Bell System History -
The Bell System
"There are two giant entities at
work in our country, and they both have an amazing influence on our daily
lives...one has given us radar, sonar, stereo, teletype, the transistor, hearing
aids, artificial larynxes, talking movies, and the telephone. The other has
given us the Civil War, the Spanish American War, the First World War, the
Second World War, the Korean War, the Vietnam War, double-digit inflation,
double digit unemployment, the Great Depression, the gasoline crisis, and the
Watergate fiasco. Guess which one is now trying to tell the other one how to run
its business?" - This quote from Arthur P. Bloom when he was
recalling a poster that was hung at various telephone co worksites, towards the
end of 1983, as they (employees) all tried to prepare themselves for the
"solution" (the pending divestiture of the Bell System).
Article on Alexander Graham Bell
Article on Theodore Vail
Article titled "The Bell System"
The Bell System: The
Legacy and the Promise
The American Telephone and Telegraph
The Bell System, a.k.a. “Ma
Bell” or simply “THE telephone company”, was not a "company" but
rather an aggregate term for AT&T
encompassing 24 Bell operating companies providing local exchange phone service,
the AT&T Long Lines Division providing long distance connections, an equipment
manufacturing arm known as Western Electric, and a research and development arm
known as Bell Laboratories. The
American Telephone and Telegraph company (known today as simply AT&T), Western
Electric (which became Lucent), Bell Labs, and
the 22 local Bell operating companies (which became the so-called "Baby Bells”)
made up a huge and complex corporate system providing telecommunications
equipment and service to the majority of the people living in the US prior
Bell System flag proudly flew over the Pacific Northwest Bell Building
Photo courtesy of Ron Christianson of
Telephone Museum" website.
The nation-wide Bell System network, which was
described as the largest computer in the world, was the result of teamwork by
people at AT&T, Bell Telephone Laboratories, Western Electric, and the local
Bell Telephone companies. Close
cooperation between Western Electric and Bell Laboratories engineers resulted in
the introduction of countless communications products and services.
Similarly, the close relationships between Western Electric and each of
the operating companies embodied a spirit of united service to the public.
The Bell System was the
largest employer in the USA with great job security for its employees –
especially when compared with today’s corporate climate of downsizing, mergers
and outsourcing. Company loyalty on
the part of employees was the norm back then. If you wanted a secure job
and one that you felt you could put your blood, sweat and tears into, the Bell
System was the place to be.
The Bell System was heavily involved
with civil defense preparedness during the cold war days. Not only did
they provide emergency communications backup systems and electronic defense
equipment, they provided radiation monitoring and
fallout shelter information.
The Bell System, known for
high quality equipment and top-notch service to the customer, came to an end in 1984. With a
few exceptions (like BellSouth), most of today’s Baby Bells have not kept the
“Spirit of Service” as part of their company’s culture. The
excellent quality of telephone equipment that Western Electric was known for is
no longer an attribute of today's phones made for Lucent (the new name for
Western Electric) by foreign manufactures. And all (except
Cincinnati Bell) have dropped
the Bell logo and “Bell” from their corporate
In spite of all of the great
things the Bell System was known for, the public opinion toward the Bell System
was sometimes very negative as noted by these two artifacts from the past: The
button shown below on the left with the cracked bell is from the
CWA during negotiations with the Bell
System in the 1970's. The item on the right appears to be a refrigerator
magnet probably from the same era. HERE is a
photo of an "On Strike" poster, possible from that era.
Phreakers of the sixties and seventies found it challenging to uncloak the
technical secrecy of the Bell System's technical operations and equipment.
Others didn't like the idea of the US government support of a corporate monopoly.
I'm sure if you are old enough
to remember having phone service with the Bell System prior to 1984, you'll
remember a few policies they had that seem comical if not ridiculous today. One was the
"foreign attachments" policy that prohibited a customer from attaching
anything to his/her telephone set or telephone line. This was taken to the
extreme with such "violations" as no shoulder rest could be attached
to the handset and no book cover or other protective cover could be used to
cover your phone book! These were considered "foreign
attachments". A peculiar policy of the New York Telephone was sent to
me by Stan Schreier and can be viewed by clicking HERE.
Let me set the record straight
before I go on any further. I was
never, and am not now, an employee of or stock holder of any of the former Bell
System companies or the post-divestiture companies.
I was/am only a customer of these companies (Southern Bell/BellSouth and
AT&T) and collect Western Electric telephones as my hobby.
Okay, with that said,
let’s go on…
The Bell System came
to an end in the early 1980's; officially on January 1, 1984 although the
announcement of the breakup came two years earlier. To hear a 2 minute 12
second sound bite of the introductory part of the official announcement of the
divestiture as heard by the Bell System employees from AT&T management in
1982, click HERE.
Thanks Diane for sending
this cartoon to me!
Use the menu at the
left to navigate
through this web site. It's a journey back in time
. . . a time when Ma Bell was THE phone company for most Americans.
Directory information was free, the "telephone man" made house calls
to fix you phone or wiring for free, and phones were built to last and had real
bells (not those wimpy electronic chirpy thingies like today's cheap phones).
As the lyrics
(link was dead when last checked)
of a 1968
folk/pop music song sung by Mary Hopkin stated, "Those were the days my
friend, we thought they'd never end . . ."
I have written my
own lyrics to this tune. I'm not a
poet or song lyrics writer, so don't be too critical of my attempt at this! :-)
Alexander Graham Bell
The man that started the once largest
corporation in the world
have come close to being recognized as the inventor of the telephone, Alexander
Graham Bell is considered the inventor by most historians. Alexander Graham
Bell was the founder of what became the Bell System in the USA and Bell Canada
in Canada. For an interesting article on Alexander Graham Bell, please
read the following:
As with most documents on this website, you will need the
Reader to be able to view or print these documents.
Click on image to enlarge
Click on image to enlarge
Click on image to enlarge
As a side note, some recent claims have
been made that A.G. Bell was not the first to invent the telephone as noted in
Cartoon by Chip Sansom
United Media 200 Madison Avenue New York, NY 10016
Used by permission.
Year of Decision
From the Bell Telephone Magazine
- March-April 1975 edition
"'If ever there was a year when
effective decision making was needed--and fast--1907 was it; the AT&T ship was
perilously poised between the Scylla of the independent phone companies and
the antitrust movement on the one hand and the Charybdis of socialization and
government takeover on the other.'"
Man of Decision - By Annette R. Fry
The year was 1907, and the American
Telephone and Telegraph Company was having its troubles, with the public,
dissatisfied with the kind of service it was getting; with the financial
community, where AT&T bonds were no longer finding a ready market; with the
independents, whose telephones now outnumbered those of the Bell System; and
with its own employees, whose morale had sunk to a low ebb.
The small group of investment bankers
who had gained financial control of the company no longer could ignore the
deteriorating state of affairs. And so it was that they went hat in hand to
the man they had spurned 20 years before 62-year-old Theodore Newton Vail to
beg him to take over the company from which he had sadly resigned in 1887. At
an age when most men are thinking about retirement, Vail was persuaded to come
back to the company he loved to breathe new life into it: to reorganize and
redirect it along the very lines that he had laid down when he was its top
manager two decades before.
"The least known of the great American
business builders," is the way Peter Drucker has described Theodore Vail, whom
he rates as "perhaps the most effective decision maker in U.S. business
history." If ever there was a year when effective decision making was needed
and fast-1907 was it: the AT&T ship was perilously poised between the Scylla
of the independent phone companies and the antitrust movement on the one hand
and the Charybdis of socialization and government takeover on the other.
It was a time of overexpansion and
reckless speculation and an ominously sagging stock market. But even more
ominous to America's top business leaders was the attitude of the public and
some of its elected officials toward large business enterprises. In
Washington, President Theodore Roosevelt's trustbusters were charging full
steam ahead after the Standard Oil Company. In various state capitols,
governors and legislators were deliberating over the creation of public
service commissions. And on the city level, the hue and cry was for municipal
ownership of the utilities.
It was an era when bigness was a synonym
for badness. Biggest and baddest of all, as far as the farmers were concerned,
were the railroads. Years earlier, the farmers' wrath against the stranglehold
of the railroads had hardened into action: back in the 1870's the Patrons of
Husbandry-more popularly known as the Grange-had flexed its political muscle
and secured passage of legislation to regulate railroad rates in the four
so-called "Granger States" (Minnesota, Wisconsin, Iowa and Illinois) of the
Midwest. Though much of this legislation proved ineffective or was declared
unconstitutional, an important principle had been established: the right of
the government to regulate public utilities.
The Populist movement of the 1890's took
over where the Grangers left off. "The people are at bay. Let the bloodhounds
of money who have dogged us this far beware!" cried Mary Elizabeth Lease, the
Populist "Kansas Cyclone," to her cheering admirers.
A few years tater the torch was passed
to a band of journalists whom President Teddy Roosevelt was to label "the
muckrakers." Not that TR wasn't grateful to the responsible writers of
exposure literature-people like Ida Tarbell (Standard Oil), Lincoln Steffens
(city government) and Ray Stannard Baker (the railroads). He was just fed up
with what he himself later called the "lunatic fringe in all reform
One such member of the irresponsible
lunatic fringe of muckraking journalists was a former newspaperman named Paul
Latzke. In 1906 Latzke wrote a book "exposing" American Telephone and
Telegraph; he called it A Fight with an Octopus. In those days an octopus was
a frequent and titillating cartoon character on the editorial pages of the
yellow press; it could be used equally well to conjure up the network of the
pipelines of the giant oil trust or to suggest the ensnaring rail lines of the
railroad barons. The independent phone companies were also fond of the octopus
image; it provided a satisfying pejorative reference for the spreading wires
of "The Bell" (as the company was then known to its multitudinous and
proliferating competitors throughout the nation ).
