|Computer I (1966)|
It is the 1960s. The FCC faces a problem. At that time there existed a communications network that offered basic communications service. This communications network was provided by the incumbent monopoly Ma Bell, also known as AT&T. This network has been traditionally regulated by the FCC. It had been built in a regulatory environment as a sanctioned monopoly with rate payer fees. [First Sec. 706 Report, ¶ 45 (1999)]
The problem was that someone had figured out how to build a better mouse trap. Someone had figured out how to use computers with this network. Someone had figured out how to enhance the network by adding devices at the ends of the network, layering protocols on top of the network, and achieving data processing using remote terminals. Ultimately these innovations would evolve into computer networks. These enhancements were dependent upon the underlying communications monopoly and came with the marvelous promise of economic expansion, innovation, and competition. However, these enhancements also threatened to be a substitute for regulated services, and regulated services threatened to be a bottleneck in the way of the growth of these services.
In the 1960s, the FCC's common carrier authority covered not merely Ma Bell; Western Union also fell under title II of the Communications Act. The Western Union telegram service was, in retrospect, an interesting service. The service took the message from a user. The user would provide a destination address and content for the message. The message would then be inserted into the Western Union system. However, if the message originated in Baltimore for a destination in Los Angeles, it did not go straight through a wire from Baltimore to Los Angeles. Rather, the operator in Baltimore, not knowing the full path of the transmission to Los Angeles, knew instead the next hop in the general direction of Los Angeles, and forwarded the message to the next hop. At the next hop, which might have been Chicago, an operator would receive the telegram, read only the header with the address, and then forward the message back into the network in the general direction of the destination. In this way, the message would work its way through the network, being stored and then forwarded, hopping from node to node in a best effort, until it reached its final destination and was stored until the delivered to the recipient. [Smith]
In the 1960s, it dawned on users of main frame computers that they could take advantage of the excess capacity of the main frames to send messages to each other. Alfred may log onto the main frame from one remote terminal, and leave a message for Beth. Beth would then log onto the main frame from another remote terminal, perhaps in another state, and receive the message. Eventually computer message-switching [CCIA 203 n 6] [CI Tentative ¶ 15] became a commercial service that did not simply store messages on a main frame, but transmitted messages through computer networks. Alfred would create a message and hit send. The message would go to the first email server, which would read the address, and then send the message onto the next hop in the network. The next hop would read the address and act accordingly. When the message reached its destination computer, the message was stored until accessed by the recipient Beth. [Email]
These two things look very similar to each other. However, one was regulated. The other was not. One was expensive. The other one was cheap, and avoided regulatory fees. One is a substitute service for the other. [U.Penn.L.R. 328 1969 ("The problem is further exacerbated by the fact that the carriers are regulated under the Communications Act of 1934,' while the data processing and services utilizing the modern digital computer thus far remain unregulated.")]
There are two things to be taken away from this. First, message switching was dependent upon a regulated underlying telephone monopoly for transmission. Second, unregulated message switching was a substitute service for the regulated telegram services of Western Union. [See Smith p 831, 836] What exactly to do with message switching was one of the significant drivers of the Computer I inquiry. [See Smith p 852]
Strassburg p. 13-14 1965: "Of the two, Western Union has been the most articulate in committing its future to offering "computer utility" services. The telegraph company has initiated several steps in this direction. It has, for example, computerized the switching operation of its Telex network so as to make that network compatible with Bell's TWX service. This compatibility enables Telex subscribers to communicate fully with TWX subscribers. Western Union has also introduced a management information service whereby the company will package and assume complete responsibility for computer and communication components of commercial digital information systems. It will provide the computer hardware, software, and the communications circuitry, or any one of these components. Western Union plans to open data processing centers in competition with the service bureau industry. The telegraph company's message-forwarding service could easily be as extensive as its proposed data processing activities."
[U.Penn.L.R. 331 1969] ("it is arguable that, as Western Union contended, the transfer of administrative data and of buy and sell orders (the Telequote IV offering [a financial information service that attempted to lease private lines to build a data service]) would constitute the handling of communications through the computers of Bunker-Ramo [the company offering the service] which, in that situation, would resemble the facilities of a regular telephone company.")] [U.Penn.L.R. 334 1969 (AT&T and WU tariff specifically stated that customers were prohibited from using private lines "used "for the purpose of performing any service in competition with the service which the [carrier] . . . may now or hereafter furnish.""]
