AT&T: The Company Behind the Telephone


Undoubtedly, one of the greatest inventions
of the 19th century was the telephone, and it is safe to say that the world would not
be the same without it. That’s why today we’ll be exploring the
company that built the American telephone system and that remains the world’s largest
telecom business to this day, AT&T. This video is brought to you by Tab for a
Cause, a free browser extension that donates money to charity with every new tab open without
costing you a single dime. While there is some controversy over the true
inventor of the telephone, it is Alexander Graham Bell that was awarded the patent and
it was his company that would go on to spread it across America.
The phone came to life on March 10, 1876 and the first phrase ever whispered down the wires
was “Mr. Watson, come here. I want to see you”, spoken by Bell to his assistant.
Just a year later, he had already found several financiers to back his invention, including
J. P. Morgan, and thus in 1877 they set up the Bell Telephone Company and then the New
England Telephone company in 1878. Their model was to license the telephone to
local operating companies around Chicago, Boston and New York.
Bell himself was much more focussed on his work as an inventor and by 1879, he had sold
his share in both companies to a group from Boston, who consolidated the two parts into
the National Bell Telephone Company. If all these different names sound confusing,
well, I see your point, but the real history of AT&T is all about whether it’s one company
or many. If you look at the largest telecom businesses
in the world, you’ll see that most of them were state-run telephone operators.
China Mobile, Deutsche Telekom, Telefonica; all these and others started out as government
entities that were originally run by the post office.
But the US never had a state run phone operator, partly because it goes against the nature
of American values, but also because, for America, the telephone service was a business
first and utility second. So, why did the Bell company license out the
operating service rather than building it’s own networks and having complete control?
It’s not like they had any rivals and they did own the patent.
In short, it was simply a matter of time and capital.
Bell’s patents weren’t indefinite, so the Bell company had a limited time to cover
as much area as possible, before competitors could pop up.
By licensing, it could avoid spending the millions of dollars necessary to set up the
telephone service in a new area. Instead, it gave 5- to 10-year contracts to
independent operators, who would pay the Bell company $20 per phone per year and then also
give it the right to buy the operator’s property once the contract was over.
It was actually a pretty sweet deal: the company didn’t have to invest a single dime in telephone
lines and would get a fixed income, with which to buy out the operator in less than a decade.
But Bell had a more important place to spend its money, so in the end the company only
bought about a 30-50% stake in most operators. So what was this other project Bell was investing
in? Well, part of the deal with the operators
was that they could expand in their own territory, but could not link up with other operators,
regardless of whether they were a part of the Bell system.
This meant that there was no effective way to make long-distance calls, and this is what
the Bell company was interested in. It was the only company rich enough to build
its own network of long-distance telephone lines, and although in doing so it ended up
with a ton of debt, it now had a complete monopoly on the long-distance phone service.
The Bell company set up a subsidiary to manage this new network in 1885, and it called it
the American Telephone and Telegraph Company, or AT&T for short.
Over time, the long-distance network would become the backbone of the Bell company.
Even after all of Bell’s patents had expired, AT&T were the only company that could provide
service across the whole nation. Of course, local independent operators started
popping up left and right and by 1907, they actually ran just over half of America’s
telephones. By that point, around 20% of American homes
had a telephone, so there was a lot of demand for the service.
But while you could use your local operator to call your boss or shout complaints at the
mayor, but the only way to make calls outside the city, was through AT&T.
Of course, this early network wasn’t particularly good: the service quality was downright abysmal,
not to mention the customer support. Because of this public relations crisis and
AT&T’s immense debt, J. P. Morgan was able to take control of the company and to instate
his own man, Theodore Newton Vail, as president. He set about restoring AT&T’s image, and
also decided to invest heavily in research and development, setting up the now-famous
Bell Laboratories in 1925. Bell Labs, by the way, is now owned by Nokia
and it’s been one of the world’s leading scientific institutes for almost a century.