Many black chapters have been added to
our industrial history by the telephone trust (wrote Mr. Latzke). Courts have
been manipulated, city councils corrupted, and the public press debased. Men
who have stood highest in their communities have been induced by the reckless
use of money to betray their friends and associates. Lying and chicanery and
the basest deception have been employed so freely that they have grown almost
commonplace. An army of spies has been in the field for years. National
characters have been sacrificed. Four times the fight has been carried to the
White House. Altogether, it has been a desperate business. But the
Independents, despite their former handicaps, lack of experience and lack of
money, have always come out on top in the end. Their victories have been due,
undoubtedly, to the fact that their fight is the people's fight ....
The independents were feeling decidedly
feisty. Since the expiration of the basic Bell patents in 1894, these rival
phone companies had sprung up like dandelions and multiplied like rabbits,
installing instruments at a far faster rate than "The Bell .... It required
nearly two decades (for Bell) to install less than a quarter of a million
instruments," a spokesman of the independents proclaimed in January of 1907. "A competitive system built by the
Independents has reached an installation in excess of three million in less
than twelve years."
The competition was fierce, some of it
of benefit to the public-lower rates in many places and innovations such as
the first "automatic" dial telephone system-and some of it not. Duplicate
service-the necessity for subscribing to two telephone companies-was the most
obvious drawback where dual systems existed. And where no system existed at
all, the ground lay fertile for stockjobbing schemes. Between 1895 and 1905
one group of stockjobbers set up close to 200 telephone companies. These slick
salesmen would come into town full of promises for better service at half the
current rates, selling stock in a brand new company to all the leading
citizens. Their profits came from the construction of the lines and the sale
of equipment, after which they took off in search of new pastures, leaving
dismay and bankruptcies in their wakes.
Despite bubbles such as these bursting
along the way, the independents were convinced, as were many in the financial
community, that the day of Bell dominance was over. In January of 1907,
Telephony magazine reported the formation of 71 new independents in the United
States; in February the count was raised to 110, for a total of "upwards of
12,000 independents in the U.S."
At that time the idea of trust-busting
sat just fine with those who regarded "The Bell" as being every bit as
nefarious as the railroad, oil, gas, sugar and electric trusts then under
attack. While some zealots (among whom many independents were numbered)
favored the tomahawk of the Sherman Antitrust Act, others looked to government
ownership of the utilities as the panacea.
In this latter group was publisher
William Randolph Hearst, whose New York City newspapers were then waging a
sulphuric and selfrighteous campaign for municipal ownership of the gas and
Despite his big-stick reputation,
Theodore Roosevelt disagreed with the down-with-bigness extremists and those
others who played around with socialistic notions. "You can build levees to
keep the current within bounds and shape its directions. I think that is
exactly what we can do in connection with the great corporations known as
trusts. You cannot put a stop to or reverse the industrial tendencies of the
age, but you can control and regulate them and see that they do no harm."
By the time Theodore Vail was called
back to AT&T, the sandbag crew was hard at work on the levees. In New York
State a reform governor had been swept into office as a result of his quietly
tenacious investigations of the insurance, gas and electric companies. He was
Republican Charles Evans Hughes, the man who lost the presidency by a razor's
edge in 1916 and who was to become Chief Justice of the United States and the
nemesis of another Roosevelt a generation later. On the 22nd of May, 1907,
Hughes succeeded in pushing the nation's first real public service commission
through the New York State legislature-just three weeks after Vail became
president of AT&T.
The bosses and the corporations who
would be affected by the new commission let loose a barrage of epithets
against Governor Hughes. "Confiscation... violation of vested right . . .
usurpation of power . . . ruination of our prosperity... There is no soil in
our political garden so rich for the growth of noxious weeds as the Public
Actually, the 1907 law did not include
the telephone and telegraph companies among those regulated; it was not until
three years later that it was amended to add the communications utilities to
the roster. But New York State had started the ball rolling, in July of '07
Wisconsin expanded its Railroad commission's powers to cover companies
furnishing public utility services such as lighting, power, heat, water,
telephone and telegraph. Within the next few years, other states fast followed
suit, setting up new commissions or strengthening existing agencies so they
could take firm action on behalf of public utility regulation.
It was during this period (in 1910) that
telephone companies were also brought under the supervision of a strengthened
Interstate Commerce Commission.
Some of the independents were even less
enthusiastic about utility regulation than the old-timers at AT&T. If the
various public service commissions were really to serve the public, they might
force independents to interconnect with "the octopus" when they didn't want
to. To join "The Bell" would mean losing their autonomy and having to abandon
any visions of a rival longdistance network.
But the public must be served. This had
been, from the very beginning of Theodore Vail's association with the
telephone company, his guiding philosophy. In an era of "the public be
damned," Vail, general manager of the Bell System in the 1880's, continuously
expressed his concern with improving the quality of the service given and
equipment used. Profits, he felt, should be plowed back into the infant
company so as to provide better service.
The best possible telephone
service-efficient and courteous-under a nationwide, unified system had been
his dream then and it was now. But there were new obstacles in the way of its
fulfillment; the opposition of the independents and the rise of government
regulation made it a whole new ball game.
At a time when his peers were as
horrified by commission policing as they were by lawsuit law and order under
the Sherman Antitrust Act, Vail saw clearly the implications of these new
obstacles. He saw that certain distinctions must now be made, and that they
must be made in light of what was best for the public. The telephone, of
course, had to be a monopoly. (The phrase "natural monopoly" already had been
coined before Vail took over the reins of office for his second and
longest-stint as pilot of the Bell corporate ship. ) To have more than one
system was-like bigamy-an invitation to unnecessary trials and tribulations.
But it had to be a monopoly that performed in the public interest-a "good"
monopoly. If not, nationalization would be inevitable. And nationalization, in
Vail's opinion, would be a disaster.
Vail was the first to perceive that
harassing the independents-as unquestionably had been done in the years
preceding 1907 - would do little to advance the monopoly cause. Fighting the
commissions and government regulation would do even less.
Peter Drucker in Management: Tasks,
Responsibilities, Practices* has put it this way.
Theodore Vairs contemporaries agreed
with him as to the degenerative danger of government ownership; but they
wanted to fight it by fighting symptoms-fighting this or that bill in the
legislature, opposing this or that candidate and supporting another, and so
on. Vail alone understood that this is the ineffectual way to fight a
degenerative condition. Even if one wins every battle, one can never win the
war. He saw that drastic action was needed to create a new situation. He alone
saw that private business had to make public regulation into an effective
alternative to nationalization.
Vail's determination and his confidence
in the telephone company's future were unshaken by the fact that the money
market was dangerously sagging and recession loomed ahead. "When Mr. Vail came
back to the telephone company as president," an executive at the Chicago
associated company later recalled, "telephone men and the public generally
recognized that somebody was there who not only knew the telephone business,
but the world's business, and it restored confidence." Vail was more than just
a "telephone man;" he was a knowledgeable entrepreneur, in his 20-year absence
from the company, his successful business ventures had made him a millionaire
several times over.
Almost overnight, he raised $21 million
in new capital. He then turned his attention to the other problems of the
phone company. In the summer of '07 he chartered a yacht and took officials
from all parts of the country and all divisions of the Bell System on cruises
so that he could hold conferences with them without interruption.
With a forthrightness that startled his
more conservative colleagues, Vail next set about to blunt the opposition of
the independents by a policy of conciliation, while at the same time
proclaiming his firm intention of cooperating with regulatory agencies on
behalf of the public good.
What President Vail did was simply to
follow the advice of the old saw, "If you can't beat 'em, join 'era." He made
it attractive to the independents to join up with the Bell System. By the end
of the year, 450,000 telephones had been linked to Bell exchanges. In
addition, during this same period, he began to make improved service and
courtesy the system watchwords. Commenting on Vail's public pronouncements
along these lines, Telephony declared:
It is something to know that the Bell
bosses admit even to themselves that there is a possibility of improving the
"'relations between the public and the associated Bell companies." The
arrogant spirit which the monopoly had uniformly manifested in its dealing
with the people, of course, could not help but foster a strong feeling of
resentment in the public's breast, but never before have the Bell magnates
deigned to recognize it and refer (publicly, at least) to the wisdom of
improving the relations between the furnisher and user of public service.
A year later the magazine no longer was
referring to the "hateful qualities" or the "odious tactics" of "the Bell
octopus " AT&T now was referred to respectfully as "the Bell Telephone
Company." For his part, Vail, too, was displaying tolerance and of a kind
unheard of in top AT&T circles. In a mellow mood, he told a reporter for the
Wall Street Journal: "While the existence of two telephone systems in a city
is a waste and a needless state of affairs, yet in most instances such a
condition has been rather a benefit to the Bell companies .... So far as we
are concerned it keeps alive the feeling that a monopoly is being held in
Vail's first annual report, for the year
ending December 31, 1907, evidenced the same directness. Some of his
colleagues suggested that perhaps it was too frank. "No," said the new
president. "We will lay our cards on the table, there is never anything to be
gained by concealment" and one of the cards laid on the table
was the company's policy regarding public regulation:
It is contended that if there is to be
no competition, there should be public control. It is not believed that there
is any serious objection to such control, provided it is independent,
intelligent, considerate, thorough and just, recognizing, as does the
Interstate Commerce Commission in its report recently issued, that capital is
entitled to its fair return, and good management or enterprise to its reward.
This attitude of cooperation with
regulatory agencies so as to maintain a "natural monopoly" became, thanks to
Theodore Vail's candor, the keystone of AT&T policy. It was essential to his
belief that a natural monopoly, to survive and prosper, must maintain the good
will of the public and of the government. Time and again in his 13 years as the
company's chief executive officer (1907-1920), Vail expounded on his
While the complexity of the telephone
industry makes it a difficult subject of regulation (Vail wrote in 1914), yet
it has advocated and seeks full public control. This is done with a confidence
in the ultimate fairness of the public and a belief that regulation will help
to perpetuate the cooperative relations that should prevail between the public
utilities and their customers.
1907 was as difficult a year as any that
the telephone company has lived through. It was climaxed by a money panic that
saw blocklong lines of depositors, some of them waiting since dawn, to get
their money from the tottering banks.
