The Master Switch

by Tim Wu

  When Vail arrived at Bell, Hubbard soon recognized where his potential lay and made him general manager of the company. In that role Vail, like a man who tastes combat for the first time, discovered his natural aptitude for industrial warfare. He applied himself vigorously, reorganizing the firm and putting the fight in Bell’s employees, agents, and partners. In internal letters he called on the Bell side to give their all; for this battle, he believed, was the very test of their manhood. “We have organized and introduced the business,” he declared, “and we do not propose to have it taken from us by any corporation.” To an agent who was wavering, Vail wrote, “we must organize companies with sufficient vitality to carry on a fight,” for “it is simply useless to get a company started that will succumb to the first bit of opposition it may encounter.”19

  Vail’s efforts surely helped morale, and some have credited them with preventing Bell’s premature capitulation. But in truth the key to the fight was with Hubbard. Bell was overmatched in every area—finances, resources, technology—except one: the law, where it held its one all-important patent. And so, as the firm’s eponymous founder lay in the hospital, Hubbard, an experienced patent attorney himself, retained a team of legal talent to launch Bell’s only realistic chance of survival: a hard-hitting lawsuit for patent infringement. The papers were filed in September 1878. If Western Union was a figurative Goliath, the lawsuit was David’s one slingshot stone.

  The importance of Bell’s lawsuit shows the central role that patent plays in the Cycle, and it is a role somewhat different than is usually understood by legal scholars. Patents are, by tradition, justified as rewards for invention. Owning a patent on the lightbulb, or a cure for baldness, means that only you (or your licensee) can profit from its sale. The attendant gains are meant to encourage investment in invention. But in the hands of an outside inventor, a patent serves a different function: as sort of corporate shield that can prevent a large industrial power from killing you off or seizing control of your company and the industry. In that oblique sense, a strong patent can sow the seeds of creative destruction.

  The Bell patent is an example, perhaps the definitive example, of such a seeding patent. Had it not existed, there would never have been a telephone industry independent of the telegraph.

  Yet it was hardly a foregone conclusion that Bell’s patent would be its salvation. The validity of the license was somewhat in question: Elisha Gray, remember, had filed a similar patent, arguing, not without foundation, that Alexander Bell had stolen from his design the features that made the telephone actually work. Western Union, meanwhile, held various patents of its own relating to communication over wires, as well as to all of Edison’s improvements to the telephone, which rights Bell was probably infringing. Western Union had the further advantage of the deep pockets required to wage a long legal battle. They could well have starved Bell out of existence or forced Bell to license its patent—also an effective death sentence, albeit at least a compensated one.

  So how did puny Bell prevail against the mighty Western Union? If the story were a film or novel, one would have to charge the author with abuse of deus ex machina. For right at Bell’s darkest hour it was saved by an unlikely and unexpected cavalry charge. Western Union came under attack from the financier Jay Gould, “King of the Robber Barons,” who had been quietly acquiring stock and preparing a hostile takeover. Now fighting for its own independence, Western Union was forced to look upon its tussle over the telephone as a lesser skirmish, one it no longer had the luxury of fighting.

  Thanks to Jay Gould’s blindsiding attack, and good old-fashioned corporate ineptitude on its own part, Western Union broke down and gave up on its imperial plans. Instead of dominating a business it could have bought for $100,000, the company entered into negotiations with Vail, who struck a tough bargain. Western agreed to abandon telephony forever, in exchange for 20 percent of rental income on the Edison telephone and a promise from Bell never to enter the telegraph market or offer competition to the Associated Press.20

  Historians and business school professors have ever since puzzled over how a behemoth like Western Union could have submitted to such a raw deal so easily. One is tempted to fall back on the cliché “the harder they fall,” but there were plenty of factors that made a difference.

  Perhaps Western Union’s leadership, without the benefit of Schumpeter’s work (he was just about to be born), never fully understood that the telephone was not just a new and promising market but an existential threat. Such things can be difficult to see. Who, in the 1960s, would have imagined the computer industry would one day threaten the music industry? While it may seem obvious to us, Western Union might not have fully realized that the telephone would actually replace, not just complement, the telegraph. Recall that telephone technology was at the time both primitive and a luxury. For that reason, it is possible that Western Union thought it wasn’t such a big deal to let Bell establish a phone service, imagining it was simply letting Bell run a complementary but unrelated monopoly.

  Horace Coons, the communications chronicler, writing in 1939, lends some support to this idea. He attributes Western Union’s retreat to its realization that staying in telephony would likely mean competing with Bell on an ongoing basis. As he wrote, “no one in the communications field was fond of the idea of competition. They had all experienced competition and they did not like it.… Both the telephone and the telegraph monopolies offered magnificent opportunities, [but] were not worth very much unless they were opportunities to be monopolies.”21

  For the purposes of our story, however, it is more significant to contemplate the counterfactual outcome. We all recognize how much a nation is shaped by its literal wars, yet a nation’s large-scale industrial wars also inform its identity to a degree we don’t always acknowledge. An America that had entered the twentieth century with Western Union as its single wire monopolist—a decidedly different arrangement from the one that came to be and one that would shape not just our telephone communications, but, as we shall see, radio and television broadcasting and ultimately the Internet—would likely have been, culturally, politically, economically, in innumerable ways great and small, an America significantly different from the one we know.