Note: During this time, AT&T was prohibited from offering information services pursuant to the 1956 Consent Decree; likewise, IBM was prohibited from offering data processing services pursuant to a 1956 Consent Decree. Western Union, however, was positioned, free of constraint, to enter and dominate the information services market. In 1966, Western Union was offering a data processing service [U.Penn.L.R. 343 1969 (citing Western Union Telegraph Co. Prospectus, December 5, 1966, at 5, 6, 8-9)] [Irwin 1301 1967 ("Western Union already provides customized business information systems; it has established data processing service centers and computerized its switch- ing net. In the near future, besides its present job-finding services, the company will offer computerized credit and securities ratings, library bibliographies, and medical data.")] [Irwin 1304 1967 ("Western Union is under no antitrust burden. As the telegraph company advances further into data processing, it has been conspicuously reluctant to file tariffs for these services. Such tariffs, once accepted by the Federal Communications Commission, carry a double edge. They would disclose rates on services which competitors in the computer industry could easily underbid; they would also extend data processing as a legitimate common carrier activity, thereby possibly opening the door for AT&T to engage in like services. Indeed, Bell recently acknowledged before a House subcommittee that its entry into computerized services depended on the FCC's acceptance of a 13 filed tariff.")] [WESTERN UNION TELEGRAPH Co., 1965 ANNUAL REPORT 10.] However, as history demonstrates, Western Union failed to convert on this opportune position.
Big Iron and New Networks
This is a moment of major expansion of the American economy. Big iron main frame computing had taken hold and was becoming big business. Main frame computing was also evolving with the advent of time sharing and remote terminal access. [CI NOI ¶ 16] The role of IBM, computer manufacturers, and data processing services in the economy had grown and promised continued growth (Pursuant to the 1956 Consent Decree, IBM was prohibited from entering the computer service bureau market and could only act as a supplier of equipment). There were in-house computer services, computer service bureaus, and specialized computer services such as stock quotation services. [CI NOI ¶ 3-9] [Smith p 831, 836] [Strassburg p. 14 1965 ("IBM's Consent Decree likewise bears on the general question of market entry and the nature of IBM's participation in the "computer utility" field.")] Computers were being used to facilitate President Kennedy's space race, advance the cold war, run communications networks replacing human operators, and recreate the way business was conducted. The Internet would not be born until the end of the 1960s. The United States Government responded to the 1950s Soviet launch of Sputnik with, among other things, the establishment of the Advanced Research Projects Agency (ARPA). ARPA's computer research program, headed by individuals such as J.C.R. Licklider and Larry Roberts, led a team of researchers to develop the ARPANet. On October 25, 1969, ARPANet went online, transmitting its first message between computers at UCLA and the Stanford Research Institute. Originally, the government-run ARPANet would use the Network Control Protocol; it would not migrate to the Internet Protocol for 14 years.
Strassburg p. 12 1965: "Few products of modern technology have as much potential for social, economic, and cultural benefit as does the multiple access computer. With its huge capacity and versatility and in combination with communications-also in the forefront of the technological revolution-the computer is a storehouse of virtually untapped new and improved services to the public. Some services which are being offered or which may be introduced in the near future include banking by phone, national credit systems, remote library inquiry, programmed educational systems, legal indexing services, automatic reservation systems, remote typing and editing pools, and medical information systems."
See Strassburg p. 14 1965: describing the data processing industry at that time, describing IBM's business offerings.
In the 1960s, the FCC faced a problem of something the Commission referred to as "convergence." [CI NOI ¶ 13] [CII Final ¶ 19 ("The First Computer Inquiry was a vehicle for identification and better understanding of problems spawned by the confluence of computer and communications technologies taking place at that time.")] [Strassburg 2 ("the first awareness that we had of the fact that computers and data processing had something in common with communications started to emerge in early '65.")] [Strassburg p. 12 1965 ("As one witnesses the growing convergence of the data processing and the communications industries toward the "computer utility" concept, the question of market entry takes on both antitrust and regulatory overtones.")] [Irwin 1299 ("Observing "the growing convergence of computers and communications," the Federal Communications Commission inaugurated a public investigation last November of the data processing industry. The traditional lines separating data processing and communications have been softened by the emergence of a new industry which, for lack of precise description, is known as the data, computer or information utility.")]
There were computers that facilitate the operation of the communications network and there were computers with which humans interacted. [CI NOI ¶¶ 10-16 (discussing the migration of common carriers to the use of computers to run networks)] [U.Penn.L.R. 328 1969 ("The immediate problem is clear -the current regulations governing the communications industry are inadequate to deal with the interaction of the two services")]
The issues before the Commission were
- What should the Commission make of these computers?
- How should they be treated and how do they fall within the regulatory scheme?
