Carterfone decision

Citation

In the Matter of Use of the Carterfone Device in Message Toll Service, 13 FCC 2d 420 (1968) (full-text).

Overview

In the public switched wireline world, the debate over opening the network to devices, or terminal equipment, has a long and complex history. The long-debated issue of whether or not consumers would be permitted to attach their own equipment to the telephone network was largely resolved by the 1968 Carterfone Decision.

FCC decision

This decision was issued by the FCC in response to a petition filed by Thomas Carter, an inventor, who developed a device, known as the Carterfone. The Carterfone enabled consumers to connect a two-way mobile radio system to the telephone network.

This device was primarily being sold to oil exploration companies for use by field engineers in remote areas.

In accordance with its long held policy, AT&T, the parent company of the Bell System, denied the attachment of the Carterfone to its telecommunications network citing concerns about the potential of foreign devices, i.e., non-Bell System devices, to harm the network. Given the Bell System’s status as the monopoly provider of telecommunications, the refusal to allow non-Bell System equipment to attach to the network, in effect, resulted in a de facto monopoly over devices as well as the transmission platform.

The FCC, however, determined that the Carterfone device and other customer-supplied equipment could be attached to the public telephone network as long as the devices were “privately beneficial, but not publically harmful.” The FCC found that AT&T’s tariff was unreasonable because it would have prohibited the Carterfone attachment whether or not it harmed the telephone system: “the vice of the present tariff . . . is that it prohibits the use of harmless as well as harmful devices.”

The FCC also found that the tariff was discriminatory because it permitted customers to attach equipment similar to the Carterfone provided that the equipment was manufactured by AT&T.

On reconsideration, the FCC set some limits, insisting that it was not “opening the door to customer ownership of telephone handsets.”

Impact of the decision: The long view

Although the FCC's decision allowed users to connect equipment to the telephone network, AT&T filed a revised tariff that also permitted the use of privately supplied telephones and other telephone equipment. As a former FCC Commissioner later noted:

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Carterfone had said nothing about substitute equipment; there is no indication that the FCC intended to terminate AT&T's monopoly on non-peripheral terminal equipment.

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Two additional steps needed to be taken for the full impact of Carterfone to be realized. First, in 1975, the FCC created the Part 68 rules which required that all terminal equipment connect to the network through standard plugs and jacks. Any manufacturer that met the Part 68 standards was authorized to produce customer premises equipment (CPE).

Second, in the "Computer Inquiries" (decided in the 1970s and 1980s), the FCC required telephone companies to sell equipment through separate subsidiaries, thus "facilitating competition in the equipment market" that led to an "explosive growth in the variety of end user devices." As former FCC Chairman Reed Hundt noted:

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Today, the benefits of competition in the CPE market are tangible. Consumers can buy telephones of all shapes, sizes and colors with a bewildering array of features and functions. They can buy telephones with built-in answering machines, telephones with memory, telephones with speed dialing, and cordless telephones. Since deregulation, prices for this equipment have fallen, and as prices declined, sales increased. Sales of cordless telephones, for example, increased from approximately 4 million units in 1985 to 9 million units in 1992.

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The Carterfone decision resulted in huge benefits to consumers who were offered a multiplicity of new telephone equipment and functions, but the decision is even more lauded today for its role in enabling the growth of the Internet. As a former FCC colleague wrote:

“

Most important for the growth and development of the Internet, the Commission's deregulation of customer premises equipment, or CPE, cleared the way for the rapid deployment of the modem. . . . In fact, without Part 68, users of the public switched network would not have been able to connect their computers and modems to the network, and it is likely that the Internet would have been unable to develop.

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In addition, though it is not widely acknowledged, Carterfone was critical not only to the development of the Internet but also to the data communications industry (consisting of companies like IBM and DEC) that preceded it. For example, at the time of the Carterfone decision, technology experts were developing "sophisticated data communications networks using combinations of dial-up modems with acoustical couplers (rather than the direct connections that Carterfone allowed) and private lines with directly connected modems — all connecting to, for example, the early time-sharing computers," to create what was known as Remote Access Data Processing. In addition, public packet-switching was also developed in the form of X.25 networks that preceded the development of the Internet.

More recently, some have pressed the FCC to apply Carterfone-type rules to the wireless network as well. However, the application of such rules may prove to be more difficult. Unlike the public switched telephone network, which is basically supported by a common technology, wireless networks are supported by a variety of different technologies. As the technologies that support wireless networks converge, the application of a Carterfone-type solution may become more feasible.