—10—

24.

The End-to-End design of the Internet thus minimizes the cost of strategic

behavior, while creating an extraordinary market that innovators can rely upon when developing

new applications for the Internet.

C.

The Difference with the Architectural Principles of the Old Telephone
Network

25.

The Internet’s design principles are different from the design principles that

governed the telephone network prior to the series of actions by the FCC and Antitrust Division

of the Justice Department that resulted in the break-up of AT&T. Prior to that break-up, the

telephone network was not governed by the principles of End-to-End. The old telephone network

was not neutral about the uses to which the telephone system could be placed. For much of the

history of the telephone network, it was a crime to use the network in ways not specified by the

AT&T. It was a crime, for example, to attach devices that performed services not offered by

AT&T, or to provide services that competed with the services provided by AT&T. In the 1940s,

even the telephone book was owned by AT&T.

26.

Innovation under the old design was thus controlled by AT&T. If a person with a

competing conception of how a communications network should be designed wanted to

implement that competing conception, he or she would have to either work for AT&T, or

convince AT&T of the merits of this alternative design. AT&T was, therefore, a bottleneck on

creativity in network architecture. While no doubt AT&T did much to advance

telecommunications, through Bell Labs and other research, it also decided which innovations

would be deployed. No doubt its decision turned in part upon the expected effect a new

technology would have on AT&T’s own business model.

—11—

27.

The early history of the Internet was affected by this control. As described by

John Naughton in A Brief History of the Future(1999), an early design idea for the Internet was

proposed to AT&T by RAND researcher, Paul Baran, in the early 1960s. Resistance to his design

was strongest from AT&T. As Naughton reports, Baran recalls one particularly telling instance

of AT&T’s opposition:

[AT&T’s] views were once memorably summarised in an
exasperated outburst from AT&T’s Jack Osterman after a long
discussion with Baran. ‘First,’ he said, ‘it can’t possibly work, and
if it did, damned if we are going to allow the creation of a
competitor to ourselves.’5

28.

This resistance is perfectly understandable. From AT&T’s perspective,

maximizing its control over its network was no doubt profit maximizing. And we should expect

corporate entities to behave in a profit maximizing manner. But this resistance was profit

maximizing only because AT&T was in control of the network uses. Or in other words, only

because the network was not “End-to-End.” Had the network been End-to-End, it would have

had no incentive to disable one use of the network it controlled in favor for another.

29.

The same point about the relationship between innovation and the concentration

of control can be made more obviously about the Internet in foreign countries. It is no accident

that the Internet was born in the United States, since in practically every other nation, the

telephone architecture was controlled by state sponsored monopolies. These monopolies, no less

than AT&T, had no interest in facilitating the design of a network that would free individuals

from that control. For much of the 1990s, it was a crime in parts of Europe to connect a modem

5John Naughton, A Brief History of the Future107 (1999). Authors Katie Hafner and Matthew Lyon recount a
similar resistance in Where Wizards Stay Up Late 52-66 (1996).

—12—

to a telephone line. Even today, the franchise in Germany for public phones permits the provider

to control how access to the Internet occurs.

D.

The Government’s Role in Creating the Competitive Environment for the
Internet

30.

It is fashionable today to argue that innovation is assured if government simply

stays out of the way. The FCC’s hands-off policy to date appears largely to be motivated by this

prevailing ideological vogue. The view is that the best way for the government to guarantee

growth in Internet broadband is to let the owners of networks architect broadband as they see fit.

31.

We believe this view is misguided. It ignores the history that gave the Internet its

birth, and threatens to reproduce the calcified network design that characterized our

communications network prior to the Internet. The restrictions on innovation that marked the

AT&T telephone monopoly were not removed by the government doing nothing. They were

removed by active intervention designed to assure the possibility for innovation. It was the FCC

and Department of Justice that cut the knot that tied innovation on the telecommunications

network to the innovation favored by AT&T. It was their action that eventually freed the network

from the control of a single strategic actor, and opened it up for the innovation of many.

32.

Beginning with the Carterfone decision in 1968,6the FCC increasingly pursued a

policy that forced AT&T to open its network to competing uses and providers. In a series of

decisions, the FCC required that AT&T permit alternative uses of its network. In 1984, actions

by the Antitrust Division forced AT&T to unbundle its long-distance service from its local

telephone service. This unbundling was effected through a decree that lead to the breakup of the

largest monopoly in American history.