Twenty
Twilight
ON MAY 15, 1976, five and a half months before John Draper would report to the Lompoc prison, AT&T began upgrading its network with a new technology: CCIS, common channel interoffice signaling. Over the course of the next ten years this would spell the end of blue boxes.
CCIS could trace its roots to 1947, all the way back to Bell Labs’ invention of the transistor. Transistors enabled computers, which made telephone switches smarter and faster. But these smart switches still had to talk to each other via an old language—the multifrequency signaling system that dated back to the 1940s. The computerized switches still had to sing to one another, slowly, over the same circuits that humans talked over.
Transistors changed that because transistors also enabled modems. Remember modems? If you were around in the early days of the World Wide Web, you may recall dialing up your Internet service provider using a modem and listening to the odd noises it made while it established your connection to the rest of the world. CCIS didn’t connect to the Internet or the Web, of course, since those things wouldn’t be invented for years. But it did use modems to let the computers in telephone switches communicate with each other digitally, allowing them to quickly trade all the signaling information that they would have sent slowly via MF. Moreover, they could do all this via a separate channel, a channel that phone phreaks couldn’t get at. Analog trunk lines would still be used for conversations between humans, but no longer would these trunks resonate with 2,600 Hz when they were idle; no more would the switches serenade each other with musical MF tones to communicate the numbers that customers were dialing. And that meant no more blue boxes.
Bell started experimenting with a CCIS-like system in 1968 and the first trial of CCIS itself began in 1970. Two decades previously it wouldn’t have been economically possible, maybe even technically possible, to build a separate computer network for telephone signaling. But now it was, and that’s exactly what AT&T did. The company built a CCIS computer network across the nation in which so-called signal transfer points—kind of like routers in today’s Internet—were used to gateway telephone signaling information from telephone switches in one region of the country to those in another. CCIS ran at a turtle’s pace of 2,400 bits per second by today’s Internet standards, but it was plenty fast at the time. In May of 1976 it officially began service between Chicago, Illinois, and Madison, Wisconsin. By 1977 all ten CCIS regions had been switched on, though CCIS coverage of the nationwide network was far from complete.
CCIS, the Bell System said, was about reducing costs, speeding calls, and offering new services; with the new system calls would go through faster and additional information could be transmitted, such as caller ID. But eliminating blue box fraud was a motivation as well. The phone company had also been deploying another innovation—termed CAMA-C—throughout the network. This was a computerized billing system that could be retrofitted into older central offices and was also able to detect blue box fraud. Thanks to computers and modems, made possible by the transistor, the telephone network was becoming immune to blue boxes.
CCIS was a well-timed bit of good news, because Ma Bell had been having a bad decade. There were the service failures in big cities in the late 1960s and early 1970s. There was the EEOC investigation of AT&T’s hiring practices in 1970. There was the big strike by telephone workers in 1971. Esquire, Ramparts, the NPR program, and the phone phreaks themselves of course all took their toll. But all of these problems paled in comparison to those represented by three little words that the Bell System would encounter multiple times during the 1970s: competition, antitrust, and scandal.
Competition raised its head in the late 1960s in the form of a Texas rancher turned businessman named Thomas Carter. Carter made his living selling two-way radio systems to oilmen and his fellow ranchers in the Southwest. In the days before cell phones, his customers needed a way to make telephone calls when they were out in the field, on horseback or in a pickup truck, far away from home or office or pay phone booth. Carter invented something called the Carterfone, an electronic widget that connected a telephone line to a CB or other two-way radio system. It allowed a person out in the boonies to make a radio call back to his home base and place a telephone call over the air.
Carter sold thousands of his Carterfones before he showed up on AT&T’s radar and Ma Bell began her inevitable crackdown. “The phone companies were harassing my customers—threatening to cut off their phone service unless they quit using the Carterfone,” Carter recalled. AT&T had the law on its side, the crystal clear wording of FCC tariff 132: “No equipment, apparatus, circuit or device not furnished by the telephone company shall be attached to or connected with the facilities furnished by the telephone company, whether physically, by induction, or otherwise.” If you wanted to attach something to your Bell System telephone line, that something had to come from Western Electric, which was to say from AT&T.