  Instead, Bell, now grandly styled the National Bell Telephone Company, was left with the telephone market and began to lay the foundations of what is called the First Bell Monopoly. It was, however, far from what we’d recognize today as the telephone system. The First Bell Monopoly was a service for the rich, operating mainly in major cities in the East, with limited long distance capacity. The idea of a mass telephone service connecting everyone to everyone else was still decades away.

  Meanwhile, in 1884, the Bell Company put Vail in charge of a new subsidiary meant to build its “long lines.” Vail named the subsidiary the American Telephone and Telegraph Company—AT&T for short—a name that, one way or another, has figured centrally in the story of American communications ever since.

  * I use “the Bell Company,” “Bell,” and “AT&T” interchangeably in this book. The Bell Company was the name of the company founded by Alexander Bell and his financiers in 1877. The American Telephone and Telegraph Company (AT&T) was created in 1884, as a subsidiary of Bell to provide long distance services. In 1903, after a reorganization, AT&T became a holding company for what were by then dozens of “Bell Companies,” with names like Northeastern Bell and Atlantic Bell, that offered local service. That basic structure lasted until the breakup of 1984.

  * Consequently, many books have been dedicated to the question of who actually invented the telephone. and the majority seem to side against Bell, though of course to do so furnishes a revisionist the more interesting conclusion. Most damning to Bell is the fact that his telephone, in its specifications, is almost identical to the one described in Gray’s patent. On the other hand, Bell was demonstrably first to have constructed a phone that was functional, if not yet presentable enough to patent. A final bit of evidence against Bell
: the testimony of a patent examiner, Zenas F. Wilbur, who admitted to accepting a $100 bribe to show Gray’s design to one of Alexander Bell’s lawyers. (New York Times, May 22, 1886.)

  * Unfortunately for Drawbaugh, four Justices found his testimony and that of his seventy witnesses not credible and dismissed his case. The dissenting Justices accused the majority of siding with Bell, essentially owing to his fame. “It is perfectly natural for the world to take the part of the man who has already achieved eminence.… It is regarded as incredible that so great a discovery should have been made by the plain mechanic, and not by the eminent scientist and inventor.”

  * In this yearning for “home telegraphs” was the first intimation of what would one day flower as email and text messages.

  * This second statement has been omitted from most American histories of the telephone.

  * All this may make Schumpeter sound like a hero to free market libertarians, but he is not so easily domesticated. His most famous work, Capitalism, Socialism, and Democracy, published in 1942, reads, in part, as a repudiation of the market and a lauding of socialism. He praises Marx and asks, “Can capitalism survive?” His answer: “No. I do not think it can.” It may seem paradoxical that an icon of capitalism should be praising Marx and predicting the success of socialism. As with the end of Shakespeare’s The Taming of the Shrew, a plain reading of the text has caused Schumpeter’s fans much discomfort. Whether Schumpeter’s true purpose was to praise or to bury capitalism, or to leave his main point so perversely ambiguous, is an indication of the maddening nature of the man.

  CHAPTER 2

  Radio Dreams

  One July afternoon in 1921, J. Andrew White paused before speaking the words that would make him the first sportscaster in history. White, an amateur boxing fan who worked for the Radio Corporation of America, stood ringside in Jersey City, surrounded by more than ninety thousand spectators. The boxing ring was but a tiny white square in a teeming sea of humanity. Everyone was waiting for the “fight of the century” to begin.1

  In the ring the fighters looked mismatched. The larger was Jack Dempsey, the “Manassa Mauler,” the reigning heavyweight champion,2 who had grown widely unpopular for refusing to serve in World War I. Georges Carpentier, his opponent, had entered the ring to the strains of “La Marseillaise” and deafening cheers. The French war hero was obviously the crowd favorite.

  In White’s hand was something unexpected: a telephone. It was fitted with an extremely long wire that ran out of the stadium and all the way to Hoboken, New Jersey, to a giant radio transmitter. To that transmitter was attached a giant antenna, some six hundred feet long, strung between a clock tower and a nearby building. The telephone White was holding served as the microphone, and the rickety apparatus to which it was connected would, with a bit of luck, broadcast the fight to hundreds of thousands of listeners packed for the day into “radio halls” in sixty-one cities.

  What was planned now sounds quite ordinary, but at the time it was revolutionary: using the technology of radio to reach a mass audience. Today we take it for granted that the TV or radio audience for some performance or sporting event is larger than the live audience, but before 1921 such a situation had never occurred. This fight, in fact, would mark the first time that more people would experience an event remotely than locally. That is, if everything went according to plan.

  The idea to broadcast the fight came from a young man named Julius Hopp, manager of concerts for Madison Square Garden as well as an amateur radio enthusiast. He wanted to experiment with an application of radio technology that heretofore only hobbyists had played with—something they called “radio broadcasting.”

