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Business Movers
Breaking Bell | Writer Jon Gertner discusses AT&T’s impact on technological innovation | 5
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- [00:00]
Lindsey Graham
Want to get more from business movers? Subscribe to Wondery for early access to new episodes, ad free listening and exclusive content you can't find anywhere else. Join Wondery in the Wondery app or on Apple podcasts. It's the middle of 1982 at AT&T's headquarters in New York City. Half a dozen suited men review documents laid out across every spare surface in 60 year old chairman Charlie Brown's executive suite. It's late and everyone is exhausted. For the last few months, AT&T bosses have been working on a settlement deal that might end the federal antitrust lawsuit. They have an agreement in principle, but working through the fine details is taking time. Charlie looks over to a table covered in Chinese takeout boxes. Hey, is there any low main left? I'm going to need something else. If it comes, get through the night. AT&T Attorney John Zegles grabs a box and hands it to Charlie. Now you think we can return to the question of how many regional operating companies we should have after the breakup? Well, why not 22 like there are now? Well, the existing 22 are vastly different in scale. We could consolidate the smaller ones and get about seven that are roughly the same size. And how big would these seven be exactly? About 15 to 20 billion in assets each. You think that's big enough to survive? Well, they'll have a tough time at the start, no doubt. Rates will probably have to go up and customers won't like that, of course. But frankly, that won't be our problem. This is what the DOJ wanted after all. Well, I guess that makes sense. Seven equal companies serving the nation sounds good to me. Charlie spears his fork into the takeout box and twirls up some noodles. But he doesn't take a bite. Instead, he stares off into the distance for a moment, lost in thought. Then he locks eyes with John. You know, these regionals, it doesn't feel right. We're throwing them to the wolves. They aren't allowed to manufacture equipment or provide long distance services. Feels like we should be doing more to set them up for success. Well, I mean, if you want to throw them a consolation prize, we could give them the wireless licenses. That won't cost us much. And wireless is just a fad. It's not going anywhere. Our studies show that maybe there will be a million customers or so. That's it. One million? Yeah, and probably just government. Maybe Wall street, too. It really isn't worth the time or effort to hold on to wireless. Charlie waves his fork in the air. All right, give the regionals Wireless A little extra for them and sounds like we won't miss it. The deal that AT&T struck with the Department of Justice at the start of the 1980s guaranteed the future of the telecom giant. AT&T may have lost its century long monopoly over the American phone industry, but at least it still existed. The deal wasn't perfect though, because AT&T gave away wireless communications for practically nothing. What seemed like a token gesture at the time would power the regional operators into spectacular growth, and the rapid adoption of wireless would become a transformative moment in telecommunications history. Business Movers is sponsored by FIGS In 2013, FIGS set out to change something that hadn't changed in decades. Scrubs. While medical technology kept advancing, healthcare professionals were still wearing boxy, scratchy scrubs that didn't do much for the people wearing them. But FIGS thought they deserved better. So they reimagined scrubs entirely, creating modern designs with performance fabrics that are moisture wicking, antimicrobial and ready to go straight from the dryer. Today, figs are worn by hundreds of thousands of healthcare professionals across hospitals, clinics, dental offices, even vet practices. You'll see them everywhere once you start looking. So if you work in healthcare or know someone who does, check out FIGS. Right now you can get 15% off your first purchase with code figsrx@wearfigs.com that's FIGSRX for 15% off your first set.
- [04:05]
John Zegles
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- [04:43]
Lindsey Graham
From Wonder E. I'm Lindsey Graham and this is Business movers. For over 100 years after Alexander Graham Bell invented the telephone, American telecommunications was dominated by a single company, AT&T. But on January 1, 1984, that all changed. AT&T was cut down to size after a new generation of politicians introduced competition into what had previously been a state sanctioned monopoly. AT&T had tried to hold back the tide for a decade, but they eventually admitted defeat. And in order to ensure AT&T's ultimate survival, they were forced to sacrifice a major part of its business. The 22 regional operating companies that provided short haul telephone service. In return, though AT and T retained its long distance service, it also kept control of manufacturing arm Western Electric and research division Bell Laboratories. And as part of the deal, AT&T was allowed to diversify into a new technology, computers. So after years of legal uncertainty, AT&T was now leaner but secure and facing a brighter future. The seven consolidated and newly independent regional operating companies were in a tougher position. Without subsidies from AT&T, they had no choice but to raise prices. And that caused a backlash from angry customers. But in a twist of fate, the regional operators ultimately came out ahead. Even though customers were unhappy about rising prices, no other companies were allowed to compete in their local areas, giving them their own monopolies. They also benefited from a change in the law which allowed them to offer long distance calls starting in 1996. And thanks to the last minute addition of wireless licenses to the AT&T breakup deal, they were in prime position to take advantage of the explosion in cell phone usage. And as technology and the market changed, so too did the telecom companies. Two regional operators merged to create Verizon. Southwestern Bell took over three of its rivals. And then Southwestern pulled off the most stunning move of all, paying $16 billion to buy AT&T in 2005. What was once the biggest company in America was now the property of one of its old subsidiaries. American Telecommunications had come full circle in less than 20 years. Here to talk about the impact of AT&T's monopoly and breakup on American telecommunications and technological innovation is John Gertner, author of the Idea, Bell Labs and the Great Age of American Innovation. Jon Gertner, thank you for speaking with me today on Business Movers.
