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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
After his resignation from the telephone company in 1887, Vail had traveled in Europe, developed a hydroelectric plant in Cordoba, Argentina, and a street railway in Buenos Aires, and had transformed his farm in Vermont into a model establishment that eventually became a state agricultural training school.
When he took over as president of AT&T in 1907, the Bell System had 3,100,000 telephones, compared with nearly 3,000,000 for the independent companies. In its competition with the independents, Bell had engaged not only in such honorable and orthodox business tactics as price-cutting but also in less wholesome ones, such as putting pressure on banks to deny credit to the independents, and putting pressure on politicians to deny franchises or to grant them only with burdensome conditions attached. In addition, Bell had secretly purchased a number of the independent companies. Finally, Bell had refused to allow the independents to connect with its long-distance lines. If it did not exactly say, “The public be damned,” it did say, in effect, that any member of the public who cared to do business with an independent company could forget about making long-distance calls.
These tactics had a predictable consequence: by 1906, Bell was being attacked as a “ruthless, grinding, oppressive monopoly.” The next year, in his first annual report as president of AT&T, Vail began by addressing the subject of public relations, and he addressed it in revolutionary terms, proposing that the greatest possible profit might not be the primary goal of a major enterprise. The public was not an enemy to be squeezed but a constituency to be served. Secrecy did not serve it. “Take the public into confidence,” Vail said, “and you win the confidence of the public.” Besides, he added a few years later, “If we don’t tell the truth about ourselves, some one else will.” What if the public demanded regulation? No executive of the telephone company had ever responded to the least whisper in support of regulation with anything short of violent indignation. Vail saw “no serious objection,” provided regulation was “independent, intelligent, considerate, thorough, and just.”
In 1908 Vail set down in six words the principles that would guide the company under his leadership: “One Policy, One System, Universal Service.” Later this formulation was reduced to four words: “Our business is service.” On one level this seems merely a slogan, and skeptics outside AT&T have mocked it as such. Slogan or not, over the years the phrase sank deeply into the minds of Bell employees, and it seems to have made a difference in the way many of them felt about their company and their work.
In his attitude toward the independent companies, Vail did not at first break with his predecessors. He saw telephony as a natural monopoly, as a business where competition would produce nothing but waste and inefficiency. He continued to purchase independent companies whenever possible, and he continued to refuse to connect the independents with Bell’s lines. Moreover, in 1910 he purchased 30 percent of the Western Union Telegraph Company—the same giant that had all but destroyed the fledgling Bell company in 1878–79—and took over as its president. J. P. Morgan’s dream of a consolidation of the telephone and telegraph industries—and Theodore Vail’s dream of a unified system that provided the public with universal service—seemed on the verge of becoming a reality.
Vail believed that a monopoly in communications best served the public interest. But the public did not believe it, and the government did not believe it. In January 1913 the attorney general of the United States, George W. Wickersham, advised AT&T that its planned acquisitions of certain independent companies seemed to him to violate the Sherman Antitrust Act. In the same month, the Interstate Commerce Commission launched an investigation to find out if AT&T was trying to monopolize communications in the United States.
Vail felt pressure not only from the government but also, and perhaps more important, from a subtle contradiction in his own business philosophy. In the best of all possible worlds, Vail thought, a single organization would run a single system that served everyone. But in the imperfect world where Vail strove to realize his vision, this unity did not exist. Vail believed in a single system, and this belief implied a refusal to connect with systems run by independent companies. But he also believed in universal service, and refusal to connect denied service to people who wanted it.
In the face of this contradiction—in the face of the stubborn refusal of the real world to yield to his vision of the best of all possible worlds—Vail made a large compromise. In a letter dated December 13, 1913, from Nathan C. Kingsbury, a vice-president at AT&T, to James McReynolds, Wickersham’s successor as attorney general, AT&T agreed to dispose of its holdings in Western Union, to stop purchasing independent telephone companies except with the approval of the Interstate Commerce Commission, and to make arrangements under which all other telephone companies “promptly… may secure for their subscribers toll service over the lines of the companies in the Bell System.”