"There will be some consolations for the
general retrenchment which promises to be one result of the enormous losses of
the last nine months," the editor of Harper's Weekly cheerfully pointed out in
the fall of the year. "Living had come to be extravagant; so much so that even
in very well-to-do families the cost of it strained generous incomes and
shocked the common sense of people who were drawn into it in spite of their
better judgment. The new fashion promises to be retrenchment."
A period of retrenchment for many-but
not for the telephone company. AT&T had embarked on an era of expansion and
growth greater than any that had gone before, thanks to the vision and
leadership of Theodore Vail.
"What Woolworth was to the five-and-ten,
what Mccormick was to the harvester, Vail is to the telephone," publisher B.
C. Forbes declared. "Bell invented it, but Vail put it on the map."
"The most interesting man I have met in
America," was the way British Lord Northcliffe described the AT&T president,
"and by far the greatest."
It was a view that was already
widespread throughout the telephone business.
Selling the Bell System to the public
and instilling a spirit of dedication and service in its employees were
perhaps Vairs proudest accomplishments. How he set about these tasks and many
others-and the way he handled the takeover of the System by the U.S.
government in 1918-1919 will be told in a subsequent issue.
Theodore N. Vail - By
Annette R. Fry
Vail recognized that the future success
of the telephone company demanded a commitment to the idea of service. In
1883, Vail sent letters to the company's general agents asking their views
regarding customer satisfaction with telephone service and pricing, the
possibility of lower rates or cheaper classes of service, and public attitude
One day in the early years of this
century, a young woman got off the train in a small Vermont town to place a
telephone call to New York City. She explained to the operator at the little
station exchange who she was.
"Of course, I don't know whether you are
Mr. Vail's niece or not," the operator replied. "But I will take your word for
it. And if you are, you ought to be proud of that fact, because he's been so
good to us girls."
Before 62-year-old Theodore Newton Vail
returned to the presidency of AT&T in 1907, few customers could expect such
cheerful response from telephone employees. In many parts of the country, Bell
System operators and managers regarded the public with outright hostility.
The Bell System's change of character in
those prewar years of rapid growth largely reflected the personality and
attitudes of the man who served as its president from 1907 to 1919.
But Vail was more than a hard worker
with an appealing personality and a gift for gaining the loyalty and affection
of those around him. He was an organizational genius and a business decision
maker with the ability to see into and build for the future.
Vail's five most significant policy
decisions rank with the invention of the telephone itself in their importance
to the company's growth and prosperity. These decisions were that:
• The business of the company is the
anticipation and satisfaction of the service requirements of the public.
• The telephone is a natural monopoly
that should be integrated on a national basis.
• The Bell System must generate its
own research and technology and control its own source of equipment.
• The company must attract a strong
• Public regulation of the telephone
business must be supported as the alternative to government ownership.
With the exception of company policy on
public regulation, these viewpoints already guided Vail when he first worked
for the Bell System. Though Vail's achievements during his second stint with
the phone company are those best remembered today, his blueprint for telephone
growth was actually drawn up some twenty years earlier in the 1880's. His
vision, it seems, was more than wisdom of the years; even as a young man he
could see further than those around him.
When 33-year-old Theodore Vail became
general manager of the fledgling Bell Telephone Company in 1878, he already
had tried his hand at a number of professions and pursuits. He had studied
medicine and the law, been a telegraph operator and a school teacher, worked
on a farm and in a drug store. Finally, as a clerk with the U.S. railway mail
service on the Union Pacific, he discovered his fascination--and genius--for
systematizing and organizing.
In those days, a passenger embarking on
a train trip reached his destination weeks, even months, before a letter
starting the same trip at the same time. Until young Theodore Vail came along,
no one seemed to have thought of sorting the mail out on board the train.
Vail's boundless energy and management skills carried him to the position of
general superintendent of railway mails by 1876.
It was in Washington that Gardiner
Hubbard, Alexander Graham Bell's financial backer and father-in-law,
encountered the energetic young postal executive. Hubbard was a member of a
Congressional postal committee. Beginning to chafe under the bureaucratic
frustrations of federal employment, Vail was ripe for Hubbard's offer to take
over organizing the new telephone company--even though it would mean a
substantial cut in salary.
"Uncle Joe" Cannon, the congressman who
would later become the iron-fisted speaker of the House, was astounded by
Vail's decision to work for "the thing" invented by Bell. "That's too bad,"
Joe Cannon is reported to have said. "I always liked Vail. Hubbard tried to
sell me some of that stock. I'm sorry he got hold of a nice fellow like Vail."
From the very beginning of his
association with the phone company, Vail pursued a vision in which everyone in
the United States would be connected by the talking wires.
Vail recognized that the future success
of the telephone company demanded a commitment to the idea of service. In
1883, Vail sent letters to the company's general agents throughout the country
asking their views regarding customer satisfaction with telephone service and
pricing, the possibility of lower rates or cheaper classes of service, and
public attitude trends.
But good service, in Vail's opinion,
also meant a nationwide consolidation of communications activities -- an
impossibility, most people felt, in view of the strength of the Western Union
Company. At that time Western Union had acquired its own phone devices, having
placed Thomas A. Edison on its payroll and built up a phone system with 56,000
subscribers in 55 communities.
When Vail first joined the phone company
it was locked in battle with the telegraph giant, then 15 times its size. Vail
masterfully took charge of the contest, steering it from confrontation to
cooperation. As a result of negotiation with Vail, Western Union acknowledged
the Bell company's claim to the basic telephone business and sold its
equipment and exchanges to Bell. In return, the Bell company promised hands
off the telegraph business in Western Union territories.
The peace with Western Union was an
important step toward establishing the single nationwide system that Vail
envisioned. Another step was the formation of the American Telephone and Telegraph
company as a special long lines company for toll services.
"This linking up of city to city, state
to state, and nation to nation has greater possibilities than we know of yet.
I see no limit to what may be accomplished nor to the work to be done."
Even after the settlement with Western
Union, Vail was looking ahead to when the patents would run out in 1893 and
'94. How would the System retain its preeminence? It was essential, Vail felt,
to be at the vanguard of communications research once the original patents
Likewise, Vail felt that service
objectives demanded that manufacturing and supply be integrated into the
business. This was assured by the purchase of the Western Electric company in
Chicago, a farsighted action engineered by Vail in 1881.
But Vail did not have a chance to find
the strong capital base he regarded as essential to the fulfillment of his
vision of a nationwide system. It was this concern with financing growth that
brought about his parting with the telephone company.
During the early 1880's, Vail was
general manager of the parent company, the American Bell Telephone company.
American Bell was the corporate entity involved in the financing of the
regional operating companies. In 1885, Vail resigned his job as general
manager of American Bell to become the first president of American Telephone
and Telegraph, the long lines subsidiary. By then, American Bell was doing
very well indeed--so well that it issued $1.5 million in dividends during '85.
This went against the grain with Vail who felt strongly that the parent
company should plow its profits back into the business to build a strong financial base
Then, in 1887, when the president of
American Bell resigned, Vail was passed over for the post--at that time a more
prestigious one than the presidency of the new AT&T. He felt slighted that he
was not made president of the parent company. "My present position in the
company," he wrote, "is not such as I had hoped to attain and is also some
ways embarrassing and unpleasant."
For nearly 10 years this exuberant
dynamo of a man had poured his energies into the infant business. Giving
reasons of health, he now handed in his resignation. With his wife and son, he
took off for some recuperative travel followed by a prolonged sojourn at
Speedwell Farms, his handsome spread in Vermont.
Happily, Vail was anything but a poor
man at this time and soon had many other irons in the fire. With his
fascination for inventions that held the promise of revolutionizing lives and
life-styles, the former telephone pioneer did not lack enterprises to occupy
his entrepreneurial zest. Some of them, like a scheme to heat the homes of
Boston with steam heat piped underground, were dismal failures. Others like a
street railway in Argentina proved highly profitable.
But Vail was still concerned with the
fortunes of the telephone company. In a 1901 memorandum to U.S. senator W. M.
Crane from Massachusetts, he pointed out the need for the Bell System to build
a strong financial base to meet the demands of the battles ahead. This, of
course, was at the time when all the basic Bell patents had long since expired
and competition from the proliferating independent companies was widespread.
"The worst of the opposition," Vail
wrote, "has come from the lack of facilities afforded by our companies -- that
is, either no service, or poor service. For this, circumstances beyond control
are to a great extent responsible, as it was, in the early days, very
difficult to provide money."
Another American business leader who
shared Vail's dream of communications consolidation was J. P. Morgan, the
apostle of corporate mergers who masterminded the creation of U.S. Steel,
General Electric and other industrial concerns. Vail felt that the Morgan
forces promised the sound fiscal policies needed to put the Bell System back
in command of the field.
And so it was, when the Morgan forces
attained control of the AT&T board of directors in 1907 that Vail accepted --
albeit reluctantly because of his age -- the invitation to take charge once
again. (By this time, AT&T had become the parent company.)
Vail lost no time in implementing the
strategy he had designed to achieve a single communication system offering the
best possible service.
He put an end to the harassing of the
independent telephone companies and made it attractive for them to link up
He put a new emphasis on centralized
control and standardization of apparatus, equipment and operating methods.
He announced the policy of candor and
cooperation with government regulatory efforts, determined that the telephone
system should remain in private hands.
Finally, he established a firm financial
foundation for growth.
To finance expansion and replace
obsolete equipment, Vail raised $400 million during his second presidency of
AT&T. To provide a steady and reliable source of capital, Vail redesigned AT&T
stock offerings to appeal to the buyers more interested in steady income and
growth rather than speculative investments.
Perhaps the most important of all Vail's
strategies to shore up the tottering Bell System took place in the area of
public relations. The new president of AT&T was determined that the public
should not only get quality service, but the public should be made fully aware
of what it was getting. It was Vail who was responsible for the motto "One
policy, one system, and universal service." In 1908, he started what is now
called institutional advertising to tell the story of the Bell System as an institution of
At the first gathering of AT&T directors
after he became president, Vail announced that he intended to spend $250,000
on this campaign. The directors protested that it was not necessary, since
everybody already knew about the telephone. "But everybody is not thinking
about it," Vail replied.