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John Gertner
Thanks for having me. I appreciate it.
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Lindsey Graham
So with the whole universe, the entire history of human innovation at your fingertips, what drew you to Bell Laboratories as the subject of your first book?
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John Gertner
I think there's two answers to that. One is that I was working as a journalist throughout the 1990s and early 2000s and I was writing about science and technology, and I was writing a lot about Silicon Valley and those early days of Google and Facebook, and I was deeply curious about some of these digital communication technologies. So that's part of the answer, but the other part is really that I'd also grown up right next to one of Bell Lab's main facilities. And so I kind of had this sort of inborn understanding of how important this institution was and how kind of the early days of communications and innovation sort of happened. And it wasn't so much that my own family was employed by them. But all my neighbors were, and this was in a town called Berkeley Heights, New Jersey. So that kind of appreciation for sort of understanding the origins of some of these communications technologies that in turn became kind of these monumental global digital behemoths kind of made me want to tell that story, because I think what I found was that, you know, to backtrack a little. I think as a country, we're a very forward looking country and oftentimes we don't sort of necessarily appreciate what led us to that particular point. And with, you know, technology, with innovation, with these kinds of radical, I guess, communications leaps, there wasn't necessarily an understanding of what had come before. And if we wanted to really understand what led to Google, to Facebook, to Apple, to all these companies that were changing the world, I think my understanding or my sense of things was that we really had to understand the story of bell Labs and AT&T. These were the companies that connected everybody to everybody else in a kind of more primitive moment in time. But at the same time, the kinds of leaps that they had made with technology were really vital. And that to me, sort of, you know, led me to sort of say, well, this is a good story and maybe this is really important to tell it now. I had thought it would just take a couple of years of my time, but it took a awful lot longer. So I spent about you know, 10 years, all in all, trying to figure out how to do that. But what came out of it was that book, the Idea Factory.
- [09:56]
Lindsey Graham
So you started with a hunch and some familiarity with Bell labs, but that 10 years of research tells me that you found some surprises.
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John Gertner
Yeah, I had this sort of moment in my mind of actually riding on the school bus as a kid and. And there's a sign in my hometown, you know, saying the transistor was invented here, you know, with a kind of pointing to the Bell Labs facility and not really knowing what a transistor was as a 12 year and later coming to understand it. And I think when I began the book, I sort of thought, well, this will be a book just about these kind of monumental technologies that came out of Bell Labs, and I'll tell the story of each one. So there was the transistor, for instance, there were a number of different kinds of lasers. There were communication satellites. There was a whole range of innovations relating to digital technology. But I think the surprises, and there really were quite a few, is that the book, fundamentally, as much as it was about technology and innovation, was really about the people who drove these, how they kind of came together in this one organization. How this organization sort of functioned within the kind of policy and government and technological landscape of the United States in the mid part of the 20th century. All those things were. I wouldn't necessarily say they were a surprise, but they were far more complex and far more interesting and far more nuanced than I expected. And I think what came out of it was at least hopefully not just a story about technology, but a story about people and place and a particular time in American history that gave rise to these innovative leaps. Really?
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Lindsey Graham
Well, who were perhaps some of these people in important positions in important times?
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John Gertner
Yeah, I mean, you know, there's sort of a cast of characters in my book and when I talk about surprises, things that I didn't necessarily know that I was going to be writing about when I began, it was sort of the lives of these people. And you know, Mervyn Kelly is not a familiar name, certainly not a household name, but he came through as sort of this kind of visionary manager of Bell Labs, a person who took charge of its research efforts and its development efforts and sort of oversaw the development of so many of these technologies that I just mentioned. Transistor laser, the digital communications, all these things that created a kind of nationwide and eventually global communication system. And a lot of these people who came to Bell Labs were really coming out of nowhere. I mean, I. A lot of them eventually went to sort of elite universities, Caltech, mit, and made their way to Bell Labs. But oddly enough, a lot of them were kind of had grown up on farms or grown up very poor. And their stories were kind of these kind of rags to riches or sort of up by the bootstrap sort of things where they were kind of gifted in mathematics or science or just deeply curious about something. And then their teachers at school would kind of encourage them to work hard, work hard, go to a local university and then eventually they would go to graduate school and then event eventually they would find their way to Bell Labs and they would kind of lead their way towards what eventually turned out to be really important ideas in physics or communications. So their story, Mervyn Kelly I just mentioned. Others are William Shockley, worked with the transistor. Claude Shannon, sort of a kind of forefather of digital communications. John Pierce, who spearheaded really this kind of advent of cellular phone systems as well as telecommunications satellites. Bill Baker, who was a great manager but also sort of tog between the world of government and sort of spyware as well as communications and running Bell Labs. And they make up. I'd Say, the core people in my book, which is really a story of the leaders of Bell Labs, the visionaries who kind of ran this place from, say, the 1930s till, really the 1970s.
