The Idea Factory: Bell Labs and the Great Age of American Innovation (48 page)

But the phones were ringing less and less. And—like Shannon, like Pierce—Baker spent a fair amount of time out of the office collecting
awards and honorary degrees. He seemed especially willing to rehash old histories from the glory days. In his personal letters, in fact, Baker sometimes seemed as if he were writing for posterity, creating long and often simplistic narratives of what had been complex innovations. His rendering of the past seemed geared to redound to the greater glory of the Young Turks’ Bell Labs, the Bell Labs that existed before the phone monopoly was broken up by lawsuits and regulators. “Happily, the science and technology that you remember in some of your writings is flourishing still,” he wrote to his old friend Clark Clifford in 1991. “I am ever grateful that the new phenomena of lasers and photonics that came from our research in the early and mid-60s is finally transforming the world of telecommunications. We were not encouraged for the acceptance of this industrially or economically at first, when millimeter wave technology seemed so appealing. But we dug in our heels, and I must say that our corporation did give us opportunities, even though it was made very clear that the risk was our own.”
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Meanwhile, old friends paid tribute to Baker even while sending along condolences on the passing of his old world. One high-ranking Washington insider, a cabinet member to several U.S. presidents, wrote to Baker on his eightieth birthday, “You, of course, have been in a position to observe the shortening of the time horizon (and the shrinkage of curiosity) at Bell Labs, since the demise of Ma Bell and the growth of unfettered competition.” Baker was too much of a gentleman to agree. In a long and convoluted letter back—“equally necessary was a versatility and sharing of knowledge for a coherent policy formation in the aggregate,” he wrote in a moment of reminiscence—he seemed mostly intent on revisiting his old intelligence work and recounting its triumphs. He came across as nostalgic for the cold war.

What pushed Baker from private regrets about the state of telecommunications to forthright disapproval was the Telecommunications Act of 1996. A huge and complex piece of federal legislation, the Telecom Act altered the structure of the communications business by allowing, among other things, the former regional telephone companies (now known as the Baby Bells) to compete nationally with AT&T and MCI.
In short order, the 1996 rules created a mad frenzy for telecom equipment and network infrastructure, resulting in absurd stock valuations for some of the companies involved, as well as fraud and malfeasance. Baker viewed the results with disgust. The country’s telecom system, he told a journalist not long after, was “utterly disordered and needs some system of regulation that is publicly and politically acceptable.” He had scorn for the Federal Communications Commission, too, which “has no centralized philosophy or objectives” and seemed to spend its time squabbling.
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His clear message was that it had been a mistake to break the old system up in favor of a more chaotic marketplace. And in his view, as several more years passed, the situation only grew worse. By 2002, the institution Baker had helped build had become unrecognizable to him. “There isn’t any institution,” he dismissively told an interviewer when asked about his former employer. “Bell Labs does not exist as an institution.”
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This was not precisely true. Yet to Baker, for a number of reasons, it recalled something he’d said years before. If the phone company were broken up, he remarked in 1974, its long-term research efforts would become untenable and “Bell Laboratories would cease to exist.” In his view, the prediction was now as good as prophecy.

B
aker died in 2005, after a long stay in a nursing home. He was secretive to the end. His burial was limited to family members. None of his Bell Labs colleagues attended. In his home—the home no one from Bell Labs had ever visited—he left behind an immense cache of books and papers from his past, hoarded and piled in disarray.

Whether or not one agreed that the institution of Bell Labs had disappeared, it was obvious, by the time of Baker’s passing, that Bell Labs hardly resembled his old home. To be sure, companies, or parts of companies, can collapse or vanish into liquidation with great rapidity. Bell Labs was more an example of how an organization could endure through a process of downsizing and adaptation. True to Peter Drucker’s analysis, over the course of twenty years following the breakup, Bell Labs became a respectable industrial lab. The tragedy to Bill Baker was that it also, slowly and steadily, ceased being essential to America’s technology and culture.

