Orwell's Revenge (36 page)

The new array of players assembled around loose ends of the Bell network demanded truly equal interconnection on equal terms. When Bell declined to provide it, the newcomers responded with a blizzard of FCC petitions and private antitrust suits. Viewed in historical context, the federal government's antitrust suit that produced the final breakup of the Bell System was little more than a footnote to what had unfolded in the market and the FCC before. By late 1981, AT&T was ready to throw in the towel. It cut a deal with the federal antitrust prosecutors. The final breakup was scheduled for January 1, 1984.

•  •  •

For a time it appeared that Big Blue's hegemony would collapse long before Bell's.

Computers based on vacuum tubes rather than transistors had begun to displace tabulating machines in government and defense agencies during World War II. Two University of Pennsylvania scientists, J. Presper Eckert and John W Mauchly, were the leading pioneers in the new field. Together they built ENIAC (Electronic Numerical Integrator and Computer), generally recognized as the first electronic computer.

Watson saw the ENIAC but
failed to recognize its importance. In 1951, however, AT&T licensed the basic transistor patents to other companies. Philco, RCA, and General Electric quickly developed computers that were much more advanced than IBM's. In 1952, Remington Rand acquired the company founded by Eckert and Mauchly, and the following year it introduced the UNIVAC. IBM nonetheless continued to gain in the market, on the strength of its sales force and established business base. Before long, IBM had grasped the power of the new electronic technology and mounted a crash effort to recapture its technological lead. By the 1960s, there were eight major manufacturers of mainframe computers, but IBM was so dominant once again that the group came to be called Snow White and the Seven Dwarfs.

When IBM announced its new System/360 on April 7, 1964, it did so simultaneously in sixty-three U.S. cities and fourteen foreign countries. During the first two years of System/360, 9,013 computers (three
times original projections) were ordered. By 1967, IBM 360 installations accounted for an estimated 80 percent of all new computer capacity in the world and approximately 70 percent of new computer installations in the major markets of Britain, France, Germany, Italy, and the United States. IBM's revenues mushroomed,
from $1.7 billion to $7.5 billion.

The same economics that had secured IBM's market dominance in the era of punch cards and tabulating machines had apparently come into play again. Once a customer had committed to IBM, a switch to another vendor entailed prohibitive new investment in applications, training, and software. With the largest base of customers, IBM also offered the largest
library of application programs. At the same time, IBM did all it could to freeze out the competition. The strategy was the same as Bell's. Computers then, as now, consisted of central processors, storage devices (disk drives, tapes, computer cards), and input-output devices (screens, printers, keyboards, and so on). IBM rigidly adhered to a policy of closed, proprietary architectures, a policy readily enforced when all its machines were supplied like Bell's) only under lease. Would-be competitors were eager to sell “plug-compatible” peripherals—card readers, printers, disk drives, monitors, and so on— that would hook into the IBM machines. IBM was determined that they wouldn't. There were to be no loose ends on the IBM mainframe—none at all.

Outside IBM, there was much disagreement about precisely what should be done. In retrospect the debates seem absurd, but they were perfectly serious at the time. Many pundits still believed in Grosch's law, according to which the efficiency and power of an electronic computer would increase steadily with its size. You would always get more total computing power at less cost, it was thought, by building one larger computer rather than two smaller ones.

The implication was as obvious as it was ominous: computing was destined to end up in one or two machines, or perhaps a very small cluster of machines, located in a few, huge, central buildings, buildings that—every Orwellian expected—were bound to tower vast and white above the grimy landscape, enormous pyramidal structures of glittering white concrete, soaring up, terrace after terrace,
three hundred meters into the air.

One possible solution would have been to unleash Bell and IBM to compete head to head. Bell, after all, had invented the transistor, the key to all electronic computers of the day; moreover, Bell was already manufacturing a lot of very powerful computers for its own uses. But as the government lawyers saw it, Bell was already too big and powerful for anyone's good, and in other arenas the entire government strategy had been to quarantine Bell from entering new markets like computing.

