The History of AtariTel
(Content is from Atari Inc. Business is Fun and is protected under
copyright law. Copying and use is not permitted without express
written permission by the authors.)
Alexander Graham Bell made the historic statement “Watson, come here. I
need you,” in 1876. His assistant, Watson would hear the words come through his
prototype telephone speaker, causing him to come into the room where Bell had just
spoken into his prototype telephone microphone - the birth of the telephone had
Within only two years, the imagination of George du Maurier would
evolve the concept with a sketch of a man sitting, having a conversation with a woman
seen on a projection screen who was also holding a phone and they are having a
visual conversation. By 1910, a French postcard depicting very much the same scene
was created stating that this was what the telephone would be in the year 2000.
Bell Laboratories was already researching video telephone technologies in
the late 1920’s, and the vision is further fueled by the 1927 movie ‘Metropolis’ in a
scene of two men talking on huge wall sized telephone system with a small video
screen so they could see each other while talking through standard telephone handsets.
Bell Laboratories set up a demonstration of its ‘Picture-Phone’ between Los
Angeles and New York in 1956, finally showing the vision of communicating by live
images to be a reailty.
The system actually required three dedicated specialized phone lines; One
line each for video to New York, one to Los Angeles and a third line for the audio
conversation was then required and all of these dedicate lines had to be synced
together across the telephone carrier’s network.
The really big public awareness of videophones would come at the
1964 World’s Faire in New York where demonstrations
between New York and Washington DC were shown. Just as the earlier picturephone
prototypes required three special dedicated lines, the 1964 system did as well.
Bell Labs attempted several commercial installations of the picture-phone networks
into New York, Washington DC and Chicago, however at the cost of up to $27 per
minute for a call the product ultimately failed.
Despite the real world commercial failure of the picture-phone due to its
specialized infrastructure needs and its overly expensive cost, the public still became
captivated by the idea of one day being able to have actual video phone calls.
This would reach new heights as the result of the futuristic cartoon show The Jetson’s
when it aired in 1962, making video phone calls a common occurrence in almost
every episode. In 1969, Stanley Kubrick’s science fiction fantasy ‘2001: A Space Odyssey’
would also show a very realistic scene of a father placing a video phone call to
his daughter on what the movie would depict as being an AT&T public payphone in
Only further inspired by all this, AT&T with its research and marketing
muscle as well as large coffers of financial resources to tap into, would not give up
this uphill battle to take videophones from fantasy to commercial viability. In 1970,
AT&T would try it once again with its Picturephone II system and network in Pittsburgh,
Pennsylvania. Just as quickly however, it would silently admit defeat and shut
it down as the Bell telephone giant would step back and not make another attempt
for almost 15 more years.
In the foothills of the California Sierra Mountains in 1976, back in the Grass
Valley Research and Development Lab, the Cyan engineering team decided to take
up the call. Called ‘Phoney,’ it’s a remarkable design for video transmission technology.
“Bear in mind that we did not have DSP chips and a lot of cheap memory
available, so it was a challenge to do anything practical,” recalls Larry Emmons. The
concept design and ideas are shown to Nolan Bushnell and Joe Keenan, at which
point Joe came up with the idea that this could be an entertainment-based device,
basing the design around a toy instead of something for business or commercial use.
With that in mind, Larry Emmons, Dave Stokes and Michael Cooperhart
begin work on building a simulation prototype. While Larry and Dave worked on
the engineering side, Michael became the Project Concept Manager - after all, he
was hired to do project management and industrial design and to help get projects
(specifically the video project) funded and into production. The video project certainly
needed a kick start and funding!
When Michael first saw the project in the lab it was just a small 16 x 16 image
on a 19-inch open frame monitor, and he immediately knew what was needed was a
demonstration prototype and a funding proposal. Moving forward, the team built
the demonstration prototype, consisting of two desktop base units that were each
wired across the lab into a card cage system holding all of the electronics. Since this
was just for the very early stages of product development, its physical size and the
need to be able to easily pull out a section to work on, made it a large system requiring
a card cage box for all of the major electronic components to reside in.