- [13:43]
Lindsey Graham
So what made Bell Labs the mecca for these individuals? What made it so uniquely successful at fostering innovation?
- [13:51]
John Gertner
Yeah, if we try and compare it to some of the companies today, I guess I would say we kind of have to step back and rearrange our brain a little bit, because it wasn't a normal company in the way we think of a company today, like Google or Apple or Tesla or Amazon. This was a company that was deeply enmeshed with federal government policy and monopoly agreements. AT&T grew out of the invention of the telephone, and AT&T was American Telephone and Telegraph. It was a different AT&T than it was to today. And really, by the mid-1920s, this was the largest company in the world by stock valuation in terms of number of employees, in terms of its revenues per annual revenues. And AT&T, as I said, wasn't a normal company. It was a sort of vertically integrated company. Everything that they kind of distributed in terms of creating this phone system that connected everybody in the country to everybody else, every kind of piece of hardware and I guess we could say kind of of proto software was created by the company through a very large division called Western electric. And in 1925, they also created their own research and development Lab to feed AT&T's innovations. And this was Bell Telephone Laboratories or Bell Labs. And this company had very kind of delicate relationship with the United States government, which let it control the phone monopoly. But it also oversaw its influence in terms of how much it could raise rates to users. And there was kind of constant threat that maybe phone companies should be broken up. This is a kind of pervasive theme that runs throughout my book and really from the 1940s onward. But essentially, we might think of AT&T as a kind of utility that was highly regulated by the government, that was hugely profitable, that could think really in much longer terms than companies could today because they didn't really have any competition, at least at first, in the phone business. So they could say, well, in 10 years we want to introduce a new switching system, or we're working on integrating this new innovation, the transistor, into our system, but we're not going to do it quite yet because we're not ready. So they could think in much longer terms. And that gave them, as we can talk about a little later, that gave them a great advantage to thinking longer term. Without this kind of competition nipping at their heels, they saw a very long pathway to both creating new ideas and putting them into a telecommunications system that they were building at Bell Labs.
- [16:25]
Lindsey Graham
There was an interesting interplay between scientists, engineers and managers. And you write about this in your book, how essential was that mix?
- [16:34]
John Gertner
I think that there was a sort of sense at Bell Labs and within the phone company of being part of a much larger whole. So whether you were a scientist at Bell Labs, you understood, I think, to a pretty deep degree what the engineers in the company needed as well as what the managers were and what the goals were for the larger company. I mean, one of the people I interviewed in my book who rose to a very high position at Bell Labs was a fellow named Maury Tannenbaum. And Mori was a chemist by training. And when he got to Bell Labs, he started working on transistors. The very first transistor ever, which kind of replaced vacuum tubes and was this very tiny device that could do switching and amplification, was made out of a particular material material. By the 1950s, early 1950s, they were trying to create silicon transistors. And Morri Tanenbaum was the first person to actually create the first silicon transistor. And he showed me his laboratory notebook from the night he had his breakthrough. And what he wrote in his notebook was, I think this is the transistor we've been looking for. It should be very manufacturable. And what was interesting about that is that he was working on the science side, but he had a deep sense of how difficult it was to put new products into the system, that the engineers would need to take the scientific breakthrough kind of scale it on a very large, on a very big plane. Because, you know, this is a phone company that really stretched coast to coast. And the system was almost mind boggling in its size. And that every kind of new innovation or new idea coming out of the science side, coming out of the research side, had to have both an economic argument that was plausible for putting it into the system, but also a sort of sensible engineering argument. I guess what I would say is there was a deep kind of appreciation for the roles that engineers, scientists and managers were playing in the company. Managers were often setting the goals, whether they were long term or short term, in terms of bringing new ideas or advances into the system. Engineers were doing that very difficult work of scaling up new ideas, which is often really fiendishly difficult to manufacture some of this stuff. And the scientists were pushing away, trying to solve problems that might, might be five or 10 or 15 years out. And I think that interplay between them all and there were very good lines of communication really benefited the company. At least during its heyday.
- [19:04]
Narrator
Before the Internet ruled our lives. AOL brought America Online with email and Instant messenger. By 2000, AOL was so powerful, powerful it bought media giant Time Warner. This was a deal that was supposed to bring us into the future, revolutionize media. But instead, it became one of the messiest corporate disasters in history.
- [19:25]
Lindsey Graham
So what went wrong?