Carter sued the phone company. “The universal comment was, ‘You’re whistlin’ Dixie—you can’t win,’” he said. After all, he was but one man against the might of the Bell System, and Bell’s case seemed open and shut. But Texas pride and his instinct for self-preservation kept Carter in the fight. “I didn’t think it was fair to let them run me out of business,” he said. After the usual tortuous legal process, his case came before the Federal Communications Commission. And on June 26, 1968, something unexpected happened: he won. The FCC decided that the tariff in question was “unreasonable, unlawful, and unreasonably discriminatory.” Henceforth, non–Bell devices could be connected to those telephone wires coming out of your wall, just so long as they did not cause harm to the network.
For consumers—and for phone phreaks—this was great news. It would take several years to catch on, but by the mid-1970s you’d finally be able to own your own telephones instead of having to rent them from the telephone company. It even opened the market to outside innovation; it wouldn’t be long before fancy new gadgets such as answering machines would become commonplace.
The Carterfone was the first chink in AT&T’s monopolistic armor. The next one came less than a year later from a small, scrappy start-up company called Microwave Communications, Incorporated, or MCI for short. In 1969, to the horror of AT&T, the FCC approved MCI’s request to construct a point-to-point microwave private line telephone system between St. Louis and Chicago. MCI’s product offering was limited. It would not be providing general long-distance telephone service to either businesses or consumers. Rather, it would serve companies who had offices in both cities. MCI would charge these companies a flat monthly fee, one significantly less expensive than AT&T’s rates for similar service, to connect their business telephone systems in each city. AT&T executives were furious. The only reason MCI could offer lower prices than the Bell System, they said, was that MCI didn’t have to pay for billions and billions of dollars of physical plant, in other words the wires, central offices, repeaters, amplifiers, and telephones that made up Bell’s network. By focusing on one thing—building an intercity microwave link—MCI could avoid all sorts of costs and underprice AT&T. The AT&T executives had a term for what MCI was trying to do: cream skimming.
Of course, MCI had no intention of stopping with St. Louis and Chicago; why would it? In 1972 the small start-up hit the big time, raising $100 million through an initial public offering. The funds were to be used to build out a microwave network linking 165 cities in the United States, allowing MCI to replicate its St. Louis/Chicago business model across the country. By 1973 MCI had persuaded the FCC to allow it to expand its product offering to include something called foreign exchange, or FX, service. MCI’s FX service allowed a big company—an airline, let’s say—to offer local telephone numbers that customers could call for free in almost any big city. These were AT&T-provided telephone numbers, but calls to these numbers got routed back to the airline’s corporate headquarters over MCI’s microwave network. Fo
r the airline this was a great deal, because MCI’s rates were less than AT&T’s. But as far as AT&T was concerned this was FCC-mandated financial suicide. It was bad enough that MCI got to skim cream, but to AT&T it was completely outrageous that MCI’s FX service required AT&T to actually help do it by providing the company phone numbers and a connection to Bell’s telephone network.
AT&T was not about to go gently into this MCI-scripted good night. The matter quickly wound up in federal court, where MCI won. AT&T appealed. The appeals court vacated the lower court’s ruling and kicked the ball over to the FCC, telling the communications commission to handle it. The very next day AT&T began disconnecting MCI’s FX lines, cutting off MCI’s customers. Less than a week later, in April 1974, the FCC ruled in MCI’s favor. AT&T, at regulatory gunpoint, began reconnecting the lines it had just disconnected.