  Hopp could not do it alone. He found important backing, financial and technical, at the Radio Company of America (RCA), predominantly a military contractor, including its vice president, Andrew White, and more important, David Sarnoff, an ambitious young executive and enigmatic personality who would figure centrally in the history of radio. A Russian Jew who had immigrated as a youth, Sarnoff had an eye for promising ideas, coupled with a less admirable tendency to claim them as his own. Having managed to funnel several thousand dollars of RCA money to Hopp, he and White focused their combined energies on the Dempsey broadcast.3

  The scale of the effort was unprecedented. But to be absolutely clear: Sarnoff, White, and Hopp were in no sense inventing radio broadcasting. They were, rather, trying to bring to the mainstream an idea that amateurs had been fiddling with for years. Just as email had been around since the late 1960s, though reaching the general public only in the 1990s, broadcasting in some form had been occurring since as early as 1912, and perhaps even earlier.

  It was amateurs, some of them teenagers, who pioneered broadcasting. They operated rudimentary radio stations, listening in to radio signals from ships at sea, chatting with fellow amateurs. They began to use the word “broadcast,” which in contemporary dictionaries was defined as a seeding technique: “Cast or dispersed in all directions, as seed from the hand in sowing; widely diffused.”4 The hobbyists imagined that radio, which had existed primarily as a means of two-way communication, could be applied to a more social form of networking, as we might say today. And the amateur needed no special equipment: it was enough simply to buy a standard radio kit. As The Book of Wireless (1916) explains, “any boy can own a real wireless station, if he really wants to.”5

  If the amateur pioneers had a leader, it was the inventor Lee De Forest, who by 1916 was running his own radio station, 2XG, in the Bronx.6 He broadcast the results of the 1916 presidential election, and also music and talk for an hour or so each day. QST Magazine, the publication of the America Radio Relay League, reported in 1919 of De Forest’s station, “we feel it is conservative to estimate that our nightly audience is in excess of one thousand people.”7

  Back in Jersey City, as the bout began, Dempsey ran at Carpentier, punching hard (you can watch the bout on the Internet), and while Carpentier puts up a spirited fight, the larger Dempsey clearly dominates. In the second round, Carpentier breaks his thumb, yet fights on. By round four, Dempsey is insuperable, landing blows to the body and head, seemingly at will, as the Frenchman stoops forward, barely able to stand. Then, in White’s words: “Seven … eight … nine … ten! Carpentier is out! Jack Dempsey is still the world’s champion!”

  The broadcasters were in fact lucky it was over in just four rounds, for soon thereafter, their equipment blew up. Still it had held together long enough for more than three hundred thousand listeners to hear the fight in the radio halls. As Wireless Age put it: “Instantly, through the ears of an expectant public, a world event had been ‘pictured’ in all its thrilling details.… A daring idea had become a fact.”8

  What is so interesting about the Dempsey broadcast is that it revealed an emerging medium to be essentially up for grabs. It was in retrospect one of those moments when an amateur or hobbyist’s idea was about to emerge from relative obscurity, with the same force, one might say, as Dempsey’s blows raining down on Carpentier. And while not the cause of the extraordinary radio boom to follow, the Dempsey fight, which had taken so many ears by surprise, was in some sense its herald. While records are spotty, the number of broadcasting stations jumped from 5 in 1921 to 525 in 1923, and by the end of 1924, over 2 million broadcast-capable radio sets had been sold.9

  Early radio was, before the Internet, the greatest open medium in the twentieth century, and perhaps the most important example since the early days of newspaper of what an open, unrestricted communications economy looks like. Having begun among some oddballs as a novelty aimed at bringing one’s voice and other sounds to strangers via the airwaves, broadcasting was suddenly in the reach of just about anyone, and very soon all sorts of ideas as to what shape it should take, from the rather banal to the most utopian, were in contention.

  THE OPEN AGE OF AMERICAN RADIO

  When in the course of human affairs things go wrong, the root cause is often described as some failure to communicate,
whether it be between husband and wife, a general and a front-line commander, a pilot and a radio controller, or among several nations. Better communications, it is believed, lead to better mutual understanding, perhaps a recognition of a shared humanity, and the avoidance of needless disaster. Perhaps it is for this reason that the advent of every new technology of communication always brings with it a hope for ameliorating all the ills of society.

  The arrival of mass broadcasting inspired, in the United States and around the world, an extraordinary faith in its potential as the benefactor, perhaps even a savior, of mankind. And while the reason may not be readily apparent, such belief is crucial to understanding the long cycles in the development of information media. For it is not just the profit motive that drives the opening up of a medium—there is typically a potent mix of both entrepreneurial and humanitarian motives.

  Those who grew up in the late twentieth century have known the latter sort of idealism mainly as it manifests itself on the Internet in grand collaborative projects such as the blogosphere or Wikipedia and also in such controversial undertakings as Google’s digitization of great libraries. This impulse is part of what has attracted thinkers like Lawrence Lessig, originally a constitutional theorist, to Internet studies, examining the anthropological and psychological consequences of complete openness and the promise it holds. Scholars such as Harvard’s Yochai Benkler, Eben Moglen, and many others have devoted considerable attention to understanding what moves men and women to produce and share information for the sake of some abstract good.