Week 4

1. Week 4 What you really want to know

2. Objectives • Government and Non-gov’t involvement • Bell and patents • Post Patent World • Kingsbury commitment • 1934 Communications Act • Monopoly challenges • Pre/Post-MFJ • Telecom Act of 1996

3. Legal Aspects of Telecommunication

4. Early Signaling and Telegraphy A Chappe semaphore tower near Saverne, France

5. France’s Semaphore map

6. Early signaling and Telegraphy • Semaphore Proposal to do the same in U.S. • Morse – Painter saw a demonstration on electro-magnetism on a return from Europe • More noted for code that telegraph • Demonstration for Postmaster General- $30K grant -1843. • Ezra Cornell plow that buries cable.

7. Early signaling and Telegraphy • Multiple Telegraph Companies • Railroad Right of Ways • Civil War • WU emerges as the strongest • By 1872 WU largest monopoly in the U.S. • 1876 Telegraph reached coast-coast

8. A.G. Bell • Deaf Mother and wife devoted life to sounds. • Work on sending multiple signals over telegraph. Edison and Gray also working on this problem. • Offered patent to WU for $100K, WU Pres –”toy” • Raised Capital by barnstorming

9. Bell Telephone • Created in 1877- Most valuable patent. • Acquired Edison’s Carbon microphone from WU. “Can you hear me now?” • 1880 -30K phones; 1886 – 150K phones • WU agrees not to enter telephony, Bell agrees not to get into telegraphy. • Limited financing -sold franchises - RBOCs. • Over 18 years 600 legal cases.

10. Early Antitrust Measures • In 1882, American Bell gained a controlling interest in the Western Electric Company, and together, they became known as the Bell System. • In 1885, American Telegraph and Telephone (AT&T) was incorporated as a subsidiary of the Bell System, with the aim of constructing a long distance telephone network and providing long distance service (to Bell System subscribers only). • By 1899, AT&T bought out American Bell and became the parent company of the Bell System. • After acquiring dozens of new patents from other companies and exponentially increasing its value, the Bell Telephone Company became American Bell in 1880.

11. Post-patent World • Competitors form USTA. • J.P. Morgan controls both AT&T and WU buying up competitors at an alarming rate. • ICC responsible for regulation • Fearing complaints would cause US attorney to act. • Nathan Kingsbury AT&T VP has agreement with US Attys. 1913

12. Post-patent World • 1893 Patent expires • Competition springs up • Small “Hometown” companies offer service • Bell has 50% of market. GTE major competitor • Bell refuses them to interconnect. • More companies, more complaints • Bell Co. stifling competition

13. Kingsbury Commitment • Kingsbury Commitment - fearing that the government might use its antitrust laws against it, AT&T approached the U.S. Department of Justice in 1913 with a proposal for reducing its monopoly. • As a result of the Kingsbury Commitment, AT&T functioned as a regulated monopoly from 1913 to 1984. Being a regulated monopoly meant that although AT&T was allowed to provide services without any competitors, it was subject to a great deal of constraints dictated by the government

14. Kingsbury Agreement • Allow independents to connect with A&T • AT&T divested from WU. • AT&T to stop buying independents • AT&T sole telephone in geographical areas. Where no presence - competitors. • AT&T given long lines. Had to connect to others.

15. 1934 Communications Act • Created FCC to oversee Phone Co. • Regulate costs of service • States formed PUC, PCCs • Stable, Expensive, Bombproof Nets • 99% of calls thru 99% of time. • Universal access – Pay for it? • Long distance subs local calls.

16. Hush-a-phone/Carterfone • No non-AT&T devices on the Net. • No “Foreign attachments” • Challenged no harm, no foul. • Created CPE industry • Rolm, Mitel, Northern Telcom • $10 phones to Sophisticated PBXs. • First time AT&T had competition

17. Challenging the Monopoly • The restriction against interconnecting to AT&T’s telephone network was challenged in 1965 and eventually lifted in 1968 through the Carterfone decision. • In 1969, a company called Microwave Communications International (MCI) began carrying business phone calls over a private microwave link between St. Louis, Missouri and Chicago. Because MCI didn’t use the Bell System, it did not have to pay AT&T for use of its infrastructure.

18. PRE MFJ • Until 1984, AT&T consisted of the following: • AT&T, the parent company and long-distance provider • 22 Bell Operating Companies (BOCs), the telephone companies that provided local service in different regions of the nation • Western Electric, the manufacturing arm of the company • Bell Telephone Laboratories, the research and development arm of the company, responsible for innovation and new technology

19. MFJ – Green Decision • 1970s MCI filed to be a specialized common carrier • 1976 files anti-trust suit Justice Dept. joined suit. • 1982 MFJ by Judge Green

20. Results of MFJ • Broke up AT&T into 7 RBOCs /AT&T • AT&T kept LD, WE, and Cinci Bell • RBOCs could not offer LD • SPRint, MCI - major competitors • “Equal Access” Charges? • Lower long distances rates –local charges went up.

21. AT&T Divestiture • The Modified Final Judgment (MFJ) - accompanied by over 500 pages of instructions detailing exactly how AT&T should be divided. • The Justice Department’s primary goal for breaking up AT&T was to spur innovation and competition in a field that would prove even more vital in the latter part of the century than it had in the first.

22. AT&T Divestiture • As part of the MFJ, AT&T was forced to divide. • From the 22 former Bell Operating Companies that provided local phone service and phone directories, the MFJ created seven Regional Bell Operating Companies (RBOCs). • The business that AT&T kept was separated into two divisions: AT&T Technologies, which handled the innovation and production of new technologies, and AT&T Communications, which handled long distance phone service. • The research and development business, formerly Bell Laboratories, became Bell Communications Research (Bellcore) and was jointly owned by the new RBOCs.

23. AT&T Divestiture

24. AT&T Divestiture

25. Current Ownership

26. AT&T Divestiture • Until the divestiture of AT&T, the distinction between local service and long distance service was not clear. • In the MFJ, Judge Harold Greene subdivided each RBOC region into Local Access and Transport Areas (LATAs), roughly equivalent to area codes at that time. • Phone service within a specific LATA was known as intraLATA service. • Companies that supply local, or intraLATA telephone service are known as local exchange carriers (LECs).

27. AT&T Divestiture

28. AT&T Divestiture • InterLATA - a service that allowed for calls between LATAs was known. • Interexchange carriers (IXCs) - another name for InterLATA service providers. Examples of IXCs include Sprint, MCI (now WorldCom), and AT&T. • Equal access - requiring local phone companies to provide equal access to their facilities meant that AT&T no longer had an unfair advantage over new competitors in long distance services.

29. 1990s • US Gov’ auctioned off cell spectrum • 1996 Telecom act • ILEC • CLEC

30. The Telecommunications Act of 1996 • The Act codified requirements for the interconnection of all local exchange carriers. These policies included: • Interconnecting with other service providers and not imposing any barriers to interconnection • Enabling nondiscriminatory resale of their services to competitors • Providing number portability, or the ability of telecommunications service users to retain their same telephone number without hampering the quality, reliability, or convenience of their phone service • Allowing competitors to access and connect to their facilities

31. The Telecommunications Act of 1996 • To increase competition in local phone service, the Act placed the following requirements on all ILECs: • Negotiating interconnection agreements in good faith • Providing competitors with the same type and quality of access to their facilities that they themselves could obtain at their cost • Providing competitors with access to subscriber information, such as telephone numbers and billing data • Offering nondiscriminatory, wholesale prices for telecommunications services to all competitors