- [19:27]
Narrator
The dot com crash? Culture clashes? Or something deeper? Business wars gives you a front row seat to the biggest moments in business and how they shape our world. Because when your flight perks disappear, your favorite restaurant chain goes bankrupt, or new tech threatens to reshape everything overnight, you can bet there's a deeper story behind the headlines. Make sure to follow Business wars on the Wondery app or wherever you get your podcast. And you can binge all episodes of Business the AOL Time Warner disaster, early and ad free right now on Wondery.
- [20:02]
Mindy Thomas
Hey, grown ups. I'm Mindy Thomas.
- [20:04]
John Gertner
And I'm Guy Raz.
- [20:05]
Mindy Thomas
And we're the host of the number one podcast for curious kids. Wow in the World.
- [20:10]
John Gertner
Ah, Mindy. Can you believe we have our very own wow in the World Stem toys?
- [20:16]
Mindy Thomas
I totally can't believe it, Guy Raz. Eight years ago, when we started making wow in the World, we were on a mission to spread the latest wow discoveries in science and technology and innovation. And now we get to help kids discover these wows right at home.
- [20:32]
John Gertner
That's right. From the ultimate high flying air rocket to the light up terrarium, there's something for every Wowzer in your world to play in. Tinker with Grown Ups.
- [20:42]
Mindy Thomas
You can find wow in the World Stem Toys available now at select Walmart locations or online@walmart.com shop the wow. Now.
- [21:07]
Lindsey Graham
One of the obvious problems for large companies like AT&T of any era is the problem of silos, of Balkanization. And it sounds like you're telling me that they had an innate understanding of the corporate goal that transcended that problem.
- [21:21]
John Gertner
It's a great question, and I think it's very true that I don't want to. I guess I shouldn't sort of portray it as a Shangri La, because it wasn't. And there were people who were at Bell Labs who didn't really want to deal with practical problems. I mean, there were folks in the mathematics department who really didn't necessarily want to get involved with the kind of switching problems or engineering problems. But I think those were the exception. And I think if we look at kind of, okay, this larger question that I think animated me in writing this book and looking at Bell Labs, which is why did one organization come up with so many important breakthroughs during one particular moment in time? I mean, there are certain answers to that question that are not necessarily obvious. I mean, you could say, well, they hired great people and really brilliant people and they got them to work together, together. And that's one part of the answer. But I think inherently the fact that this research and development lab was attached to a company that had long term horizons, that had a way for them being the scientists and researchers, to move their ideas into practical reality, in the sense that you weren't just coming up with ideas or research that was going to be published in the way, say, academic research might be doing. You were actually coming up with new ideas and breakthroughs that would be implemented into the system. And for a lot of the science I interviewed, you know, it was a matter of great pride to actually have some kind of breakthrough in switching or transmission or optical fiber and have that actually be manufactured and have it, you know, save money, for instance, or have it kind of cut the time that a call might require or expand the bandwidth of the system. Those were really important practical matters, but they mattered just as much as the sort of academic kind of credential that came with a breakthrough. And so the breakthroughing through of silos, they would not see it that way. I think they would see it more. And the managers at Bell Labs worked towards this, of trying to integrate this sort of kind of ungainly organization, as I think any probably complex corporate lab and entity probably is, into a sort of more kind of integrated place that was more than just the sum of its parts, where people were working towards a more common goal. And oftentimes when it was at its best, it really did work that way.
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Lindsey Graham
So if we're trying to answer the question, why did this innovation happen at Bell Labs? It sounds like a large portion of the answer is that it could only have happened at Bell Labs because of the monopoly at&t held.
- [23:49]
John Gertner
I know it's a very strange paradox because I can't say I'm a fan of monopolies. And I think the sort of, you know, you grow up learning American history and you sort of understand the dangers of monopolies in terms of business history and economic history, and that they're not an advantage to consumers, obviously, and they create all sorts of problems. But, you know, in many ways, I think the monopoly did Allow for this particularly kind of unique company to innovate because it gave them resources by being connected to the largest company in the world. The laboratories had a sort of steady stream of income by being connected to the largest company in the world that also had a kind of effective monopoly on telecommunications. They saw that there was a time horizon stretching out in front of them that really went pretty far into the distance. So they could look at five year horizons, ten year horizons. They could create electronic switching systems, which is what they did, which were very, you know, large advances for the system to actually make it faster and better and cheaper. But they could look in doing that over the course of 20 years, and those things now really did matter. I think that's one thing. I mean, monopoly was very good for Bell Labs in the sense of giving it funding and giving it great people and giving it the ability to think long term. I might also say that they were working in the right, right area. It was the right organization working in the right area of technology at the right time. You know, the people in the mathematics department and elsewhere would say, you know, we're not really always looking for great ideas, we're looking for great problems. And it was a problem solving environment, working within an industry where there was really no end to problems. Like how do you kind of get everybody connected to everybody else and then how do you do it quickly and how do you kind of keep making it cheaper and how do you make it better and then how do you deal with digital communication? So the problems never ended. And the problems in turn necessitated a sort of constant stream of innovations to make them work. So it's the flip side of that monopoly coin. But I think it's equally important too.