- What type of jurisdiction did the FCC have over these computers?
- Should data processing services be regulated under Title II of the Communications Act?
- If a data service used private lines to create a new network over which customers communicated with each other (See Bunker-Ramo's financial service), was the data service a non-facilities based communications carrier or reseller? [U.Penn.L.R. 336 1969]
- See ITT World Communications Inc., Tariff FCC No. 54 (tariff for message-switching service)
- See Telenet 1972 (tariffed as common carrier service).
- Should the FCC be concerned that some of those regulated communications companies were wandering off and entering into the unregulated data processing markets, at times using the excess capacity of their communications network computers to do data processing? [CI Tentative ¶ 14] [Strassburg p. 12 1965 (referring to computer services as "public utilities" and potential "natural monopolies" - observing that first movers were AT&T, IBM, and Western Union)]
- Were the communication networks keeping up with the needs and the demands of the data processing networks? [Strassburg 2 ("There were some uses being made of data processing equipment by various firms or institutions that were encountering some difficulty in doing what they wanted to do with the telephone industry and Western Union, at the time. We felt more and more that this maybe was something that we ought to be concerned with as a new technology that is allied and will become increasingly allied with communications. We knew that the phone company was also already using a fair amount of data processing equipment and computers in their internal operations, for both communications and management. I guess Bell System has always been, as it was then, perhaps the second largest user of computer equipment.")] [Strassburg 2 (DOD was not getting support from AT&T for modem service)] [Other major events happening at this time is Vietnam war and the Apollo Program] [Strassburg 1966 ("The Commission is obliged by the policies and the objectives of the Communications Act to ensure that the nation's communication network is responsive to the requirements of an advancing technology.")] [U.Penn.L.R. 329-30 1969 (discussing incidents where communications carriers refused to provide private line service to new innovative data network services)]
"In the 1930s, message switching came into use in telegraphy: a message was stored on paper tape at each intermediate station before being transmitted to the next station. At first, telegraph messages were switched manually by the telegraph operators; however, in the 1960s telegraph offices began to use computers to store and route the messages." [Abbate p 13]
"Specifically, common carriers such as GTE and Western Union were planning to become “computer utilities” (cloud computing in today’s terminology) and to provide combined data processing and communications services in competition with established, unregulated computer service companies. Could these carriers subsidize their unregulated computer services from their regulated communications service offerings? Should they be required to set up separate subsidiaries to provide unregulated computer services?
"Further complicating matters, the tariffs of the existing carriers in the 1960’s prohibited sharing (or reselling) leased communication lines. Such tariff provisions would prevent companies from leasing lines and providing public packet network services. Should these provisions be revised?
"To address these and several other related issues, the FCC initiated its First Computer Inquiry in 1966 to define which computer communication services were to be regulated and which were not." - Larry Roberts, Head of the ARPANET [History of Telenet p 33]
[Strassburg 3-4 (comments were filed by ~70 parties including AT&T, IBM, Business Equipment Manufacturer's Association. FCC hired Stanford Research Institute to draft reports based on the comments.)] [Strassburg 14 (FCC was also influenced by the work of Paul Baran; National Academy of Sciences provided technical input)]
The year 1970 saw the FCC's first attempt to divide the world. The FCC concluded that the appropriate division would be between those computers that ran the communications network and those computers at the ends of the telephone lines with which people interacted. The division was technological, focused on computer processing, attempting to divine the difference between circuit or message switching and data processing. [CII Final, ¶ 17] The Commission attempted to divide the world between "pure communications" and "pure data processing." [CCIA p 203]
Pure communications exist where the content of the message is transmitted over the network transparently with no change in content or form of the message. [CCIA p 203] [CI Tentative ¶ 15] Compare Telecom Service.
Pure data processing is the processing that takes place at the end of the telephone line. It is:
[t]he use of a computer for the processing of information as distinguished from circuit or message-switching. 'Processing' involves the use of the computer for operations which include, inter alia, the functions of storing, retrieving, sorting, merging and calculating data, according to programmed instructions.
[CI Tentative ¶ 15] [Letter from International Business Machines Corp. to the FCC, Feb. 15, 1966, at 2 ("We believe the relevant legal standard that should guide the Commission is clearly set forth in Communications Act of 1934, as amended. Section 3 of the Act defines both wire and radio communications as "the transmission of writing, signs, signals, pictures and sounds of all kinds." This definition does not extend to the transformation of data or intelligence, at least for any purpose not directly contributing to the efficient and accurate transmission of messages from one person or location to another. The trans- forming functions performed in the processing of data, such as analyzing, classif)ing. correlating, sorting, calculating, summarizing, producing records and reports, and constructing and applying formulae are not "transmission" and are therefore not communication services within the meaning of the Act. ")]
Hybrid: The problem is that there is computer processing in both communications and data processing. What to do with things that looked like they were a little bit communications and a little bit data processing? The FCC was not too sure so it created a third category known as hybrids. [CI Tentative ¶ 15 ("Hybrid Service—an offering of service which combines Remote Access data processing and message-switching to form a single integrated service.")].