By 1975 MCI expanded its offerings again, this time with something called Execunet. Execunet was revolutionary. With it, you simply dialed a local access number and got a second dial tone. You’d then touch-tone in a four-digit pass code followed by the phone number you wanted to call in one of eighteen metropolitan areas. Your call would be routed over MCI’s microwave network and then out into AT&T’s local network to complete the call—all for much less than you’d pay for an AT&T direct-dialed phone call. A competitor to MCI, Southern Pacific Communications Company, launched a system called Sprint that was similar to Execunet.
AT&T hated Execunet and Sprint but businesses loved them. The phone phreaks loved them, too, both those purely interested in exploring a new telephone network to understand how it worked and those purely interested in making free phone calls; the access codes were only four digits and it didn’t take long to find a valid one after a bit of time spent dialing numbers on a touch-tone keypad. Paul Sheridan demonstrated Execunet to the FBI during his autovon demo in 1976. Phone phreaks weren’t the only ones hacking Execunet, however. In 1977 MCI sued the Hare Krishnas, accusing the religious organization of stealing some $20,000 worth of long-distance calls.
AT&T and MCI continued their legal tussles. MCI sued AT&T, accusing it of monopolistic practices. With that suit AT&T met the second word it would become intimately familiar with during the course of the 1970s: antitrust. Of course, AT&T was no stranger to the term. Ever since the Kingsbury Commitment in 1913, the telephone company and the government had been more or less at peace with each other. With Kingsbury, AT&T changed its stripes from a predatory nineteenth-century monopoly to a kinder, gentler, government-regulated twentieth-century one. Since that time AT&T had largely played by the rules and stopped the sort of behavior that had gotten it in trouble in the early 1900s; for fifty years, Kingsbury had kept the peace and the specter of antitrust lawsuits had seemed contained.
Now, years later, things were different. The Bell System’s immense size and sometimes questionable business practices had attracted calls for its breakup. The U.S. Justice Department had gone as far as filing an antitrust lawsuit against American Telephone and Telegraph in 1949, seeking to sever its manufacturing arm, Western Electric. The lawsuit took seven years to go nowhere. In 1956 AT&T and the Justice Department reached an agreement in which AT&T was allowed to keep Western Electric but would have to license its patents to its competitors—of which at the time there were, more or less, none. AT&T would also have to restrict its business to that of communications. Though the government trumpeted the 1956 agreement in the press as a major victory, inside the Justice Department it was considered a travesty. As one historian put it, “The wounds from that 1956 scandal never healed inside the Antitrust division. Many of the division’s lawyers believed that AT&T had abused its political power, circumvented the legal process, and cheated the American public. Throughout the 1960s, the division maintained files about AT&T’s activities, waiting for the right moment to go after Western Electric again.”
The MCI lawsuit provided the right moment. On November 20, 1974, the Department of Justice filed an antitrust lawsuit against American Telephone and Telegraph, the largest company on earth; fittingly, it would turn out to be the largest antitrust lawsuit in the history of the world. The legal action sought nothing less than the total breakup of the Bell System: the separation of AT&T Long Lines, the regional Bell telephone companies, and Western Electric—“severed limbs” was how one Justice Department official would describe their goal.
AT&T lawyers argued that the antitrust laws did not apply to the company. It was, after all, a government-regulated entity; anything it did was approved by the Federal Communications Commission. Given that its every move required permission from the government, how could it possibly be engaged in improper behavior? Indeed, AT&T asked, did the courts even have jurisdiction over AT&T given that the Communications Act made the FCC the phone company’s overseer? These questions stalled the lawsuit until 1977, when the Supreme Court settled the issue. AT&T was subject to the same antitrust laws as any other big company, FCC oversight or no. Finally, after three years, the lawsuit could move forward. Due to the case’s size and complexity, the pretrial preparation work alone would take almost four more years. It would be 1981 before the trial itself actually started, and longer still before the case would be settled.
