Telecommunications industry - History of Business in the U.S.
Definition: Enterprises involved in the two-way transmission of voices and data over long distances employing devices that use electrical currents, radio waves, or light beams as the means of transmission
Significance: American business and finance have always depended on rapid and reliable communication. Telecommunications began with the telegraph, expanded with the telephone, and has become a major factor in globalization as the result of the combination of fiber-optic cable, computers, and the Internet. By the twenty-first century, revenues of telecommunications industries were estimated at $1.2 trillion, and the impact of telecommunications on other industries in the global economy was many times higher than that.
Native American communication consisted of faceto-face contact, signal fires, smoke signals, and occasionally drums. Because early European colonists in North America could read and write, they could transmit written messages by foot, horse, carriage, and ship. Such methods of communication were so slow that letters and messages took weeks to get fromone place to another in North America and often months to connect North Americans with their European correspondents. The only exception to these slow forms of communications were homing pigeons, which carried written messages tied to their legs. Pigeons were faster than other forms of communications but could carry only lightweight messages for short distances. Nevertheless, American armed forces continued to use pigeons as late as World War I to transmit messages when other means were not available. Meanwhile, the first telecommunication systems were being developed.
The first true telecommunications device was the telegraph. In 1837, the American inventor Samuel F. B. Morse developed the first electrical telegraph that could send simple binary signals (dots and dashes) over great distances by wire. Equally important, Morse also developed a code using dots and dashes that gave his device quick acceptance. Fromthe early 1840’s through the 1860’s, wires were strung between American cities to make telegraphic communication possible.
The need for rapid communications during the American Civil War substantially increased the application of telegraphy for both military and civilian purposes. Coupled with the development of railroads, an industry with which the telegraph was closely entwined, communication times across the North American continent soon dropped from weeks to mere minutes. By the end of the Civil War, the first transatlantic telegraph cable had been laid and the start of global telecommunications had begun. Over the ensuing century, the telegraph would successfully compete with telephones but would eventually give way to competition fromwireless and fiber-optic communications.
Both Alexander Graham Bell and Elisha Gray are credited with independently inventing the telephone in 1876. The advantages of transmitting human voices across wires was so attractive that commercial telephone systems began forming in New Haven, Connecticut, in 1878 and in London, England, the following year. From these early beginnings, the telephone lines necessary for telephone communication spread quickly within and among cities, wherever the costs of building the necessary equipment could be justified by demand.
By the end of World War II, telephones reached almost every home in the United States. In fact, because telephones were becoming an integral part of American life, they were regarded as a utility and regulated as a natural monopoly through American Telephone and Telegraph (AT&T). Later, however, changing attitudes gave rise to a movement for deregulation of utilities. By the early 1980’s, this movement had become so widespread that AT&T was broken up into a series of smaller corporations. Deregulation was less of a threat to the fixed-line telephone systems than was the development of mobile telephone technology in the closing years of the twentieth century.
Small-scale wireless radio communication was first demonstrated to the National Electric Light Association by Nicolas Tesla in 1893. However, the first significant wireless radio communication was achieved in 1901, when Guglielmo Marconi sent a message from St. John’s, Newfoundland, to Poldhu, Cornwall, in England. Eight years later, Marconi received the Nobel Prize in Physics for this achievement. Wireless radio communication quickly became vital to communications between places that could not be connected by wires, such as land-to-sea, sea-to-sea, land-to-air, and air-to-air communications. Meanwhile, telephones would remain the dominant form of land-to-land communications until the development of microwave technology and satellite communications during the late twentieth century.
Mobile telephones—also known as cell phones—using microwave technology,became so cost-effective and popular by the early twenty-first century that mobile phone subscriptions would outnumber fixed-line telephone units by 2005. In less-developed countries around the world, the use of mobile telephone technology became even more popular than in the United States because it made possible the proliferation of telephones in places where it was not economical to built expensive fixed-line systems. In many countries, mobile telephone technology simply leaped over the fixed-line service stage. This, in turn, opened the possibility that importers and exporters could expand trade significantly through instant mobile phone technology.
Telecommunications Industry Revenue, 1995-2004, in Millions of Dollars
Source: Data from the Statistical Abstract of the United States, 2008 (Washington, D.C.: Department of Commerce, Economics and Statistics Administration, Bureau of the Census, Data User Services Division, 2008)
Note: Toll service providers include interexchange carriers, providers of operator and prepaid services, satellite service carriers, and toll resellers.
