Breaking The Connection


Events moved quickly from this point. On June 25 Bell gave a triumphant demonstration of the telephone at the Centennial Exposition in Philadelphia. On August 10 the world’s first one-way long-distance telephone call was made; on October 9 the world’s first two-way long-distance telephone call; on November 26 a two-way call between Boston and Salem (16 miles); on December 3 a two-way call between Boston and North Conway, New Hampshire (143 miles).

But these tests were not entirely reassuring. “We could hear each other over the wire,” Watson said about the North Conway call, “but the telegraph line was in such bad shape … that the talking was unsatisfactory to both of us.” Watson began to fear that the telephone “would talk moderately well over a short line, but the apparatus was delicate and … didn’t talk distinctly enough for practical use.” His concern may have stirred some doubt in the mind of Gardiner Hubbard, for, sometime in the fall of 1876, Hubbard offered to sell all rights to the telephone to the Western Union Telegraph Company for one hundred thousand dollars. In a decision that doomed him to obscurity in the annals of business history, William Orton, president of Western Union, rejected the offer.

The year 1877 saw more firsts: the first use of the telephone in news reporting; the first telephone conversation between Boston and New York; the first telephone advertisement; the first telephone rented for business use. On July 9 the Bell Patent Association was superseded by the Bell Telephone Company, a voluntary, unincorporated association, with Gardiner Greene Hubbard as trustee in full charge of business affairs. Two days later, in an event that it would seem callous to omit though it has no demonstrable bearing on the history of the telephone company, Alexander Graham Bell married Hubbard’s daughter, Mabel, and began what seems to have been an exceptionally happy forty-five-year marriage.

Hubbard’s trusteeship lasted only a year, but he made two notable contributions. First, he decided that instead of selling telephones, the company would lease them to licensed parties for a royalty. In this, a fundamental business policy of what came to be the Bell System and a policy on which the unity of the system depended, Hubbard was influenced by his experience as the attorney for the Gordon-McKay Shoe Machinery Company, which leased its shoe-sewing machines to shoemakers and received a royalty for every pair of shoes made on the machines. In essence, the leasing and licensing system meant that instead of selling telephones, the Bell Company would sell service.

Secondly, on May 22, 1878, Hubbard hired Theodore Newton Vail, the thirty-two-year-old superintendent of the Post Office’s Railway Mail Service, to be the general manager of a new company then being formed to handle the business development of the telephone. Vail was to become the most important executive in the history of AT&T and one of the half-dozen or so most important executives in the history of American business. When he began work as general manager on July 1,1878, there were approximately ten thousand Bell telephones in service. When he retired in 1919, there were nearly eight million.

In addition to the hiring of Vail, the year 1878 was marked by the opening of the first central exchange, serving twenty-one subscribers in New Haven, Connecticut, on January 28. A central exchange that connects calls is the heart of the telephone system, since without it every phone would need a line to every other phone, and all of us would have strangled long ago. The first exchange in California was opened at San Francisco on February 17; the first in New York, at Albany on March 18; the first in Massachusetts, at Lowell on April 19; the first in Missouri, at St. Louis on May 1; and so on through the rest of 1878 and for years to come.

Many of these early exchanges were installed not by the Bell Company but by Western Union, which had changed its mind about the commercial potential of the telephone and had decided to challenge Bell’s patents on the basis of the caveat filed by Elisha Gray. With its enormous capital resources, with its own network of wires already crisscrossing the nation, and with Thomas Alva Edison on its payroll to provide technical support, Western Union posed a threat that could not be ignored, and in September 1878 the Bell Company filed suit charging its rival with infringement of its patents.


This was a new Bell Telephone Company. It had been formed on June 29, 1878, to license and promote telephone service in all areas of the country except New England. Earlier in the same year, on February 12, the New England Telephone Company had been incorporated, with rights to issue licenses under the Bell patents to telephone-operating companies in New England. With the establishment of these two companies, the unincorporated Bell Telephone Company under the trusteeship of Gardiner Hubbard passed from the scene, and a new group entered the picture—a group of aristocratic capitalists based in Boston who put up the funds to finance expansion.