One way to think about the fate of Bell Labs is to think of the institution as something akin to a vast inheritance. While staggering as a combined sum, it somehow becomes more modest once it is split, and then split again, in various ways over time among various descendants.
On January 1, 1984, the Bell System breakup officially went into effect. AT&T and Western Electric—now one combined company—were severed from the local phone companies, such as New England Telephone and Southern Bell Corporation. Most Bell Labs employees stayed within AT&T. Yet a significant number (about 10 percent) went to a new research institution called Bellcore, which was established to serve the research and development needs of the new “Baby Bells.”

In a number of ways, life at Bell Labs went on as before. The AT&T management continued to make a commitment to funding basic research; the big Murray Hill facility and the Black Box at Holmdel continued to bustle. Some Bell Labs discoveries in the 1980s were as noteworthy as what had come before. For instance, a young physicist named Steven Chu, who would later become the U.S. secretary of energy, figured out a way to “trap” and study atoms at freezing temperatures by means of laser beams. Another Bell Labs team discovered and explained a complex physical phenomenon known as the fractional quantum Hall effect. Both groups were ultimately awarded Nobel Prizes for their work.

In the meantime, engineering did not suffer perceptibly. The digital era had at long last arrived, along with staggering jumps in how much information could be sent over fiber optic cables, which were beginning to connect not only regions of the country but also, through undersea cables, the continents. Many of the innovations that emerged from the Labs during this period would never become familiar to Americans in the way that communications satellites or the transistor had been. Still, such advances—in technologies known as digital signal processing and wavelength multiplexing for fiber optic lines, for instance—laid the foundation for the present era. John Mayo, who was soon to become president of the Labs, observed presciently in
Science
magazine in the early 1980s that the employees of the Labs were aiding in “the merging of telecommunications and computer technologies.” To Mayo, Bell Labs and the telecommunications industry appeared to be leading the country into a future “where most of the work force will create, process or disseminate information.”
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Usually it is not difficult to locate a point in time at which a business,
or a scientific organization, pivots in one direction or another. One can look back at the calendar and compare events with performance. A new boss takes the helm, for instance, or a canny new strategy is imposed, and the results are clear to see. It’s conceivable that the old Bell Labs, the institution of Bill Baker, was transformed at a certain moment in time. The 1984 split is one possibility. “But still, after that, we felt that the world’s still okay,” Bob Lucky recalls. “But it was slipping slowly away from us and we didn’t realize it. And it’s hard to put my finger on just where it started to come apart.”

In 1986, for instance, the challenges that lay ahead remained indistinct. John Pierce, watching the fate of his old employer from his perch in California, set down some thoughts at the time in a letter to a friend. As Pierce saw it, the great laboratories of the twentieth century had a clear purpose: “Someone depended on them for something, and was anxious to get it. They were really needed, and they rose to the need.” For Bell Labs, Pierce noted, the need was modern communications. That future rested upon the institution and the researchers who worked there. Pierce was now watching “as an interested onlooker” to see if the new AT&T Bell Laboratories could figure out a new mission, a new purpose. He wasn’t skeptical; he believed it was indeed possible. But he wasn’t terribly optimistic, either. The old world was already gone, he explained, it was just that most people hadn’t yet noticed. “It is just plain silly,” he wrote, “to identify the new AT&T Bell Laboratories with the old Bell Telephone Laboratories just because the new Laboratories has inherited buildings, equipment and personnel from the old. The mission was absolutely essential to the research done at the old Laboratories, and that mission is gone and has not been replaced.”
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T’S ARGUABLE THAT NOSTALGIA
was now coloring the opinions of people like Pierce. As part of the lost world, he had no place in the new one. The flaw in this argument is that Pierce was not a nostalgic person. Moreover, what he said had the sharp resolution of truth. What was the purpose of his old company and old laboratory now? One answer was that it would
still supply the best long-distance service in the world, and that it would compete ferociously in a number of new markets, such as computers. So therefore it would become the premier computer and communications company in the world. At the time of the breakup, in fact, it was widely assumed in the business press that IBM and AT&T would now struggle for supremacy. What undermined such an assumption was the historical record: Everything Bell Labs had ever made for AT&T had been channeled into a monopoly business. “One immediate problem for which no amount of corporate bulk can compensate is the firm’s lack of marketing expertise,” one journalist, Christopher Byron of
Time
, noted. It was a wise point. Bell Labs and AT&T had “never really had to sell anything.”
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And when they had tried—as was the case with the Picturephone—they failed. Government regulation, as AT&T had learned, could be immensely difficult to manage and comply with. But markets, they would soon discover, were simply brutal. AT&T’s leaders, such as CEO Charlie Brown, “had never had the experience or the training to compete,” Irwin Dorros, a former Bell Labs and AT&T executive, points out. “They tried to apply the skills that they grew up with, and it didn’t work.”

