Sam Wyly Builds a Highway for Computers

Sam Wyly, an engaging and boyish-looking computer technology pioneer, unlike the other innovators portrayed in this book, is not a scientist or engineer by training. He studied accounting and business administration at a small college in his native Louisiana.

Yet Wyly not only introduced the concept of a “computer utility” to the business world and built his successful University Computing Company on it with headquarters in Dallas, Texas, but he is in the process right now of creating another pioneering concern. This second company is Datran (Data Transmission Company), a classic entrepreneurial venture intended to become a telephone company for computers.

Until Wyly came along with Datran, computers - the electronic marvels of our age - were forced to communicate in a costly and convoluted way over old-fashioned telephone wires designed for the human voice. Signals carrying voice travel over the wires as undulating “analog” waves; computers speak an entirely different, machinegun-like digital “language” of “yes” or “no” pulses. The two don't
mesh. To be transmitted over facilities designed for a slower, simpler pre-computer age, digital data has to be laboriously encoded with expensive electronic devices to fit the analog facilities and then decoded at its destination to be comprehensible to computers.

It was as though the digital data bits (short for “binary digits”), were being lugged along jungle trails by native carriers as freight added to their normal burden, after being fitted to the carriers' backs at the beginning of the journey and carefully remolded to match the computers at the end. In between, errors easily occur, data “bits” get lost or “damaged,” and the circuits, because of added work,
become overloaded. As Wyly once told a cheering national conference of computer specialists; “The computer industry has dialed into a busy signal.”

Wyly boldly proposed to build an electronic highway through this jungle where the “bits” would speed along effortlessly like closely-spaced cars. His microwave highway would link U.S. cities from coast to coast with radio transmitters atop towers beaming the “bits” across open spaces and delivering them to their specific destinations in cities via special wire links designed for data flow.

By any measure, the task of building such a network seemed overwhelming, even foolhardy to some. To begin with, that mammoth of monopolies, “Ma Bell,” better know as the American Telephone & Telegraph Company, or AT&T for short, strenuously opposed Datran's application to federal authorities to enter the field. It claimed there was no need for a separate digital network. In doing that, AT&T was only reflecting that fact that when companies that once might have been innovators themselves grow big and fat, they often are reluctant to change the profitable status quo.

Typical of this attitude, Western Union Corporation in the late 19th century turned down the chance to buy for $100,000 the right to a device invented by Alexander Graham Bell. Western Union officials were convinced that a few, if any, people would ever want to use the strange new contraption. It was the telephone, of course. So a group of enterprising men formed AT&T to cash in on Bell’s
invention.

A century later, AT&T had grown to one of the world’s most powerful monopolies, protected by the U.S. Government. When Wyly started spending millions on Datran, there wasn't clear assurance that federal authorities would allow any competition against the Bell System. Besides, just as Datran was getting started in 1968, the stock market, source of financing of dreams, began its long slide. Wyly
had hoped to finance Datran through a public offering. But Wall Street suddenly lost interest in high technology companies, no matter how solid the idea behind them.

The market, as Wyly puts it, went from “too much enchantment to too much disenchantment.” In the ensuing years, it became difficult to get bank financing as well, as interest rates soared and much bigger and better known companies vied for loans. The original cost estimated for Datran called for expenditures of an astounding $375 million.

Venture capitalists don't have that kind of money. Yet despite financial and technical obstacles, Sam Wyly today is well along on his road to success with Datran. In the breath of its vision and its cost, Datran comes close to matching ventures such as Comsat (Communications Satellite Corporation).

Except Sam Wyly did it without the benefits of public financing or certainty of regulatory protection by Uncle Sam the way Comsat was constructed.
Datran’s technology, furthermore, will do much more than tie together computers in a more efficient way. It will open up new vistas for expanding man's mind, just as the introduction of the telephone brought with it a new level of efficiency and convenience to social and business transactions. The incredible rapid access to information - the Datran network even now can transmit the equivalent of 25,000 words, or about one-third of this book, across the country in one second - is bound to enlarge our educational, entertainment, and business horizons.

Not only computer-generated information, but all written and pictorial data, as well as voice and video signals, will eventually be transmitted in digital form because it’s the most efficient way of putting electronics to work. One early benefit for businesses, and later for everyone, will be“electronic mail,” the sending in seconds of whole pages of text across the country at exceedingly low cost via digital facsimile. The emerging technology of digital transmission, specialists predict, will
create a giant new industry in the decades to come.

Wyly’s achievement is all the more impressive because it came at a time when mere survival was considered a great feat for many one-time wunderkinder of the computer age. During the heyday of high technology company creation in the 1960’s, some of those companies blossomed suddenly, only to wilt like exotic short-lived flowers a few years later. Too preoccupied with the present, young
technologists tended to neglect the future, to buy more new businesses than they could digest, or branch out into such unpromising fields as manufacturing computers in direct competition with IBM.