Winning friends for the Bell System was
one of Vail's proudest achievements. But to get these friends meant more than
telling the public about universal service and the new voice of Bell -- "the
voice with the smile." There had to be a reason for the smile; there had to be
a new attitude on the part of the System toward its employees if operators and
managers were to treat the public with new courtesy and efficiency.
To cultivate that attitude, Vail
inaugurated many services for employees -- from better rest rooms and
cafeterias to sickness, old-age and death benefits. The improvements in wages
and benefits reflected his deep personal interest in the well-being of Bell
Vail's dream of a universal
communications system had always included the idea that the telegraph wires
should be integrated with the telephone system. The word telegraph was
included in the name of AT&T for more than alliterative purposes.
Following the panic of 1907, Western
Union had fallen on hard times. In 1910, Vail negotiated a stock takeover of
the demoralized telegraph company and was elected its president. He lost no
time in revitalizing Western Union. "I want the two services linked as closely
as it is possible to link them. The costs will be lower, the services will be
improved. These little dirty, downstairs telegraph offices must be cleaned up,
standardized, made attractive."
The marriage with the telegraph service
was short lived. In 1913, the Justice Department was about to bring an
antitrust suit against AT&T. In a letter to the attorney general, AT&T
agreed--in what is now called the "Kingsbury Commitment"--to rid itself of its
Western Union stock. It also agreed not to take over any more independent
telephone companies unless the Interstate Commerce Commission and the Justice
Department gave their approval.
Throughout his second career as captain
of the Bell ship, Vail scrupulously cooperated with government agencies "in a
spirit of absolute frankness and candor." He believed in government regulation
as a requisite for insuring that the public was properly served by its
utilities. He also believed in government regulation because he saw it as the
only workable alternative to government ownership. And in those days there
were many advocates of public ownership, particularly after the government
takeover of the telephone system in Great Britain in January of 1912.
With the entry of the United States into
World War I, the advocates of government ownership carried the day. After all,
wartime necessity had brought about the government takeover of the railroads.
Why not the telephone and telegraph companies? In July, 1918, Congress passed
a joint resolution giving postmaster general Burleson the right to take over
the wire communications.
The short-lived experiment in government
ownership--in which Vail and everyone else at the phone company cooperated
fully -- proved little or nothing about the value of government ownership.
(Except perhaps that it is easier for the federal government to get rate
increases. Both long distance and local rates rose, to the dismay of states
and localities.) Operations remained in Bell hands, and the System was
returned to AT&T the following year.
Of Vail's role, the New York Times
commented: "Mr. Vail was never a believer in the right of big business to go
its way unhindered. No big business man ever submitted to control more
loyally, and regulation was his idea of what public interest required."
But Vail's work with the phone company
he loved was nearly over. In June of 1919--shortly before the return of the
Bell System to private hands--he retired as president and became chairman of
the board. The big man's health was failing. In April, 1920, three months
before his 75th birthday, he died at Johns Hopkins hospital in Baltimore.
Among the hundreds of tributes on his
passing, perhaps this one from C. W. Barron best sums up the legacy he left:
"Theodore N. Vail was one of the world's
great upbuilders. He revolutionized American business by emphasizing service.
His record is unmatched in the United States as an upbuilder for service by
man to his fellow man."
Annette R. Fry is a writer of
educational and motivational materials for business--including the AT&T "'Upbeat" show—and a
contributor to national magazines.
*Harper &Row, 1973
"Encyclopedia of Telecommunications" - Charles L. Brown
Copyright (c) 1991 by Marcel Dekker, Inc.
To download the Microsoft
Word 97 document of this publication,
On March 10, 1876,
when Alexander Graham Bell spoke into the transmitting instrument, "Mr.
Watson, come here, I want to see you," he could envision already a great
national telephone system. As he wrote to his father that same evening, "I
feel that I have at last found the solution of a great problem, and the day is
coming when telegraph wires will be laid on to houses just like water or gas is,
and friends will converse with each other without leaving homes." Bell
later expanded upon his expectations:
It is conceivable
that cables of telephone wires could be laid underground, or suspended
overhead, communicating by branch wires with private dwellings, country
houses, shops, manufacturers, etc., etc., uniting them through the main cable
with a central office where the wire could be connected as desired,
establishing direct communication between any two places in the city. Such a
plan as this will, I firmly believe, be the outcome of the introduction of the
telephone to the public. Not only so, but I believe in the future wires will
unite the head offices of the Telephone Company in different cities, and a man
in one part of the country may communicate with another in a different place.
All of this and more
would come true, of course, but even the optimistic inventor could not have
predicted what would grow to be an association of companies that bore his name,
the Bell System. By the time of its breakup nearly 108 years later, the Bell
System would have assets of $150 billion and over one million employees. It
would be the largest private business enterprise in the world.
Ever the inventor, Alexander Graham Bell was not interested in the business of
converting an invention into a successful enterprise. Apart from public talks to
publicize his invention, and later appearances as a witness in the extensive
litigation over his patents, Alexander Graham Bell became simply a Stockholder
whose primary interests were in other scientific and humanitarian endeavors.
Origins and Early
Corporate Development (Table 1)
Actually, the first business venture had begun before the invention with an
agreement between Thomas Sanders, Gardiner G. Hubbard, and Bell dated February
27, 1875. Formed as a basis for financing Bell's experiments, the agreement came
to be called the Bell Patent Association. The only tangible assets of this
association were an early Bell patent, "Improvements in Transmitters and
Receivers for Electric Telegraph," his basic telephone patent, No. 174,465,
an "Improvement in Telegraphy" (March 7, 1876), and two additional
patents that followed. With his efforts successful, Bell married Mabel Hubbard,
his partner's daughter, in July of 1877, and as they prepared to leave for
Europe, the three members of the patent agreement formed the Bell Telephone
Company, a Massachusetts association. At first, the company had only one
full-time employee, Thomas Watson, but a few days later, R. W. Devonshire was
hired - to keep the books. The company's 5,000 shares of stock were distributed
Bell - 10 shares
Mabel Bell - 1497 shares
Gardiner Hubbard - 1387 shares
Gertrude Hubbard (née Mercer) - 100 shares
Thomas Sanders - 1497 shares
Thomas Watson - 499 shares
C. E. Hubbard (Gardiner's brother) - 10 shares
prospects were poor. Shortly after the Bells left for Europe, Gardiner Hubbard
offered to sell all the Bell patents to William Orton, president of the giant
Western Union Company, for $100,000. Seeing no way that the "electrical
toy" could benefit his business, Orton refused the offer. Rejected, Hubbard
set out again to turn Bell's invention into a successful business. His first and
most important decision was to lease the telephone instruments instead of
selling them. A similar strategy had been adopted by the Gordon-McKay Shoe
Machinery Company, for which Hubbard had been an attorney. Although leasing
would enable the Bell interests to protect their patent rights, it actually
increased the enterprise's needs for funds to move the business forward.
When the Bell Telephone Company was formed on August 1, 1877, only 778
telephones were in use and the firm desperately needed additional capital.
Hubbard's second strategic decision was to solve that problem by using agents to
develop the business in other regions and in promising local markets. Thomas
Sanders managed to convince a group of men from Massachusetts and Rhode Island
to invest in a firm to develop the telephone in New England. On February 12,
1878, they formed the New England Telephone Company (this firm has no direct
relationship with the present-day New England Telephone and Telegraph Co.) and
set about the task of leasing the telephones to customers in the urban
Northeast. Still, the Bell interests were short of funds, and to bring in new
investors and the much needed capital, they incorporated a reorganized Bell
Telephone Company in Massachusetts on June 30, 1878. The next month, Hubbard
persuaded Theodore N. Vail, then superintendent of the government's Railway Mail
Service, to join the new company as general manager. Along with O. E. Madden
(who was recruited from the Domestic Sewing Machine Company and placed in charge
of agency operations), Vail brought professional management to the Bell
enterprise for the first time.
One of the other hallmarks of the American telephone system - rapid
technological progress - also became evident during these early years. At first,
each pair of telephones was connected by a single line-an expensive and
ineffective arrangement. The solution to this problem was the telephone switch
and central office or exchange (and with it, the first operators). At the
exchange, all of the local telephones were connected to a switch, very simple at
first, but growing increasingly complex as more and more lines were added. The
switch became the switchboard, and the first telephone exchange opened on
January 28, 1878, in New Haven, Connecticut.
The Bell Company soon was able to demonstrate that the telephone worked, that it
was useful, and that large numbers of urban Americans would pay to have this
service. Indeed, only a few months after turning down Hubbard's offer, Western
Union realized that it had made a mistake: customers for the telegraph company's
stock ticker service were busily ordering telephones. In 1878, Western Union
bought Elisha Gray's telephone patents, commissioned Thomas Edison to work on
improvements, and organized the American Speaking Telephone Company. This set
the stage for a major corporate battle with the fledgling Bell Company (2).
Vail, the new Bell general manager, took up the battle. Vail sent a copy of the
Bell patent to every agent, along with a letter asking each of them to keep
fighting. "We have the original telephone patents," he wrote. "We
have organized and introduced the business and do not propose to have it taken
from us by any corporation." He tried to bolster the agencies so they would
have "sufficient vitality to carry on a fight . . . " (2). At this
point, however, the situation looked bleak. Edison had developed a much better
transmitter. Western Union was using its superior resources to gather in new
subscribers in the nation's largest cities and had penetrated even the Bell
stronghold in Massachusetts. Hubbard and Vail responded with a patent
infringement suit, but that legal skirmish threatened to drag on for many
months. It was thought that the Bell firm might well go under before the courts
could decide the matter.
Determined to best the telegraph company, Bell's investors decided to strengthen
and reorganize their undertaking in late 1878. They brought William Forbes, a
Boston financier, onto the board of directors. Forbes had considerable business
experience and a keen appreciation of the problems of running a large, complex
company. He submitted a reorganization plan that the board accepted early in
1879. Under this plan, authority was centralized in a new executive committee.
Hubbard and Sanders were no longer in charge. Forbes became president of the
revamped and recapitalized National Bell Telephone Company, an organization that
consolidated the New England Company and the old Bell Company. Theodore Vail
continued to serve as chief operating officer for the consolidated operations.