The third word the Bell System would become intimately familiar with in the 1970s was scandal. In this regard the phone company was in step with the times. From 1972 to 1974 the United States suffered through the Watergate scandal, in which a botched burglary and an even more botched cover-up led to the unraveling of the Nixon White House and culminated in the resignation of the president, the firing of the White House counsel, the resignation of multiple attorneys general, the conviction of two top presidential aides, and the shattering of a nation’s trust in its government.
On October 17, 1974, just two months after President Ford attempted to put Watergate behind the country with the words “Our long national nightmare is over,” a Southwestern Bell executive named T. O. Gravitt committed suicide. Gravitt, fifty-one, was a vice president and the chief executive for the company’s operations in the state of Texas. The suicide note and nine-page memo he left behind accused Bell and its officials of a laundry list of misdeeds. It concluded, “There is bound to be much more. Watergate is a gnat compared to the Bell System.” With that note, AT&T found itself embroiled in a scandal of its own, one that would dog the phone company over the next six years.
Gravitt’s friend and colleague James Ashley, an assistant vice president at Southwestern Bell in charge of telephone rate cases in Texas, expanded on the charges that Gravitt left in his note. Ashley claimed that Southwestern Bell engaged in rate fixing by manipulating data provided to municipal regulators, that it maintained a slush fund its executives used to make contributions to sympathetic politicians, and that the telephone company engaged in illegal wiretapping against its enemies. For its part, Southwestern Bell denied any wrongdoing and stated that both Gravitt and Ashley had been under internal investigation for improper conduct; the telephone company suspected Gravitt had misappropriated company funds and Ashley had been suspended earlier that month for sexual misconduct. Indeed, Ashley was fired soon after Gravitt’s death. That November Ashley and Gravitt’s widow together filed a $29 million lawsuit against Southwestern Bell for libel and slander, actions, they claimed, that drove Gravitt to suicide.
The Ashley-Gravitt affair was much in the newspapers that fall and attracted the attention of Louis Rose, an investigative reporter at the St. Louis Post-Dispatch, Missouri’s preeminent newspaper. Rose had written a series of articles examining the apparently cozy relationship between Southwestern Bell and the Missouri Public Service Commission, its regulator in that state. “I had been looking at all the expenditures and all of the salaries and donations by Southwestern Bell,” Rose recalls. James Ashley, he says, “found a convenient thing in me, because I was already looking up these ties.”
In January 1975 the Texas scandal spread to North Carolina when a fo
rmer Southern Bell vice president—another who had been forced out of the telephone company, as it happened—admitted during an interview that he had run a $12,000-a-year political kickback fund for the Bell System. The telephone company soon found itself being investigated by an assortment of agencies: the Securities and Exchange Commission, the Department of Justice, the Federal Wiretap Commission, the FCC, and the Texas attorney general.
The next shoe to drop in the scandal was, in a way, predictable—so predictable, in fact, that Bill Caming, AT&T’s patrician attorney for privacy and fraud matters, had predicted it ten years earlier. Caming couldn’t say exactly when it would happen, or exactly how it would happen, but he was sure it would happen. Ever since 1965, when he had first learned about AT&T’s Greenstar toll-fraud surveillance system, with its tape recordings of millions of long-distance calls and its racks of monitoring equipment kept behind locked cages in telephone company central offices, Caming had maintained it was a matter of when—and not if—the news of Greenstar would eventually leak.
The “when” turned out to be February 2, 1975. The “how” was a front-page headline in the St. Louis Post-Dispatch: “Bell Secretly Monitored Millions of Toll Calls.” The article, by Louis Rose, quoted an anonymous source within the phone company and was chock-full of details: a list of the cities where Greenstar had been installed, the specifics of its operation, the stunning news that the phone company had monitored 30 million calls and tape-recorded some 1.5 million of them. Someone—someone high up, it seemed—had spilled the beans. By the next day the story had been picked up by the newswires and the New York Times.
Exploding the Phone : The Untold Story of the Teenagers and Outlaws Who Hacked Ma Bell (9780802193759) Page 33