So instead of letting another established firm compete against IBM, the government resolved for a time to have IBM compete against itself. The objective: break up IBM. This required a mammoth antitrust suit. The following thirteen years of litigation would represent the slowest, most expensive, paper-clogged, and useless antitrust lawsuit ever undertaken by the federal government—an operation as monstrous and inefficient in its own way as the computer monopolist that it targeted. The suit came to be known as the Antitrust Division's Vietnam.

The agreement to break up AT&T was announced on January 8, 1982, the same day that the federal government agreed to dismiss its case against IBM. One of the eight fragments of the old Bell System— the surviving AT&T—was to be freed from all antitrust quarantines and so permitted
to enter the computer business. Intel was already over a decade old. Apple was growing fast. And IBM had just introduced a brand-new machine, based on an Intel microprocessor. Big Blue's new machine—its “personal computer”—was small and beige.

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The small beige machine was made possible by a single device: the integrated circuit, the microprocessor, the computer on a chip. The integrated circuit continued the transistor's restructuring of telephony but accelerated the pace of change a thousand-fold.

Intel, alongside other chip developers like Motorola and Texas Instruments, had taken a familiar device, the transistor, and made it smaller. Transistors were shrunk from the size of a fingernail to the size of a hair, to the size of a microbe and smaller. The power of the microprocessor grew as fast as its components shrank.

The economics of producing electronic equipment shifted dramatically. Designing a single, advanced microprocessor may require a
billion-dollar investment. Thereafter, any number of copies can be stamped out at very little cost. The technology thus triggered an efflorescence of new desktop and office systems, as well as consumer electronics. All depended on the same fundamental component: the transistor. All operated digitally. All could be mass produced at little cost once the electronics for the first unit had been designed.

The result has been a radical technological transformation, characterized by two seemingly contradictory trends: fragmentation and convergence.

The first major trend today continues to be one of fragmentation. The once-centralized network is becoming decentralized. “Terminals”—dumb end points to the network—are giving way to “seminals”—nodes of equal power that can process, switch, store, and retrieve information with the agility that was once lodged exclusively in a few fortified centers' massive switches and mainframe computers. Residences and offices across the country are rapidly being equipped with a new generation of telephones: computers, facsimiles, electronic burglar alarms and meter readers, remote medical monitoring systems, and, soon, high-definition digital televisions. VCRs and videotapes are now, by a wide margin, the dominant medium for distributing movies. The “picturephone” that the Bell System unsuccessfully attempted to market in the 1960s is already owned by millions of Americans. It is called a video camera.

Fragmentation is most visible in the computer industry itself. In 1974, when Intel introduced its 8080 microprocessor, the computer on a chip matched the power of the IBM 704, a mainframe introduced twenty years earlier. It was in this environment that the Department of Justice had initiated its suits against AT&T and IBM, and the FCC had formulated its policies of “maximum separation” between telephone and computing services. By 1977, however, Zilog had cut the gap between centralized mainframes and microprocessors to fifteen years: the Zilog Z-80 microprocessor roughly matched IBM's 1962 Model 7094. By 1981, the gap had closed to six years, when Intel introduced its 8088 (the brains of the original IBM personal computer), which offered roughly the same computing power as a 1975 Digital Equipment machine, the PDP 11/70. Intel's 80386, introduced in 1987, had about the same raw power as Digital's VAX 8600, introduced in 1984. Intel's
1989 offering, the 80486, came close to matching
IBM's 3090, introduced in 1985. Thus, in the space of a decade, the performance gap between microprocessors and mainframes was closed from twenty years to less than five. A $5,000 PC in 1990 had the processing power of a $250,000 minicomputer in the mid-1980s, and
a million dollar mainframe of the 1970s. In a decade, 99 percent of computing power moved out of the central mainframe computer and on to the individual desktop. There has been a massive relocation of electronic power from the control of technicians, bureaucrats, and traditional system managers, into private hands.