This was the gray area and the FCC declared that it would resolve the classification of these gray services on an ad hoc, case-by-case basis. [CI Final ¶¶ 27, 31-38] [CI Tentative ¶¶ 39-45] If it was more communications than not, then it was communications; if it was more data processing than not, then it was data processing. [CII Tentative ¶¶ 6-7, 17] [CII Final ¶¶ 13-14] [CII NOI ¶¶ 13-14] This gray area was the exception that subsumed the rule and quickly became Computer I's undoing.
These two categories had very different characteristics that led to different policy results. This pivotal theme goes through out the Computer Inquiries. The Commission made policy decisions about these different computers based, not upon the technology, but upon the markets within which the technology existed.
The pure data processing market was viewed as an innovative, competitive market with low barriers to entry and little chance of monopolization. Viewing this market, the FCC concluded that there was no demonstrated need for regulation or safeguards.Applying these standards to the record before us we conclude that the offering of data processing services is essentially competitive and that, except to the limited extent hereinafter set forth, there is no public interest requirement for regulation by government of such activities. Thus, there is ample evidence that data processing services of all kinds are becoming available in larger volume and that there are no natural or economic barriers to free entry into the market for these services. The number of data processing bureaus, time sharing systems, and specialized information services is steadily increasing and there are no indications that any of these markets are threatened with monopolization.
[CI Tentative ¶ 20] See also [CII Final, ¶ 127 (reviewing Computer I history)] [CII Tentative ¶¶ 16-17 (reviewing Computer I history)] [Strassburg 15 ("Pelkey: IBM did not want to be a regulated business. Strassburg: That's right.")] The FCC became quite apologetic as Computer I went on clarifying that it never had any intention whatsoever at any time of regulating data processing:It should be made clear that we are not seeking to regulate data processing as such, nor are we attempting to regulate the substance of any carrier's offerings of data processing. Rather, we are limiting regulation to requirements respecting the framework in which a carrier may publicly offer particular non-regulated services, the nature and characteristics of which require separation before predictable abuses are given opportunity to arise.
[CI Final ¶ 30].
The pure communications market, on the other hand, was provisioned by an incumbent monopoly. Almost always this monopoly was AT&T but there were a few other players such as GTE and a large handful of small, mainly rural, incumbent carriers. In any given market, these players exercised control through their regulated monopoly. Thus the FCC articulated four concerns about the incumbent telephone companies:(a) That the sale of data processing services by carriers should not hurt the provision of common carrier services
(b) That the costs of such data processing services should not be passed on to telephone rate payers
(c) That revenues derived from common carrier services should not be used to cross subsidize data processing services and
(d) That the furnishing of such data processing services by carriers should not hurt the competitive computer market.
|"Western Union wanted to make use of excess CO computer capacity to do data processing. This decision led to procedures to assure no cross-subsidization between regulated and unregulated activities." [Alven]|
[CI Final ¶ 9]. See also [CII Tentative, ¶ 124 (reviewing history of maximum separation)].
The telephone companies were acquiring large computers that helped run their networks during peak performance. These computers were paid for by rate payers. During the off peak hours, these computers would have excess capacity that the telephone companies could use to enter the data processing market. [CI Final, ¶ 7] [CI NOI ¶¶ 10-16] [U.Penn.L.R. 343 1969] Since these services were paid for with telephone revenue, this gave the telephone companies the ability to enter the data processing market at significantly reduced rates.First, a major regulatory concern of the Commission was the appropriateness of a carrier utilizing part of its communications switching plant of offer a data processing service. Further, there was the issue of whether communication common carriers should be permitted to sell data processing services and, if so, what safeguards should be imposed to insure that the carriers would not engage in anti-competitive or discriminatory practices. There was also concern as to the extent to which data processing organizations should be permitted to sell communications as part of a data processing package not subject to regulation.
[CII NOI ¶ 3] Having entered the market, the carriers would have the incentive and the opportunity for cross subsidization and other unfair trade practices. [CI Final ¶¶ 21-22] See also [CII NOI ¶ 5("[W]e were concerned about the possibility that common carriers might favor their own data processing activities by discriminatory services, cross subsidization, improper pricing of common carrier services, and related anticompetitive practices and activities which could result in burdening or impairing the carrier's provision of its other regulated services.")] [CI Tentative ¶ 25].