In later years, the downsizing at Bell Labs, in terms of both purpose and people, would mostly be linked to this inability to compete. (The worse AT&T did, in other words, the tighter the constraints on Bell Labs, where funding depended on the health and revenue of its parent company.) What’s more, a company that had always focused on building things to last three or four decades was now engaged in a business where products and ideas became dated after three or four years. AT&T’s attempt to enter the computer business, by purchasing a company known as NCR, failed. And it struggled in the markets for telephones and equipment, too, as it now faced a number of low-priced electronics competitors from Asia. As the 1980s wore on and AT&T entered the 1990s, its mission became even more uncertain. Bell Labs, in turn, began to shed good people, who either left to go to Bellcore or departed for academia. Some, too, began to hear the call of California, where private companies were eager to pay far higher salaries than anyone at the old Bell Labs had ever imagined possible.

Perhaps the most fundamental difference between the old and new Bell Labs was that its focus had become more constrained. In 1995, a Bell Labs researcher named Andrew Odlyzko, who worked as a manager in the mathematics department, circulated a paper he had written that considered what was happening to American technology and, in effect, the world of Bell Labs. Odlyzko pointed out that while it was easy to blame the narrowing ambitions on shortsighted management that aimed to turn a buck more quickly, the actual forces involved were somewhat more complex. “Unfettered research,” as Odlyzko termed it, was no longer a logical or necessary investment for a company. For one thing, it took far too long for an actual breakthrough to pay off as a commercial innovation—if it ever did. For another, the base of science was now so broad, thanks to work in academia as well as old industrial laboratories such as Bell Labs, that a company could profit merely by pursuing an incremental strategy rather than a game-changing discovery or invention.

Odlyzko quoted MIT’s Jay Forrester, who, in 1948, thinking that the new transistor might be an ideal component for a computer, had written to Ralph Bown to request a sample. In 1995, Forrester remarked that “science and technology is now a production line. If you want a new idea, you hire some people, give them a budget, and have fairly good odds of getting what you asked for. It’s like building refrigerators.” Perhaps this was an exaggeration. But there was something to it, too. The number of transistors on a chip kept increasing; it was changing the nature of computers and transforming the business of the world. But it was mostly a result of deft and aggressive engineering rather than any scientific breakthrough. The Internet, meanwhile, was already becoming a powerful force for communications. When Odlyzko wrote his paper, a small company called Netscape had just gone public, with a valuation that astounded the business world. And yet Netscape’s innovative product—a viewing browser for the World Wide Web—was largely the beneficiary of scientific and engineering advances that had been steadily accruing through academic, military, and government-funded work (on switching and networks, especially) over the past few decades.

In sum, it had become difficult, and perhaps unnecessary, for a company
to capture the value of a big breakthrough. So why do it? To put it darkly, the future was a matter of short-term thinking rather than long-term thinking. In business, progress would not be won through a stupendous leap or advance; it would be won through a continuous series of short sprints, all run within a narrow track. “In American and European industry,” Odlyzko concluded, “the prospects for a return to unfettered research in the near future are slim. The trend is towards concentration on narrow market segments.”
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