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.
The Difference with the Architectural Principles of the Old Telephone
Network
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.
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.
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
[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
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.
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).
to a telephone line. Even today, the franchise in Germany for public phones permits the provider
to control how access to the Internet occurs.
The Government’s Role in Creating the Competitive Environment for the
Internet
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.
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.
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.