The Master Switch, by Tim Wu

Posted: March 13, 2011 at 5:12 pm in media, nonfiction

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Subtitled “The Rise and Fall of Information Empires”, Wu has no lack of ambition as he addresses how information and communication companies such as AT&T, Paramount Studios, NBC, and CBS have dominated our discourse over the past century. The title comes from a quote illustrating the perils of such domination: “At stake is not the First Amendment or the right of free speech, but exclusive custody of the master switch.” (Fred Friendly). When a single company can determine what innovations are pursued or whose message gets transmitted, it has potentially negative consequences on our society.

The book is primarily a history of the telecommunications industry in the twentieth century, as Wu examines how each new technology innovation (telephone, radio, movies, TV) arose in a spirit of changing the world, before eventually getting subsumed into a monopoly or oligopoly, created with the tacit assistance of the government, either through regulation or patent enforcement. Wu calls this “the Cycle”, and the underlying question of the book is whether the Internet will be subject to “the Cycle”, or whether this time is different. I thought that Wu had to stretch to make the case that each of these industries followed the same pattern, but it was interesting to me to read the history of each of these industries, as there was much I didn’t know.

I liked how Wu demonstrated how technology innovation was never enough to up-end an industry. Because of the nature of innovation, several independent inventors often came up with the next step at roughly the same time (e.g. Alexander Graham Bell is known as the inventor of the telephone, but Wu points out that Elisha Gray, Johann Reis and Daniel Drawbaugh also had created primitive telephones, or the various number of people who invented television). The difference in the one that we remember as the inventor is that he partnered with a business person who ruthlessly pursued the goal of creating a company based on the invention (e.g. Theodore Vail creating AT&T based on Bell’s work, or David Sarnoff creating NBC by undermining Philo Farnsworth). There is a myth of technological determinism in Silicon Valley, that the right technical innovation “naturally” becomes the dominant one, but Wu’s book shows how the right business strategy (and good timing) is also necessary.

Another good insight was the natural tendency of these telecommunications technologies to centralize because of economies of scale. Once AT&T had a set of long-distance lines in place, it was prohibitively expensive for anybody else to lay lines, so the government essentially traded AT&T a monopoly in exchange for providing universal telephone service. Once media industries realized the potential of advertising, the nationwide networks had a huge advantage in that they could spread their costs over much larger audiences. And even though AT&T was broken up into AT&T and the Baby Bells in the early 1980s, the tendency towards centralization has been demonstrated as those Baby Bells have now merged and re-merged until there are only two descendants of AT&T, the re-formed AT&T in the west, and Verizon in the east.

The centralization of these industries also deterred innovation, as the companies involved didn’t want to risk the (massive) income stream that they already had. For instance, while AT&T, and particularly Bell Labs, was the source of many great innovations including the transistor and UNIX, the company also squashed anything that might threaten telephone usage. Wu tells the story of Clarence Hickman, an AT&T engineer who created an answering machine with magnetic tape audio recording… in 1934. The technology was buried, and magnetic tape recording would only be discovered decades later. Why? Because AT&T worried that the ability to record a conversation might keep people from using the telephone and “render the telephone much less satisfactory and useful in the vast majority of cases in which it is employed”. The story of the Hush-a-Phone is also instructive, where AT&T sent dozens of lawyers after an independent inventor who dared to create a phone attachment to keep one’s conversation private. Insane in retrospect, but once a monopoly is created, its primary purpose is to perpetuate its monopoly and therefore eliminate any potential threats.

Another danger in creating such centralization is there becomes a single point at which pressure can be applied to restrict communication. For instance, I had known about the “Hays Code”, which prevailed from the 1930s to the 1950s, and ensured that only “moral” things could be shown in movies. I had always assumed that was a law or regulation. Instead, what happened was that a “Legion of Decency” threatened to boycott any theater that showed “immoral” movies. The movie industry by that point had been concentrated into the few studios that still dominate today (Paramount, Warner Brothers, Universal and Fox), and those studios had full vertical integration, owning everything from the production to the distribution to the theaters where the movies were shown. All that the “Legion of Decency” had to do to get its way was convince the CEOs of those few companies that their profits would be threatened by boycotting the theaters. So a “code” that could never be passed into law due to the First Amendment was allowed to censor the industry for three decades until the vertical integration of the movie industry was broken up such that “the studios lost control over what the theaters showed”.

As can be seen, Wu has concerns about “the Cycle” with respect to telecommunications and media industries. Such industries tend to centralize quickly into one or a few companies that create efficiencies by monopolizing the industry, but that same centralization also has deleterious consequences for innovation and free speech in our society. In today’s world, we face similar questions about net neutrality (whether Verizon or Comcast can decide which content goes over its wires) and openness (the openness and chaos of the Google Android system vs. the closed but polished iPhone system from Apple), and Wu hopes that we can learn from history to make better decisions today.

Wu’s proposal is to create a “Separations Principle” that would prevent the development of vertically integrated companies in these industries. “It would mean that those who develop information, those who own the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another.” If each layer of the information economy was kept separate, Wu believes that the dangers of concentration would be minimized, as innovations in one layer would not be suppressed to continue the dominance in another layer. Wu defends it as being a less subjective principle than antitrust, which has been the only tool to use against such companies to this point. I’m not sure I entirely agree with his premise, but I do think some clear guidelines on what kind of integration makes sense will be useful. And since he recently took a position as a senior advisor at the Federal Trade Commission, he will have the chance to make such recommendations. It will be interesting to see what happens.

I recommend this book if you’re interested in these sorts of issues. While Wu falls short in his attempt to draw together the overarching narrative of “the Cycle”, I appreciated the chance to learn more about the history of the telecommunications and media industries in an easy-to-read form.

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