It is responsible for 8 Nobel Prize winning works, including the creation of the transistor,
the “C” programming language, and the discovery of cosmic background radiation,
one of the key pieces of evidence for the Big Bang Theory.
But back to AT&T. By the start of the Second World War, they
had $5 billion in assets, which was light years ahead of any other competitor.
Thanks to aggressive acquisition tactics, they controlled a huge majority of US phones
and ran 98% of long distance lines. They played a big part in the war effort,
thanks to the research done through Bell Labs and Western Electric, an early phone manufacturer
who they had purchased in 1881. The war effort paid off for them too, since
it caused a big jump in long distance calls, which continued even after the fighting was
over. After the war came the space race, where Bell
Labs was once again a major player, this time with satellite technology.
Their communications satellite Telstar 1 was the first to relay television and telephone
calls through space, as well as giving the first transatlantic live feed.
They worked hand in hand with NASA, but despite their heavily involvement with the government
on research and development, there were some big question marks over their business practices,
especially around how they controlled the telecoms market.
An agreement was signed in 1956 that limited AT&T to the telephone business alone and that
also required it to license its patents to anyone who was interested.
In 1968, a further ruling by the FCC forced AT&T to allow third parties to connect to
their network, in an aim to stop their monopoly over the long-distance telephone lines.
This eventually lead to the creation of the answering machine, the fax machine and the
modem so, see, the FCC wasn’t always bad. But even after giving away access like that,
AT&T still had huge power over the network, and so the government fought a long and bitter
battle in the courts that would take 8 years to settle.
Finally, in 1982, United States v. AT&T ended with the breakup of the AT&T network, or Bell
System as it was called, on antitrust grounds. A total of seven independent companies were
carved out of the former AT&T, leaving it a shell of its former self.
These new companies came to be known as the Baby Bells.
Two of them went on to become Verizon. Another one, called Southwestern Bell Corporation,
eventually bought up three of the other Baby Bells and the weakened AT&T itself.
In the end, although most of the Baby Bells ended up back together, the breakup did give
them a unique opportunity. You see, the 1956 agreement that made AT&T
stick to telephone business had prevented them from entering the computer market.
So, after 1982, while AT&T did lose power over regional networks, they kept the long
distance operations and, most importantly, could finally take a bite at computers…no
pun intended. Of course, it wasn’t easy and the next 20
years saw the company constantly changing strategies in order to keep up with the lightning
pace of development happening in the computer industry.
Its long distance operations were slowly eroded, partly through new legislation, but also thanks
to the development of fibre optics, which, coincidentally, was inspired by Alexander
Graham Bell’s photophone that had transmitted a voice message using light, all the way back
in 1880. By 2005, when Southwestern Bell Corporation
finally bought its former parent for $16 billion, AT&T was like roadkill picked apart by buzzards.
Only their consumer and business services had remained; their Wireless, Broadband and
telephone systems were gone, not to mention Bell Labs.
So, the AT&T we know today is really the work of SBC, simply rebranded under this more famous
name. Today, the company’s new direction is wireless.
Through a series of acquisitions, AT&T became the second largest cellular provider in the
US, just barely behind Verizon. In 2015 they also acquired DirecTV, a satellite
television service providing some of the biggest channels such as ESPN, HBO, and numerous major
news networks. They spent almost $50 billion to get it, but
of course the real elephant in the room is AT&T’s planned acquisition of Time Warner.
It’s not very clear whether US regulators are gonna approve it, but if they do, the
combined company would be the second largest broadband provider in the US.
On top of that it would also have ownership of Warner Bros, DC Comics, CNN and a bunch
of other major properties. Naturally, monopoly concerns have been raised
by pretty much everyone, but this time around AT&T have definitely learnt their lesson.
Since 2015, they have spent close to $30 million on political donations and today they have
over a hundred registered lobbyists. It’s pretty obvious that AT&T really want
this deal to go through, but for now we’ll just have to wait and see what happens.
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