[United States Senate Committee on the Judiciary Subcommittee on Antitrust and Monopoly]

Statement of William O. Baker on behalf of American Telephone and Telegraph Company on S. 1167 INDUSTRIAL REORGANIZATION ACT

July 31, 1974



My name is William O. Baker and I live in Morristown, New Jersey. I am president of Bell Telephone Laboratories. I received a Ph.D. degree from Princeton University in 1938 and joined the Research Department of Bell Laboratories in 1939. I was placed in charge of polymer research and development in 1948. Subsequently, I was appointed Assistant Director of Chemical and Metallurgical Research and later made Director, Research, Physical Sciences. In 1955 I was appointed Vice President, Research - a post I occupied until 1973 when I assumed my current responsibilities.

Perhaps the following examples of activities reflect my continuing endeavor to generate new science and to enhance its application for the well-being of our nation and our firm. I serve on the Energy Research and Development Advisory Council; Project Independence Advisory Committee, Federal Energy Office; National Commission on Libraries and Information Science; National Council on Educational Research, National Institute of Education; Board of higher Education of New Jersey; Advisory Board on Military Personnel Supplies, NRC; Scientific Advisory Board, NSA; Evaluation Panels, Advisory to the National Bureau of Standards, NAS-NRC National Cancer Advisory Board; Scientific Advisory Board of the Robert A. Welch Foundation; Management Advisory Council, Oak Ridge National Laboratory; and Commission on Critical Choices for Americans. I have served on a number of other advisory panels for the Federal Government, including the Panel on Physical Chemistry for the Office of Naval Research, Consultant Panel of Operations Evaluation Group of the U.S. Navy, the Liaison Committee for Science and Technology of the Library of Congress, the Board of Regents of the National Library of Medicine, Air Force Systems Command Board of Visitors, Consultant to Department of Defense, and several panels for the National Academy of Sciences/National Research Council and for the U.S. Chamber of Commerce. I am a past charter member of the President's Science Advisory Committee and of the National Science Board of the National Science Foundation.

My own research has studied the nature of solid matter, and especially that composed of very large molecules called polymers, of which all living tissue as well as synthetic plastics and rubbers are composed. Indeed, during World War II, this work was basic to the solution of the materials crisis represented by the National Synthetic Rubber Program. (My superiors and I had responsibility for the technical portion of that project - the largest Federal R&D effort up to that time.) So while I don't quite go back to Dr. Alexander Graham Bell's time, the Age of 20th Century Science and Engineering has been pretty well covered.

I am a recipient of the Perkin Medal, the Priestley Medal, the Honor Scroll of the American Institute of Chemists, the Award to Executives from the American Society of Testing and Materials, the Edgar Marburg Award, the Industrial Research Institute Medal, and last year the Proctor Prize, the Frederik Philips Award, and the Industrial Research Man of the Year Award. I have received honorary degrees from Washington College, Stevens Institute or Technology, Georgetown University, University of Pittsburgh, Seton Hall University, University of Glasgow, the University of Akron, The University of Michigan, Saint Peter's College, Monmouth College, Polytechnic Institute of Brooklyn, University or Pennsylvania, and Clarkson College or Technology.

I am a member of the Board of Directors for Annual Reviews, Inc.; Council on Library Resources; Clinical Scholars Program of The Robert Wood Johnson Foundation; The Third Century Corporation, and a Trustee or The Aerospace Corporation; Carnegie-Mellon University; Princeton University; Rockefeller University; The Andrew W. Mellon Foundation; Urban Studies, Inc.; The Fund of New Jersey.

I am a Fellow of the American Physical Society, the American Institute of Chemists, and of the American Academy of Arts and Sciences. I am a member of, and have served on the council of, the National Academy of Sciences and the National Institute of Medicine, and as a member of the American Chemical Society have arranged preparation of environmental and related reports on public policy.


I appear before this Committee as a representative of the Bell System, but my remarks will be based on my lifetime involvement in science and technology, not only as carried out at Bell Laboratories, but also in various academic and Governmental institutions.

It is in this regard that, as I review the transcript or these proceedings, I wish that it contained more concerted discussion of science and technology. The omission is unworthy of the broad purposes of the Committee's activity. Hence I welcome indeed an occasion to describe briefly how science, technology, and innovation arising from them, are related to industrial structure, the Bell System mission, and competition.

First we should, in the time-honored mode of science, comment quickly on definitions. Competition as a mode or expression of human energy and purpose to excel, to be there first, to do the best, is the primary ingredient of all research and development, and most particularly in the ways these are practiced in industrial laboratories, especially in the laboratories of the Bell System. Indeed, as you well know, the semantic origins of the word competition are synonymous with those of competence. The pride that we take in American science and engineering, such as that of the Bell System, which has been approved even by our critics in your Hearings, is based on competence, which indeed arises directly from the ceaseless and productive competition, in all phases and all levels, of our people with the rest of the world's community, and even with each other.