Mohawk Data Sciences, Memorex Corporation, Viatron, LTV Corp., Cogar Corp. - are a few of the many high technology firms that streaked across the Wall street sky only to nosedive dramatically. Some crashed. In Dallas, fast-talking Jimmy Ling, whose lightning mind and remarkable talent for financial dealings enabled him to build up Ling-Temco-Vought into the marvel conglomerate and fourteenth largest company in America in the late 1960’s, was forced out of LTV. Ling later failed at a comeback with another concern he called Omega-Alpha (“End-Beginning”). H. Ross Perot, another Wyly contemporary operating out of Dallas, whom Fortune once called “Fastest Richest Texan Ever,” found his paper fortune melting rapidly after an injudicious purchase of a Wall Street brokerage firm
resulted in a big loss. Ironically, Perot once gave Wyly a stock certificate which hangs behind a glass frame in an anteroom to Sam’s office.

It reads: “Electronic Data Systems corp. 10 Shares to S. Wyly from Ross Perot. In case of emergency break glass. September 1968.”


Wyly successfully avoided such pitfalls as buying Wall Street brokerage firms, even though he did not escape the financial rollercoaster ride. He was smart enough, however not only to cope with the tough new business environment in preserving University Computing, but also in raising nearly $100 million during these economically-turbulent times to get Datran going. In doing that, Wyly has
shown a lot more business acumen than many of his contemporaries. Yet Wyly doesn't fit the stereotype of a tough business tycoon.

Blond and green-eyed, attractive and short-statured, still in his early forties, he has a sometimes self-deprecating “Oh, shucks,” country-boy manner and his speech is softened by the musical notes of Louisiana. Wyly is so unprepossessing in appearance and bearing that when he was meeting with Fortune magazine's editors for lunch in New York once, Robert Lubar, the managing editor, not
knowing Wyly by sight, kept surveying the room in puzzlement upon entering, looking for the touted tycoon.

Behind that deceptive appearance is a fluid, creative mind with an ability to grasp concepts, see the future, and the courage to act on it. “Sam Wyly,” says an associate, “is an entrepreneur's entrepreneur.” Even during his childhood in Delhi, Louisiana, a tiny town in the northeastern part of the state not far from Vicksburg, Mississippi, his contemporaries looked up to Sam for leadership. He was a game captain of his high school’s football team, and helped lead it to winning the state
championship in his senior year, playing at guard.

Aside from an intense interest in football during his childhood and adolescent, Sam Wyly had acquired from his parents a voracious appetite for reading. He wasn’t particularly interested in science or in mechanical things. His father had originally operated a 400-acre cotton plantation at Lake Providence, Louisiana, on the shore of the Mississippi River, where Sam was born October 4, 1934, the second of the two Wyly boys; his brother Charles Jr. was born a year before.

The Great depression dropped cotton prices to five cents a pound and forced Sam's father to look for other employment. He had studied journalism at Louisiana State University, worked as a reporter on the Lake Providence paper, and always wanted to be a writer. But when a friend was appointed by a new reform governor to be the superintendent of the state penitentiary and offered Sam’s father a job as an administrator, he took it. He wasn’t too happy though, about being a cog in a big civil service machine. It was here that Sam says he “got a flavor from both my parents about being deeply concerned about being an individual in the grip of a big institution where you really don't control your own destiny.”

What better place than a state penitentiary to instill a yearning for
independence?

Sam’s father soon bought the Delhi Dispatch, a small weekly. There, Sam and Charles helped out with all kinds of chores: writing stories, selling advertising, setting type, laying out pages, folding the papers, and addressing them. The deadline was midnight on Mondays; it was here that Sam understood the importance of setting benchmarks for accomplishing specific tasks.

From his parents he also inherited a deep interest in politics. Being a local editor, Sam’s father was visited and courted by different politicians. While he steadfastly opposed Huey Long for what he felt were his dictatorial political race. Sam’s interest in politics carried over into his school and later business life. Sam was always a president of something; of the student body in high school; his freshman class, student senate, and business and scholastic fraternities in college. He wound up in positions of leadership partly because of ambition and partly because “others looked around for me to give the answers.”

Reflecting Sam’s interest in politics and also his longstanding fondness for American history, today the walls of the big anteroom to his office on the 15th floor of the UCC Tower in Dallas are decorated with original letters by George Washington, Sam Houston, and Jefferson Davis.

Enrolling in Louisiana Polytechnic Institute (now Louisiana Tech University) in nearby Ruston, Sam first majored in journalism. He then decided that the tiny Delhi Dispatch could not support all of them - in fact, Sam’s father also had a fire-casualty insurance agency and the local Western Union franchise in order to make a living. Sam then asked around what would be the hardest subject he could major in. He was told it would be engineering or accounting. Not caring for engineering, he took accounting.

Armed with his new knowledge, on a visit home once he looked at his father’s ledger books with a new eye. He saw that his father spent only five or six hours a week on the insurance business and yet the time was more profitably spent than the many more house devoted to the newspaper. The budding tycoon then asked his father why he didn't give up the newspaper and concentrated on the insurance agency instead. His father replied: “Son, the first thing you need to know is that as a sophomore in college you are at your peak - this is as smart as you'll ever be. It’s all downhill form here.

Secondly, I like putting out this newspaper.” Say Sam; “That wasn't real easy for me to understand then, but I've thought about it a lot since.”

In college, he began to get intrigued with business subjects. “I enjoyed the problem solving. I liked to do what a lot of other students seemed to do with great agony.”

