Breaking The Connection

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After waiting eighteen years, the Justice Department struck hard.

“The science underlying electrical communications is at the very heart of modern war,” Walter Gifford wrote to AT&T’s stockholders shortly after Japan’s attack on Pearl Harbor. The research and development, engineering, manufacturing, and human resources of the Bell System were vital to the war effort. Western Electric worked around the clock to supply hardware for the conflict. In three and a half years it fulfilled sixteen hundred government contracts, twenty thousand purchase orders, and ten thousand modification orders. It produced half of all radar sets manufactured in the United States for use in the war. In the words of Henry M. Boettinger, a former assistant vice-president of AT&T and the author of a fine history entitled The Telephone Book , Bell’s areas of military involvement included “radios of every size for tanks, planes and artillery; radar systems; ultrahigh frequency and microwave techniques; flight trainers; submarine detection; artillery and mine fuses; military and naval fire-control systems; metallurgy for improved gun barrels; telephone and teletypewriter apparatus suitable for desert, jungle and Arctic; and a host of devices and components for other industries....”

AT&T’s role in the national defense—specifically, its role as a leader in the development of the technology that underlies sophisticated military systems—did not end with World War II.

 

In 1949, at the request of the United States Atomic Energy Commission, Western Electric took over the management of the Sandia Laboratory, which the government had established at Sandia Base, an airfield near Albuquerque, New Mexico, shortly after the bombings of Hiroshima and Nagasaki. Sandia’s mission was to design and produce a stockpile of atomic weapons for the nation, but when he took over as chairman of the Atomic Energy Commission in 1948, David E. Lilienthal found to his astonishment that the “substantial stockpile of atom bombs that we and the top military assumed was there, in readiness, did not exist.” Under the management of Western Electric (provided at cost), this situation quickly changed; within a month an AEC representative reported that “Sandia Laboratories are no longer experimenting with atomic weapons, they are producing them.” Under a series of five-year contracts, AT&T has continued to manage the laboratory to this day.

AT&T also played a major role in the postwar development of guided antiaircraft missiles and in the development of the nation’s air-defense radar system.

The space age opened new frontiers for the company. A communications satellite designed by Bell scientists, Telstar, was launched in 1962, and the first earthto-moon telephone call was completed in July 1969, less than one century after Alexander Graham Bell spilled acid over his clothes and completed the first roomto-room telephone call.

As if atomic weapons, guided missiles, radar defense systems, and communications satellites were not enough, AT&T continued to run the Bell System, which kept growing explosively. The number of telephones in the nation (including the phones of independent companies) rose from 13 million in 1920 to 20 million in 1930, 22 million in 1940, 43 million in 1950, 74 million in 1960, 120 million in 1970, and 180 million in 1980. The average daily number of local telephone calls rose from 50 million in 1920 to 96 million in 1940,273 million in 1960, and 717 million in 1980; while the average daily number of toll calls rose from 2 million in 1920 to 3 million in 1940, 12 million in 1960, and 70 million in 1980. The book value of plant and equipment in the Bell System rose from $1.36 billion in 1920 to $4.89 billion in 1940, $24.7 billion in 1960, and $135.5 billion in 1980.

The size of the company made it a target, but even more than that, its monopolistic tendencies—or what regulators tended to construe as its monopolistic tendencies—opened it to attack. It took thirty-five years and two long lawsuits, but in the end the government cut Ma Bell down to size.

The first lawsuit, filed by the United States attorney general in January 1949, alleged that AT&T had violated the Sherman Antitrust Act and asked that its giant manufacturing arm, the Western Electric Company, be separated from the Bell System. The suit was settled in January 1956 by a consent decree that spelled out terms that both the government and AT&T declared to be acceptable. AT&T agreed to confine its activities to common-carrier communication services and government projects, to manufacture only products needed by Bell companies and by the government, to make all its existing patents available to anyone without charge, and to make all future patents available on reasonable terms. In exchange for these concessions, the government allowed the company to keep Western Electric. The general view was that the company had won a victory.