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23 March 2013

NSA, AT&T Divestiture and National Security

NSA Cryptolog, August - September 1984, pp. 10-13.


The AT&T Divestiture and National Security

(U) On 1 January 1984 the American Telephone and Telegraph (AT&T) Company completed the terms of the divestiture agreement which spun off all local operations and the Yellow Pages into seven regional holding companies. The consent decree modified final judgment was carefully scrutinized by the courts, the  Congress, the Federal Communications Commission (FCC), and the Department of Justice (DoJ) for its "public interest" considerations. However, the national security impact is only now starting to be realized. The new competitive structure of the telecommunications industry will of necessity alter the fundamental relationship between DoD and AT&T. Partly in response to concerns expressed by DoD, a Central Service Organization (CSO) has been formed. It will be jointly owned by the seven regional companies and will furnish the companies with technical assistance, such as network planning, engineering, and software development. It will also provide various consulting services and other assistance that can be more effectively provided on a centralized basis. Even though the CSO will help coordinate central planning requirements, the days when DoD could call a single point of contact (e.g., AT&T) who would provide end-to-end service for all requirements is over.

(U) Recent national security policies have recognized the dependence of our national defense on the privately owned common carriers for providing the majority of the national telecommnications for Continuity of Government (COG), National Command, Control, Communications, and Intelligence (C3 I), and other critical functions. According to LTG William Hilsmann (USA, Ret.), former manager of the National Communications System (NCS), 95 to 98 percent of the DoD's communications in the US are controlled by the private sector, whereas in Europe between 65 and 70 percent of the communications network is actually operated by the military or the host government under the Post Office department. The existence of AT&T as a dominating monopoly which could provide end-to-end service and set technical standards for the industry made coordination a relatively straightforward process. The AT&T divestiture will complicate requirements for end-to-end service. More complicated and time-consuming competitive arrangements will have to be made with the Bell operating companies, equipment manufacturers, AT&T, and other long-haul carriers for communications services and equipment. The cost of communications services to DoD may rise because of the increased requirements to coordinate the various suppliers of service and the increased complexity of the contracting process.

(U) During the divestiture process, there was preoccupation by the FCC and the courts with the issue of how to move from a monopoly to a competitive environment, often to the detriment of national security and emergency preparedness concerns. DoD worked with the courts and DoJ to address the concerns. DoD worked with the courts and DoJ to address the potential conflicts between defense requirements and the new marketplace approach. Unfortunately, all the problems were not reconcilable with the divestiture and a less than ideal result has emerged. In the past DoD could count on AT&T to set standards for interoperability and, in the event of natural or man-made disaster, AT&T had the authority and power to direct personnel, equipment, and material in the execution of emergency relief operations. To fill the power vacuum created by divestiture, the National Security Telecommunications Advisory Committee (NSTAC) was created to bring together senior executives, leaders of the major elements of the telecommunications industry, and the NCS for long-range communications planning in the new competitive environment. New technical initiatives to improve the emergency responsiveness of the nation's telecommunications systems depend heavily on the commercial common carriers. NSTAC was intended to be a source of expertise, knowledge, and insight for the President that would not otherwise be available within the Government. For the nation's emergency and defense requirements to be satisfied in the long run, members of the NSTAC will have to lay aside their competitive interests and agree on standards of operation, interoperability, and emergency procedures. It is still unclear how NSTAC members will respond to national security/emergency preparedness proposals that might adversely affect service or result in the loss of competitive edge and revenues.

(S) The divestiture of AT&T will directly impact on NSA's telecommunications protection efforts underway in the S Organization, which has been working with the National Communications System, AT&T, and other major common carriers to protect some of their most vulnerable circuits from intercept. The divestiture adds new complexity to the telecommunications protection program, which will now require involvement of the regional and local Bell operating companies and the CSO.

(C) National telecommunications policy planners are especially concerned at this time with the growing participation in the design, manufacture, and engineering of the telephone system infrastructure. Foreign technological capabilities and manufacturing abilities, which have resulted from cooperative foreign governmental and industrial arrangements, have strategically coincided with the divestiture of AT&T and the large-scale introduction of the new services and equipments to the telecommunications system. The US telecommunications network and industrial structure is in the process of considering and implementing some major changes. The telecommunications system is changing, becoming primarily digital, and the old equipment is being replaced by sophisticated "smart systems." These new digital equipments are being energetically marketed by foreign equipment suppliers. The situation presents an opportunity for unprecedented penetration of the US national telecommunications system.

(U) DoD communications planners have traditionally not had to concern themselves with the problems and consequences of unrestrained foreign competition. Until recently, AT&T and its manufacturing subsidiary Western Electric handled the nation's telephone network equipment and planning requirements. Western Electric worked closely with the national security planners to ensure that certain minimum technical standards were maintained for the responsiveness of the system in the event of disaster or to satisfy mobilization requirements. The advent of the AT&T divestiture complicates this situation considerably by reducing AT&T (including Western Electric) to just another member in the field of telecommunications competitors. This field also includes, for the first time, a large number of economically aggressive and technically competent foreign competitors. Now policy planners must consider a number of new factors when evaluating the national security impact of foreign suppliers:

1. Will the foreign-manufactured equipments meet previously established standards for technical capability and quality? This raises another question: Should all equipment standards be published for the benefit of all competitors, even though in so doing we might be giving away information of value to military adversaries?

2. Will foreign suppliers have the capacity to resupply US emergency requirements? (Some national defense planners question their ability to do so.) Along this same line, would any foreign equipment supplier have the military capability or political will to support resupply efforts?

3. What about the national security concerns over the requirement for a foreign firm to maintain a mobilization base in the US to develop, manufacture, and maintain equipment in wartime?

(U) A recent case illustrates the defense concerns as they relate to the telecommunications equipment industry in the new, unregulated era. This case involved the installation of the first long-haul lightwave (fiber optic) cable. The first leg of this system runs between New York and Washington, DC, with additional links planned to run north to Cambridge, Massachusetts and south to Richmond, Virginia.

(U) FCC approval was given to Bell to proceed with the initial New York-Washington line with the proviso that the system be procured through competitive bidding rather than by traditional implementation and procurement through Bell Labs/Western Electric. The FCC further ruled that performance requirements could not be specified in the bidding, only system design specifications. The FCC staff was concerned that performance requirements might give Western Electric an advantage over other competitors. However, the result was that requirements for tne protection of the system against the effects of nuclear weapons and other defense considerations could not be included.

(U) In response to AT&T's call for bids, there were responses from two US firms (including Western Electric) and six foreign companies (including Fujitsu of Japan). The lowest bid was submitted by Fujitsu, which was in the process of being awarded the contract when the questions of national security were interjected. The national security concern led to the awarding of the contract to Western Electric.

(U) If this contract had been awarded to a foreign firm, it would have been the start of foreign encroachment into an area of critical importance to the US communications network. This is another instance of confusion and lack of coordination between Government elements. The FCC failed to consider the national security implications of carrying out its regulatory goals.

(U) The divestiture of AT&T and the deregulation of the telecommunications industry will create new problems and new opportunities for the national security telecommunications planners. Ironically, the result of this new competitive environment will call for increased Government collaboration with the telecommunications industry to ensure that national security and emergency preparedness interests are considered. The planning methodologies and relationships relied on in the past by the DoD are no longer possible in the new, competitive, post-divestiture era of telecommunications policy.