Molecules do not know whether they are present in alleged monopoly or assumed free-marketry programs, but they are the stuff of the most intense and refined intellectual: rivalry, which in fact is a day-to-day quality of life in the Bell System and its industrial contemporaries around the world. In fact, this rivalry in research and development is the more fierce the larger the institution. It is interesting to note that whatever truth there may be to claims that two of three auto companies control that business, and the big computer makers dominate that field, and the big chemical companies hold captive their lines, and that big telephone overshadows its 1800 fellow companies in the U. S., the laboratories of these enterprises compete with each other extensively for progress which is indeed common to all. The laws of nature are just that way - a new energy source is good for General Motors or Ford but involving atoms and molecules and waves as it will, is something that General Electric and IBM and AT&T, and for that matter, duPont and Warner-Lambert, are deeply affected by. But hundreds of small, market-oriented laboratories simply seek technical (and trade) differentiation of their products. No transferable innovation results. Thus, at the very roots of the matter, we find that the oft-discussed rubric of industry structure has little meaning for the forward thrust of human affairs as embodied in natural science and engineering.

But the problem of meaning and understanding goes beyond this. For competition to mean anything really relevant to the concerns of this Subcommittee, apparently it has to be embroidered by a host of economic traditions and theories. That is, it has to do with market structure and entry, but it has not been shown to be generally necessary to the actual liberation of energy and application of human talent in the broader meanings of compete and competence. Parenthetically, we might note that this already raises a caution from the scientific aspect, since while theory in physical science has an unquestionable record reaching from Newton and gravity to the nuclear age, it is awkward to find a validation of economic theory with respect particularly to innovation. If there is one, I am sure somebody would like to bring it to the attention of these hearings.

Now this is not a trivial, even though possibly unsettling, remark. Unless this can be proved to be wrong, are we not taking rather sinister risks for the future of our free society in assuming some consistent, even sacred, generality of qualities in a market structure defined by a priori formulae? I believe we can demonstrate that it is indeed unsound to assume such generality. In fact, the proposed irreversible application or these unsubstantiated generalizations to the telecommunications industry seems to be both wrong and dangerous. We shall try to explain this matter in technically simplified ways, but we might first just note a couple of the underlying features. One is that a product, a single thing, a component, such as is the currency of conventional market activity (the appropriate example, long ago adopted by the profession or economics, is the mousetrap) has little or no meaning for an operating system. Accordingly its developers, and makers and sellers, really have no way of taking responsibility for its performance short or owning or operating the using system itself. Further, in the situation with, say, transistor radios, where the physiological system is identical with the purchaser who can make his own decisions and evaluations immediately, or with mousetraps, where although there might be considerable benefit from a wider systems analysis, the critical function can be pretty well contained in the marketed product itself - its compatibility demands are modest. In contrast, systems technology and innovation of the kind we are treating demand, at every stage, that every component, 'every part, from the wire on the telephone pole to the elegant digital processors of the No. 4 ESS, (which surpass in reliability and magnitude the very best electronic computers and engines) must balance in properties (including life span and cost) with all the other systems ingredients. These, in the case of the Bell System, number some 1012 (millions of millions) discrete elements. An entrepreneur, a product marketer, would not have the same incentive to burden his product design, development, and manufacture with responsibilities for endurance and precise optimization of such a plant, (much of it is already decades old, and must last for many more decades into the future). For he has no responsibility for the operation or that plant, for the provision of its services on a universal and timely basis to any and all of the American people. The livelier he is in making, shall we say, integrated circuit boards for everybody's enjoyment in record players, hand pocket calculators, movie camera controls, and machine tool programmers, the less interested he will be in the extra and often agonizing effort of assuring performance and reliability that our systems demand. Thus, we find with our No. 1 ESS machine that maintenance over the years 1s 50% less than for comparable switching investment over earlier designs, and that the No.4 ESS machine can be arranged to take up 1/6 of the space of the prior equivalent toll switching facilities. These systems design features impact on the integrated circuit packs with requirements yielding savings for telephone subscriber, which is not the prime motive of the components manufacturer.

This unique continuity of technical action, from the basic discoveries and invention through to direct operation in the network, is possible only through joint effort with the Western Electric Company. The Western Electric's role in the conversion or science and engineering into continuously evolving telecommunications capability is unparalleled in industry or government. Without subjecting the exploratory programs or the final development and design at Bell Laboratories to self-interested control, or even to pressures for manufacturing convenience, the Western Electric responds to the modes and needs for innovation with alacrity and high technical competency and understanding.

Such a way or accomplishing the difficult phases of converting new ideas and devices into something actually usable and makable is not found in conventional market- (as opposed to systems-) ruled enterprises. Not only does the Western Electric provide a daily liaison and cooperation at the various branches of Bell Laboratories situated at major Western Electric plants (but allowed to operate wholly autonomously therewith), but further, its own laboratories, the Engineering Research Center, vigorously prepare for new and versatile manufacturing processes which are intimately coordinated with the design and development of new products and systems at Bell Laboratories. Thus, in thin film technology a variety of basic processes were being explored at the ERC simultaneously with the experimental work on the circuitry and devices at Bell Laboratories. As synthetic plastics became major structural elements in the Bell System in new Bell Laboratories designs, the ERC conducted pioneering studies of improvements in extrusion and of new processing machinery.