Revitalized, National Bell intensified the competition throughout the country,
and Western Union, concerned that the courts might uphold the Bell patents,
decided to negotiate a peace treaty. Western Union agreed on November 10, 1879,
to a settlement of the infringement suit and withdrew from the telephone
business for the duration of the Bell patents. It sold its 56,000 telephones to
National Bell. In return, Bell agreed to refrain from entering the telegraph
business and to pay Western Union 2007o of all royalties paid under its former
license contracts. The agreement reflected the fact that, in 1879, telephone and
telegraph technologies were essentially complementary: the telephone could not
be used over long distances, but it was more practical than the telegraph for
Before many years had passed, however, technological progress undercut the
agreement. The Bell Company could now raise the capital it needed to promote the
toll business between exchanges, to acquire new patents covering all aspects of
telephone equipment and operations, and to defend the original patents. (During
the 17 years of the patent monopoly, the Bell companies filed over 600
infringement suits and won all of them.) Their resources were now up to the task
of encouraging technical development and rapid growth. When a new Massachusetts
corporation, American Bell Telephone Company, was organized in April 1880, it
was capitalized at $10 million. American Bell could afford to press forward with
the toll business, gradually extending the distance over which long distance
transmission was possible. When the local exchanges hesitated to comply,
American Bell began to consolidate them into larger units. An 1891 annual report
As methods are devised for making the telephone commercially useful over long
lines, the advantages of the centralization of management will be more apparent,
as well as the importance to the public of having the business done in large
territories under one responsible head, with far-reaching connections throughout
the whole country. (3)
In addition to consolidating the licensees, American Bell acquired a larger,
more productive manufacturing installation. Initially, all of its telephone
equipment was manufactured at Charles Williams's electrical shop in Boston,
where Watson and Bell had conducted their early experiments. However, the demand
for the telephone apparatus soon became too large for this shop and
manufacturing was contracted out to several independently owned and managed
electrical manufacturing firms. But the problems of enforcing contractual
agreements, maintaining quality, and adhering to patent specifications
ultimately forced Vail and Forbes to decide that American Bell should exercise
direct managerial control of this function. In February 1882, American Bell
acquired the Chicago-based electrical manufacturing firm, Western Electric, and
gave it exclusive rights to manufacture Bell telephone equipment.
Other changes followed. In December 1883, the company split its small Electrical
and Patent Department into two, more specialized units. Originally, it had
organized this unit primarily to evaluate patents and devices developed by
independent inventors. Now it organized a Mechanical and Testing Department
responsible for "experimental work relating to circuit design and equipment
inspection" (4). The staff of the two departments grew from 2 to 20 and the
Mechanical and Testing Department became the nascent research arm for the Bell
Company. Vertical integration along these lines would be another hallmark of the
Bell System for the next century. By 1884, when the 5-year license contracts had
been replaced with perpetual contracts allowing American Bell to take equity
positions in the licensees, the Bell enterprise was a far different entity than
the loosely coordinated set of interests established in 1880.
Despite its reorganization and recapitalization, American Bell was having
trouble developing long-distance service between the exchanges. By early 1885,
the limits of its approach to the regional toll business were evident. The
Southern New England Telephone Company announced it was abandoning its 200-mile
segment of the experimental toll line between Boston and New York City, even
though the line was a technical success. For the most part, transmission
problems had been solved, but the line turned out to be more costly than
anticipated and the regional company was not interested in bearing the
These complications prompted Theodore Vail to devise a new way of organizing the
long-distance service. With the blessings of his Boston superiors, Vail
developed a separate, wholly-owned long-distance subsidiary. He recruited Edward
J. Hall from the Buffalo, New York, exchange as general manager and Angus S.
Hibbard from the Wisconsin Telephone Company as general superintendent (5).
Vail, who became president of the new company, instructed Hall to incorporate
the subsidiary, named the American Telephone and Telegraph Company (AT&T),
in New York State, which had far less restrictive incorporation laws than
Massachusetts. The charter would allow AT&T to increase its financing to
"an unlimited amount." "Make the powers of this Company to build,
buy, own, operate, lease, etc. . . . lines extending from any city in the state
to each and every other city in the United States, Canada, and Mexico and to be
connected by cable with the rest of the known world," Vail told Hall (6).
The 1885 AT&T charter of incorporation contained these exact words. With the
formation of AT&T, all of the basic functions-long-distance service, local
operations, manufacturing, and research and development -that would comprise the
Bell System were now in place and, with the addition of network manager
responsibilities, American Bell's role as parent company became more complex.
Hall recognized that AT&T's commercial success depended upon its ability to
use all of the existing exchange and toll facilities belonging to Bell licensees
as "feeders" into its inter-city network. But it was no simple matter
to persuade the licensees to cooperate. They had their own business to tend to
and their own interests to serve. AT&T found itself embroiled in such
disputes as the one that arose over the building of a trunk line between New
York and Philadelphia; American Bell, the Metropolitan Telephone and Telegraph
Company of New York, and the Bell Telephone Company of Philadelphia could not
agree on the terms of interconnection. This dispute held up construction of the
line until January 1886. Some officials in American Bell thought the answer was
to make all the associated companies wholly-owned subsidiaries. But Hall
cautioned that a more gradual restructuring was needed. American Bell, he
thought, should avoid a conspicuous move toward establishing a national
telephone monopoly. His view won out, although American Bell did increase its
equity position in the licensees. Ten years later, a complete consolidation of
the associated companies was again considered and rejected for the same reasons.
During these years, the Bell System experienced only modest growth in the number
of exchanges, but the pace of technical advancement was very rapid. Circuit
capacity was increased; grounded iron wire was replaced by new metallic
circuits; and the common battery system was improved. As long-distance
operations reached into more and more local areas, American Bell pressed the
local companies to standardize their equipment. These efforts often were
rebuffed by the local companies. Bell officials found that they had to proceed
gradually, developing new specifications by consensus and leaving compliance to
be monitored by the local firms in the System. American Bell also recognized
that a standardized accounting system was needed to report results throughout
the System, but attempts to introduce one ran into many of the same problems of
implementation. In fact, it was 1891 before a compromise plan, reflecting an
emphasis on operations as the main source of revenue rather than patent-based
royalties derived from equipment rentals, could be introduced (5).
Although American Bell was making progress in spreading the telephone and
integrating the System's technology, Vail was not satisfied. He thought the
Boston investors were too interested in large dividends and wanted those funds
to be pumped back into the long-distance network. Disgruntled over the firm's
shortsighted policies, he left the telephone business in 1887. When the Bell
patents expired in 1893 and 1894, American Bell would have to face a new era
Competition and Consolidation
-The National Network Emerges
On the eve of that new age in 1892, there were nearly 240,000 telephones in use
in the United States, most of them in urban areas, largely in the eastern part
of the country. Within 6 years after the patents expired, over 6000 independent
telephone companies had entered the business, quickly extending service into
rural areas and small communities. Some cities found themselves with two or even
three competing firms offering services, usually at rates lower than the local
Bell Company. Competition forced the Bell companies to cut prices and seek new
ways to enhance operating and managerial efficiency.
As the competition intensified, American Bell's need for capital to finance
growth became enormous. After reaching an accommodation with the state of
Massachusetts, the firm issued 5000 new shares in late 1894, followed by another
block of 10,000 in 1895, and another of 21,500 a year later. In 1898, American
Bell took advantage of a recovering economy to issue $10 million in 10-year
bonds, launching a new phase in the company's financing. Even though the Bell
System was continuing thus to grow, its managers decided that the corporate
climate of Massachusetts was too restrictive, and on December 31, 1899, they
made the New York-based American Telephone and Telegraph Company the parent
company of the System. At this point the Bell System-the name now appearing on
the company's new seal-was organized institutionally much as it would be some 83
years later (Fig. 1).
forced the Bell company to develop a variety of new policies: for instance, it
began sublicensing of some independent exchanges, in effect bringing them into
the System; it began to extend greater financial aid to Bell exchanges; it
continued to push the expansion of the long-distance lines; it acquired
strategically located independent exchanges, and it launched patent infringement
suits. Clearly, its long-distance network was the single most significant edge
the company had (just as Vail had predicted). The independent companies made
several attempts-some individually and others collectively through their
association, the Independent Telephone Association-to develop competing
networks, but all of these efforts failed. Nevertheless, the competitive battle
continued to accelerate telephone development: by 1907, there were about
3,132,000 Bell telephones and 2,987,000 independent telephones in use.
Other important changes took place in the Bell System during these years, but
they were obscured by the furor over competition. The company's precarious
financial situation allowed the J. P. Morgan banking interests to gain a strong
voice in the company's affairs, and in 1901, Morgan tried to entice Vail to
return to Bell's management. He refused, but did become a member of AT&T's
board of directors. Efforts at administrative centralization and standardization
also continued. The AT&T Engineers Department had by this time become the
focal point for developing specifications and encouraging technical progress
throughout the System. By this time, too, Western Electric had become more than
just a manufacturer of equipment; it provided purchasing services, warehousing,
and distribution for the various Bell companies. In 1908, these arrangements
were institutionalized with the introduction of the "standard supply
contract" between Western and each of the licensees (5).
Under President Frederick Fish (1901-1906) the company made great strides,
taking on the characteristics of an integrated (albeit somewhat loosely
organized) system. But competition became even more fierce. By 1906-1907,
AT&T had run out of funds essentially and was forced to curtail virtually
all licensee capital expenditure programs. The bankers were worried
understandably, and they finally enticed Vail to return to active management. In
1907, he became president of AT&T.
Although 62 years old, Vail dug into the System's problems with unusual vigor.
He kept investors and the general public well informed about the problems and
the solutions he was developing. The AT&T annual reports for the years 1907
through 1915, reportedly written by Vail himself, directly addressed the
company's difficulties and clearly spelled out Vail's policies and strategies.
He clearly articulated the company's central mission - universal service - in
the 1909 Annual Report:
The value of a telephone system is measured by the possibility of reaching
through its connection anyone-at any possible place.... It must be a system that
will afford communication with anyone that may possibly be wanted, at any time.