It was not the design of the FCC to bluntly bar carriers from the provision of data processing services; [CI Final ¶ 11 (discussing and rejecting parties’ views that there should be an outright ban on carrier provision of data processing services)] rather the Commission recognized certain benefits if safeguards could be designed to permit carriers to enter into the market. [CI Tentative ¶¶ 30-33]
During this time, there were at least four major high tech ventures seeking to network together computers with communication carrier lines:
Also, the Commission at this time was concerned that the telephone companies were sufficiently meeting the needs of data processing and computer services.This, then, is another area of concern. Are the service offerings of the common carriers, as well as their tariffs and practices, keeping pace with the quickened developments in digital technology? Does a gap exist between computer industry needs and requirements, on the one side, and communications technology and tariff rates and practices on the other?
[CI NOI ¶ 21]. See also [CI Tentative ¶¶ 6-11 (resolving issue of whether common carrier offerings are meeting needs of the computer industry)] [CII Final ¶ 14] [CII Tentative ¶ 2] [Strassburg p. 17 1965 ("For the Commission is obliged by the policies and the objectives of the Communications Act to ensure that the nation's communication network is responsive to the requirements of an advancing technology."")]. [See also Sec. 706 Proceedings]
In several incidents leading up to Computer I, carriers such as Western Union and AT&T refused to lease private lines to companies who wished to build data services over those networks. In the The Bunker-Ramo Controversy (1965), both Western Union and AT&T refused to provide private line service to a company offering real time financial services. Western Union did not want to sell its facilities to a data services that offered messaging which appeared to be a competitive service to Western Union. Western Union argued that Bunker-Ramo, using private lines to exchange messages between clients and its data services, was itself a "communications carrier" by definition. The dispute was resolved through a negotiated settlement where AT&T provided service. [U.Penn.L.R. 329-30 1969] [See also Aeronautical Radio, Inc. v. American Tel. & Tel. Co., 4 F.C.C. 155 (1937) (AT&T refuses private lines to "a company licensed by the FCC to coordinate communications relating to air traffic and weather conditions for the purpose of furthering safety in air travel and transport.")] [Irwin 1307 1966 (quoting Western Union "In essence then, Bunker-Ramo proposes to use circuits leased by it from the common carriers to compete, on a resale basis, with the carriers for this business and to deprive them of the revenue being obtained therefrom. It is Western Union's position that the effectuation of the proposal would be unlawful and contrary to the public interest unless rendered by a common carrier. As we understand the Telequote IV proposal, the service would be offered to the entire brokerage industry. The conclusion is inescapable, therefore, that under the proposal there would be a "holding out" to the general public as that term is used in the law of common carriage.")] AT&T was also, during this time, actively opposing and obstructing the attachment of "foreign devices" (a.k.a. a modem, an answering machine, a fax machine) to their network.
The Computer Inquiries policy explicitly had as its goal the promotion of economic growth and innovation in the computer services market. [CII Tentative ¶ 59]
The Commission recognized that the new promising computer networks were entirely dependant upon the underlying communications facility.There is virtually unanimous agreement by all who have commented in response to our Inquiry, as well as by all those who have contributed to the rapidly expanding professional literature in the field, that the data processing industry has become a major force in the American economy, and that its importance to the economy will increase in both absolute and relative terms in the years ahead. There is similar agreement that there is a close and intimate relationship between data processing and communications services and that this interdependence will continue to increase. In fact, it is clear that data processing cannot survive, much less develop further, except through reliance upon and use of communication facilities and services.
[CI Final ¶ 7] See also [CI NOI ¶ 1 ("Effective use of the computer is, therefore, becoming increasingly dependent upon communication common carrier facilities and services by which the computers and the user are given instantaneous access to each other.")] [Strassburg p. 14 1965 ("It is apparent that as remote processing of data gains momentum, computer firms become increasingly dependent upon circuits provided by the common carriers. By virtue of this interdependence, the cost of obtaining those circuits is a matter of vital relevance to the economics of the data processing industry.")] [U.Penn.L.R. 337 1969 ("it would remain entirely dependent upon the common carriers providing the facilities")] The communications facility was a crucial resource upon which they depended, supplied by a single provider who also had the potential to be a competitor.