Many other elements of the Western Electric's role have been described in other records for this Subcommittee, such as by Mr. Stephen Fletcher. However, in the context of this report, about engineering and science, the institutional and personal affiliation with the Western Electric is intrinsic to the whole innovation process we pursue. For instance, in the matter of quality assurance, (the result of Quality Control, a statistical technique discovered at Bell Laboratories, which is regarded by the industrial world as the essential step in serial production of product), the Bell Laboratories has independent responsibility for maintaining the highest performance of all Western Electric output on behalf of the operating companies. This, of course, is a primary object of systems innovation through the design and development method. But invariably, . and often at large initial cost and difficulty, the Western Electric responds to our extensive and incisive requirements for tests and quality checks, both at the early stages and throughout manufacturing schedules. Bell Laboratories has the responsibility, and exercises it whenever needed, of closing down production lines if they produce unsatisfactory quality. Yet, by remarkable merging of interest, and the literal as well as presumed integration of purpose, the cooperation or the Western Electric from production man to top management in accepting and improving with incessant economy the host or new systems features, as we shall sample them below, is simply indispensable to the function of research and development in telecommunications. And this is, indeed, the proper scope to cite, since the manufacturing methods and processes of the Western Electric are recognized throughout the independent telephone industry as well as in Government as the preferred and pacesetting paths by which new things are made into real devices and systems.

Bell Laboratories depends on every element of an ingenious Western Electric organization, including such things as the Western Electric Training Center for ESS operation at Columbus, Ohio, where more than 1200 experts were produced in 1973 alone, and on the Product Engineering Control Centers (PECC), where the complex innovation of new telecommunications facilities is managed, from the intricate engineering through to the economics and logistics. It depends on this structure for the translation of its novelty into use just as fully as our creativity depends on our own human resources and laboratory facilities. As we shall see in the following, our greatest stimulus to creativity is the close bond to the operating telephone network, which permits us to gauge what is real and what is illusory in new technology. Equally, the stimulus to ingenious design and optimal economy of new products comes from this same intimate co-working with the Western Electric production. This is being shown presently and strikingly in the Denver laboratory for the design of PBXs and related customer facilities located at the Western Electric factory, which quickly translates this development into a useful hardware. This is how we can constantly advance telephone user services.

But, it is claimed these features of network compatibility and reliability do not extend to things like terminal equipment which are, instead, wrongly claimed to operate independently of the system. Examples of such equipment are presumably at the ticket counter for airlines or maybe for seat assignment and fare collection for the Amtrak Metroliner or the telephone set itself, or a data-phone accessory, or a local distributing system called a PBX, etc. I assert to the contrary that there is a direct and mutual influence between innovation in telephones and other terminal equipment and the intimate coordination of the new qualities of such apparatus with known and controllable signaling, transmission and switching parameters of the system to which it must be attached. This appears especially in a vast, sensitive structure like the Long Lines operation, but acts also in local networks. Further, the responsibilities for such attachments have a profound influence on the generation of new science and engineering by the professional experts, when they know that they are part of the same enterprise that will use their creations.

Thus, the history of key telephone systems and auxiliary products, submitted by Mr. Frank A. McDermott, Jr., to the Hearings or this Subcommittee, continues uninterrupted since the 1A system of 1938. This flow of systems innovation through terminal equipment research, development, design, and manufacture shows interesting characteristics of the themes we have noted above. Above all, it illustrates the pressure constantly exerted by consistent systems optimization in engineering and operations, for innovation and improvement. Thus, the intimate liaison of the engineering and operations departments of the AT&T Company and of its Long Lines with Bell  Laboratories provides a guiding thrust for our creation or new components and systems. We report categorically that this pressure far exceeds any alleged market stimulus even for products such as terminal equipment. Thus, for these reasons, alleged competition for furnishing seemingly isolated parts of an operating system results in neither satisfactory quality and reliability of such components nor in actual force for innovation and improvement.

 So, let us get into the record of key telephone technology. As Mr. McDermott's report shows, a constant advance was in the speeding of response to customer usage habits. It was also in the simplification and economy in installation and operation of the units. All during this time (marked in the first decade by a 5 db transmission gain for the basic telephone followed by the introduction of wire-spring relays and printed circuitry, and in the next decade by voices-witched, hands-free transistorized speakerphone, and soon after that, in the early 1960s, by repertory dialers and the use of plug-in, easily maintained and rugged circuitry), one set of requirements presented constant challenge. They were the need for full electric power lines to come to the various key telephone sets. This was because the most practical operation by the user required signal lights, even though small ones. These, based on incandescent bulbs, took extra, expensive and often cumbersome power lines (and one would say, nowadays, also an energy increment). Now this signal lamp, or optical signaling, market is exceedingly broad, for as you, know, winking lights characterize almost every instrument panel, control unit and other display system. Nevertheless, despite the prosaic presumed market, these electric lamps, always in the case of telecommunications and often in the case of other instrument usage, had to be parts of the system that required extraordinary reliability and uniformity. Replacing these lamps comes to be an intolerable cost for key telephone operation, since one would be using hours of expensive labor for cents of materials’ cost and function. The results were, as we have postulated they would be, that over these decades no advances of any importance were made in this field by the general trade. This was especially true in that vigorous portion of industry which makes electrical components.