To do this, the system must offer a connection of some kind, and at such rates,
as will correspond to the value of the system to each and every user.
As Vail explained, the Bell network was "one system telephonically
interconnected, intercommunicating, and interdependent" (7). Vail made
"One System, One Policy, Universal Service" the Bell System credo.
Government regulation also played a role in Vail's plans. He clearly recognized
that the System he proposed a universal, integrated monopoly - would not meet
with public approval without some form of public control. Wanting to avoid
municipal ownership and the ever-present specter of nationalization, Vail
embraced state regulation.
Although he liberalized AT&T's policy on interconnection with the
independent companies, Vail continued an active policy of acquiring other firms.
Consistent with his vision of a single integrated national system was AT&T's
acquisition of a 30% interest in Western Union. For a short time, the telegraph
company was operated in conjunction with AT&T.
Meanwhile, Vail moved to strengthen the company internally. He shifted the
AT&T Engineering Department from Boston to New York and consolidated it with
the Western Electric research staff. In 1907, he launched a major reorganization
of operations, changing a territorial organization into a functional one with
three major operating departments-plant, commercial, and traffic. First, he
reorganized the Long Lines Department. It proved more difficult to persuade the
associated Bell companies to adopt the new structure, and Vail accepted a
reasonable amount of latitude where they were concerned. But no longer would he
allow the operating companies to direct Western Electric to manufacture
equipment to their own specifications. AT&T now standardized the equipment
and began to set standards for operating procedures as well throughout the Bell
By 1911, the Bell System was gaining the upper hand in the national marketplace
for telephone service. Independent company growth had stopped and the number of
independent company stations in service declined as Vail's aggressive policies
took effect. The independents fought back by protesting to the U.S. Department
of Justice, which began monitoring AT&T for potential antitrust violations.
Under this pressure from the independent companies, the government filed a suit
in July 1913. The complaint focused on AT&T's interconnection and
acquisition policies in Oregon and sought divestiture of the acquired
properties. With antitrust sentiment strong throughout the nation and the
Postmaster General advocating nationalization of the telephone system, AT&T
decided to settle the case. AT&T vice president Nathan C. Kingsbury sent the
government a letter of agreement that became known as the Kingsbury Commitment.
In it, AT&T agreed: (1) to dispose of its Western Union holdings; (2) to
permit the independent companies limited interconnection with its long-distance
network; and (3) to refrain from purchasing additional independent properties
without approval from the U.S. Interstate Commerce Commission.
Although the Kingsbury Commitment settled the antitrust issue for a time, the
government took over the telephone and telegraph systems for a short period
during World War I. After the war, there was some interest again in
nationalization, but the government returned the System to private operation as
of August 1, 1919. Congress endorsed this arrangement-including the Kingsbury
understanding-by the passage of the Willis-Graham Act in 1921.
One of the strongest arguments for private ownership and operation was the Bell
System's record of technological progress. Vail clearly had improved the
technical performance of the network. Bell engineers had risen to Vail's
challenge to complete a transcontinental line in time for the Panama-Pacific
Exposition. The line formally opened on January 25, 1915, with a ceremonial call
between Alexander Graham Bell in New York, Thomas Watson in San Francisco, and
Theodore Vail in Jekyll Island, Georgia. On October 21 of the same year, Bell
engineers conquered the Atlantic, when one engineer atop the Eiffel Tower in
Paris listened to another in Arlington, Virginia, via radio transmission. Such
accomplishments as these highlighted the heavy investment AT&T was now
making in research and engineering. The new, more important, position of
research and development in the Bell System was institutionalized in 1925 with
the founding of Bell Telephone Laboratories.
Refocusing in the Interwar
By the time Vail retired as president in 1919, the Bell System had achieved its
modern structure and mode of operations. The vertically integrated System was
centralized technologically and dedicated to ongoing technical innovation. The
operating companies still had considerable discretion in financial and political
matters so that they could adapt to local conditions. This decentralization
became increasingly important as state regulatory commissions strengthened their
During the 1920s, with Harry Thayer and then Walter Gifford (1925) at the helm,
the Bell System continued to expand service despite the financial problems of
operating a regulated network in an inflationary era. In an effort to strengthen
investor confidence, management set the annual dividend at $9 in 1921. But it
was not easy to maintain this standard. The Bell System had a 46% debt ratio,
and its costs were climbing faster than its revenues. Improved earnings were
needed, so the Bell System vigorously and successfully pursued a round of rate
cases through the state commissions. These state agencies had considerable
latitude in determining the rate base and the rate of return, but their
commissioners were often unsure how far their authority extended. There was
great variation among the commissions and, therefore, among the Bell companies
both in the rates they charged and in the levels of earnings they allowed.
Nevertheless, the commissions and Bell management were committed to achieving
satisfactory and efficient universal service, and they functioned in relative
harmony through the 1920s.
During this period, Walter S. Gifford provided the Bell System with decisive and
innovative leadership. For a while, AT&T had followed its research and
development successes into new fields. It launched a commercial radio station,
WEAF, in August 1922, and in October 1923, it established the Red Network.
Adventures in the world of Hollywood with sound motion pictures began with Don
Juan in 1926. Management organized a Western Electric subsidiary, Electrical
Research Products, Inc. (ERPI) to market its new sound-equipment products. But
Gifford decided the Bell System should concentrate on one business, providing
communications services in the United States. He began to spin off or license
many of these by-products of Bell research to others. He sold radio broadcasting
to the National Broadcasting Company in 1926. Western Electric sold its
extensive and well-established international equipment business, International
Western Electric Co., to International Telephone and Telegraph Company (ITT) in
1925; 3 years later Western sold the Graybar Electric Co., an electrical supply
subsidiary, to its employees. ERPI was allowed to continue, but it became a
low-key, low-priority part of Western's business. As Gifford explained to the
National Association of Railroad and Utility Commissioners in 1927, the Bell
System had an unusual obligation "to provide the most telephone service and
the best, at least cost consistent with financial safety" (8). Anything
that threatened to interfere with the fulfillment of that "obligation"
had to be changed or eliminated.
Although the Depression hit the Bell System hard, AT&T was able to maintain
the $9 dividend and, along with it, investor confidence. The number of
telephones in service actually declined and did not regain the 1930 peak until
1937, but Gifford was able to sustain public faith in the Bell System, which was
particularly difficult since Congress was considering new legislation to
regulate the telephone, telegraph, and broadcasting industries. In 1934, the
legislature passed the Communications Act, which created a new independent
regulatory agency, the Federal Communications Commission (FCC). The FCC quickly
initiated the first comprehensive government investigation of the telephone
industry. AT&T cooperated by turning over voluminous company files to the
special investigation, but Bell management strongly criticized the fact that the
FCC refused to allow the company to bring its own witnesses or cross-examine
those called by the Commission. AT&T had cause to be concerned: Commissioner
Paul Walker's report (1938) was a full-swinging attack on the Bell System, with
particular emphasis on the ties to and the operation of Western Electric.
AT&T replied in detail, and in 1939, the FCC approved a substitute for the
Walker Report, retaining the data but toning down the criticisms of the Bell
System. Still, the investigation and report drew lines of battle between the
government and the Bell System, whose structure and monopoly status would be
challenged again and again in the following years.
During the next few years, however, the government was more interested in
economic performance than in antitrust. World War II tested the Bell System's
organizational and technological abilities to the utmost. Almost 70,000 Bell
System employees went into the armed services, while on the homefront Bell Labs
and Western Electric virtually stopped developing civilian telephone equipment
in order to provide telephone facilities for army camps, airplane warning nets,
arsenals, and munitions plants. AT&T discouraged unnecessary long-distance
calls so that the network could remain free for military and service personnel
use. Bell Labs worked on some 1200 government projects, including the electrical
antiaircraft gun director and radar. Specialized training in communications was
given to military personnel.
A Mature Bell System
Achieves Its Goals
At war's end, pent-up demand created a backlog of almost two million unfilled
orders. Financially, the Bell System emerged from its war efforts in a weakened
condition, and AT&T again had to pay the $9 dividend from surplus. Once
more, the Bell System turned to the regulatory agencies for rate relief, but
this time the problem was compounded by the need to modernize facilities and to
meet the increased demands for service. Also, for the first time in its history,
the Bell System had a major struggle with organized labor, when the National
Federation of Telephone Workers went on strike. This was the first nationwide
strike in telephone history. The central issue was local versus nationwide
bargaining, and the strike, which lasted from April 7 to May 20, 1947, had a
traumatic impact. Long-distance service was cut to about 20% of normal capacity;
local service was nearly normal for 16.5 million dial telephones but virtually
nonexistent for about 6 of the 9 million manual telephones. AT&T was the
nominal victor this time both on the issue of wages and on nationwide
bargaining, but the firm's managers were left with doubts about the continued
feasibility of holding out for local bargaining in future negotiations (9).
In 1948, Walter Gifford retired, to be succeeded by Leroy Wilson as AT&T
president. Wilson mounted a tough and unpopular campaign to cut expenses and
increase AT&T earnings. AT&T's debt-to-equity ratio had soared to over
50%, and the firm was in danger of having the quality of its bonds downgraded.
Bell companies filed more rate cases, but it was well into the 1950s before rate
activity coupled with technological improvements enabled the System to achieve
acceptable earnings levels again. Wilson died suddenly in 1951, and Cleo Craig,
the new president, followed through on Wilson's initiatives so that by 1955, the
debt ratio was down to 35%. The System's financial crisis had passed.
These postwar years were trying but ultimately rewarding for the Bell System.
Service improvements often were not prompt, but the backlogs were overcome
eventually. By 1956, the nation had over 60 million telephones in service, 51
million in the Bell System (an addition of 24 million since 1946); 89% of all
Bell System telephones were dial operated; and 11 million customers could dial
nearby cities and 2.7 million could dial directly to 20 million telephones all
across the nation (10). The transistor, invented at Bell Laboratories in 1947,
was beginning to have an impact in telephone equipment; coaxial cable and
microwave systems were rapidly reducing the cost of long-distance calling; and
AT&T completed the first transatlantic telephone cable in 1956. The Bell
System, building on its war experience at Bell Laboratories and Western
Electric, was engaged in major defense communications and guidance systems
projects for the U.S. government, notably Nike, "White Alice," and DEW
line. At the government's request, Western Electric had begun management of the
U.S. Sandia atomic energy lab in 1949.
