AT&T: The Company Behind the Telephone - YouTube

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.

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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. Now, before you click off this video and open

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