Unlike AT&T’s efforts, the initial prototype didn’t actually use a telephone
line, but instead used a dedicated wiring system that ran from one office on one side
of the lab floor to another office way on the other side of the lab floor. However, to
make sure that eventually the product could be compatible with the standard telephone
line systems of the day, it was restricted to data rates and capabilities that were
possible at the time (modeling capabilities after fax machines which were just out
and very were expensive).
Larry Emmons and the Cyan team came up a this theory that telephone
conversations had some degree of down time, with pauses between words being spoken
where they might be able to insert picture data to transfer. Their test vehicle
worked quite well, and the limited resolution photos sent one person’s image at a
time; first person A’s picture was sent from one end of the link, when that completed
the process was reversed. With this setup, voice had priority over the picture, and the
remote photo would be received line by line during lapses in audio.
One afternoon, Nolan and company traveled to Grass Valley for a demonstration
of the picture phone during their regular checking of the status of Cyan’s
projects. When it came time to demonstrate the phone, they had one part of it set
up in the main office, and the second part in a back lab. Everyone played with it
for awhile and had a good time testing it out, but as they retired to the main office,
Nolan abruptly disappeared. The demo was still active with empty photos being exchanged
on the device, when suddenly during their conversation Lanny Netz noticed
a troubling and disturbingly recognizable object coming in on the video feed.
Trying to divert everyone’s attention from the screen, Larry kept everyone talking
while he tried to block the incoming image by using up all of the priority data transfer.
However, the inevitable occurred: The image fully processed onto the screen for
everyone in the front office to discover where Nolan had disappeared to and what he
was doing. The site of Nolan’s rounded ass cheeks were what greeted the room full
of people, a digitized mooning! Not quite the same historic reverence as the famous
Bell & Watson ‘Come Here!’ moment in telephone history, but certainly a memorable,
landmark (and classic ‘Atari-style’) moment for all who were present for this
graphic ‘full moon’ eclipse!!!
After the demonstration, Ron Milner (though not involved in the project)
needed a power supply to use for a different project and the demonstration system
had a perfect power supply that he could use. Proceeding to disconnect the power
supply, he unknowingly let the 110v ‘hot’ wire which was still live touch the 5v line
on the card cage. The result was a room full of fireworks and smoke, as each of the
cards proceeded, almost in a queued fireworks sequence to spark, to smoke and burn
out. “It was quite a fireworks show. Luckily it didn’t burn the lab down or set off the
sprinkler system,” recalls Ron Milner.
As for courting funding from Atari for a project such as this, Michael became
so successful in this process that he gained the nickname Michael “Corporate-
Hart” of which he was actually proud to hold the title of. Someone had to help get
these great ideas funded and into production and Michael would become the man
behind the curtain whose job it was to glorify the great work being done by Cyan.
Although work continued on ‘Phoney,’ by 1979 it’s moved to Cyan’s backburner
and then added to a Grass Valley Project Summaries document under the
However in 1981, ‘Project P’ (as it is now called) makes a comeback
when in the engineering summaries for that year it’s dryly noted, ‘try it again.’
This new interest may have been prompted by Steve Bristow’s new division called
‘Ataritel,’ put together to bring Atari into the consumer telephone market with a
series of high tech phones with never before seen features. Bristow sees ‘Phoney’ as a
compliment to the new division, and the still separate video phone project becomes
known under Ataritel as Eagle or alternately Eagle Eye.
By the end of the 1970s and into the early 1980s, a great many homes were
still using rotary dial phones because of the still uneasy process of getting a touchtone
phone. First, you had to order touchtone service for your telephone line and
depending on your area, that could cost an extra $2 to $5 per month. Then once you
had touch-tone service, you could look to rent a touch-tone phone. That’s right, rent
- these were the days you couldn’t buy your phones, you had to rent them from Bell
Telephone. And once you ordered your upgraded phone line and phone, then a Bell
telephone technician would come to your home and install it for an additional fee.
Hopefully you get the point that there was a market ripe for competition here.
