The history of AT&T is definitely a big part of the history of the telephone in the United States. AT&T goes back as far as 1875 when the original Bell Telephone Company was founded by Alexander Graham Bell, the inventor of the telephone. AT&T or, American Telephone and Telegraph Corporation was incorporated in 1885 as a subsidiary of Bell, to build and operate the first long-distance telephone network. In December 1899, AT&T acquired Bell Telephone Company and became the main company of the entire Bell system.
From 1899 to 1913 AT&T acquired many of the independent telephone companies and bought control of Western Union Telegraph Company. This network of companies became known as The Bell System or “Ma Bell”. The United States government gradually became worried that the entire Bell system was monopolizing the telephone and telegraph industry. AT&T’s monopolistic strategies prompted many complaints, attracting the attention of the Justice Department. A case was opened, and the government placed AT&T under investigation for antitrust violations.
In an out-of-court settlement, the government agreed to not purse AT&T as a monopolist as long as AT&T divested its controlling interest it had acquired in the Western Union telegraph company, and allow competing independent telephone companies to use the AT&T’s long distance network. This commitment between the government and AT&T was call the Kingsbury Commitment. At several later points, as political philosophy evolved, federal administrations investigated the telephone monopoly in light of general antitrust law and alleged company abuses.
One notable result was an anti-trust suit filed in 1949, which led in 1956 to a consent decree signed by AT&T and Department of Justice, and filed in court, whereby AT&T agreed to restrict its activities to the regulated business of the national telephone system and government work. Over the years AT&T’s Bell System provided what was by all accounts the best telephone system in the world. The system made steady progress towards its goal of universal service, which came in the twenties and thirties to mean everyone should have a telephone.
The percentage of American households with telephone service reached fifty percent in 1945, seventy percent in 1955, and ninety percent in 1969. Much of the leadership came by application of science and technology developed at AT&T’s Bell Telephone Laboratories subsidiary. In the late 1940s, new technologies appeared that provided alternatives to copper wires for long-distance telephone transmission. AT&T opened its first microwave relay system between the cities of New York and Boston in 1948, and over the succeeding three decades added considerable microwave capacity to its nationwide long-distance network.
In 1962, AT&T placed the first commercial communications satellite, Telstar I, in orbit, offering an additional alternative especially suited to international communications. Technological changes elsewhere in the system offered parallel alternatives. The transition from electromechanical to electronic components permitted new, more powerful, and eventually less expensive customer premises and network equipment. Another result of these new technologies was to lower the technological barriers to entry by would-be competitors to the Bell System.
Slowly, over several decades, the Federal Communications Commission (FCC), the regulatory agency which oversees telecommunications in the United States, allowed some competition using these technologies at the edges of the network. By the mid-1970s, competition had advanced to general long-distance service. The changes in telecommunications during these years eventually led to an antitrust suit by the U. S. government against AT&T. The suit began in 1974 and was settled in January 1982 when AT&T agreed to divest itself of the wholly owned Bell operating companies that provided local exchange service.
This would, the government believed, separate those parts of AT&T (the local exchanges) where the natural monopoly argument was still seen as valid from those parts (long distance, manufacturing, research and development), where competition was appropriate. In return, the U. S. Department of Justice agreed to lift the constraints of the 1956 decree. Divestiture took place on January 1, 1984, and the Bell System was dead. In its place was a new AT&T and seven regional Bell operating companies (collectively, the RBOCs. ) The United States woke up on January 1, 1984 to discover that its telephones worked just as they had the day before.
But AT&T started the day a new company. Of the $149. 5 billion in assets it had the day before, it retained $34 billion. Of its 1,009,000 employees it retained 373,000. Gone even was the famous Bell logo and name, given under the agreement to the regional telephone companies, excepting only the name’s use in Bell Labs. In its place was a stylized globe and the monogram “AT&T. ” Success would require no less than the most drastic change in corporate culture ever undertaken by a major American corporation. The old AT&T — the Bell System — as a regulated monopoly had been largely insulated from market pressures for most of its history.
Its culture venerated service, technological excellence, reliability, and innovation within a non-competitive internally-driven framework of taking however much time and money it took to get things done right. The new AT&T had to learn how to find out and deliver what its customers wanted, when its customers wanted it, in competition with others who sought to fill the same customers’ needs. Although AT&T had great technological and personnel strengths upon which to build, the transition proved far more complex than anyone imagined in 1984. Long distance telephone service became an intensely competitive business.
Having started from a monopoly business, it was perhaps inevitable that AT&T’s market share would fall. And it did-from over ninety percent in 1984 to around fifty per cent a dozen years later. Between competitive pressure, new technologies (primarily fiber optic transmission) and the shift of some fixed costs to elsewhere, prices plummeted, dropping by an average of forty percent by the end of the 1980s. Volume exploded. In 1984, AT&T carried an average of 37. 5 million calls per average business day; in 1989, the equivalent volume was 105. 9 million, and in 1999 270 million.
In the 1990s, the growth of computers, and then the internet led to an increasing percentage of what customers sent over the network taking the form of data rather than conversation. AT&T’s continued financial strength helped underwrite growth and improvement, from the multi-billion-dollar digitalization of its entire network, through a sustained move into the international market and nearly 200 countries, to major mergers and acquisitions. One such merger came in 1991 when AT&T acquired computer maker NCR in a $7. 3 billion deal designed to give the company’s customers an edge as communications and computing converged.
Another, the agreement to acquire McCaw Cellular in 1994 for $11. 5 billion, gave AT&T direct access to consumers for the first time in a decade. The unit, renamed AT&T Wireless, established AT&T as a leading force in the fast growing wireless telecommunications industry. The manufacturing operations too faced a transition from monopoly to competition. The largest manufacturing business, recast as AT&T Network Systems, had as its major customers the now independent local telephone companies (RBOCs).
Other manufacturers competed for their business and the RBOCs cast an increasingly wary eye on AT&T Network Systems, at times seeing AT&T more as a real and potential competitor than a partner. Network Systems continued as the US market leader, selling both to its traditional customers and to new ones. Network Systems also led the way as AT&T returned to the global arena for the first time in seventy years, establishing plants, subsidiaries, and joint ventures in countries as varied as the Netherlands, Japan, and China.
The corporate strategies and organizations that made sense in the early 1980s, became increasingly problematical as the 1990s progressed. Not only were there few synergies between the communications and manufacturing businesses, but as the US moved toward rewriting its communications laws, the two businesses increasingly became obstacles to each others growth. Still, CEO Robert Allen’s announcement on September 20, 1995 that AT&T would be restructuring took nearly everyone by surprise.