He did so well that he won a graduate scholarship to the University of Michigan business school. He also had the chance of going to work for IBM in Dallas, but opted for additional schooling.

His brother Charles, who had also studied business at Louisiana Tech, had in the meantime gone to work for IBM in New Orleans. Charles did so well that he earned $12,000 in his second year with the company. This looked awfully impressive to Sam, who was considering offers less than half that amount as he got his MBA from Michigan.

Sam decided to take the dormant IBM offer and went to work for the company’s subsidiary, Service Bureau Corporation, as a sales trainee in Dallas. IBM was then just beginning to introduce computers and since tests showed that Sam had a good technical ability, his boss suggested he should go into technical work instead of sales. But Sam resisted; selling appealed to him more. The Service Bureau was beginning to provide programming and computing services to corporations.

A little later, though, he did wind up operating a computer in Fort Worth; the recession of 1957-58 was hurting and IBM decided to temporarily suspend sales training. In the end, says Wyly, “It was the best thing I could have done, because I had to learn to operate the machines, program them, and do some beginning systems analysis.”

Within a year, he was back in Dallas with his own sales territory and both in 1959 and 1960 made IBM’s “100 percent club” for top salesmen. Two-and-a-half years after starting with IBM, Sam was offered a bigger job with Honeywell: to become their first area sales manager in Dallas. His mission would be to sell Honeywell computers in northern Texas, Arkansas and Oklahoma in competition with IBM and other manufacturers.

Sam took the job because he was curious to find out whether he could be a manager. It was “tough, tough job,” he recalls because IBM dominated the market so much. But he made an impressive record, attaining sales with a five-man staff as high as some other Honeywell offices had with thirty.

Sam was doing well, but was becoming impatient. “I was probably in a typical entrepreneurial spot,” he recalls. “OK, I can stay with this corporation and progress in it. But I would always have a whole chain of command above me and I won’t have my arms around the whole business. I won’t really know what the engineers are doing, or the people who create the software. I don’t see the whole
business but just my little piece of it.”

He not only had a yearning for independence, but as he puts it in his succinct way: “At the beginning of 1963 I began to feel that if I can put Honeywell into the computer business, I could put Sam Wyly into the computer business.”

This he did later in 1963 with a used computer housed on the campus of Southern Methodist University in Dallas. He had saved $10,000, but in the end needed only $1,000 of his own money to start the company. He left Honeywell and began to pound the hot pavements of Dallas “looking for a banker with some imagination to finance the purchase of a used computer.” He didn't find a receptive banker. Instead, he worked out a deal with two potential customers.

With SMU he negotiated an agreement under which he would supply the university with computing time in exchange for housing the computer on the campus. SMU was only too glad to push aside an ancient Univac in favor of a much newer machine Sam planned to get. To the research department of Sun Oil Company he sold five year service contract for a lower-than-normal price and Sun Oil, in return, prepaid the contract. This way Sam recalls; “I had about $250,000 cash in the company although I didn't have any net worth.”

The money equaled 23 months' expenses if Wyly found no other customers. But he was certain of signing up a big third one, Texas Instruments. He found a leasing company that would buy a used Control Data computer for 650,0000 and lease it back to him. The deal was guaranteed by a Dallas company named Diversa, with which Sam's father-in-law had dealt in the past. The guarantee was
made in exchange for a 49 percent interest in Wyly's company. “All I had to do was make monthly payments,” says Sam.

It was Wyly’s wife Rosemary who suggested the company’s name. Sam was thinking of calling it the Mustang Computing Company - the mustang being the SMU athletic mascot. Rosemary wondered whether the wide-ranging name “University” should not be used instead, since the company would be likely to serve other universities and businesses. Sam liked the suggestion.

University Computing was off to the business sweepstakes. From the beginning, Wyly concentrated on big companies as customers. He was convinced that his customers should be able to tap computing power with the ease one uses electricity or the telephone.

At that time, the idea of a “computer utility” was bandied about only by academics in universities. With University Computing, Wyly brought it to the world of business. Farthest from Sam Wyly’s mind was the idea of a computer utility being a monopoly. He visualized it rather as a series of specialized“utilities” consisting of the most powerful computers available and serving specific industries and scientific specialties. Vital to the whole concept was the ease of communicating with computers from great distances, thousands of miles away if needed.

Wyly felt that users would also find the economies of a computer utility attractive. Since the cost of giant computers would be borne by hundreds of users, it would be less expensive to tap the utility’s computing power than for each user to want a big computer which they would be running only a fraction for the day anyway. Sam felt that most companies would no more buy their own huge computers than they would acquire their own electricity-generating plants.

In some ways, this was like offering efficient public transportation to a nation of private automobile owners. Wyly had pitted himself against empire-building in data processing, where as one of his associates says, “You have a chrome-plated floor with fancy colored machines with whirring tapes and a whole bunch of people running around. There's a big glass window where everybody can look in and say; Isn't that great.”

But the concept of the computer utility caught on fast with knowledgeable users. Sam had recruited his brother to work with him and while Charles stayed in Dallas, Sam spent a few months in Tulsa, Oklahoma, opening a branch office, this time with a new Control Data computer. In 1963, University Computing recorded sales of $70,000, but in its first full year, 1964, sales jumped to $692,954 with a net of $136,057.

