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Breaking The Connection
The story of AT&T from its origins in Bell’s first local call to last year’s divestiture. Hail and good-bye.
June/july 1985 | Volume 36, Issue 4
In one decade AT&T fought six hundred patent infringement suits.
On February 17, 1879, the Bell Telephone Company and the New England Telephone Company were consolidated as the National Bell Telephone Company. A representative of the Boston financiers, Col. William H. Forbes, served as president of this company and its successor, the American Bell Telephone Company, from March 1879 until September 1887. But the major event of his presidency occurred early—in November 1879.
The chief counsel for Western Union in the patent infringement case, George Gifford, had advised his client that it could not win and ought to settle out of court. Accordingly, on November 10, 1879, Western Union acknowledged the validity of Bell’s patents, agreed to get out of the telephone business, and turned over its telephone facilities and equipment, including a network of fifty-six thousand telephones in fifty-five cities, to National Bell. In exchange, National Bell agreed to pay Western Union 20 percent of its receipts from telephone rentals over the life of the Bell patents, and it agreed not to compete in the public message telegraph business in territory occupied by Western Union.
It was an important victory. It gave National Bell a monopoly of telephone business in the United States that would last until the expiration of the fundamental Bell patents in 1893 and 1894. “If Bell had been in Boston I should have invited him to join in one of our old war dances,” wrote Thomas Watson. “But, as he was unavailable, I had to have my dance all by myself, celebrating this great event in my life with a whole day alone in my old haunts—the woods and shores of Swampscott and Marblehead, declaiming to the skies all the poetry I remembered. It was an undignified thing for the Chief Engineer of the Telephone Company to do … but I certainly felt better for it next day.”
With this quote we may pause to bid farewell to Thomas Watson, who resigned from the telephone company in 1881, at the age of twenty-seven, and went on to live a fascinating life, full of odd adventures, and to die at eighty in 1934. We may also bid farewell to Gardiner Greene Hubbard, Thomas Sanders, and Alexander Graham Bell; after 1881 none of them was actively involved in technical work related to telephony or in the management of the telephone company. Sanders lost much of his money in the 189Os and died in 1911. Hubbard was accused of “fiscal irresponsibility” by the Boston financiers, was forced out of the presidency in 1879, and died in 1897. Bell resigned from the board when his father-in-law left and resigned from the company altogether the next year, after various disagreements with Forbes. He went on to live exactly the life that a man of benevolent genius ought to live, working in fields that ranged from the radiation treatment of cancer to aviation.
To the end of his life, when asked his profession, he answered, “Teacher of the deaf.” Yet for all his benevolence, in some ways he seems to have been a difficult man. He kept no telephone in his study because he liked to think in silence. His manner was so formal that almost no one called him by his first name. After his death in August 1922, amid the usual chorus of predictable tributes, his wife wrote in a letter to her son-in-law: “He is big enough to stand as he is, very imperfect, lacking in things that are lovely in other men, but a good big man all the same....”
The victory over Western Union was one of more than six hundred that the Bell Company would win in patent infringement cases over the next decade. In that period the Boston capitalists moved aggressively to take advantage of the monopoly.
A fundamental problem of the business was to manufacture equipment quickly enough to keep pace with demand. In November 1881 American Bell bought a controlling interest in the largest electrical manufacturing company in the United States, the Western Electric Manufacturing Company, of Chicago. Three months later Western Electric officially became the sole supplier of Bell telephones and telephone equipment.
Local telephone exchanges were well established early in the 188Os. The next great problem was to connect the exchanges. By act of the Massachusetts legislature the maximum capitalization allowed to the American Bell Telephone Company was ten million dollars—an amount that fell far short of the amount needed to construct long-distance lines. When the Massachusetts legislature refused to increase the maximum capitalization, a new company was organized in New York, on February 28,1885, under a charter that gave it a large mission: “… the lines of this association … will connect one or more points in each and every city, town or place, in the State of New York with one or more points in each and every other city, town or place in said State, and in the rest of the United States, Canada and Mexico, and also by cable and other appropriate means with the rest of the known world as may hereafter become necessary or desirable....” Thus, the American Telephone and Telegraph Company came into existence as a subsidiary company responsible for long-distance service. For its first fifteen years it was commonly called the Long Distance Company.