By the mid-1950s, the System had weathered its second antitrust challenge also.
In 1949, the U.S. Department of Justice had filed an antitrust suit asking for
the divestiture of Western Electric Co. The suit was settled in 1956 before
going to trial. By the terms of the consent decree, the Bell System confined its
business activities to common-carrier communications service, agreed to license
its inventions to all interested parties, and limited Western Electric to the
manufacture of equipment of the type used by Bell operating companies. In
return, the government accepted the integrated corporate relationship between
AT&T, Western Electric, Bell Labs, and the associated operating companies.
Frederick Kappel, who succeeded Cleo Craig as AT&T president in 1956, made
"vitality" the System's byword. Changes in AT&T's financing were
an embodiment of Kappel's strategy. Rights were offered to existing shareowners
as the authorized stock of the company was increased from 60 to 100 million
shares. In 1958, AT&T issued $718 million in convertible debentures and
offered 7 million shares to Bell System employees; the next year, the AT&T
Board approved a 3-for-1 stock split, along with the first dividend increase
since 1921. The Board increased the dividend again in 1961, 1963, 1965, and
1967, and split the stock again - this time 2-for-1 - in 1964. Investors began
to look at AT&T stock as a "growth" issue.
The object of these and other financial maneuvers in the 1960s and 1970s was the
enhancement and expansion of the national switched network, the real system in
the Bell System. By the mid-1970s, the network represented about 9307o of the
Bell System's net investment and produced 95% of its revenues. At the base of
this network were some 25,000 local Bell and independent company switching
offices. These offices served from just a few subscribers up to 10,000 lines.
There were as well four additional levels of switching offices, called tandem
offices, and this complex network was extended through cables and then
satellites to the entire world (2). Satellite communications came of age in the
early 1960s. In 1962, Congress established Communications Satellite Corporation
(Comsat) by statute to develop an international communications system. Also in
1962, the Bell System launched its first experimental communications satellite,
Telstar, which was followed quickly by the higher altitude Telstar II and RCA's
Other technological breakthroughs had a decisive impact on Bell System
operations: electronic switching systems (ESS); Touch-Tone dialing; new, higher
capacity coaxial cable and microwave transmissions systems;
micro-miniaturization for data- and voice-transmission equipment; higher
capacity transatlantic cable; and the first transpacific cable. Earnings were up
and investor confidence was at an all-time high. Prices for long-distance
service continued to decline and local service prices remained stable, largely
as a result of increasing revenue support from long-distance to local service
through the separations process (11, 12). Roughly 90% of U.S. households had a
telephone, and the structure of the Bell System, in effect, had been ratified by
the federal government with the 1956 Consent Decree. These were golden years for
the Bell System.
Regulatory Change, Political
Conflict, and Market Competition
Soon, however, new challenges, as well as some old ones, began to materialize.
Buoyed by the relatively easy availability of new technology and spotting
economic opportunity inherent in regulatory pricing, other firms sought some of
the Bell System's traditional business. The first attempts at entry into
heretofore closed markets occurred in the comparatively small private-line
business; this took place when the FCC decided to allow other companies to build
their own systems using the radio frequency spectrum above 890 megacycles (now
megahertz). Soon after, a small start-up venture, Microwave Communications, Inc.
(MCI), petitioned the FCC to offer private-line service between St. Louis and
Chicago. The FCC, which in 1965 had inaugurated a major formal investigation
into the Bell System's long-distance rates, opened the door a crack by approving
MCI's application. In 1968, another traditional Bell System and regulatory
policy was changed by the FCC in its Carterfone decision, which struck down the
"foreign attachment" tariffs; now the FCC would allow private
equipment to be interconnected with the Bell network, modifying Bell's
By the end of the 1960s, the Bell System was encountering other serious
problems. The rate of inflation had been increasing since the middle of the
decade, and the Bell System's earnings were eroding. Unable to keep up by
productivity improvement alone, the System again turned to the regulatory
agencies for rate increases. Compounding this difficult task was a decline in
service quality that reached crisis proportions in New York and a few other
H. I. Romnes, who had replaced Kappel as AT&T chairman in 1967, struggled to
get the System back on course. He was able to get service back to normal levels;
quality service, after all, was the core value of the Bell System. He achieved
this goal in spite of a major strike by the Communications Workers of America (CWA)
and the International Brotherhood of Electrical Workers (IBEW) -a strike that
lasted for up to 137 days in some areas.
While Romnes was attempting to deal with the changing market environment, the
FCC continued its policy of fostering more competition. In 1971, it opened up
the entire private-line market to all comers with its Specialized Common Carrier
decision. It also started a new large-scale investigation into the Bell System's
rate of return, probing deeply into the company's costs and internal structure,
particularly its relationship with Western Electric.
When Romnes retired in 1972, he was succeeded by John D. deButts, who moved
quickly to shore up a sagging employee morale as well as the company's lagging
earnings. deButts spoke out forcefully against competition, pointing out that he
felt it would lead ultimately to drastic changes in the way telephone service
was provided and priced. He warned that allowing others to siphon revenues away
from long-distance services jeopardized the regulatory price structure that
covered a significant part of the costs of exchange-service. He criticized the
policies that were undercutting the Bell System's end-to-end responsibility for
service. Threatened, he believed, was the integrity and quality of the whole
system. As deButts's close assistant, Alvin von Auw, observed, "The
fundamental basis of our business is under attack on a broad scale" (9).
At this time, the Bell System was still organized basically in Vail's
three-column form-plant, commercial, and traffic. This functional structure had
proven successful in a system dominated by operations and engineering. But
deButts, realizing that a change was in order, began by reorganizing along the
lines of service markets-customer services, operator services, and network
services, and organized a new marketing department in mid-1973. But even though
he was changing the System, deButts wanted to do all that he could to keep
intact those aspects of the System that he felt were essential to good telephone
service. In September of that year, he made an important speech before the
National Association of Regulatory and Utility Commissioners convention. Calling
for a "moratorium on further experiments in economics," he took to the
public the Bell System's case for the common-carrier principle and
"thereby, by implication, to oppose competition [and] espouse
monopoly" for the industry. The FCC's decisions, he said, created
"contrived competition." If competition was to be the order of the
day, he observed, AT&T would compete vigorously. But to do so, it had to be
free to maneuver (13). deButts hoped that his forceful words would arouse a
public debate, and he was confident that the Bell System, which had served the
nation well, would prevail.
But the FCC continued down the "slippery slope" it had stepped onto a
decade earlier. Its registration decisions in 1975 and 1976 in effect allowed
customers to provide their own telephones, private branch exchanges (PBXs), and
other terminal equipment without connection by a telephone company and without
any interface requirement (so long as the manufacturers registered the equipment
with the FCC). This decision brought an end to the responsibility that the
telephone companies had long held to furnish service from one end of the call to
the other and to maintain it.
The courts became involved in these issues as the new competitors filed private
antitrust suits against the Bell System, alleging a variety of anti-competitive
acts. They claimed damages because the Bell System had obtained most of its
equipment from its own manufacturing arm, Western Electric Co.; because various
regulatory orders and Bell System procedures made it difficult for them to sell
their products and services; and because of the Bell pricing responses to the
newly authorized competition. The new competitors took unfavorable regulatory
decisions to the courts as well, hoping that they would be sustained. One such
decision, on MCI's Execunet long-distance service, reversed an FCC ruling and
opened up the entire long-distance market to competition for the first time.
In November 1974, the US. Department of Justice filed against the Bell System,
charging monopolization and conspiracy to monopolize the supply of both
telecommunications service and equipment. The government requested divestiture
of various parts of the integrated enterprise. The Bell System denied that it
had violated the antitrust laws and vowed to fight the case through the legal
Hoping to elicit a clear statement of public policy for telecommunications,
AT&T asked Congress to enter the debates. Holding hearings over 5 years on
several bills (introduced beginning in 1976) to modify the Communications Act,
Congress generated reams of paper and seemingly endless testimony. But a
consensus could not be reached and no changes were made in the law. The
Communications Act still stands essentially as passed in 1934.
When John deButts retired as chairman of AT&T in 1979, he left behind a
paradox. He had successfully brought the Bell System back-earnings were good,
service was better than ever, and facilities were being modernized rapidly with
the new technology generated by Bell Labs and Western Electric. It was a strong,
viable, growing business. But the business was deeply mired in political and
legal confrontations. John deButts had not been able to slow the tide of change
coming from new competitors, their political supporters, the courts, and the
This was the situation inherited in 1979 by deButts's successor, Charles L.
Brown, the author of this article. My first years at the head of the Bell System
presented a difficult managerial challenge. Distracted by repeated legal,
legislative, and regulatory problems from the complex job of running the world's
largest corporation, the Bell System's managers had to find a way out of the
public-policy dilemmas or risk losing control of the company's destiny. It was
becoming increasingly clear that unless something was done quickly, the Bell
System would miss the opportunities that were arising in the new information-age
marketplace, and, in fact, have constant difficulties using its own newly
developed technologies. We had a responsibility to our shareowners, our
customers, and our employees not to let the business be legislated, regulated,
or competed into a position of deterioration. We faced the following problems:
(1) the trial in the US. antitrust case, in which an unfavorable decision
appeared a strong possibility; (2) a Congress that was considering complex
regulatory legislation so The Bell System that would have made it difficult for
the Bell System to operate effectively; (3) a regulatory system that essentially
had abandoned both the common-carrier principle and the concept of a unified,
managed network; and (4) unregulated competitors who had exacerbated our
problems with government agencies and were quickly moving into Bell System
markets and picking off new-product markets that AT&T was not allowed to
enter. The monopoly pricing plan of having long-distance revenues support
local-service prices made it simple to undercut AT&T's long-distance rates
by those competitors whose revenues did not, for the most part, support the
Divestiture and Restructuring
-The End of the Bell System
In December 1981, after 2 years of attempts to rid ourselves of the antitrust
case and to get appropriate legislation, we started discussions with US.