Why were there so few compeitors? Originally, Bell Telephone would not
allow any non approved telephones to be plugged into its network or to even allow
any modifications to its devices. In 1956, a lawsuit was won against Bell Telephone
that would allow the use of non-Bell Telephone devices and the modification of Bell
Telephone devices as long as there would be no damage caused to the network or its
devices. Unfortunately, save for novelty phones and big business, the stigmatism of
only Bell telephones meaning quality still sat in the eyes of the average consumer.
It didn’t help that during any service calls or installation of new outlets by a Bell
serviceman, the service call was accompanied by an installer telling the homeowner
that plugging in phones not purchased from the telephone company could cause
problems with their service and any service calls could be very expensive.
This subtle pressure tactic would be used often in trying to sway
people away from going it on their own.
Atari’s entry into the telephone market began when Steve Bristow begins
to assemble his new consumer research and development team in 1981, one of the
technologies that intrigues Steve and his team were wireless intercom systems.
So they start to look at the possibility of doing something like that with telephone applications.
They build a prototype line system and bring it out to Warner Communications
in New York to demonstrate to Manny Gerard and Steve Ross. Not only is Warner
interested in the prototype and the demonstration, Steve’s consumer research
and development group is also now assigned to be Atari’s new telephone division
called ‘Ataritel.’ The idea of developing a line of phone systems that would provide
such luxury features to an eager buying public was not to be ignored. Atari engineers
could see this need, and Warner Communications fully supported the idea of its
high tech subsidiary branching out into this field – a field which would certainly be
a strong profit center by delivering much wanted and needed conveniences to homeowners.
Marketing and management at Atari, who had many times shut down numerous
game products out of fear they could impact sales of the Atari VCS, also
welcomed this new product line. The fact it would not be entertainment-based meant
it would not compete in any way with the Atari VCS or its cartridge sales - or more
importantly their bonuses.
The planned line of telephones will offer advanced features not commonly
seen at the time, such as redial, call waiting switch, mute, hold and a full duplex
speakerphone which would allow both parties to talk and hear each other at the
same time. Not a problem today, this was a very difficult technological hurdle at the
time and would give the product line a huge feature selling advantage.
There is also talk of possibly incorporating home control features, but another
very advanced design called ‘power line transmission technology’ is instead
pursued for what will be called the ‘Telectra’ line of telephones. Many homes were
only wired for telephones in specific, high traffic areas - generally in the kitchen as
the primary phone and a phone in perhaps a den or living room, and maybe in the
main bedroom. This usually posed a problem for the new home telephone market, as
you would still be at the mercy of the telephone company to have to come into your
home and charge you to run additional telephone outlets in other areas of the home.
Atari knew that in order to get into homes in any volume, they would have
to win over the hearts and minds of the consumer by giving them easy to use yet
high-tech features far ahead of Bell and everyone else. Most importantly, power line
telephone systems would be their solution to get past Bell’s control of the phone outlets
in the home. A power line telephone system consists of a Master Station which
plugs in to the already existing telephone jack and into a standard wall outlet. The
catch is, the outlet isn’t just for power, but is also used for communication with a set
of satellite phones. The master station would essentially be set with its own home
telephone network, allowing the homeowner to buy additional extension phones and
set them to the same network setting as the master station. All you would have to
then do is plug the extension phone-set anywhere in the home into a power outlet,
pick up the receiver and you would now have telephone service in that room. Now a
homeowner could take a call in the kitchen, place a person on hold, and then go into
their office or another room, pick up the extension set and have their conversation.
The phones could also act as intercoms between rooms as well.
For the next two years the product engineering and designs would evolve.
Porsche Design and Morison Cousins Associates would be contracted to provide
design services and give the new products a unique and state of the art look. The
designs by Morison Cousins are chosen for their ‘Space-tel’ look which have very
clean, attractive and appealing high tech presence. They’re also easy to use and are
designed to fit the many different functions that the various models and product
lines will need to accommodate.
By March 1983, after nearly two years of working in secret,
Atari announces its new secret division to the public. To add an additional air of
mystery to the whole affair, Marketing, which is handled by Dick Mier, releases a
Press announcement that the entire division has been secretly operating
under the codename ‘Project Falcon.’