At the end of 1964, the first substantial equity investment in the company ($100,000 for 9% of the stock) was made by Ben Voth, a retired Tulsa businessman who owned the building where Sam located his Tulsa computer center. Voth had sold his insurance company and saw in UCC and Sam Wyly an exciting investment opportunity; he served as UCC’s Chairman for several years.

Sam’s aim all along had been to provide programs and computing equipment that a user would have trouble finding elsewhere. “A business,” says Sam, “exists to serve customers. You must deliver a value. If a customer does not perceive your service as having a value, it doesn't have value.”

University Computing started implementing the utility concept as early as its second year when its salesmen began to offer customers the total company abilities and services without regard to where a given piece of compete equipment was located. Rapid expansion followed; by 1966, University Computing had customers in 23 states. The company began to grow through acquisitions as well,
buying smaller computer services, research, engineering, and consulting firms.

Wyly had chosen a good time to enter the computer services business. “Successful innovation is a question of timing, a question of competition, as well as a question of the man,” says one his associates. There was some competition in the field, but it was far from a well-developed industry.

Day after day, new companies, big and small, discovered the value of computers and new applications were being thought up rapidly. University Computing derived most of its revenues from its utility function as well as by providing programming services and acting as a client's computer department, supplying all equipment and staff. It offered services in both scientific and business applications. Scientific uses accounted for the greater portion of its revenues. Even in its earliest years, the company successfully handles a wide range of scientific and technical applications, including simulation of oil field reservoirs, control of petroleum refineries, design of optical instruments, automatic control of factory machine tools, and calculation and graphic display of geophysical data.

In business applications, the company offered a wide range of services such as inventory control, accounting, billing, and personnel record management.
By 1968, University Computing had become a multinational company when it acquired Computer Services Ltd. In England and Computer Bureau Ltd. In Ireland, the largest independent computer service firms in Europe. It also opened branch offices in Australia, Venezuela, and the Netherlands.

There seemed to be no limit to University Computing's growth or adulation that was developing around Sam Wyly. He was 28 when he started the company; two years later he was a millionaire.

(His wife noted with a lot of common sense, however: “It's all on paper so what does it matter.”)

Wall Street had less common sense. In all its history, the stock market had never shown quite as much enthusiasm about an industry as it did about the computer business in the late 1960’s and University Computing was one of its biggest stars.
Its sales had soared to $57 million, with a net of more than $5 million, in 1968. Its stock rocketed to its all-time high of $187.25 a share. The company had gone public at $4.50 a share in 1965; the stock had been split three-for-one before the big advance. The high of $187.25 was equivalent to remarkable $561 a share before the stock split. Put another way, an investment of $9,000 in University Computing in 1965 would have become worth more than one million dollars in 1968.

Sam refers to those heady days as times when it was “hard to get a benchmark on values.” The young man from rural Louisiana was suddenly being showered with tons of paper that looked like gold. Wall Street said Wyly personally was worth more than $100 million and his company nearly one billion.

“When our stock went sky high,” says Wyly, “my first thought was, my Lord, how can we be worth that much money? And then I did the same thing I guess the other fellows did the same thing I guess the other fellows did. I looked around at my competitors and saw the prices their stocks were selling at and I said, well, we are as good as they are and probably better. I guess we sort of rationalized it that way. I really hadn't set out to personally get rich- I just wanted to work for myself.”

A master of understatement, in an interview with Fortune in 1968 Wyly offered this modest explanation for his company's spectacular success: “You find a little bitty thing you can do, and you keep on doing it.” He was pictured standing proudly in from of a not-so-bitty skyscraper with big letters proclaiming it to be the home of "UCC Computer Utility.”

Actually, by that time Sam was in lot of good-sized things such as making computer terminals, running a chain of computer programming schools, even designing a supercomputer “to meet the exact requirements of the computer utility operation.”

Reaching outside the computer field, Wyly took advantage of that lofty Wall Street valuation of his stock and acquired Gulf Insurance Company by issuing 306,000 shares of University Computing for it. Gulf had $5 million in cash on hand and stocks and bonds worth $60 million; it had judiciously invested long ago in such innovative companies as Xerox. Wyly’s aim as to use Gulf as a kind of bank to underwrite the growth of University Computing subsidiaries.

The deluge of money set off by University Computing stock not only enabled Wyly to buy out Diversa’s interest in his company, but personally he was also able to branch out into new fields, too.

Trying to prove to himself that University computing wasn't just a fluke and that he could start a brand new company again if he had to, he did just that by buying an oil refinery in Memphis, Tennessee. He used it as a seed for concern he called Earth Resources Company. He bought a small exploration company as well and applied profits from oil refining to finance a search for copper, silver, gold and other metals.

Earth Resources now operates gasoline stations in the South and is building a refinery in Alaska. In terms of sales, it has been the most successful of all Wyly ventures, reaching $250 million in 1975.

Another investment during the period took Wyly into the restaurant business. Sam was out for dinner one night with his father-in-law at a small Dallas eatery where steaks sold for $1.29. The father-in-law was impressed. He suggested to a friend, who was looking for something to do, to start a chain of Western restaurants; the result was Bonanza International. Sam wound up as the chain's owner when a $1 million loan he guaranteed for the chain could not be repaid; he and his brother
still own 40 percent of Bonanza. Bonanza operates 200 restaurants and has franchised 350 others; total sales were expected to top $200 million in 1975.

