Important Events in Telecommunications History

This essay will cover the important events throughout the history of telecommunications with a primary focus on AT&T. First, the focus will be on events from the invention of the telephone until 1983. Then, the discussion will move to government involvement leading to the break up of AT&T in 1984. Following that, the period from 1985 to 2005 will be covered, including an emphasis on the Telecommunications Act of 1996 and its' effects on the industry. And the final topic will be the Internet and what impact it has had on telecommunications.

How did it all begin? Alexander Graham Bell invented the telephone in 1876, but it took another nine years before the first long distance line was established between New York City and Philadelphia. That is also the year AT&T was born. The company had some initial problems with Western Union attempting to violate their patents, but it wasn't until 1894, when the patents expired, that real competition began. By 1904, there were approximately 9000 companies across the country in the telephone business. However, AT&T, which became the parent company over American Bell Telephones in 1899, drove all the competitors out of business by forcing them to install their own lines. Surviving companies were acquired and AT&T became a monopoly.

What were some key developments in the first century of telecommunications history? AT&T was behind many 'firsts' within the industry. Some examples include, the first transcontinental telephone line in 1915 and the first dial telephone in 1919. Telecommunications would soon become global, as AT&T began transatlantic service in 1927 and transpacific in 1934 by using radio waves to traverse the oceans. Those radio waves would eventually be replaced by cable, which was first used across the Atlantic in 1956. Then, in 1962, the first communications satellite provided another method for long distance telephony. Several key inventions by AT&T also drastically changed the industry. The most important invention was the transistor in 1947, which set the foundation for modern electronics. Scientists involved with the invention won a Nobel Prize. In 1965, the company created the first electronic telephone switch and following that, the digital electronic switch in 1975. That covers the important developments during the period. It's time to move to government actions leading to the breakup of the company.

Why did such a large and powerful company split up? The answer to that question lies in the government's desire to protect free enterprise. From the beginning, AT&T was a monopoly and the government was determined to change that. In 1913, the Department of Justice (DOJ) and AT&T made an agreement, known as the Kingsbury Commitment, in which AT&T would stop acquiring phone companies and allow other companies to use their phone line network. The Communications Act of 1934 created the Federal Communications Commission (FCC) to regulate the telecommunications industry. Even with legislation and oversight present, AT&T still displayed monopolistic behaviors. The DOJ curbed some of that in 1956, by forcing the local phone companies to buy equipment from sources other than Western Electric, an AT&T subsidiary. Finally, with the MCI decision of 1976, the long distance market began to be competitive and moved toward deregulation. In 1984, the DOJ issued the Modified Final Judgment which divested AT&T into a long distance company and 21 baby bells. Shortly thereafter, those baby bells merged into seven Regional Bell Operating Companies (RBOC). Today, only four (Qwest, Verizon, Bell South, and SBC) exist due to additional mergers.

What happened to AT&T after 1984? Even though they were the major long distance provider, it was difficult to grow in that market. Therefore, they made some acquisitions in the early 90s. In 1991, they bought National Cash Register (NCR) to help integrate telecommunications and computing. Three years later, they acquired McCaw Cellular to try their hand in the wireless market. However, some of these companies didn't fit into the organization easily, so they restructured in 1995 by splitting into three companies: AT&T, Lucent Technologies, and NCR. In 1999, they entered into the high speed data market by acquiring TCI, a cable company. A year later, they bought MediaOne. But again, these new companies didn't quite fit, so they restructured again. By the end of 2000, the corporation had become three separate businesses: AT&T Business and Consumer Services, AT&T Wireless, and AT&T Broadband. In 2002, they sold the broadband business to Comcast. Their latest venture, in 2004, was to enter into the Voice Over Internet Protocol (VoIP) market. What this all boils down to is this: AT&T has an outstanding infrastructure and global business contacts, but not much potential for growth. That is why they agreed to merge with SBC in 2005.

What was the purpose of the Telecommunications Act of 1996 and how did it impact the industry? The purpose of the act was to reduce regulation and promote competition. Of course, more competition usually translates into lower prices for consumers. How did the legislators plan to do this? The Act attempted to open the market by allowing long distance carriers to enter local markets, and vice versa. It also tried to bolster competition in the local markets by forcing Local Exchange Carriers (LEC), who are the owners of the last mile, to allow Competitive Local Exchange Carriers (CLEC) to use their network. In a similar fashion, the LEC were allowed to compete in the long distance markets by providing service between two Local Access Transport Areas (LATA). To be able to accomplish this, they needed access through an Inter-Exchange Carrier (IXC) that connects the different LATA.

How did this affect the telecommunications companies? Many of the long distance providers planned to expand services to become a 'one-stop-shop' for all customer needs. Since AT&T had lost much of its' revenue to competition and null growth, they decided to grow by acquiring cable companies to get access to the local loop without paying fees to the Incumbent Local Exchange Carriers (ILEC). They also purchased IBM Global Network Services to provide data services for corporations. Given all these acquisitions totaled approximately $130 Billion, it makes one wonder how SBC could purchase the company for $16 Billion. Apparently, all these strategic moves didn't provide a sufficient Return on Investment (ROI). Other carriers made similar moves in an attempt to grow in the face of the changing environment. MCI, for example, merged with World Comm to increase its' presence. They also had spread themselves into all the different markets with the exception of wireless. Sprint also expanded to all the various markets, but did so without making any acquisitions. The CLECs were also affected by the act. It gave them more flexibility to offer services. Due to this, the number of CLECs grew from 57 to 146 by 1998. Their primary business is to install fiber optic cable for clusters of business clients, then connect them to an ILEC or IXC. That completes the discussion of the Telecommunications Act. Now it's time to move to the topic of the Internet and how it has affected telecommunications.

In the early 1990s the Internet emerged as a commercial force, creating an alternative way of delivering the same or similar services to those provided over the conventional circuit-switched telecoms networks and, in addition, a host of new services. But the Internet was far more than just an alternative platform; it was nothing less than a radically new paradigm in the area of both information and communications, changing fundamentally the way in which people would think of problems and solutions in this field."³

The most important effects the Internet have had on telecommunications deal with better methods, more services, and interoperability. The first effect has to do with how communications are transmitted. Digital communications using packet switching are much more efficient than circuit switching technologies. In the early 70s, AT&T had the opportunity to pursue packet switching, but declined. Another impact brought on by the Internet is the increase in services offered to customers. With the use of the TCP/IP protocol, these additional services stem from the fact that communications are broken into layers, with different services provided at each layer. For example, the physical layer is made up of the actual hardware that transmits the data, but an applications layer provides computer applications that can process the data before transmission. TCP/IP also facilitates interoperability within the industry. Communications can occur between entities from very different networks or systems so the Internet acts as a bridge between these entities. And the most obvious effect is the fact the Internet connects telephony with computer systems. Those are the major effects brought on by the Internet, but it's also worth mentioning the shift in innovation systems. Before the Internet, innovations in the industry were closed. They primarily came from AT&T (Bell Labs). Since there was little competition, the innovations were slow to materialize. With the new paradigm, innovations are more rapid because there are lower barriers to enter. There is a wide knowledge base on the new technologies and this improves competition and provides better overall products for consumers.