In fact, unlike previous Atari products that usually had their codenames
after women, the Ataritel product codenames were all after birds - Falcon, Eagle,
Pudgy and Parrot. An effective marketing campaign is launched, featuring the Ataritel
name covered under a tarp; you could clearly read the name, but it gave the
perception to everyone that there would be so much more revealed when the wraps
came off. Marketing specialist Kim Soulek would demonstrate the prototype designs
at numerous events and tradeshows throughout the year, including the Telephone
Show in San Francisco.
Unfortunately, shortly after the showing a number of events occur surrounding
the appearance of James Morgan, Atari’s new CEO who takes over the
reins of the company from Ray Kassar after massive financial losses. After a month
long evaluation period, James begins to cut projects and products across the board
that he feels are not necessary to Atari’s recovery. Ataritel will be one of those projects.
Initially, its staff is cut back in September, but by October most of the division
staff has scattered to other projects and departments or they have left the company
all together. Internally, Ataritel is shuttered - even Steve Bristow has moved
over to the Home Computer Division to work with Dave Stubben on refocusing the
division’s product strategy and map out new computers and products for the next
two years. The phones of the future will not get their chance to be released in the
future and Ataritel, treated like an unwanted phone call, is put on permanent hold.
A glimmer of hope for the product line was seen in April, 1984 after a simple
announcement that Atari is still considering a release of its line of Ataritel products.
But other than this announcement, nothing actually ever comes of it. Word also
reaches Cyan that the Ataritel project has been canceled and their work on ‘Project
P’ has been canceled along with it. The video phone too will not get its chance to
make it out of Cyan’s lab and into the hands of consumers. The Falcon, Eagle and the
nest eggs have all been grounded.
During the turmoil of 1984 and the sale of the Consumer Division (which
includes the Home Computer Division) to Tramel Technologies, Ltd. on July 2, 1984,
the Ataritel division is retained by Warner Communications along with the Coinop
Division and the Atari Adventure Centers division. The former management of
Ataritel tried to see if they could purchase the division outright from Warner and
spin it off as an independent company separate from Warner. Warner, unfortunately,
would not agree to the terms of the offer. Seeing the value in Ataritel’s assets and
specifically the video phone product, Manny Gerard negotiates to sell the product to
a company called Medama, which was a newly formed U.S. subsidiary of Mitsubishi
Electric established as a development and marketing company for the U.S. market.
While looking to take Ataritel independent, Roy Elkins approaches Medama
for funding and after Warner won’t spin off the division he makes the introduction
to Manny Gerard about purchasing the rights, IP and assets to the videophone project.
During one of the demonstration meetings with Warner, Ataritel and Medama,
the Cyan videophone is set up in the Warner conference room in New York. Back
in Grass Valley, Michael Cooper-Hart is preparing to send a video transmission to
demonstrate the product to the Mitsubishi team from Japan. Cyan’s Larry Emmons
is also on hand for the meeting, so he initiates a videophone call with Michael Cooper-
Hart. Michael is on the speakerphone and tells Larry that a friend dropped by
to see him and an image of a Playboy centerfold begins to appear on the screen in
the Warner conference room. The room breaks out in laughter, and that pretty much
seals the deal to move forward with negotiations to purchase the video phone product.
During negotiations, Manny quickly discovers there is a leak - that Stan
Zawadowicz, who is acting on behalf of Medama, knows entirely too much about
the product including things not released in documents or prevously discussed.
Manny decides to use this leak to his advantage; He begins to discuss internally
within Warner and the Ataritel team that Warner has received a far more generous
offer for the videophone project and that he is considering negotiating with this
other firm instead. Zawadowicz suddenly comes back with a higher offer and Manny
jumps on the turnaround of the situation by selling the rights, IP and assets of the
video phone project to Medama for a much higher price than he originally planned.
The original video phone team, consisting of Larry Emmons, Michael Cooper-Hart,
Chris Wright and Roy Elkins will be joined together again over at Mitsubishi’s new
U.S. subsidiary to take their work on the Atari video phone and refine and complete
it under new design guidelines and feature requirements outlined by Mitsubishi.
They’re joined by an old familiar face from many years ago, Nolan Bushnell’s former
boss from AMPEX, Kurt Wallace. In 1986 the videophone is finally released as the