Cybertelecom Federal Internet Law & Policy An Educational Project

AT&T 1949 - 1962

Antitrust Suit II

1949: United States v. Western Electric, Co., filed in US District Court for NJ seeking the remedy of the separation of Western Electric (manufacturing) from AT&T (telephone service). The suit was brought under the Truman administration (democrat). DOJ's chief litigator Holmes Baldridge had been the FCC's principal investigator of AT&T in the 1930s. [Porticus Western Union]

As a result of the Korean War , the antitrust suit was delayed for several years. When it was restarted, the US was fully engaged in the Cold War and the Department of Defense considered the AT&T network vital. When the litigation was restarted, it was prosecuted under the Eisenhower administration (republican).

1956 Consent Decree / Final Judgment [Iardella 107 (reprint of the Consent Decree)]

• AT&T was restricted to regulated telecommunications service (could not provide information service). (AT&T was not allowed into the computer business, and IBM would do its best to make sure this rule stood)
• This created an ironic turn in history.
• While AT&T was under the consent decree and could only offer regulated telecom services, it argued to the FCC that everything was a regulated title II service. When AT&T was relieved of the consent decree, it argued that everything was an unregulated information service.
• "In 1949, the Department of Justice wanted AT&T to divest itself of Western Electric.The court ignored the Department of Justice's request. Instead, as the result of the Consent Decree, AT&T got to keep WE; however, it could only stay in the field of telecommunications and it had to license its patents to others." - William von Alven, Bill's 200 Year Condensed History of Telecom, CCL 1998. Except over course that Western Electric could continue its service to the cold war efforts, selling equipment to the USG. [Iardella 40]
• The exception to the Consent Decree was military work. Western Electric was restricted to the production of regulated telephone equipment, except for production related to national defense. [Porticus Western Union]
• Western Electric had to divest itself of Northern Electric of Canada, which would become NORTEL. [Porticus Western Union]
• United States v. AT&T. United States v. Western Electric Co., 13 Rad. Reg. (P&F) 2143, 1956 Trade Cas. (CCH) 71,134 (D.N.J. 1956).
• The Consent Decree would be revised in 1982 by Judge Greene and the Modified Final Judgment

Procedural History of the 1956 Consent Decree as written by Judge Greene:

United States v. American Tel. and Tel. Co., 552 F. Supp. 131 - Dist. Court, Dist. of Columbia 1982

On January 14, 1949, the government filed an action in the District Court for the District of New Jersey against the Western Electric Company, Inc.[3] and the American Telephone and Telegraph Company, Inc. (Civil Action No. 17-49).[4] The complaint alleged that the defendants had monopolized and conspired to restrain trade in the manufacture, distribution, sale, and installation of telephones, telephone apparatus, equipment, materials, and supplies, in violation 136*136 of sections 1, 2, and 3 of the Sherman Act, 15 U.S.C. §§ 1, 2, and 3.[5] The relief sought included the divestiture by AT & T of its stock ownership in Western Electric; termination of exclusive relationships between AT & T and Western Electric; divestiture by Western Electric of its fifty percent interest in Bell Telephone Laboratories;[6] separation of telephone manufacturing from the provision of telephone service; and the compulsory licensing of patents owned by AT & T on a non-discriminatory basis.

The court record reveals little activity in the case between the date of the filing of the complaint in 1949 and the entry of a consent decree in 1956. Except for the notation that an answer was filed in April, 1949, there are no record entries until the Fall of 1951 when the government filed and the court ordered compliance with several discovery requests. Following the discovery order, there is another two-year gap, and it is not until April 27, 1953, that another record entry is found. This entry indicates that defendants were given two additional months to complete their compliance with the government's 1951 discovery requests. The next reference is to the transcript of a hearing held on January 24, 1956, during which the consent decree was approved as being in the public interest. See pp. 137-138 infra.

The gaps in the court record are partly filled by a report of a committee of the United States House of Representatives[7] which conducted an intensive investigation of the circumstances surrounding the entry of the consent decree. Report of the Antitrust Subcommittee of the House Committee on the Judiciary on the Consent Decree Program of the Department of Justice, 86th Cong., 1st Sess., January 30, 1959 (Committee Print) [hereinafter Subcommittee Report]. That report reveals that the parties were quite active between the time of the filing of the government's discovery requests in 1951 and the signing of the consent decree in 1956.