The telephone companies, however, demonstrated emphatically that some better display and signaling system was necessary. This was recognized in Bell Laboratories long ago, at the beginning of the new era of solid state electronics, which was generated there in the late 1940's. It was made part of our development agenda. Further, in research programs at Bell Laboratories we had long ago recognized that the production of electromagnetic radiation in any new form is significant for better options and services for telecommunications. Thus, in specific case and apparatus authorizations, through which we administer the forward-planned studies in Bell Laboratories, including one of November I, 1955, and of January 1, 1956, and of January 1, 1957, a basic effort was expanded. It was, to see whether a class of crystals, known as the III-V compounds that had been identified by Welker in Germany, and that were transparent to visible light, could in fact be made, through the general principles of holes and electrons that we discovered as forerunners of the transistor, into new light sources and signalers. Already, Chynoweth and McKay had reported, from our fundamental studies of junction physics, the very heart of the whole field of solid state electronics which now provides more than $30 billions of the gross national product, that light could be produced from reverse biased structures. rest or the chronicle is an elegant but entirely typical record or scientific and technical creativity, for systems advance. You have guessed the present phase, which is that all key telephones will, now have signal lights of various colors, thereby notably extending their functions. They are pioneered and commercially produced by the Western Electric Company. They are so efficient in their power demands that they are simply powered over the ordinary telephone lines, require virtually no maintenance, and they are at a cost fully competitive (and that is the place where competition animates us every hour of every day throughout the Bell System) with any other available unit.

The incandescent bulb of Edison, the fluorescent light invented by Boutry and his associates, and these light  emitting diodes are the three great steps in the illumination for mankind since the candle and the oil lamp. What may not be so obvious is that a vital new chapter in science and engineering has come from this work - this thesis that systems innovation in a vertically integrated industry drives toward improvement of components and equipment in ways that are not found in any element of general market activity endeavor. For now pocket calculators, hand computers (and hosts of the larger ones) and increasingly a wide range of other machinery depend on light emitting diodes (LEDs as they are known now) for their output. The LEDs enable new current elements such as the optical isolator. They are also essential in the systems of optical communication and data processing now being developed. This happened in America because we have allowed industries of this scope and character to pursue the most fundamental concepts of physical science, the very action of electrons and waves of quantum entities envisioned by Einstein. This work has been translated by Bell into practical technology, and through our patent and licensing and publication policies, has been made also available to any other industry that will find additional uses for a public and economic benefit.

The upsurge that we have summarized in these few lines had, of course, a long path. It involved the careers and commitments or many talented people. They apparently felt that the opportunities in an integrated technological industry were worthy of their life aspirations. Some such feelings surely influenced, for example, Frosch and Thurmond, when they produced a method for the chemical synthesis of hyper-pure gallium phosphide, the crystal which does it all. I say this not only because of my close association with them as colleagues during their careers with us, but also because the first experimental and then the first full-scale production apparatus for this synthesis, made at Western Electric; ,involves the high pressure containment of phosphorous. This is done under conditions or such hazard and difficulty as makes the whole technique of, for instance, phosphorus firebombs, which occupied the attention of hundreds in both world wars, seem simple in comparison. But, you may ask, why did the telephone system, specifically Western Electric and the Bell Laboratories, master this dangerous but now completely tamed methodology for which a vast chemical industry might have been better equipped? Well of course we did, as always, seek the help of our sister industries in these innovations. But at the time, and with requirements for completely hew properties, it was soon established that there was no way to do it but our own.

The same, of course, was true for Pfann's invention of zone refining, which created the first usable matter for transistors. It is the worldwide basis for production of all silicon, germanium, and related, substances on which solid state electronics depends. The fifth anniversary a week or so ago of Armstrong's landing on the moon reminds one of Sir John Cockcrort's observation a few years ago, that without these solid state devices no space exploration, satellite orbiting or missile  production would have been possible.

This year is the twentieth anniversary of the Bell solar cell, a junction device showing the inverse of the, qualities that we have described for the light emitting diode for key telephone systems. This device, discovered in our laboratories by Pearson, Fuller and Chapin, has been the energy source for all space vehicles in history, including exceedingly careful copies or our structure made by the Soviets in their very earliest Sputniks. In the solar cell, photons of light hitting the junction generate an electric current, the symmetrical function to what we have described in the production of light by the reversed biased junction effect. Again, industries have been founded on this cell, and in the future vastly increased activity will be attempted in augmenting our desperately needed national energy requirements. You may have noticed that recently the Mobil Oil Company and the Tyco Laboratories in Boston have entered into a joint program for the development of thin silicon films (which will be related to our Bell System work on thin film integrated circuitry) for large-scale electric power generation. This will, of course, be based on exactly the configuration and effect of the solar cell, whose experimental application for remote telephone powering was tried out more than a decade and a half ago. Once more, the unity or System operation, Western Electric production and Bell Laboratories development caused this change to happen.

