American Telephone & Telegraph Co. (AT&T) history
The American Telephone and Telegraph Co. at its peak in the 1970s was the largest company on Earth. It had more than 1 million employees and was active in every state of the union. It provided telephone service to almost all Americans, manufactured and leased telephone equipment, and conducted research that led, among other things, to the development of modern computers through the invention of transistors at Bell Labs. It took AT&T a century to reach this position and only a decade to fall from it.
AT&T was formed in the 1870s to exploit Alexander Graham Bell’s telephone patents. It was very successful, but met vigorous competition when the original patents expired. AT&T became the dominant telephone company early in the new century by focusing its attention on the intercity telephone network and, no doubt, some hard competing. Most telephone traffic was local, given the nature of economic life at the time and the primitive nature of long-distance telephony, but AT&T’s unique network gave it a distinct competitive advantage.
Bell’s original company was organized as the Bell Telephone Co. in 1878. Its first general manager was Theodore Vail, hired away from the U.S. Post Office by Thomas A. Watson, one of Bell’s early colleagues. From that point, the company developed quickly, based upon Vail’s management expertise and far-sightedness. When he took the reins, less than 26,000 telephones were in service. Over the course of the next 10 years, Vail imposed his own design on the company, transforming it into a system rather than just a telephone company. Of its several original components, the American Telephone & Telegraph Company proved to be the most functional. Other parts of the company, namely the New England Telephone Company, sold licenses to smaller companies.
As the Bell System, composed of AT&T subsidiaries, grew to dominate the national telephone scene, it was subject to its first antitrust prosecution. In a consent decree in 1913, AT&T agreed to stop buying telephone companies and instead connect them to its network. During and after the Great War, the government decided to work with AT&T as a regulated monopoly rather than to promote competition. The dream of Theodore N. VAIL, president of AT&T in 1885–87 and again in 1907–19, of “one system, one management, universal service,” was on its way to fulfillment.
AT&T was subject to its second antitrust prosecution after the Second World War, focusing on the market power of Western Electric, AT&T’s manufacturing arm. The suit was settled by a consent decree in 1956 in which AT&T restricted itself to the telephone business. This appeared to be a minor constraint since AT&T had sold off its interests in radio, movies, and television, all promoted by research done in AT&T’s Bell Labs, before the war. As computer and telecommunications technology grew less distinguishable, however, the constraint became more troublesome.
AT&T also agreed to transfer revenues from long-distance calls to Bell operating companies to keep local rates low, allowing some of the benefits of rapid technological advance in long distance telephony to be realized by local services. The resulting relatively high price of interstate calls attracted other smaller companies who saw a profit opportunity under the price umbrella formed by the high long-distance rates. An early challenge to AT&T was mounted by MCI, one of the small companies that initially wanted to use the phone company’s lines. Discussions with AT&T proved fruitless, and the challenge was taken to court. The FCC encouraged MCI and other aspiring companies as a way to reintroduce competition into telephony. The third antitrust prosecution of AT&T started initially from concerns about Western Electric’s equipment monopoly, but it quickly added MCI’s accusations of unfair treatment. The suit dragged on for almost a decade and resulted in a consent decree that ended the Bell System.
Finally, AT&T agreed to settle the suit with the Justice Department after prolonged legal battles. The Modification of Final Judgment of 1982, so called because it was cast as a modification of the 1956 consent decree, allowed AT&T to retain Western Electric and Bell Labs in return for divesting itself of the Bell operating companies. The Bell operating companies were grouped together into seven Regional Bell Operating Companies, or RBOCs. Until 1996, the RBOCs were enjoined from competing directly with AT&T in long-distance service, and AT&T was unable to compete effectively with the RBOCs for local service. AT&T has attempted to enter local telephone markets, in competition with its former subsidiaries, which offered long-distance service of their own in competition with their former parent. In 2004, AT&T announced it would no longer be selling telephone services to residential customers and would concentrate on core businesses such as voice and data services to large corporations. AT&T, once the biggest company on Earth, is now only one telecommunications company among many.
See also BELL, ALEXANDER GRAHAM; WATSON, THOMAS A.
Further reading
- Boettinger, H. M. The Telephone Book: Bell, Watson, Vail & American Life. New York: Stearn Publishers, 1977.
- Coll, Steve. The Deal of the Century: The Breakup of AT&T. New York: Atheneum, 1986.
- Temin, Peter. The Fall of the Bell System. New York: Cambridge University Press, 1987.
Peter Temin