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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
“All monopolies should be regulated,” Vail said.
The Kingsbury Commitment, as it came to be called, implied the abandonment of AT&T’s efforts to unify the telephone and telegraph industries in a great national monopoly as well as the abandonment of its efforts to monopolize the telephone industry by buying the independents or by using its control of long-distance service to drive them out of business. In essence, though he might not have agreed with it, Vail bowed to the public’s perception of the public good. But this apparent submission affirmed a principle. If Vail’s successors said, on the one hand, “Our business is service,” they also said, in the words of Charles Brown just before divestiture, that their business was “to discern the expectations of the public and then conform the business to those expectations.” More than anything else, Vail bequeathed to his successors two ideas: an idea of service and an idea of what makes up the right relation of the corporation to the public. The two ideas may seem simple enough, but they were big enough to shape the destiny of the biggest company on earth in the twentieth century.
The breadth of Vail’s vision makes him seem more like a philosopher-king than a businessman running a business, but he was a businessman, and a formidable one. Before he took charge, the operating companies in the Bell System had functioned, in the words of one historian, as “quasi-autonomous fiefdoms.” Vail put an end to that. He required the operating companies to submit five-year and twentyfive-year financial plans. He insisted that the companies coordinate their business policies and adhere to uniform technical standards. He established a unified research and development operation, the predecessor of the current Bell Laboratories. He built a strong central staff of managerial generalists, men in his own mold, capable of guiding the business on the basis of something more than an exclusive concern for profit.
World War I—the first war in which the field telephone played an important role—made heavy demands on the resources of the Bell System. Suddenly it became clear that in addition to its other uses, the telephone was a vital part of the nation’s defense. When war came, fourteen thousand Bell employees served abroad in volunteer battalions in the Army Signal Corps. The year 1917 witnessed the first use of radiotelephone in antisubmarine operations and in air-to-ground and ground-to-air communications.
The strain of war led to a push for nationalization of the telephone and telegraph companies—a push supported by both the secretary of war and the secretary of the navy. In the last week of July 1918, acting on powers granted to him by a joint resolution of Congress, President Woodrow Wilson took control of “each and every telegraph and telephone system, and every part thereof, within the jurisdiction of the United States, including all equipment thereof and appurtenances thereto.” For approximately the next year, in a fascinating experiment, the Post Office ran the telephone company.
As we have seen, Vail did not object to regulation by the government. But government ownership was another matter. “All monopolies should be regulated,” Vail said. “Government ownership would be an unregulated monopoly.” For years state regulatory commissions had stopped Bell from imposing a service connection charge on new subscribers; a month after the government took over, the postmaster general established connection charges ranging from five to fifteen dollars. Long-distance rates were increased by approximately 20 percent in January 1919, and local rates went up two months later. Even so, under government management the company operated at a deficit of thirteen million dollars. The public was not enchanted, and in the summer of 1919 Congress passed a resolution calling for the immediate return of the telephone and telegraph systems to private ownership.
Theodore Vail retired as president of AT&T on June 18,1919, and died in April 1920. In general, the American public listens skeptically to the pronouncements of business leaders, especially when those pronouncements proclaim an interest in the public good. Nevertheless, Vail seems to have believed sincerely what he said on many occasions: that the telephone company existed only to serve the public, that it derived its only legitimacy from its dedication to service, and that the primary duty of the executives who led it was to ensure that it conformed to the public’s best sense of what the public interest required. Theodore Vail’s gift to his successors was like Abraham Lincoln’s gift to the nation—a definition of purpose, a set of guiding principles—and something more: a largeness of spirit to inspire, sustain, rebuke, challenge, and befriend.
By 1920 there were 13,300,000 telephones in America. The average daily number of local calls had gone from 237,000 in 1880 to 7,600,000 in 1900 to 50,200,000 in 1920, while the book value of plant and equip ment in the Bell System had risen frorr $15,700,000 in 1880 to $181,000,000 in 1900 to $1.36 billion.