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Lindsey Graham
Well, one of the problems that did never end also was the threat to the monopoly. And especially in the 70s and 80s, as our series covers, how did this uncertainty over AT&T's future impact bell Labs?
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John Gertner
Yeah, I mean, Bell Labs had a little bit of agency by working within AT&T, but we have to remember it was the corporate lab. It was an enormous laboratory. I mean, by today's standards, I mean, we're talking about, you know, well over 20,000 people working there by the time of the early 1970s. And there was a sort of sense that, you know, really of all the scientists and researchers I spoke with, they wanted that monopoly to continue. I mean, the idea that AT&T would be broken up was a very obvious threat, I think, to Bell Labs. And it was a threat because what it meant was that if you were Breaking up the company, you were breaking up the revenue to some extent, and that, you know, certain areas of labs couldn't necessarily stay intact, that they would probably go off with pieces of the company that were broken apart, which is indeed what actually happened. And as the company was broken into pieces, the revenue of each sort of fractional company would be smaller. So, you know, if you look at Bell Labs as having a kind of. That part of its innovative capacity was its size, that it had this sort of largeness of talent and dynamics because of all the people and because of all the revenue, then, in fact, the threat of a breakup was worrisome. And the actual breakup proved to be devastating. Not quickly, slowly, actually, as companies broke apart and Bell Labs got smaller and smaller, both in terms of revenue, in terms of people, and in terms of its capacity and capability for what it should do. So, I mean, the breakup was a sort of seminal kind of moment in the history of Bell Labs. I might add that a lot of the managers of Bell Labs had seen this coming or had seen this danger decades before. And really, if you go back to the 1950s onward, maybe even into the 40s, you can see that the managers would always have a very careful eye on where the limits of Bell Labs research could go, that they wanted to stay inside what was allowed by the monopoly agreement with the government. So, for instance, computers were off limits to AT&T and to Bell Labs by the agreement that they instruct with the federal government. They were going to work in telecommunications and telecommunications only. That defined the purview of their monopoly. So when I was kind of digging through the archives, you know, I would see papers saying, you know, please do not describe the electronic switching system as a computer. You know, of course it was a computer, but they couldn't describe it as a computer because that would kind of raise some alarms in Washington, possibly. So it was almost like the breakup in the 70s, which effectively took place in the 80s of AT&T, had been the kind of nightmare scenario that I think people at Bell Labs had been sort of seeing really for many years. And as it unfolded it really, I think as many people at Bell Labs knew, it undid their organization. Not quickly, as I said, but slowly.
- [29:06]
Lindsey Graham
Was there anyone inside Bell Labs that thought there was an upside to the breakup? I mean, it seems like monopoly constraints might have limited their ability to do research, but also to do profitable research.
- [29:18]
John Gertner
Yeah, I think they were looking to try and sort of make the best of a difficult situation. You know, there was still a sense right after the breakup that this freed AT&T to join or to enter the computer business and that it would become a kind of player in that business. Now, that didn't work out well at all. In fact, they failed at that business in part because the expertise at AT&T&, you know, to some extent Bell Labs and Western Electric was to kind of create telecommunications equipment within this sort of very structured, protected monopoly system. And, you know, it turned out that free markets were just not what they were able to work within and were. Were very, very difficult for them to compete within. But thus there was optimism that there would be new markets for the company to get into. There were some thoughts that maybe Bell Labs should be spun off as a national laboratory. Or I remember reading Peter Drucker sort of raising this point. Maybe Bell Labs could kind of go into business on its own. I mean, it's difficult to see how that could have worked because Bell Labs was really a research and engineering group and not a sales or business group really. It was a kind of joined at the hip, really, to Western Electric and AT&T. And for it to be on its own was probably not possible. I think it could have, in theory, looking back on it, become some kind of national laboratory for communications. But that too is hard to see how that would work because it was still part of these larger telecommunications entities when the companies were broken up. So this notion of could history have turned out differently. What could have happened is AT and T could maybe have not settled or gotten into a settlement with the government to break up the company as it did. They could have gone to trial, which they didn't end up doing. But it's hard to know whether that would have happened anyway. And it's also hard to know if things would have turned out differently at all anyway, either.
- [31:16]
Lindsey Graham
Well, you know, that's speculative history and no one can really know. But after AT&T's breakup, Bell Labs remained part of the company, at least in the short term. Firm, describe to us how Bell Labs changed in this period of enormous change for AT&T.