The impact on IBM has been devastating. The only thriving parts of its hardware business today are at the bottom end, where Big Blue's small beige machines have been open, standardized, and widely copied from the day they were introduced. Between 1985 and 1992,
IBM shed 100,000 employees. IBM's stock, worth $176 a share in 1987,
collapsed to $52 by year's end 1992. In 1992,
the
New York Times
would announce “The End of I.B.M.'s Overshadowing Role.” “IBM's problems,” the
Times
noted, “are due to its failure to
realize
that its core business, mainframe computers, had been supplanted by cheap, networked PC's
and faster networked workstations.” In a desperate scramble for survival, IBM is breaking itself into autonomous units and spinning off some of its more successful divisions. “The idea of open systems—that computers should easily share things and basically behave like friends—is what everyone is aiming for,”
IBM's advertising now declares. Instead of a computer screen, one ad shows two sliding glass doors opening out on a vast expanse of peaceful ocean.

As cheap storage and computing power move onto customer premises, the use of data communications has increased, but dependence on data communications has actually declined. Telephone users today routinely make such trade-offs when they opt to install a faster modem or fax machine, or to install a CD-ROM as a substitute for online electronic services, or to assemble a local area network of personal computers to replace on-line time sharing on a remote mainframe. In each instance, greater electronic power on a user's own premises becomes a strong substitute, at the margin, for greater usage of the telephone network. The link to the network is never severed; indeed, usage of the network increases steadily as businesses themselves
become increasingly decentralized. But relations between consumers and providers of telephone service are nonetheless shifting profoundly with the consumer's power increasing, while the telephone company's declines. Each new generation of equipment—computers, local area networks, metropolitan area networks, mobile switching offices, pay-per-view TV systems, and so on—offers a new cluster of possibilities for interconnection. Exchanges multiply and are dispersed; pathways across the network proliferate. Where once there was a monolithic provider of plain-vanilla service, there are now multiple providers offering an array of ever more exotic flavors.

This has triggered a further round of restructuring in the telco central office. The first-generation electronic switches were based on analog technology; the second-generation switches were digital. Digital switches entered the public telephone exchange in the late 1970s; by 1985, half of all telephone calls
were digitally switched. The new switches were even more powerful and flexible than the analog electronic switches they replaced. The prior generation had been powerful enough to accommodate the rise of competition in interexchange services; the new generation was powerful enough to accommodate competition among myriad providers of communications and computing services of every description.

Prodded both by forward-looking regulators and providers eager to supply new services through the telephone network, equipment manufacturers and telephone companies have most recently begun to develop a new conception of the role and function of the public telephone exchanges. The regulatory mandate today is for open network architecture (ONA), which will disaggregate the individual components of a telephone connection—the line, the signaling (such things as dial and busy tones), switching, and so on—into basic service elements that can be priced and sold separately and integrated into a rich variety of enhanced services.

ONA is probably the inevitable technological culmination of the disaggregation and decentralization of telephony triggered by the electronics revolution. Theodore Vail's vision of universal service is not repudiated but instead carried to its logical conclusion. The telephone network will provide universal service not only to consumers but also to producers—to competing telephone companies (as already occurs
in the long-distance markets), to radio-telephone competitors who need to interconnect their service with the landline network, and to a limitless number of competing providers of “enhanced” or “information” services, who will monitor burglar alarms, link together bank teller machines, transmit electronic mail, publish electronic newspapers, run shopping malls, or deliver on-line horoscopes.

So much for fragmentation. The second transcendent reality in the world of electronic thought is convergence. Telephony, television, and computing now share the same future. It is a future of switched, digital, broadband networks that combine the broadband carrying capacity of cable television, the digital power and flexibility of computers, and the switched addressability of telephones. In digital systems, a bit is a bit, whether it represents a hiccup in a voice conversation, or the price at which AT&T stock is selling at this particular instant, or a strand of hair in a rerun of “I Love Lucy.” The lines between media formerly segregated by mode of transmission (radio vs. landline) and function (telephone, cable, broadcast, computer) are disappearing. We are moving toward a myriad of mixed media (radio/landline), integrated (digital), broadband networks, all interconnecting seamlessly to one another. As Ithiel de Sola Pool recognized in his landmark
Technologies of Freedom,
“the neat separations between
different media no longer hold.”