Telephone companies had both the ability and the incentive to act in an anticompetitive manner.That the ability for abuse exists as does the incentive, of that there can also be no doubt. As stated above, information services are fragile, and because of their fragility, time-sensitivity, and their negative reactions to even small degradations in transmission quality and speed, they are most easily subject to destruction by those who control their transmission. Among the more obvious means of anti-competitive action in this regard are increases in the rates for those switched and private line services upon which Regional Company competitors depend while lower rates are maintained for Regional Company network services; manipulation of the quality of access lines; impairment of the speed, quality, and efficiency of dedicated private lines used by competitors; development of new information services to take advantage of planned, but not yet publicly known, changes in the underlying network; and use for Regional Company benefit of the knowledge of the design, nature, geographic coverage, and traffic patters of competitive information service providers.
[United States v. W. Elec. Co., 673 F.Supp. 525, 566 (DDC 1987)]. They sat in an unusual place in the market of being both supplier and competitor to the data processing services. [CI NOI ¶ 15 ("As a consequence, common carriers, in offering these services, are, or will be, in many instances, competitive with services sold by computer manufacturers and service bureau firms. At the same time, such firms will be dependent upon common carriers for reasonably priced communication facilities and services. ")]. The Commission expressed misgivings about whether permitting telephone companies to enter the data processing market was prudent, questioning whether telephone companies should be permitted into this market at all. [CII Tentative ¶ 15] If they were so permitted, then the question was, on what terms and with what safeguards. [CII Tentative ¶ 3]
Safeguard: Maximum Separation
In response to the concerns related to the communications facility, the Commission devised its "Maximum Separation" safeguards. [CI Final ¶ 10].Because of the increasing involvement of interstate communications facilities and services in the provision of data transmission, the need for such separation is apparent and urgent. This need exists whether or not at the present time the carrier is engaged in the sale of local or remote access data processing. In either instance, there is a potential for abuse in the form of a commingling of costs associated with the rendition of communication and data processing services, which can give rise to the above-discussed problems of cross-subsidization and other unfair competitive practices in the pricing of regulated and nonregulated services. Also, such commingling of operations and related costs will unduly complicate the task of effective regulation of the communication rates and services of common carriers. It will tend to obscure, if not defeat, the ready identification and allocation for accounting and ratemaking purposes of the costs associated with each activity.
[CI Tentative ¶ 35] See [CII Final, ¶ 18] [CII Tentative ¶¶ 4, 123]. Maximum Separation meant that regulated communications carriers could enter the unregulated data processing market, but only through a fully separate subsidiary. [See CI Tentative ¶¶ 36-38]. The FCC required that a carrier establish a separate data processing corporation, have separate accounting books, have separate officers, have separate personnel, and have separate equipment and facilities. [See CI Tentative ¶ 36]. The carrier was also prohibited from promoting the data processing services offered by the separate subsidiary. [CI Final ¶¶ 18, 21("[W]e have decided to modify our rules to prohibit a data affiliate from using the name of its related common carrier in its promotions and, further, to prohibit such affiliate from using, in its corporate name, any words or symbols contained in the name of its affiliated carrier.")] The carrier could not use its network computers for non-network purposes; the carrier could not use the excess capacity of the network computers during off peak times to provision data processing services. [CI Final ¶¶ 13-15, 24]. Carriers could use their own computers to meet their own data processing needs and the needs of independent telephone companies, so long as those needs were incidental to the provision of communications services. [CI Final ¶ 40]. The carrier was otherwise, however, prohibited from acquiring the services of its data processing affiliate. [CI Final ¶ 20] Finally, the affiliated subsidiary was not itself permitted to own transmission services but had to acquire all such services on a tariff basis. [See CII Final ¶ 229]
|The Modified Final Judgment ("MFJ") originally prohibited the BOCs from providing information services, providing interLATA services, or manufacturing and selling telecommunications equipment or manufacturing customer premises equipment. The theory behind this prohibition in the MFJ was that the BOCs could leverage their market power in the local market to impede competition in the interLATA services, manufacturing, and information services markets. The information services restriction was modified in 1987 to allow BOCs to provide voice messaging services and to transmit information services generated by others. [See Accounting Safeguards, R&O ¶ 3 n.11 (1996)] [Strassburg p. 12 1965 (The MFJ "restricts Bell's entrance into other than regulated common carrier offerings. Thus, the question as to whether computer services are communication common carrier services would appear to be an important factor in Bell's position in this field. Bell was recently queried on this point by the House Small Business Committee. The Bell System's position was that the inhibitions of the Consent Decree would not be applicable if the company filed and the FCC accepted a tariff for a computer service.")]|