- [31:29]
John Gertner
@ first, not much at first, I think there were a lot of people doing, you know, researching to understand Bell Labs. You know, there were a lot of engineers and some scientists working in development who were working on getting new products out, I guess we might say within like a two to five year time frame. But we also had a lot of people just in the research area, Bell Labs, you know, know probably well over a thousand people right around 1980 who were really doing, I guess you could say, blue sky research or basic Research and, you know, basic research is difficult for a company. I mean, Bell Labs continued to do it in physics, for instance, and they continued to win big prizes, like Nobel prizes, for instance, and other prizes elsewhere. But one thing about that kind of research is it's really, really hard to capitalize on. Not only because your competition might be working on something, but because sometimes the time frame between these breakthroughs in basic physics or say optical fiber transmission can take really many, many years to actually translate into a new product. And by that point, you know, AT&T kept evolving and kept breaking apart and being recombined into other forms. And Bell Labs in the meantime kept getting smaller and smaller. And telecommunications all of a sudden was in the midst of a real revolution. I mean, in terms of private industry and in terms of other companies kind of coming out with cheaper products that appeal to the consumer and all sorts of other advents of cellular communications too. Immediately after the breakup, Bell Labs tried to continue as it was, and it did for a few years. But eventually, I think the laws of gravity just caught up to it and the basic research component got less and less. It could not be justified by the kind of private sector competition that the company was now in. And eventually, you know, it had to be cut of downsized to such a modest degree that Bell Labs really ceased to be the same organization. I would say that was the Bell Labs that, you know, I had written about really more in the 50s and 60s and 70s in that heyday of innovation. And I think that's just reality. I might just add, you know, that's not. We might not look at that as a kind of tragedy, although maybe it is, maybe it isn't. I think the point is that the reality was that Bell Labs just could not be maintained under the situation of the breakup. That there was no way to continue funding and sustaining this 20,000, 25,000 person research and development facility that had a very, very large basic research component because it just couldn't be justified by the new private sector corporate nature of its parent companies.
- [34:12]
Lindsey Graham
So after the breakup, we have this slow atrophy of Bell Labs. What happened to the brilliant minds at the company, the 20,000 people that probably dwindled too? How did they handle this change in both mission and morale?
- [34:26]
John Gertner
Some left, some of the best finds went out to the west coast and got jobs at Google, at Microsoft. Some went to universities. You can still find Bell Labs people everywhere. Princeton, Google, Stanford, Berkeley, everywhere. Whether it was people who worked on Unix or C or in the physics labs or elsewhere, or engineers and there commenced a brain drain in those years after some people retired. But academia and the private sector companies as well as I think the burgeoning companies in Silicon Valley really gained from Bell Lab's slow demise. And they in turn sort of hired those scientists and those engineers and used their both wisdom, experience and intelligence to, to fund new research, new products, new ideas.
- [35:14]
Lindsey Graham
A lot of innovation today is funded through VC money. How does this compare to the kind of incubation that Bell labs received through AT&T?
- [35:27]
John Gertner
Yeah, it's a very different model. I think that we were talking about long term time horizons. It's probably the most substantial difference. I mean, you know, as a journalist I've spent a lot of time with the VCs out in California and sort of, you know, have understood how they fund companies and what their expectations are for returns and for the development of technologies. And obviously they're not interested and can't really afford to. And it makes no sense to fund basic science experiments in the same way that Bell Labs could and did. And you know, if we look at some of Bell Labs, I mean, just to pick one example, say of the first telecommunications satellite, which really was an experiment, that's not something that would ever sort of suffice, I think, in the VC environment if we had to kind of compare it to today. But we have a model that I think it works certainly very well for bringing software to market and to some extent hardware. I think some of the shortcomings, if we might call it that, are in the sense of how difficult it is, for instance, to bring down some costs on things like clean energy technology, for instance. Although, you know, we've seen a lot of VCs funding some of these innovations that have come to market and have made an impact. You know, Bell Labs was a centralized model that I don't really think exists anymore. I think to some extent, you know, you know, Google has tried it with Google X with I think, you know, mixed results maybe, or you know, results that are more modest certainly than Bell Labs. And you know, I think that that notion of, of putting billions of dollars into sort of early stage science and research is very, very difficult for any VC's backed companies or for any kind of companies that are really sort of focusing on, you know, quarterly or yearly results that have to sort of justify those investments and that are really looking at like a two timeframe for new technologies. So yes, in sum, I think we have a different model. Does it work better? I think it works better in some respects the VC model in terms of getting kind of new consumer technologies to market, getting new software to market. Does it work better in terms of breakthrough innovations that might take decades to sort of scale? No, I don't think so. And we might say, well okay, we have national laboratories or that's why we have federal investment to sort of take up those blind spots. And that's true. I think in some ways you kind of as probably listeners can hear like I sort of end up in this place. Like we're sort of comparing apples and oranges in some respects because that Bell Labs model does not really exist anymore. It's been replaced with something else that both has advantages and disadvantages. And if we've lost anything, it might be that sort of notion that we've lost this sort of ability to have really long time horizons to solve really difficult problems that take a lot of time and a lot of effort.
- [38:32]
Lindsey Graham
Well, your answer there anticipated my next question. Back to speculation. Is there any way to fill that gap? Could the long term high cost research, the type of research carried out at Bell Labs be done successfully today in any manner?
