not last long, the FCC’s position can be clearly discerned. Corporations were beginning to need computer communications as an integral part of financial, organizational, and productive coordination. While AT&T was a crucial part of the nation’s telecommunications infrastructure, it was becoming evident that the long-term development of the nation’s corporate growth environment would require an efficient computer-communications system. Criticism of the telecommunications structure was increasing and the dominant role of AT&T challenged. “Owing to the rapidly escalating dependence upon communications by U.S. industry and finance, a single company–AT&T was in practice materially affecting (some said dictating) the pace and direction of corporate strategy in areas far removed from its traditional communications offerings.”[9] Regulation, or the lack of it, was to be used for promoting the growth and stability of U.S. economic development, despite the antagonistic struggle with its largest corporation.
Notes

[1] Dan Schiller’s work on early computerization policy is one of the most authoritative. See his (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation, p. 22.
[2] Schiller, D. (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation, p. 23.
[3] Schiller, D. (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation, p. 28.
[4] Schiller, D. (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation, p. 29-30.
[5] Phister, M. (1979) Data Processing Technology and Economics. Santa Monica, CA: Digital Press. p.76.
[6] Martin, J. Telecommunications and the Computer. p. 37.
[7] Pool, I. (1983) Technologies of Freedom. Cambridge, MA: Harvard University Press. p. 247.
[8] Schiller, D. (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation, p. 38.
[9] Schiller, D. (1982) Telematics and Government. Norwood, NJ: Ablex Publishing Corporation, p. 42.
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Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications.

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