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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
Its first president was Theodore N. Vail, who also served as general manager of the parent company, American Bell. The corporate charter, with its vision of a global system, reflected Vail’s ideas. Already he was thinking about the time when the Bell patents would expire. “What we wanted to do,” he said later, “was get possession of the field in such a way that, patent or no patent, we could control it.” But he believed that control would come by building a system that served everyone. His sense of mission brought him into conflict with William Forbes and the other Boston financiers, who did not share Vail’s attachment to an ideal of universal service. They thought that the purpose of the business was to pay dividends, and they saw no reason to spend large sums to bring the telephone to every lonely spot in America. In September 1887, commenting that “my present position in the company … is in some ways embarrassing and unpleasant,” Vail resigned. The financiers had won, or so it seemed.
If Bell was the father of the system, Vail was its Lincoln.
The number of telephones in the country rose from 48,000 in 1880 to 228,000 in 1890, and the number of miles of telephone wire rose from 30,000 to 332,000. Not only had the telephone arrived; it had begun to get on people’s nerves. In a Christmas piece published in the New York World in 1890, Mark Twain wrote, “It is my heart-warm and world-embracing Christmas hope and aspiration that all of us—the high, the low, the rich, the poor, the admired, the despised, the loved, the hated, the civilized, the savage—may eventually be gathered together in a heaven of everlasting rest and peace and bliss—except the inventor of the telephone.” When the nation’s most famous writer took the trouble to make fun of it, no doubt could remain: the telephone had become a force to be reckoned with.
The expiration of the key telephone patents three and four years later brought on a period of chaotic and furious competition. As if in a textbook demonstration of the virtues of free enterprise, independent companies sprang up to serve the rural areas that American Bell had neglected. By 1900 more than a thousand independent local exchanges had been established in Iowa alone, and more than six thousand in the whole country. In addition, thousands of telephones were supported by cooperative, do-it-yourself systems in areas served neither by the Bell Company nor by the independents.
As a result, many towns had two telephone companies and two systems; a few had three. A user who wanted to be in touch with all other users needed to subscribe to all systems. Businesses were compelled to subscribe to all or to cut themselves off from suppliers and customers. Although prices went down, just the way the textbooks of economics say that they should, waste, inconvenience, and confusion increased.
On December 30, 1899, the American Telephone and Telegraph Company replaced American Bell as the parent company in the Bell System. The change had no profound meaning. American Bell had been incorporated in Massachusetts, which required it to seek the approval of the state legislature every time it needed to increase its capitalization. AT&T had been incorporated in New York, where more permissive attitudes prevailed. The obvious step was to make AT&T the parent company, with headquarters in New York.
The competition of the independent telephone companies did not slow the rate at which the Bell System was growing, and it did not reduce the need for funds to finance expansion. This need led to a struggle for control of AT&T that ended the reign of the Boston capitalists who had dominated the company for a quarter of a century. The fight was won by a group backed by America’s supreme financier, J. P. Morgan. On May 1, 1907, to celebrate their victory, Morgan and his allies installed a man they trusted as president of AT&T. The man they trusted was Theodore Vail.
The alliance of J. P. Morgan, one of the least popular figures in American business history, and Theodore Vail, one of the most highly regarded, requires some explanation. Morgan was a consolidator; he arranged or helped arrange the consolidation of railroad lines to form larger systems, the consolidation of electrical companies to form General Electric, the consolidation of steel companies to form United States Steel, the consolidation of farm machinery companies to form International Harvester, and the consolidation of transatlantic shipping lines to form the International Mercantile Marine. In the early years of the twentieth century he envisioned a consolidation of the telephone and telegraph industries. Vail’s dream of a universal telephone system—the vision that had brought him into conflict with the Boston financiers—did not conflict with J. P. Morgan’s.
If Alexander Graham Bell was the father of the Bell System, its George Washington, Theodore Vail was its Lincoln—the man who came to it in a time of crisis and defined its sense of identity and purpose.