Fiber Optics, Computers, and the Internet
The most primitive computers were invented during the 1930’s, and large mainframe computers were used in cracking secret codes in World War II. In the fall of 1940, George Stibitz used a teletype to transmit and receive data each way between New York and Dartmouth, New Hampshire. This system used a mainframe or centralized computer and remote dumb terminals. This was the best that could be done during the 1950’s, because it was only during the 1960’s that researchers began to develop a technology that would allow packets of data to be sent to different computers without first traveling through a centralized mainframe. By the end of 1969, ARPANET (Advanced Research Projects Agency Network), with 4 nodes, was developed and enlarged to 213 nodes by 1981. ARPANET was a precursor to the Internet. In September, 1981, the TCP/IP (Transmission Control Protocol/Internet Protocol, or Internet protocol suite) was created; this protocol would serve as the basis for most of the Internet during the early twenty-first century.
Data transmission over copper lines continued to be the norm until fiber-optic technology was developed. During the 1960’s, it was discovered that data could be sent through glass with a proper light source. The next step, which required using the laser as that light source, was accomplished in 1966. A kind of glass fiber with suitable communication characteristics was developed in 1970 by the Corning Glass Corporation. Matching the laser with the glass fiber, now called fiber-optic cable, occurred in 1980. Over the next decade, fiber-optic cable was laid across the globe even though the capital costs were high. Between 1990 and 2000, widespread belief that consumer demand for rapid transmission of video and other data would be sufficient to cover the costs led to the dot-com bubble, which burst in about 2000.
Although the early investors in fiber optics lost money, others bought up the fiber-optic infrastructure for pennies on the dollar and were able to offer fiber-optic services at competitive rates in underdeveloped countries. The simultaneous development of new computer software to connect computers and appropriate training linked a large number of underdeveloped countries to the developed world and had a significant impact on the globalization of technically trained people.
By 2008, almost 22 percent of the world’s people were believed to have access to the Internet. This percentage climbed to more than 75 percent in North America, 60 percent in Australia and the South Pacific, and almost 50 percent in Europe. Iceland, South Korea, and the Netherlands led the world in broadband access, with about one-quarter of the population in each country being so equipped. Fiber-optic cable, computers, and the Internet provide such powerful tools for the transmission of data that usage is likely to increase in the future. Progress in this area should involve not only trillions of dollars of profit to the telecommunications industry, but also even more trillions of dollars in a wide variety of business applications.
Agrawal, Govind P. Fiber Optic Communication Systems. New York: JohnWiley&Sons, 2002. Comprehensive description of the fiber-optic communications industry.
Burns, R. W. Communications: An International History of the Formative Years. Stevenage, Hertfordshire, England: Institution of Electrical Engineers, 2004. Broad study of all forms of communications, from prehistoric times to the eve of World War II. Devotes a great deal of space to the development of telegraphy and telephones.
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-first Century. New York: Farrar, Straus and Giroux, 2006. National best-selling book setting forth Friedman’s view that communications interconnections in the twenty-first century are making the world “flat” in terms of the new opportunities that have opened up around the world.
Gray, Charlotte. Reluctant Genius: Alexander Graham Bell and the Passion for Invention. New York: Arcade, 2006. Lively biography of the primary inventor of the telephone.
Smith, George David. The Anatomy of a Business Strategy: Bell, Western Electric, and the Origins of the American Telephone Industry. Baltimore: Johns Hopkins University Press, 1985. The well-known economic historian contributed this important volume to the AT&T history of the telephone series published by Johns Hopkins University Press.
Temin, Peter, with Louis Galambo. The Fall of the Bell System: A Study of Prices and Politics. New York: Cambridge University Press, 1987. Definitive historical study of the deregulation of the telephone system that uses original documentary materials and interviews from Bell executives.
Thompson, R. L.Wiring a Continent: The History of the Telegraph Industry in the United States, 1832-1866. Princeton, N.J.: Princeton University Press, 1947. Reprint. New York: Arno Press, 1972. Detailed history of the early development of telegraphy and its impact on the United States during the nineteenth century.
See also: Bell Labs; computer industry; Electronics industry; Federal Communications Commission; Radio broadcasting industry; Television broadcasting industry; Western Union; WorldCom bankruptcy.