So perhaps you will be intrigued that these are some of the ways in which the response to a system's need, in the primary case of the key telephone, has stimulated innovation. In markets that are competitive in the sense of S. 1167, like, say garment making or soda pop, it is hard to find quite similar evidence. By the way, however, there is some innovation in garment making, but it hasn't happened at all through competition in that industry. The most important part of it, or course, is the use of synthetic fibers, which has revolutionized the comfort, economy and, not so incidentally, ecology of the developed world. But the point is, these fibers came from the relatively integrated chemical industries which were interested in raw materials which could be converted directly by them into a systems function, such as that of a fiber and fabric. Some of us, in behalf of the American Chemical Society, have recently documented this extraordinary saga in the report entitled “Chemistry and the U.S. Economy.” There are some pretty deep lessons in it for critics of industry concentration and integration and for the relationship between innovation and market allocation and dispersion. But all this is not the reason I refer to it here. The reason is that another recent and dramatic innovation in garment making is that, led by the French industry, increasingly the economic and waste free cutting of valuable fabric to fit the human shape is done by a laser beam. This is laser energy, or coherent light, discovered by Schawlow and Townes in the Bell. Laboratories in 1958. At last another age-old human labor is being relieved. The snip-snip-snip of the shears replaced, to be sure, in many centers by the use of expensive machine cutters will soon be abolished by the use of the fourth great advance in light generation in modern history.

Once more you will know that new industries have already been derived from this finding. We shall point out later that it can lead, if we are given the chance to apply it, to as dramatic an advance in telecommunications as Bell work on radio and coaxial cables and waveguides has already achieved for our nation and the world. But right now my point is different. It merely is that our pressing, relentless, internal competition for systems improvement, for new ways of modulating the energy of signals to handle human information, led us to the laser. It led us to the phenomena of energetic population inversion that Townes perceived first in principle, stemming from his original work in microwave spectroscopy at the Bell Laboratories just following World War II. It is fascinating, although chilling, to speculate on what might have happened if one had depended on dispersed, fragmented freemarket stimulus to introduce lasers into the free world. For one thing, we are quite sure from the work of Basov and Prokharov that we should have been hearing of, lasers first from Russia. We should have been hearing of them as sources of the moot intense non-nuclear energy ever achieved by man, with brilliance rivaling the sun. As you will know from current work, they offer a high probability of so intense an energy source that it will induce fusion of nuclear particles, yielding controlled thermonuclear reactions. In the last few months, claims of substantial fusion events and the accompanying neutron production due to high energy laser illumination have been reported in the United States. What sort of detente should we have in a trade agreement to barter some of our phosphate ore, for instance, for a hint of how to make a Soviet carbon dioxide laser. (This was actually discovered in our Murray Hill, Laboratories by Kumar Patel.) These and derived systems now provide an energy source which is not only the essence of “smart bombs” for national security, but for a host of technologies.  These range from a measure of continental drift to the world's most efficient ways of laying out, by civil engineering, water and waste duct systems, which must be in line and geometrically positioned.

These examples we have discussed so far, of the stimulus of systems operation, vertical integration and genuine intellectual competition to innovation, could have been supplied in exhausting detail for all the elements or the nation's telephone system, as well as to the coordinate impacts that we have cited. What I am saying is that the extensive evidence you have heard, especially beginning with that of my associate Dr. Jack Baird last year, speaking as the Chief Engineer of the American Telephone and Telegraph Company, gives excellent technical descriptions of how an integrated system actually , functions. Progress in that function is based on the same methods of advance that we have sampled.

Obviously we shall have time to touch on very few more of this large universe or functions. One that is very central to our business, however, involves switching. This, of course, is the way that messages get from a particular sender to a particular receiver over 350 million miles of circuitry between exchanges, and through the many more miles within the hundreds and hundreds of local office territories themselves. Switching is how anyone of about 130 million telephones can be connected quickly and reliably with any other. This involves even more than being able to make, within seconds, 7 million billion possible connections, and this process is engaged in more than 600 million times daily in the single integrated network. These numbers represent a complexity of operation unsurpassed in any other human endeavor. They serve again to emphasize the theme that it is the demands for improvement and enhancement of such facilities which stimulate the universe of innovation that we have hastily sampled. In this case, it is the theory and practice of logic machines which have nowadays evolved into digital computers and their accessories. These are also the basis of another major industry, and are large elements in our national economy as well as security. In this instance, although not all of the root structure of the technology came from the telephone  network's incessant demands for technical progress, none of it at all came from market competition. Rather it is an historic example of the intellectual stimulus and competition, coupled to telephone systems behavior and need, that we have cited at first. For Babbage thought of a digital machine, and the, Jacquard loom and other events inspired Aiken and his co-workers at Harvard and von Neumann at the Princeton Institute for Advanced Study to undertake research on digital computers in the 1940s. This work probably would also have led to the industry in which the United States now leads the world.  However, von Neumann has told me that he believed these machines  would have been of little eventual practicality without the solid state diodes and transistors which did come from our telephone research laboratories.