|Occurring simultaneously was the Carterfone complaint concerning foreign attachments (customer premises equipment - think modems) to the AT&T network. The two proceedings had significant influence over each other. [Strassburg 6]|
There is a bit of a curiosity however about to whom this obligation would apply. Maximum separation applied only to those carriers with annual operating revenues exceeding $1,000,000. [CI Final ¶ 23]. [See CI Tentative ¶ 36] It appears that perhaps the only carriers that surpassed the threshold might be AT&T and GTE. But AT&T had other problems. The Department of Justice had initiated an antitrust proceeding against AT&T in 1956, the settlement of which prohibited AT&T from offering unregulated services. By declaring data processing to be unregulated, the FCC may also have been declaring that AT&T was barred from providing such services. [See Accounting Safeguards, R&O ¶ 3 n.11 (1996)]. [CI Tentative, ¶ 24 (stating AT&T "cannot furnish data processing services")] [Cf. CII Final, ¶¶ 277-81 (suggesting that it was not clear what AT&T is and is not permitted to do with regard to enhanced services and CPE)] [CII Tentative ¶¶ 135-48 (noting that AT&T was foreclosed from offering data processing services under Computer I, but further concluding that AT&T would be permitted into the CPE and enhanced services market)].© Cybertelecom ::
Legacy of Computer I
What is the legacy of Computer I? The policy objectives laid down in Computer I are consistently followed through out the entire proceeding. How these first principles are applied and the outcome that is produced may be different, but the Computer Inquiries are consistently concerned about markets:
- The data processing market is highly competitive and innovative and demonstrates no need for regulation. The data processing market, however, is dependent upon the communications market.
- The communications companies are both a bottleneck supplier of services and a competitor in the data processing market.
Therefore, strict safeguards were put into place in order to restrain the market power of the communications company and for the benefit of the data processing market. These are border regulations between markets where the divisions between the markets can easily be discerned and maintained. These safeguards create an open communications platform available to all users on a non-discriminatory basis.
There is another important point. Contrary to popular mischaracterization, this is not a history of regulatory restraint. This is not a history of the FCC "not regulating the Internet." Rather, this is a history of the FCC taking affirmative and aggressive regulation of communications network, specifically for the benefit of the computer networks. The computer networks were clearly the designated beneficiaries of safeguards.
Finally, the problems addressed by the Commission in the 1960s are parallel to the issues today. It was called "convergence" back then just like today. The "new service" was a substitute for the old service. The new service was unregulated where the old service was entrenched and regulated. The new service was dependent upon the underlying old service. The old service sought to enter the market of the new service. The old service market was highly consolidated (well, ok, it was a monopoly then). These are similar to today's issues.
The ARPANET Connection
The Computer Inquiry proceedings never mention the ARPANET or the Internet. Yet, certainly by Computer II, the Computer Inquiries seems to adopt an understanding of computer networks that is very consistent with the Internet. It turns out that there was significant cross fertilization between the two communities.
- Larry Roberts, head of DARPA, talked with Bernie Strassburg, head of the FCC CCB, about commercializing the ARPANET. Strassburg apparently gave Roberts advice that led Roberts to found Telenet, the first commercial packet switched network.
- Paul Baran gave a lecture at the FCC in 1965. Strassburg observed that the FCC was very interested in the idea of Baran. [Pelkey] [Strassburg 1998] He also wrote Paul Baran, The Coming Computer Utility-Laissez-Faire, Licensing or Regulation (1967)
- FCC Chair Ferris recruits S. J. Lukasik to be FCC Chief Scientist in the Office of Science & Technology (currently the Office of Engineering and Technology); Lukasik had been Chief of ARPA from 1971 to 1975. Lukasik influences outcome of FCC Computer Inquiries. [M Marcus 2008] [Lukasik 1982]
- Reg. and Policy Problems Presented by the Interdependence of Computer and Communications Services, Final Decision, 28 FCC2d 267, 21 Rad. Reg.2d (P & F) 1561 (1971)
- Regulatory and Policy Problems Presented by the Interdependence of Computer and Communications Services and Facilities, Docket No. 16979, Final Decision and Order, 28 F.C.C. 2d 267 (1971), aff'd in part sub nom. GTE Service Corp. v. FCC, 474 F.2d 724 (2d Cir. 1973), decision on remand, Order, 40 F.C.C. 2d 293 (1973)
- Reg. and Policy Problems Presented by the Interdependence of Computer and Communications Services, Tentative Decision, 28 FCC2d 291, 18 Rad. Reg.2d (P & F) 1713 (1970)
- Stanford Research Institute Reports (project managed by Donald A Dunn)
- D.A. Dunn, Policy Issues Presented by the Interdependence of Computer and Communications Services, Report No. 7379B-1, Stanford Research Institute (Feb. 1969) ("P 1: “The basic reason for the new interdependence of these industries and for the FCC Computer Inquiry is the growing economic importance of computer-based services that require the use of long-distance communications of data between users and between users and computers… The data processing not industry is characterized by rapid growth (typically 50% per year) and vigorous competition while the telephone carriers have been accustomed to moderate growth (typically 8% per year), protected markets with little competition, and regulation of their services, prices and net income. As the data processing industry has sought to make significant use of the telephone network over the past decade, it has encountered a number of situations in which the telephone industry has not seemed responsive to its needs.”")
