Breaking The Connection


By 1924 Bell was involved in a variety of patent infringement suits and in suits relating to the availability of telephone lines for broadcasting. In March of that year Harry B. Thayer, president of AT&T, made a statement to the press designed to clarify the company’s position on the issues posed by its broadcasting activities. He declared that AT&T “has not attempted and does not desire a monopoly of broadcasting.” The actions that showed that the company meant what it said occurred not under Thayer but under his successor, Walter S. Gifford, who took over as president in January 1925 and served in that position until December 1949. Gifford pursued a policy of cutting back on secondary ventures and refocusing attention on the company’s basic business—the telephone. In 1925 Bell sold all plants outside the United States to the International Telephone & Telegraph Company; three years later it let go of the Graybar Electric Company, a Western Electric subsidiary that sold nontelephonic electrical and power equipment.


In addition, Gifford pulled AT&T out of radio broadcasting, selling WElAF to RCA for one million dollars. AT&T’s involvement in radio had been “experimental,” Gifford wrote in the annual report, and “the further the experiment was carried, the more evident it became that the objective of a broadcasting station was quite different from that of a telephone system.”

Mysteriously, at virtually the same time that he withdrew AT&T from the radio business, Gifford allowed the company to become deeply involved in the development of sound motion pictures. By 1925 engineers at AT&T had produced a machine that made it possible to synchronize moving pictures with sound, and in 1929 the company reported that 90 percent of talking pictures were made using sound equipment from Western Electric. Three years later a senior official boasted that “we are the second largest financial interest in the motion picture industry.” For reasons that remain unclear, it was not until the mid-193Os that Gifford applied to films the same principle that he had applied to radio broadcasting a decade earlier and moved Bell out of the field.

Research engineers at AT&T also contributed to early developments in the history of television. In 1925, to the delight of press associations, AT&T’s Long Lines Department introduced the first commercial telephotograph service. The transmission of pictures in motion was the obvious next step. On April 7, 1927, came the first public demonstration of long-distance television transmission in the United States, with Herbert Hoover, then secretary of commerce, at one end of the wire in Washington and Walter Gifford of AT&T at the receiving end in New York. Next came the first public demonstration of color television in the United States, at the Bell Laboratories in June 1929. With the economy booming, a shrewd investor might have bet that television would sweep the nation by the end of the next decade. But history had other ideas.

The Justice Department Makes Its Move

T&T maintained its $9 dividend throughout the Depression. In order to fulfill what it seems to have viewed as a moral obligation to its shareholders, the company held the dividend at $9 for four consecutive years, 1932 through 1935, when earnings fell considerably below that figure. In the process, the company reduced its retained surplus by 60 percent, from $234,000,000 to $93,000,000.

The policy of maintaining the dividend did not please labor, since it meant that labor rather than capital bore the brunt of the Depression. At the worst point in the crisis, Western Electric had laid off nearly 80 percent of its work force, and AT&T as a whole had reduced its payroll by 20 percent.

The thirties also brought a major change in federal regulation of the telephone industry. On July, 1934, under the Communications Act signed by President Franklin D. Roosevelt, the Federal Communications Commission replaced the Interstate Commerce Commission as the agency with jurisdiction over telecommunications. It promptly launched an investigation of AT&T that produced what one investigator described as “probably the most complete factual information on the operations of an important American business enterprise in existence.” The final report raised questions about the adequacy of regulation, but it was released only two and a half months before the start of World War II, and it did not seize the nation’s attention.