Those other businesses have been kept separate from the Wyly Corporation. But when added up, all these ventures make Sam Wyly one of the most, if not the most, successful post-World War II entrepreneur in the United States.

It was only a short step from Wyly’s heavy involvement in his computer utility concept to his own data transmission company. The whole idea of a utility depended on efficient communications between users and the company computer centers; early in its history University Computing had pioneered so-called remote batch processing. This is a procedure similar to a customer sending in his laundry and then receiving it back washed and pressed.

But transmitting data over telephone wires, Wyly could see even when he started the company, was a lot harder than taking a load of wash to the laundry. The computer industry was then still an infant; the telephone company not only didn't have the right facilities, but often didn't want to bother with the tiny upstart customer. For a long time, the telephone company wasn't attuned to the needs of the computer data users. It kept charging them, for instance, for a minimum three-minute call as it did all other customers regardless of the duration for the transmission. But the computer operates in fractions - billionths - of a second. Three minutes is an eternity for a computer and presents a big unnecessary expense for the user.

Trying to change that, Wyly in May, 1968 made a tender offer to acquire about 10 percent of Western Union's stock. Other than AT&T, whose monopoly was government protected, it was the only company who had the legal loophole (Dating from its days as the only telegraph company) and the physical rights of way on which a nationwide digital network could be built without changing the national and state by state policies of monopoly in telecommunications.

He figured that even a partial ownership of that carrier would give University Computing a voice in Western Union’s policy-making. He was turned down. Western Union had its own government protection via an old New York state law saying no one could buy more than 10 % of a telegraph company without a bill passing by the New York state legislature. Undaunted, he set out to build his own national communications network.

He was floating high. The future looked bright for University Computing - so bright that Wyly went on to forecast that the company would have $1 billion in sales in 1975. In light of its previous advance from sales of less than $700,000 in 1965 to $108 million in 1969, that might not have been such an outrageously optimistic prediction.

Being human, Wyly and his associates had become overconfident. “Probably part of our euphoria was based on having done more than we ought to have been able to do,” says Wyly. “We had forecast the doubling of sales and profits each year realizing the amount of luck that had been with us and also the amount of leverage we had gotten from the euphoria in the stock market.”

Bad economic weather came as suddenly as one of those devastating hurricanes that hit the Gulf Coast. “We got caught in the 1969-70 money crunch and then in the recession. We thought we were invulnerable to it - and we found out we weren't,” says Sam. There was another difficulty - University Computing had grown helter-skelter. “In retrospect,” says Sam, “it's clear that we went into more businesses than we could effectively manage or finance.”

Not all those purchases were bad. The most important one, Gulf Insurance, was a good company and all along Sam had been upgrading its stock and bond portfolio so that Gulf could pay higher dividends to the parent corporation. Gulf was contributing millions of dollars each year to the effort to build a world-wide computer utility.

In 1970, however, the fire and casualty insurance business fared badly, not only because of the economic downturn, but also because of natural disasters. A vicious hurricane leveled most of Corpus Christi, Texas, and a tornado severely damaged Lubbock. Gulf sustained the largest underwriting loss in its 45-year history.

That wasn’t the only problem. The network of programming schools had to be drastically scaled down because the activity wasn't paying off. Larger after-tax losses were incurred by sold or discontinued operations. And University Computing and its divisions found themselves revaluating downward certain accounts receivable, inventories, computer equipment, and even that nebulous and subjective quantity known as a corporation's “goodwill.” All this led University Computing to report a staggering $18 million loss on sales of $114 million for 1970. The year before the company had reported a profit of nearly $17 million.

In light of the new unpromising economic climate, Wyly’s efforts to get a huge new venture off the ground may seem Quixotic. The cost of the Datran network was estimated at a staggering $375 million. But Wyly wasn’t flying blindly. As a star salesman for IBM and Honeywell, he had learned that success in making a sale lay in absolute mastery of a client’s business. To find out all about Datran’s potential business, he had a team of financial analysts from two New York investment banking firms and a major commercial New York bank carefully examine Datran’s cost and operations assumptions. They concluded that the project was financially feasible.

Behind Datran also lay a lot of technical planning. Wyly had assembled a big team of outstanding scientists and engineers, rate specialist, economists and legal experts to prepare the case for Datran. When University Computing filed its initial application with the Federal Communications Commission in November, 1969, the application consisted of a stack of document 6½ feet tall - the biggest document ever submitted to the FCC in a single filing. The FCC was sold - but not until the
middle of 1971 when in a landmark decision it ruled that competition in data transmission was practical and desirable. AT&T retained its monopoly over toll voice messages, although new carriers such as Datran could now send voice messages over private lines. Among its competitors Datran was, and is, the only carrier whose sole mission is digital data transmission.