But beyond this, the first electrical digital computer in fact came directly from the automatic switching developed in Bell Laboratories. This happened in 1939, when George Stibitz and S. B. Williams completed Stibitz' design, begun in 1937, of a relay and crossbar switching computing machine. In turn, these relays are, of course, themselves, the essence of telephone switching. The theory, as well as practice, of their operation was recognized by Nyquist, Hartley and others in the Bell System. It was then articulated by Shannon in his classic Information Theory, generated at Bell Laboratories in 1948. The concept applies his findings of 1937, that Boolean algebra describes the way to switching circuit design of the utmost beauty and generality.

Furthermore, not only is this Information Theory at the heart of all modern computers, also it has laid the base of digital processes of all kinds. It teaches that digital encoding is capable of representing all knowledge of mankind, all sensing, and, in the most rugged form, its communication , and processing. If this age is to be remembered for its mental advance, it will be primarily through its recognition of the supplements to thought and knowledge of the mind provided by digital machines which came directly from telephone switching and the associated communication theory.

Once more, the whole system evolved coherently through telephony, with Shannon even showing how systems reliability could be achieved in the gross complexity or computers and digital processors, even with a certain proportion of specifically imperfect relays and other logic and memory units. The Hamming code, invented by Dr. Richard Hamming, who remains highly active in computer research at Bell Laboratories, is regarded as the practical base of useful software and programming. The first hardware for a compact transistorized computer was built by Mr. Jean Felker, now a vice president or the Bell Laboratories in charge of our major program of automation of the business operations of the Bell System.

And the revolution is still in full course. Each No.4 ESS switching system using digital signals by time division can handle 107 thousand terminations, and with the associated processor (the computing function) will handle at least 350 thousand telephone calls an hour in a way that hundreds or even thousands of operators could never be expected to manage. The first field unit, now being completed jointly by Bell Laboratories-Western Electric experts at the Indian Hill Laboratory, near Western's Lisle, Illinois Plant, is scheduled for operation in January of 1975 on the Chicago-7 exchange, and will be in routine commercial service a year later. It represents a culmination of decades of steady innovation, which has, in summary, also provided the cultural, economic and also military era of the digital supplement to the brain and its sensors.

In view of this history, which is disputed by none (even the data communication elements of it have been said by S. A. Lasher of the Office of Telecommunications Policy in the White House to reflect that “... public evidence indicates overwhelmingly that AT&T has been and continues to be the principal innovator in this field,” in a paper of 1972), is it any wonder that we are baffled and even dismayed to find that such continued technical progress as the end-to-end (and ultimately switched (DATA-PHONE digital service (DDS), developed and readied by the Bell System, has not yet been permitted to operate? This network, which can be extended readily nationwide, is equivalent to a new national resource. In many nations, it could represent a major step into the future, and would be of primary value to our own economy, social order, and education through the digital processing facilities ,it can enable. Do we not soberly have to inquire whether dogmatic application or interpretation of theories of competition should be used to deprive a nation of new ways to expedite its business, its government, its social structure with the help or tens of thousands of terminal machines, educational devices, and organizing resources that it would interconnect?

One final point should be made about switching innovation. It concerns subsystems called PBXs, all those pieces of terminal gear which distribute the calls on a small scale within offices, factories, and institutions. It is readily admitted that these, like the key telephones and DATA-PHONES, are directly derived, wherever they are made, from Bell System science and engineering. The point is that they too come from our Laboratories' efforts in a ceaseless quest for new services, because of the potentials and properties of the total integrated system. Their technology is in no way rooted in a general market enterprise. Coordinately, the switching times and talking and other signaling habits of users, to which these machines should respond, must harmonize intimately with the properties and behavior (and behavior is the right word for the massive network we have earlier described) or the nationwide capability with which they are connected. Our issue is that effective research, invention, development and engineering on these units is also best stimulated when done as a part of the system to which they belong. One aspect of this principle is that we are creating many of the functions or PBX hardware that has previously had to be in the offices of hotels, motels, small businesses, schools, etc., by programming the new capacities of central electronic switching machines. In this way, the user gets all the advantage of personalized, localized service without having to have the facilities in his buildings and on his mind.