- [38:46]
John Gertner
I think so. I don't think it would be done in communications, which probably goes back to that question of being Bell Labs was the right organization in the right area at the right time. I think those sort of, of huge gains in communications are probably there already. My own feeling, and it's just a kind of personal belief, is that we probably need a crisis and we probably need some kind of public funding. And whether that's related to some kind of biomedical crisis or some kind of climate crisis or the like, I think what we have to look towards would be some kind of, you know, federal all funding to do a kind of Manhattan Project of sorts or Rad lab which was at MIT for the development of radar for instance, some kind of huge expenditure with a kind of very high intensity number of people working together to solve a very sort of directed problem. It's hard for me to see companies, corporations making that step and saying, you know, I'm just going to create another Bell Labs because again, I think right now it's just in the nature of the way companies function within markets that they don't have the luxury or ability to sort of work on this long, long, long time scales. It doesn't mean they can't have big breakthroughs and it doesn't mean they can't do meaningful work or come out with new innovations that make a difference. I think what it means is that they're not going to sort of see themselves as responsible as say Bell Labs did for creating the future of communication over the course of a century. It means that they might just see themselves as necessary players that are investing in new products that can make whatever field it is, whether it's energy or software or cryptocurrency, whatever it might be banking better and better for the consumer, but in terms of these sort of world changing innovations, it's harder for me to see that without that sort of federal funding component. Foreign.
- [40:44]
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- [42:52]
Lindsey Graham
You mentioned Google X as a Nexus or a location of where such research might be continuing today. But of course, Google is facing its own antitrust troubles. How Much do you know about that case and what could you possibly tell us about compare and contrast between at&t and Google?
- [43:09]
John Gertner
I'm not following the Google case that closely at this point. I did go to Google X to visit in its very early incarnation and I think to some extent there were some similarities between Google and Bell Labs or Google and @&t. Just as there were similarities I think to some extent with Microsoft and Bell Labs. And Bill Gates, I think, has sort of noted that he was a big admirer of Bell Labs, just as Google was of Bell Labs. And these are companies, Google and Microsoft, that had a kind of, of quasi monopoly in their respective fields. They could dedicate large amounts of funding towards research and development. And whereas I don't think they could work with the same open ended structure or time horizon that Bell Labs could because they weren't effective monopolies that were kind of codified into law. They really did have a luxury of not sort of looking necessarily at making something happen within a year or two and Google X was looking at 5 years or 10 years to turn around some bigger innovations. There were similarities. I think the problem is with companies is you can have a tough year or you can suddenly see competition coming out of nowhere and then all of a sudden some of your research efforts can be on the chopping block pretty quickly when they're not sort of materially relevant to your bottom line. Yet it gets harder and harder to justify them.
- [44:33]
Lindsey Graham
Presuming that Google does face some sort of action, either through the Department of Justice or negotiated with policymakers, what should these government agents, how should they think about any potential action against Google when they review the unintended consequences of regulating tech firms like AT&T and what happened to Bell Labs?
- [44:54]
John Gertner
Right. We know that regulation can create problems and we know that a lack of regulation can create problems. What I think about more than Google is, what I think about is with artificial intelligence, I think that gets into a kind of perhaps more pressing question of regulation. I mean, how much should it be regulated or what are the dangers of regulating it and what are the dangers of not regulating it? And to what extent are the risks of not regulating it catastrophic, say or not? And I think we're certainly in an environment now where regulation is going to be downscaled under the Trump administration compared to sort of what we previously had had. And I can't say I'm an expert on sort of where they're going to go with it. But I think what we've seen with those questions coming up with AI is we really didn't necessarily have a consensus on what to do with it. And I can't say I have the answers. I mean, I have certain thoughts about AI And I think what we know from some of its creators is that there are potential dangers there, whether we know how to regulate or not. That whether we don't regulate it, but the European Union regulates it, and that has an effect here, or whether we need some kind of global consensus on how to regulate these technologies is really important. But I think the point you raised is that, yeah, we're at a moment where the technologies can be so powerful, so new, so transformative, that regulation becomes a very, very difficult kind of question. And I don't even know if you. If the Bell Labs lessons can apply in some aspects, because in some ways it feels like a very different world when we're talking about there weren't sort of existential risks, I think, with Bell Labs technology and regulation, But I think there may be.
- [46:39]
Lindsey Graham
Now, that prompts a question. If you were to rewrite your first book, if you were to try and contemplate the central idea of your book, the Idea Factory, what themes or developments would you explore today?