Assistant Attorney General William F. Baxter about settling the lawsuit. The
negotiations went quickly. Our positions were clear, and we both knew that
regardless of the result, we had to maintain a strong and viable communications
industry for the United States. On January 8, 1982, we jointly announced that
the Justice Department's lawsuit had been resolved through the Bell System's
agreement to divest itself of the local exchange portions of its 22 operating
telephone companies. The Justice Department agreed to dissolve the previous
(1956) consent decree and replace it with a new agreement, thereby freeing
AT&T from restrictions on the businesses and the markets it could enter. I
had evaluated the situation in the following way:
A major duty of corporate management is to make certain the business conforms to
public policy. If not, in the long run, it will not survive. Public policy at
that time, however arrived at, was searching for a change.
The Bell System was perceived by some part of the public as too big, too
powerful, or too pervasive.
The new public policy was intended to make competition in long-distance services
the rule, not the exception.
Time was not in the Bell System's favor - opportunities would be missed and it
was impossible to plan for the future until legal, legislative, and regulatory
problems were resolved.
To gain access to new markets and retain access to current markets, the Bell
System would have to agree to radical restructuring.
Acceptance of the Justice Department's major demand, the divestiture of local
operations via a relatively simple, broad decree, would leave AT&T free to
reorganize on a business basis as opposed to reorganization detailed by a court
or a legislative body.
Of the three options-continuing litigation, agreeing to crippling legislation or
an injunctive decree, or accepting divestiture of our local telephone companies
- the last was the best course to follow for the public and the stockholders
The Justice Department's goal was to separate the Bell System's competitive
operations from those that were in the realm of natural monopoly, that is, the
local-exchange businesses. This was a clean but painful procedure. To retain its
vertical structure and gain freedom to compete and follow its technology into
new markets, AT&T would have to give up its nationwide partnership of
companies providing total, end-to-end communications service. Only then could we
lift the cloud of uncertainty that had hung over the business for most of the
AT&T thus having agreed to divest three-fourths of its assets, the Bell
System set about the task of restructuring. Seven regional companies, as shown
in Table 3, were organized to take over the local exchange operations. A central
services organization, later named Bell Communications Research, or Bellcore,
was created. Owned and operated by the regional companies, it would provide
technical and support services and coordination for national defense purposes. I
set four basic principles to guide the restructuring:
To the extent humanly possible, our service to all segments of the public win be
provided at the same high levels which have been the hallmark of the Bell System
The integrity of the investment of the 3,200,000 owners of the business will be
The reorganization will be carried out in such a way as to ensure that the
people of the Bell System will have as much employment security and continued
career opportunity as possible.
The divested companies will be launched with all the management, financial,
technical and physical resources necessary to make them flourishing enterprises
in the regions in which they will operate. (14)
I believe we honored all four principles.
At divestiture, which took place January 1, 1984, the date the Bell System
ceased to exist, the seven regional companies handled all local calling, some
intrastate long-distance business, customer access to long-distance networks, as
well as directory advertising. They were permitted also to compete in the
provision of new customer premise equipment. The regional Bell companies were
restrained from manufacturing telephone equipment and entering the bulk of the
long-distance business and some "information" services, but they
could, with the permission of the court, enter other businesses. The
"new" AT&T's business consisted of long-distance services,
services for all customer-terminal equipment then in place, research and
development, and the Western Electric manufacturing company. AT&T was in
competition with every company that chose to enter its markets, and it was free
to enter nearly any new markets it desired.
Each stockholder received one new share in each of the seven regional holding
companies for every ten shares of AT&T stock held. All of the eight
companies fisted their shares on stock exchanges, where they could be bought and
At this writing, each of the new companies, divested with a common heritage and
common culture, is finding its own way in the new and exciting age of
information. Over time they will establish individual cultures and heritages
while continuing as a part of the network of communications services for the
entire United States. The agreements, business and personal relationships, and
standardized procedures built up over a century under the integrated Bell System
have been replaced by new, arms-length business contracts.
Some changes have occurred at both levels of the telecommunications regulatory
scheme: states have deregulated certain services either partially or wholly; the
FCC has eliminated the difficult business separation requirements placed on
AT&T in the early 1980s and moved to replace the unwieldy rate-of-return
constraints with price caps. However, federal and state regulation is still
pervasive and is applied to the telephone companies' monopoly local exchange
business and to AT&T's competitive telecommunications services but not to
its long-distance rivals.
Moreover, the federal judge who presided over the trial and the consent
agreement regularly makes major decisions pertaining to compliance with the
decree. These decisions sometimes affect the structure and performance of the
industry and the services the American public receives.
In the relatively short period since the new companies emerged, many changes in
company organization, markets, and products have taken place. New technologies
are being employed to provide new products and still better service. Change and
adaptation - long-standing characteristics of the Bell System - continue to be
central aspects of the telecommunications industry today.
My vision of the future in this age of information is strong and positive, much
as Alexander Graham Bell's vision for his new invention was in 1876. Today,
Theodore Vail would perhaps be upset about the stark differences between our
industry and the Bell System he helped to create nearly 100 years ago. He would
have lamented the Bell System at its end but applauded the ability of the
business to adapt to current demands, the new products and services, the global
extent of AT&T's operations, and the new technologies that comprise our
vision of the future of telecommunications.
Corporate Establishment of the Bell System
Telephone Company (of Massachusetts)
||July 9, 1877
||July 30, 1878
Electric Company, Inc.
Telephone and Telegraph Company
|March 3, 1885
Telephone and Telegraph Company (parent)
Bell operating telephone companies
||January 1, 1984
TABLE 2 Growth of the Bell System
From Bell System
Statistical Manual and AT&T annual reports.
Note: N/A = not available.
AT&T, Events in
Telecommunications History, AT&T, New York, 1983.
Boettinger, H. M., The Telephone Book: Bell, Watson, Vail and American Life,
1876-1983, Stearn Publishers, New York, 1984.
Brooks, J., Telephone. The First Hundred Years, Harper & Row, New York,
Bruce, R. V., Bell. Alewnder Graham Bell and the Conquest of Solitude, Little,
Brown, Boston, 1973.
Coll, S., The Deal of the Century, Athenaeum, New York, 1986.
Gamet, R. W., The Telephone Enterprise: The Evolution of the Bell System's
Horizontal Structure, Johns Hopkins University Press, Baltimore, 1985.
Henck, R W., and Strassburg, B., A Slippery Slope. The Long Road to the Breakup
of AT&T, Greenwood Press, Westport, CT, 1988.
Page, A. W., The Bell Telephone System, Harper & Brothers, New York, 1941.
Paine, A. B., Theodore N. Vail, A Biography, Harper & Brothers, New York,
Pier, A. S., Forbes- Telephone Pioneer, Dodd, Mead, New York, 1953.
Schlesinger, L. A. et al.. Chronicles of Corporate Change. Management Lessons
from AT&T and Its Offspring, Lexington Books, Lexington, MA, 1987.
Smith, G. D., The Anatomy of a Business Decision: Bell, Western Electric and the
Origins of Vertical Integration, Johns Hopkins University Press, Baltimore,
Stehman, J. W., The Financial History of the American Telephone & Telegraph
Company, Houghton, Boston, 1925.
Sterling, C. H. et al., eds., Decision to Divest. Major Documents in US. v.
AT&T, Communications Press, Washington, DC, 1986.
Stone, A., Wrong Number.- The Breakup of AT&T, Basic Books, New York, 1989.
Temin, P., with Galambos, L., The Fall of the Bell System, Cambridge University
Press, New York, 1987.
Todd. K. P., Jr. (compiler), A Capsule History of the Bell System, AT&T, New
Tunstall, W. B., Disconnecting Parties. Managing the Bell System Bmak-up -An
Inside View, McGraw-Hill, New York, 1985.
von Auw, A., Heritage and Destiny: Reflections on the Bell System in Transition,
Praeger Publishers, New York, 1983.
Watson, T., Exploring Life, D. Appleton, New York, 1926.
Weinhaus, C. L., and Oettinger, A. G., Behind the Telephone Debates, Ablex,
Norwood, NJ, 1988.
1. Prospectus, "To the Capitalists of the Electric Telephone Co.,"
March 25, 1878, Kensington, London, England, AT&T Archives, Warren, NJ.
2. Todd. K. P., Jr. (compiler), A Capsule History of the Bell System, AT&T,
New York, 1979.
3. Annual Report, American Bell Telephone Company, Boston, 1892.
4. Gamet, R. W., The
Telephone Enterprise.- The Evolution of the Bell System's Horizontal Structure,
Johns Hopkins University Press, Baltimore, 1985.
6. Letter, Theodore
N. Vail to Edward J. Hall, February 16, 1885, AT&T Archives, BOX 1010.
7. Annual Report,
American Telephone &Telegraph Company, Boston, 1910.
8. Gifford, W. S.,
speech presented at the meeting of the National Association of Railroad and
Utility Commissioners, Dallas, TX, October 20, 1927.
9. Brooks, J.,
Telephone. The First Hundred Years, Harper & Row, New York, 1976.
10. AT&T, Events
in Telecommunications History, AT&T, New York, 1983.
11. Temin, P., with
Galambos, L., The Fall of the Bell System, Cambridge University Press, New York,
12. Henck, F. W.,
and Strassburg. B., A Slippery Slope: The Long Road to the Breakup of AT&T,
Greenwood, Westport, CT, 1988.
13. deButts, J. D..
An Unusual Obligation, speech presented at the meeting of the National
Association of Regulatory Utility Commssioners, Seattle, WA, September 20, 1973.
14. Brown, C. L.,
Comment, AT&T and the Consent Decree, Telecommunications Policy, London,
15. Boettinger, H.
M., The Telephone Book: Bell, Watson, Vail and American Life, 1876-1983, Stearn
Publishers, New York, 1984.