The principle of systems-induced innovation extends to many other communications advances to which the fallacy of market competition might carelessly be applied. Thus, in the primary matter of materials, which represent a major cost of the telephone plant, there is of course a vast industry, covering all the metals, plastics, 'rubbers, ceramics, and other major classes of substance, which innovates vigorously for its own purposes. Yet even here the stimulus of the Bell System plant which we have to live with, as well as to create, has led the Bell Laboratories to be a principal source of modern materials science and engineering. This is currently documented in a study of a special committee of the National Academy of Sciences, which has recently issued the report, “Materials for Man's Needs,” and which is correlated with the recent National Materials Policy Commission findings as well. Here again our vertically integrated structure and, above all, the direct partnership with the Western Electric (which requires and processes nearly every form of matter into a durable plant of high equality) has led to unceasing innovation. This ranges from the recent invention of electrodes for the rapid and efficient reclaiming of electrical quality copper (a major improvement in the age-old electrochemistry of this critical material being practiced by the Nassau Smelting and Refining Company) to the restructuring of the molecules of our principal synthetic material, polyethylene.  Polyethylene is the primary insulator and protective agent for the electrical conductors of telecommunications, and now or our whole electrical industry, including power. One particular example of how its molecules were adapted to replace lead as the sheathing for communications cables may be of interest. This has been achieved over the past 25 years of concerted research and development, in close collaboration with the major. chemical suppliers. Nevertheless, the manufacture of the cable and the actual compounding of the ingredients to make the sheath have all been effected in the Western Electric Company in partnership with Bell Laboratories technology. The actual savings in materials costs over this period, compared to the simple purchase or lead which was the standard sheathing until then, are something over $2 billions, or slightly more than the total expense for research and fundamental development at Bell Laboratories in that time. But this leaves out any evaluation of the superior performance, the improved handling, the easier maintenance which have accrued to the benefit of the telephone user throughout that span. Further, the world consumption of lead has been drastically eased by this technology, for with the United States and world production of power cables alone, which quickly adopted the discoveries in the Bell System of how to make durable plastic sheathing, the mining and refining activities of lead consumption otherwise would have sparred the earth and polluted the air and water in forms far more serious than have . actually been necessary. Even the widespread consumer conveniences of polyethylene squeeze bottles were drastically facilitated by these discoveries for they taught how to synthesize polyethylene and to process it so that it would sustain the bending stresses encountered, in all such uses, as well as in cable sheathing. There is little point in speculating whether in fact in time a general market development might have produced appropriate polyethylene for cable sheaths, for the , venture did not happen that way. And venture it was, for no one before had replaced a major structural metal on this scale with a synthetic material which had to last for 40 years or more. We had our stumbles; innovation anywhere, and especially on the scale of the Bell System, is a risk venture. Dealing with technological risk is a big part of our activity. And, again, unlike the general market quasi-competition, we have to live with what we do, and do not sell it and walk away, as is the classic caveat emptor doctrine of much market entrepreneurship.

In this report to you of the role of network responsibility and vertical integration in the technical progress of telecommunications and electronics, we have treated what exists. But in many ways this is but prologue for the future if we are given a chance. We shall not boast of future accomplishments; we do have faith and are fully committed to the future in our actions and projections, right now. Whatever precarious signals one can feel the future in science and engineering is giving, they seem even more exciting and productive than in the past. New combinations of metals and insulators, operating at near absolute zero, were conceived by Anderson and Josephson, as  the Josephson junctions, and realized first in our laboratory by Anderson and Rowell at Murray Hill. They will measure 10-14 volts, a quantity of electrical potential so small that it opens new horizons or thought about signals and their processing. In the work of Walter Brown, Walter Gibson and their associates at Bell Telephone Laboratories on the implantation of nuclear projectiles as ions into thin films of semiconductors and insulators, we are finding completely new modes of electronic behavior. A derivative of the channeling studies or ion bombardment was a time measurement by Gibson of 10-17 seconds, thousands of times smaller than any meaningful interval of time ever characterized before. With such basic elements of nature as the second, the volt, the numbers of quanta from a laser being drastically cast into new dimensions, and also with the heroic engineering and scientific capabilities or those same digital computers, whose origins we described earlier, we believe the world of communications and information processing beckons brilliantly in the times ahead. We have written often and can make available in any depth desired. our estimates of what these capabilities mean to the progress of our society and to the maintenance of its personal and institutional freedoms. It is sufficient to say that the struggle for world position and for ideological value and acceptance will depend heavily on how well modern communication and information methodology is put at the service of a particular society or nation.

In this regard, we have spoken of the central part of digital signals and computers. The oncoming optical communication systems depending on glass fibers as the successor to metal wires for wave transmission are superbly related to handling of electrical pulses which are the expression of digits themselves. Giordmaine, Rentzepis and their associates at . Bell Laboratories have found pulsing properties of lasers that go a million million times a second. Now you have heard of the great communications advances caused by getting into the megacycle or million cycle range, and subsequently, in the gigacycle or billion cycle range, as we are doing in radio transmission.  This has taken generations of ingenious electronics. You probably know that all communication satellites use a high frequency tube developed at Bell Laboratories, called the traveling wave tube. But we are now approaching even solid state successors to that gigahertz facility. What we are saying here now is that the future suggests in optical systems a step ahead (a bandwidth improvement, in technical terms) or a thousand fold. Further, we have produced this year glass fibers whose losses of transmission are tens of thousands of times less than any glass produced until this program was begun, and whose optical configuration is superior for wave confinement and movement beyond anything achieved before. With 1.2 db of loss per kilometer in technical terms; the need for optical amplifiers is so thrifty that inter- as well as intra-city links are of high promise. Indeed, there may be some irony in a concept proposed long ago, but only publicized in recent years, as something which only governments should undertake because private industry could never manage it - something called The Wired City. It is quite possible that what may be achieved will have no wires whatever, or at least will depend mostly on a social nerve network built of optical fibers. However this turns out, one thing about the topic is abundantly clear. That is, that the existing telecommunications network, including especially its many digital elements that we have been permitted to implement, such as T1 and T2 digital transmission systems, is the engendering factor in promoting this new science and technology. For example, already at the Bell Laboratories, co-located with the Western Electric's cable and wire plant in Atlanta, Georgia, and going forward in intimate partnership with our Western Electric associates there, is vital new development of cables, splices, joints and composites of these less-than-hair-thick conductors or light. Here too, for biology, medicine, diagnostics in the human system and elsewhere, many corollary innovations may be produced. For the fiberglass technology that the communications system has evoked is as far beyond the excellent progress of the glass industry and the optical companies up to now as their revolutionary schemes were beyond the lenses or the illustrious past.