As early as February 28, 1952, the president of Bell Laboratories, Dr. M.J. Kelly, met with Secretary of Defense Robert A. Lovett and other members of the Department of Defense to enlist their help in persuading the Justice Department to suspend prosecution of the action[8] until the end of the Korean War,[9] a suspension the Attorney General refused to grant.[10]

AT & T continued its attempts to end the litigation as soon as the Eisenhower Administration took office. Its executives and lawyers met with officials of the Departments of Defense and Justice throughout the first six months of 1953. Subcommittee Report at 51-52. These efforts culminated in a meeting on June 27, 1953, during a judicial conference held at White Sulphur 137*137 Springs, West Virginia, between T.B. Price, AT & T's general counsel, and Attorney General Herbert Brownell. According to a memorandum prepared by Price following this meeting, Attorney General Brownell said that he believed that "a way ought to be found to get rid of the case," and that AT & T "could readily find practices that [they] might agree to have enjoined with no real injury to [their] business." Memorandum of T.B. Price (March 3, 1954) reprinted in Subcommittee Report at 53-54.[11]

Shortly after this meeting, AT & T again urged the Defense Department "to intercede with the Justice Department to have the case settled on a basis that would not require divorcement of Western." Subcommittee Report at 55. To that end, Secretary of Defense Charles E. Wilson had a letter hand-carried to Attorney General Brownell urging him to end the litigation without divesting Western Electric. The rationale stated for this position was that the severance of Western Electric would "effectively disintegrate the coordinated organization which is fundamental to the successful carrying forward of these critical defense projects," and would "be contrary to the vital interests of the Nation." Subcommittee Report at 56. The Wilson letter was actually prepared by AT & T.[12]

Periodic negotiations between AT & T and the government continued through 1954 and 1955, and by early December, 1955, the government and AT & T had reached an agreement.[13]

The consent decree which was the product of this process included neither the divestiture of Western Electric[14] nor any of 138*138 the other structural relief originally requested by the government. Instead, an injunction was issued which precluded AT & T from engaging in any business other than the provision of common carrier communications services; precluded Western Electric from manufacturing equipment other than that used by the Bell System; and required the defendants to license their patents to all applicants upon the payment of appropriate royalties.

Despite the substantial differences between the structural relief requested in the government's 1949 complaint and the relief actually provided by the proposed decree, the District Court for the District of New Jersey accepted the proposal on January 24, 1956, after a brief hearing, stating:[15]

I feel that I can unhesitatingly accept the recommendation of the Attorney General, that this judgment is in the public interest, and that it is a satisfactory adjustment of this very, very vexatious problem; and I am therefore happy to go along with the recommendation made by the Attorney General and shall forthwith sign this judgment.

Timeline

1951: Western Electric begins work on NIKE Missile Defense system [Brooks p 11] [Directory Missiles] [Olive Drab: Nike Missile Sys] [Iardella 35]

AT&T: Magic in the Bottle (1948)

1951 The Step-by-Step Switch

1952: International Telephone and Telegraph acquires the Kellogg Switchboard and Supply Company. [Cortelco]

1954: Western Electric produces colored telephones for first time. [Porticus Western Union] [Iardella 36]

Bell Lab developes first photovoltaic cell [Bell Labs History]

AT&T: Now You Can Dial (1954)

Building the First TransAtlantic Telephone Cable

1956:

• WH Brattain, W Shockley, and J Bardeen of Bell Labs receive Nobel Prices. [Iardella 19]
• "In 1956, service to Europe moved to the first transatlantic submarine telephone cable, TAT-1. Transpacific cable service began in 1964." [AT&T: History: Early Intl]
• "Submarine telephone cables have long connected this country with Cuba. The first transatlantic telephone cable connecting Newfoundland with England was opened in 1956. Later that year a submarine telephone cable from the State of Washington to Alaska was put into operation. Hawaii was linked by telephone cable with the mainland in 1957, and a telephone cable to France began operating in 1959. Several telephone cables now link North America and Europe together.
• Hush-a-Phone Decision

1958

• Bell Labs releases paper describing a laser [Bell Labs History][The New AT&T 2005]
• First Commercial Modem [The New AT&T 2005]
• AT&T Net Income: $952m, 11.5% increase from 1957 [FCC Report 1959 at 6]

1959

• 4000 independent telcos; 70m telephones in use; gross revenue $8B. 94% Bell phone and 80% indie phones are dial operated. [FCC Report 1959 at 6]
• AT&T cancels tariff for "private mobile communications systems" [FCC Report 1959 at 6]

1960: AT&T releases the "Princess Phone" [Iardella 36]

1961: 84,450,000 phones in US; 68,640,000 are Bell telephones. [Iardella 35]

As it to prove Baran's point concerning the vulnerability of the existing communications network, on May 28, 1961, American radicals blew up AT&T microwave towers in the South West, going over the Rockies, interrupting the central transcontinental microwave routes, severing 2200 circuits. Porticus has great coverage of the incident including many photographs of the damage. [Porticus Long Lines] [Porticus Explosion Da mange]

AT&T Archives: The Engineer

Nike Zeus Missile System 1961

1962

• Bell Labs builds and launches satellite Telstar I. [Bell Labs History] [AT&T : History: The Bell System] [Picture of Telstar Satellite] [NASA]
• First call transmitted through space from AT&T Chair Kappel to VP LBJ. [The New AT&T 2005]

1966: Computer I NOI

1968

• Cincinnati Bell migrates to electronic switching. [Cincinnati Bell History]

© Cybertelecom ::