By the end of 1970, Wyly had invested $6.6 million in Datran. He found out that it would be almost impossible to bring out Datran as a public company; Wall Street’s ardor for new stock offerings had cooled to the freezing point. Wyly’s assistant, Ray Hannon, recalls trying to cope with a backlog of more than 100 telephone inquiries from analysts in a single day when Wall Street bulls were on a stampede. Now the analysts had stopped calling; in fact, many of them had lost their jobs or moved on to other things.

Luckily, through the years Wyly has assembled or started from scratch some basically sound components of University Computing. He aborted such schemes as that planned “supercomputer” and began “cannibalizing” similar to that of KMS Fusion (see Chapter 5), selling off less-promising components of the parent company in order to keep Datran going and pay off large long-term bank debts.

In addition, during University Computing's expansion into Europe, Wyly had met Walter Haefner, a wealthy Swiss entrepreneur who made his fortune importing Volkswagen and Chrysler automobiles and General Electric appliances into Switzerland. Haefner had earlier formed Automation Centres International, a group of computer centers in ten cities across Europe, which UCC had acquired. Now Haefner became enthused about Datran, and began a series of major investments in the new company, amounting to more than $40 million through 1975.

It was a time when investment capital wasn't findable in the U.S. to launch undertakings as different and daring as Datran. Wyly says, “Wall Street was frozen by fears of industry shakeouts and liquidity crunches, but mostly about whether our new technology would work and whether we could compete with the world’s largest corporation.”

Haefner had confidence in the projected growth of data transmission, and in Wyly’s ability to manage Datran through the scary start-up years. Best of all, he had the resources to back up his confidence. Wyly puts it very succinctly: “Without the Haefner investments there would have been no Datran. Now when I read of bills introduced in congress to curtail foreign investment in U.S. companies, I marvel at our urge for self-punishment. What could be worse news for American
Consumers than the preservation of monopoly or business inefficiency in the U.S. by denying outside venture capital when our own isn't available.”

Wyly himself continued to seek funds for Datran with a missionary zeal. He could divert some Gulf insurance and University Computing profits into the new venture as things looked up in 1971.

University Computing reported a $2.6 million profit on sales of $128 million. Gulf achieved a small underwriting profit and realized $8.5 million from capital gains. Wyly was able to invest another $5 million in Datran.

University Computing had by then become one of the world’s largest independent computing service organizations and a substantial manufacturer of auxiliary computer equipment. It was employing more than 5,000 people.

The rollercoaster car dipped down precariously in 1972, however, as University computing reported an even bigger loss than in 1970. This time it lost $83 million on sales of $101 million. Gulf’s best performance in its history, an underwriting profit of $4.1 million, hardly offset the big loss.

To a significant extent, however, that big loss occurred mostly on paper. It included, for instance, big losses on sales of unprofitable components of the company - sales from which University Computing actually gained millions of dollars. It got $20 million for its computer terminal manufacturing subsidiary, for instance. But in accordance with accounting practices, since the terminal company had a higher “book value,” its sale resulted in a recorded loss.

Wyly had realized for some time that his remaining companies needed strong managers. The computing division, for instance, had gone trough five presidents. When Wyly ran it himself, it was profitable, but with technical men in charge, the computer services operation began to lose money.

To bring that operation back to profitability, Wyly sought out Donald Thomson, who had acquired a reputation at International Telephone and Telegraph Company as a skilled “turnaround” man.

Thomson had made it his profession to cure “sick” companies. In the process, he employed some clever techniques.

At ITT World Communications, for instance, he discovered that the real decision-makers on whether ITT or its competitors got the business were teletype operators, usually unattractive girls who sat in the backrooms where few visitors ventured. In long distance communications, who got the business depended on whether an operator pressed an ITT, RCA, or another button. ITT’s share rose significantly after Thomson reduced the average age of his sales to 28 - to match the girls' average age - from the mid forties.

Unlike his predecessors, Thomson brought only one man with him to Dallas. The assistant's sole duty was to invite employees to air their complaints. Thomson then reshaped University Computing to make it even more of a utility than it was; he moved eight big Univac computers, then scattered around the country, to Dallas. Next, he concentrated on money-making businesses, such as banks, as customers. Results were rapid; a year later University Computing was making a good-sized profit.

Wyly’s deft handling of the situation enabled him to reduce the parent firm’s long -term bank debt by $62 million and at the same time to invest $18 million in Datran by 1972.

To run the accelerating systems and design development at Datran, Wyly brought in as the new company's president Glenn E. Penisten, a young electronics engineer who had risen to a vice presidency of Texas Instrument, the huge technical conglomerate headquarter in Dallas.

Still in his early forties, Penisten had spent 10 of his 15 years at TI managing the creation of new businesses as well as heading up the semi-conductor research laboratories and world-wide TI supply company. Penisten’s job was to take a market need, tailor technical capability to it, and build new businesses that way. He had successfully engineered TI’s entry into anti-submarine warfare, missiles
and ordnance, organized TI’s highly successful entry into the consumer electronics market with his hand-held calculator.

The first thing Penisten did at Datran was to install TI-type management discipline. To start with, he trimmed the network's projected size to a realistic level. This reduced the financing requirements to a more manageable $100 million from the near $400 million.

Penisten recalls telling his new colleagues: “It's fine to think that we're going to build a national network and turn it on like a Christmas tree one Sunday morning, and on Monday morning the world will line up to subscribe to our services. But it won't happen that way. The network is too complicated - you have to build it one step at a time. And we're going to have a long, painful job of conditioning the market.”