- [46:51]
John Gertner
DAY well, I think, you know, coming at Bell Labs, as a historian or science historian, you know, the story that I wanted to tell there was, I think, the same story I would tell today. How did this lab form? How does innovation happen? And I think those lessons are pretty timely. And when I started the book, I wasn't exactly sure that I would come out with those feelings that innovation lessons can kind of stand up over time. Time getting people together, looking at technology in terms of a problem solving approach, using people from different disciplines to work together, sometimes intention to actually create a new technology. All those other things that my book sort of explores the difficulty of scaling up hardware. All those things, I think they stand the test of time. So you mentioned rewriting the book, which sort of fills me with worry because, like, oh my God, it was so hard to write anyway that actually having to rewrite it would be difficult. But I think I would write the same book. I think where it would leave off at the very ending would be interesting. And it's a good question in that I don't know how I would sort of contextualize the sort of foundational work that Bell Labs did in terms of transistors and lasers and communications that in turn gave rise to this, I guess, our digital society today and how that figures into sort of the risks or concerns of the 21st century and the technologies we Have I suspect that I would address that a little bit more directly or I would think about that a little more. And when I talk about risks, I don't just mean an AI system going haywire. I mean risks also in terms of employment and jobs and how our society sort of functions, whether it's people working in technology or technology becoming so sort of self empowering that it leaves a lot of people out and affects employment and economies in a very profound way. So there's sorts of reverberations, I think, from where we are now and where we'll go ahead. And I think the larger point maybe is that, you know, the foundation, the platform innovations on which today's technologies were built really do trace back to Bell Labs. I mean, every time we boot up a computer or push the button on the microwave, or turn on stove or any electronic device anywhere in our home, car or anywhere in the world, we're using some kind of Bell Labs technology. So. So that undergirds the way we live today. And I still think that's an important story to know and understand.
- [49:28]
Lindsey Graham
So finally, this is a business show, but many of us do not have global monopolies in the telecommunications industry. So what business lessons do you think our listeners can learn from Bell Labs and the breakup of AT&T that they may be able to employ in their work?
- [49:43]
John Gertner
I think that there were a couple things that stood out to me me after and the first is that, you know, innovation is like a buzzword, but that just knowing how it was done at Bell Labs is just that innovation is hard, whether it's software or hardware, and capitalizing on research is hard and scaling up is hard. And even if you seem on the top of your game, you're kind of seeding your competitors, you're creating a kind of nemesis that you might be at a moment where you're just about to fall. So, you know, this sort of notion of making your way as a technology company and innovating over and over again. I think what struck me throughout the book is how difficult it is to kind of be a continually innovative company. And I think it's also important overall all that you want to see your company and products contextually. And you know, at Bell Labs, they were very powerful and very influential. But I think what we learned or what I learned about Bell Labs was that they could keep innovating. But at some point, sort of the world's kind of society or the way that the kind of surrounding environment within which their technology functioned kind of over time took how they functioned that they became kind of antiquated. And maybe that's a lesson too, that no matter what product you're making, no matter what space your company is working in, no matter how good you are at what you're doing, that kind of understanding that you have to see yourself contextually within a sort of larger environment that's constantly changing dynamic, that's constantly in some ways working against you, or potentially, I guess it's possible it could be working for you, but that if you're not sort of aware of that, if you're sort of so sure that you can kind of exert control over that, then you may be doomed to fail in some ways, as Bell Labs eventually was, and that AT&T eventually was. So never stop to step outside your work to understand that no matter how great your achievements are, that future is is always going to be hazy. It's terribly unfair, but it seems very true that that next year or the next five years are always going to be difficult and it's never going to change.
- [52:07]
Lindsey Graham
Well, John Gertner, thank you so much for talking with me today on Business Movers. I enjoyed it.
- [52:11]
John Gertner
Oh, thank you so much. I appreciate it.
- [52:13]
Lindsey Graham
That was my conversation with John Gertner. His book the Idea Bell Labs and the Great Age of American Innovation is available now. From Wondering. This is the final episode of our series on the breakup of AT&T. In the next season of Business Movers, teenage millionaire Howard Hughes heads west with dreams of conquering Hollywood. But the bold Texan outsider quickly learns that making a hit movie is harder than it looks. If you like Business Movers, you can unlock exclusive episodes found nowhere else on Wonder plus and access new episodes early and ad free. Join Wondery in the Wondery app or on Apple Podcasts. Prime members can listen ad free on Amazon Music. And before you go, tell us about yourself by filling out a survey@wondery.com survey. If you'd like to learn more about the breakup of AT&T, we recommend the Deal of the Century, the breakup of AT&T by Steve Kong, the Fall of the Bell System by Peter Temmin with Louis Colambos and End of the the Rise and fall of AT&T by Leslie Cawley. A quick note about our dramatizations. In most cases, we can't know everything everything that happened, but all our reenactments are based on historical research. Business Movers is hosted, edited and executive produced by me, Lindsey Graham for Airship Audio editing by Mohammed Shazib Sound design by Molly Bach. Our supervising sound designer is Matthew Filler music by Thrum this episode is written and researched by Joe Guerra coordinating producer Jake Sampson senior producer Scott Reeves Executive producers are William Simpson for Airship and Aaron o', Flaherty, Jenny Lauer Beckman and Marshall Louie for Wondering.
- [53:54]
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- [54:06]
Lindsey Graham
Thanks. Have a good one.
- [54:07]
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