- L.I. Krause, Analysis of Policy Issues in the Responses to the FCC Computer Inquiry, Report No. 7379B-2, Stanford Research Institute (Feb. 1969)
- A.J. Lipinski, Decision Analysis of the FCC Computer Inquiry Responses, Report No. 7379B-3, Stanford Research Institute (Feb. 1969)
- H.M. Ziegler, A.J. Lipinski, L.J. Moll, E.B. Shapiro, W.A. Kent, and J.H. Wensley, Patterns of Technology in Data Processing and Data Communications, Report No. 7379B-4, Stanford Research Institute (Feb. 1969)
- A.J. Lipinski, Digests of Responses to the FCC Computer Inquiry, Report No. 7379B-5, Stanford Research Institute (Feb. 1969)
- R.A. Howard and J.E. Matheson, A Preface to a Theory of Regulation, Report No. 7379B-6, Stanford Research Institute (Feb. 1969) ("P 1: One of the most important issues presented by the interdependence of the computer and communications industries is the question of the capability of the communications common carriers to respond to the needs of the computers industry. This question of capability arises in terms of the ability of the carriers to respond quickly enough and on a sufficiently large scale to meet the demand that appears to be developing for data communications.”")
- A.J. Lipinski, A Dynamic Financial Model of a Utility, Report No. 7379B-7, Stanford Research Institute (Feb. 1969)
- Supplemental Notice of Inquiry, 7 FCC 2d 19 (1967)
- Reg. and Policy Problems Presented by the Interdependence of Computer and Communication Services, Notice of Inquiry, 7 FCC2d 11, 8 Rad. Reg.2d (P & F) 1567 (1966)
- Computer and Communications Indus. Ass’n v. FCC, 693 F.2d 198, 203 n.6 (D.C. Cir. 1982) (“‘Message-switching’ was defined as ‘[t]he computer-controlled transmission of messages, between two or more points, via communications facilities, wherein the content of the message remains unaltered.’")
- Hearings on Activities of Regulatory and Enforcement Agencies Relating to Small Business Before Subcomm. No. 6 of the House Select Comm. on Small Business, 89th Cong., 2d Sess. 637 (1966) (AT&T testifying)
- Paul Baran, The Coming Computer Utility-Laissez-Faire, Licensing or Regulation (1967)
- Computer Services and the Federal Regulation of Communications, 116 U. Penn. L.R. 328 (1969) [hereinafter U.Penn.L.R. 1969]
- Manley R. Irwin, The Computer Utility: Competition or Regulation, 76 Yale L.J. 1299 (1967)
- Address by Russell W. McFall, President, Western Union Telegraph Co., The Age of the Communicator, before the Industrial Communications Association, in Montreal, Canada, May 2, 1966, at 4: "It is estimated that less than 1 per cent of the 27,000 computers in service today are linked in communications systems; more than half of the 50,000 computers expected to be in operation ten years from now will be in real-time operation in communications systems."
- James Pelkey, Entrepreneurial Capitalism and Innovation: A History of Computer Communications 1968-1988: Chapt 1.4 The FCC and the Computer Inquiry I 1956-1968 (2007)
- Delbert D. Smith, The Interdependence of Computer and Communications Services and Facilities: A Question of Federal Regulation, 1117 U. Pa. L. Rev. 829 (1969).
- Bernard Strassburg
- Interview of Bernard "Bernie" Strassburg, Computer History Museum (May 3, 1998) (Chief, FCC Common Carrier Bureau during the 1970s) (hereinafter "Strassburg")
- Bernard Strassburg, October 1966 Speech, Jurimetrics Journal, September 1968, pp. 12-18 (hereinafter "Strassburg 1966")
- Address by Bernard Strassburg, Chief, Common Carrier Bureau of the FCC, The Communications Carriers and Management Information Systems, before the Institute on Management Information and Data Transfer Systems, at American University, Washington, D.C., Oct. 21, 1965, at 2;