Penisten’s experience in semiconductor technology and his setting of tough construction standards enabled Datran to cut sharply the cost of electronic instruments that were being manufactured for the company. And before Datran broke ground for its first transmitting site - visible in the distance from Sam Wyly's office - its engineers had effected broad cost reductions through new approaches,
such as the design of a new type of radio tower.

By a simple expedient of having three legs instead of the usual four Datran’s towers saved the company millions of dollars on steel - some of the towers are 450 feet tall. Curiously, Datran engineers also found that the three-legged towers withstand high winds better.

To reflect University Computing's wider scope of activities, the company was renamed Wyly Corporation in 1973. But it continued to lose money; in 1973 it was nearly $5 million.

To continue to invest in Datran and repay debts, Wyly mortgaged the stock of Gulf to secure a $30 million loan and a $20 million investment by Haefner. The goal seemed within reach.

Excitement reigned at Wyly Corp. on December 1, 1973, when Datran’s first test message was flashed from Houston to Dallas. It was a remarkably complex message, lasting an hour and a half and designed to bring out errors - none were recorded. The first segment of the digital network worked flawlessly. First customers were signed up soon thereafter and found they could save almost half on their data transmission bills.

Wyly Corp. lost money again in 1974 - $9 million, mainly because Gulf Insurance experienced record losses. That year, Sam thought he had successfully negotiated a $50 million bank loan to take Datran over its last hump. But the deal fell apart as the prime rate soared to 12 percent and banks found themselves short of cash. That was a dark moment. Wyly faced the problem of either shutting down or selling Datran. He faced that question again in May, 1975, when inflation caused Gulf Insurance underwriting losses to soar and dividends from Gulf to Wyly Corp. had to be discontinued.

Both times, a combination of company sales by Wyly and Haefner's help rescued Datran.

Over these troubled years, Wyly managed the prodigious feat of paying off $120 million in long-term debt and investing $40 million in Datran. Haefner has contributed another $40 million in Datran and a $5million investment came from Bechtel Corp., the construction company.

Despite its financial tribulations, Datran scored a big coup early in 1975 when it put into service most of its novel network. To be sure, the company had to compromise on the original plan. Its 59 microwave towers so far march only along the Houston-Chicago segment. To reach the West Coast, Datran subleased microwave circuits from the Southern Pacific Communications Company, a subsidiary of the Southern Pacific Railroad. To reach the East Coast, Datran leased bandwidths from AT&T. Southern Pacific, on the other hand, has extended its network from St. Louis to Chicago by utilizing the Datran-engineered sites. Southern Pacific transmits voice, facsimile, and video over its facilities.

For local in-town connections, Datran for the time being decided to rely on the telephone company, but with the enhancement of the quality of these wires with special electronic devices. This unexpected collaboration was made possible by AT&T’s belated entry with improved analog data transmission service. The FCC was backed by the courts when it required the telephone company to make these local loops available to other carriers.

Despite such compromises, Datran still arrived with the most impressive, fastest, and leastexpensive- to-use data network. Its heart is a unique electronic switch, a technical marvel that consists of a roomful of computers that can handle 80,000 calls an hour for more than 10,000 subscribers. It switches high-speed computers data circuits in half a second, connecting any two computers or terminals anywhere on the network. This isn’t possible on the analog network unless a customer leases a point-to-point private line - and pays for it whether it's in use or not, at a cost that's huge compared to Datran’s.

Datran thus employed advanced technology to multiply and leverage its capital. With less expense and equipment, it has built a network that is ten times more efficient than any analog transmission plant in existence.

The sharp reduction of the connect time between two computers miles away - to half a second from an average 10 to 20 seconds - on the face of it may seem trivial. But a big user of data transmission, say a department store chain with each store querying a central computer thousands of times a day, can benefit significantly from the faster speed.

The speed of the switch, furthermore, permits Datran to replace the telephone company' traditional three-minute minimum rate with a six second minimum. This allows occasional users to become customers, without the need to rent expensive private lines. A customer can send a burst of 9,600 bits of data - equal to about 2,500 words - to a terminal 600 miles away and be charged only three cents for the 10- second transmission. The existing telephone system does not permit transmission that fast. Sending this data at available lower speeds and paying the three-minute charge would cost $1.13.

The Datran system is almost completely error-free, avoiding costly re-transmissions frequently required on the conventional telephone network. The Datran network is under constant electronic surveillance of the type that enabled the U.S. to launch faultlessly the giant Saturn 5 rockets that carried astronauts to the moon.

At Datran’s headquarters in Vienna, Virginia, just outside Washington, D.C., an elaborate, computercontrolled sentinel system checks the status of the whole network every five seconds and displays the results on a TV-like screen. Irregularities in the line and at unmanned transmission sites are instantly detected. Maintenance crews are immediately dispatched by radio from the nearest Datran office, if needed.

The surveillance system keeps track of about 450 functions at each site. If an unauthorized person breaks a lock on a wire gate at a transmission site thousands of miles away, or even if the red aircraft warning light atop a radio tower goes out, the information is immediately displayed in the control center. At 8:00 each morning Datran management gets a 24-hour trouble report.