So we have been permitted herewith to describe some features of how the Bell System has evoked and applied technical innovation. As I have personally seen and participated in it, I have felt obliged during these 35 years to maintain intimate association with our contemporaries in government, universities, and industry as this Twentieth Century Age or Engineering and Science has evolved. This had led to many ventures, such as the first communications satellite, which was created by the Bell System, and subsequently, on the basis of these systems technology and engineering themes we have espoused, to the engineering guidance of the Apollo Mission (through our Bellcomm subsidiary). Of course, there were many other national services, conducted for the Department of Defense and other government agencies made again in full fusion of effort with the Western Electric Company and the operating elements or the system.

It is the course of this work, and much other that we have kept fully current with involving all other modes of innovation and discovery throughout, the world, that simply leads me to my concluding plea to the Hart Subcommittee. For in the course of these associations (some small additional evidence of the personal part appears in an added list attached For to this script) there has emerged both by the testimony of our peers in other laboratories and institutions, including the Government, and by our first-hand findings, that disintegration of the Bell System will destroy Bell Telephone Laboratories. The forceful professional competition, the stimulus of the insatiable demand and opportunity of the operating network for innovation (for improvement, for economy and for efficiency) the personal excitement and commitment to see realized in honest technical terms, through the partnership of the Western Electric, the actual manufacturer and installation of new ideas, invention, concepts - all of these will not survive dismemberment. Those of us who have worked for decades to attract and help fulfill the human goals of our professional community working toward a common purpose know that it will not stay together under fracture of the System, or even under indefinitely continued harassment.

Yet the alternatives of being allowed to go forward are achingly alluring, for we represent now the youngest engineering and science laboratory in the country, according to the median age or our professional staff, as surveyed by the Livermore Scientific Laboratory (Manhattan Study) of a couple of years ago. With a population of median age in the low 30s we find an aggregation of talent, including some 2,000 Ph.D.'s, never before focused on a 'defined and common purpose. But it is, accordingly, a fragile community. Each individualistic member who will do the creating and inventing and co-working with the Western Electric and the Operating Companies has to be convinced that it is a doable and practical task. Our experience in organizing the National Energy Research and Development Programs in the last year demonstrates poignantly that in vast systems, such as electrical utilities, fragmentation of engineering and systems operational courses and endeavors is disastrous. What a bitter turn of history it would be to find that the casual application of a vague, outworn and never proved myth, that “technosystems” should be controlled by a casual salesmanship of hardware really made for something else, should result in destruction of an existing one or those institutions which we are' trying so hard to create in other fields.

The notion that Bell Laboratories could endure and function away from the Western Electric and the operating integrated Bell System would be laughable were it not so sinister and so ominous. But almost equally as grave a threat is contained in measures that would cut back the opportunities for Bell Laboratories, Western Electric and the operating elements of the enterprise to join together to use the best and bravest of discovery which our science and engineering can and will make for future service to the people of our nation., For as we have said, the stimulus to our thought comes from the bold and stirring challenge that if we can think or new digital networks, of new telephone instruments, of new modes of distribution like satellites and fiber optics, of new radio qualities like DUV, then we have in the Bell System's integrated affairs and skills the opportunity to see the thrust of human creativity converted to human benefits.

In engineering and science we have to depend on the evidence, and in these issues, with which we conclude, some parts of the world show us the alternatives. One of them has been described by a senator or France (M. Adolphe Chauvin), as quoted in a recent publication: “The situation or the telephone service in the Paris region (400 thousand pending requests for new phones plus 100 thousand requests for transfer) has become a subject of sarcasm and jokes, when it does not generate anger. A Paris nightclub entertainer sings everyday, ‘one million Frenchmen wait for a telephone and seven million wait for the dial tone.’” The senator went on, “Last week one of my callers tried to reach me in the Senate from 10:00 in the morning until, 5:00 in the afternoon when he finally succeeded. Either one does not get the dial tone, or the circuit is closed, or one is privileged to listen to unknown customers who are speaking about things which do not concern you.”

Telephony is not the easiest pursuit in the world, and France is by no means the worst example of its difficulties. I can assure you, Mr. Chairman, from many discussions with my engineering and scientific counterparts in other telephone administrations, in the Penn Central Railroad, in Consolidated Edison Company, in certain airlines and other essential institutions, that our Government, if it wishes, can arrange for us to follow France and, with traditional American zeal, go down even deeper. But the wonderful option yet remains: that if our working structure is supported - not just tolerated and pulled at, but approved and affirmed - the path is upward, straight ahead.