This kind of innovative automation, far ahead of any other civilian communications network, allows Datran to spend less than half of what other carriers spend on maintenance.

After Datran began large-scale operations in 1975, signing up business customers at a fast clip, the skeptics began to see the possibilities. Although compared to AT&T Datran is a mosquito buzzing around an elephant, the elephant has become concerned. Reversing its previous stand, AT&T entered the field with an upgraded analog data transmission service which it offered at a low price in five cities. Can AT&T force Datran out of business? The FCC now seems inclined to encourage regulated competition; in 1975 it restricted AT&T from offering its service at the low rates in other cities, thus increasing Datran’s survival chances. Furthermore, Datran reached agreement to lease bandwidths from AT&T at wholesale rates, thus making its expansion easier.

There are other big entrants eager to jump into what now looks like a lucrative field. Since the market for digital data already amounts to nearly $1 billion - with AT&T accounting for the overwhelming share of it - and because it is expected to grow to $5 billion or $6 billion by 1980, such giants as ITT and IBM have become interested. Wyly and Penisten are certain, however, that Datran can stay ahead by remaining technically flexible; they expect Datran to be a $200 million-a year company in 1980. Their optimism is echoed by Sol Linowitz, former chairman of Xerox Corp, who became a Datran director 'because I regard it as undertaking a very exciting, innovative program in an area of immense potential.'

Another prominent Datran director is Dr. Glenn T. Serborg, Nobel Prize-winning nuclear chemist and former chairman of the Atomic Energy commission. He feels that "digital data communications will, over all, expand into a huge business - this seems inevitable in view of our societal march toward a future based so largely on data and communications.

The question with Datran, of course, is whether an emerging company based on brains and daring can carve out a substantial share of the market. If Datran can survive the next year or two, I believe they will succeed in doing this."

Datran’s future will not be fully assured until the company starts recording significant sales and banks begin to lend it money to expand into such promising fields as digital transmission of voice.

Wyly says he may be forced to sell Gulf insurance to keep Datran going, or even sell a majority interest in Datran - although he feels that's unlikely. “We've brought it this far,” he says, “and we think we can carry it the rest of the way.”

Wyly remains firmly convinced as ever that we are in a transition stage toward “knowledge work - working with your head instead of your hands.” “Knowledge,” says Sam, “rather than capital, labor or raw materials is now the major source of industrial growth. The computer is a revolutionary tool like the steam engine that change the way man worked.” The computer's product, information, he is convinced, is the intellectual equivalent of energy. With Datran, he feels that the 20th century’s counter part of the steam engine now has a railroad network all its own to open up new frontiers of the mind.

Wyly is supported in his views by the ever-growing, pervasive use of computers and computerized equipment. The list is impressive. Retail point-of-sale terminals are moving into the stores, electronic transfer of funds by banks is catching on, more insurance claim adjustments are being transmitted over long distances, law enforcement agencies need to exchange information fast, and there are a myriad of demands for fast data transfer in business.

The number of big computers is expected to more than double to 162,000 from the present 80,000 in this country by 1980, while the number of computerized terminals is expected to soar to nearly three million from the present of less than one million. More and more, these devices are being oriented toward telecommunications, or distant data transmission.

Wyly starts out each day, month, and year with a list of objectives to accomplish, written down on a lined yellow pad. Some of these goals may look grandiose to an outsider. But Wyly quietly goes about his business, removing the obstacles one by one. He finds that clearly crystallizing a matter and setting a date for a decision galvanizes him and his associates into action. “I go home and sleep well every night,” says Sam, who most of the time is as serene as an astronaut landing on the moon. “I don't chew my nails.”

“He moves with great acumen and confidence in the strange labyrinth of the financial world,” says Glenn Seaborg. “He has tremendous courage in the financial field and is willing to risk a good part of his fortune on Datran.”

“I'm well ahead of the $10,000 a year I thought I'd ever have to earn when I was in college. I wouldn't want to live in any bigger house than I’m in right now; I don’t need a bigger car. I have no particular buzz about having a bigger bank account - it probably wouldn’t matter. I’d just do what I’ve done before - give it away.” He had contributed heavily to churches, schools, and helped get the educational TV channel going into Dallas.

A 16-story Wyly Tower graces the campus of his alma
mater, built in part with funds contributed by Sam and Charles, who is now chairman of Wyly Corp’s executive committee. The Charles Wyly, Sr. Tower of Learning was named in memory of Sam's late father, who always strove for knowledge. About the Wyly Tower, Sam says with a laugh: “It's the tallest building between Shreveport and Vicksburg, Mississippi.”

Appropriately, on its first floor it houses a computer center, while a full nine floors are occupied by the university library. Several hundred youngsters have gone to Louisiana Tech on Wyly scholarships. Sam has also been actively involved in helping start minority businesses and has served as the national coordinator of the federal effort in that field.

“I really like my job and I like it a lot better than I did when the market said I when the market said I was worth $100 million more,” he adds. “I feel a lot more satisfied with the things I’ve accomplished. And if the report card doesn’t say so now, it really doesn't bother me because I keep my own scorecard. The public scorecard will catch up. It may be a year or two away, but it will be there.”