AT&T - From Selling Telephone To Becoming Telecom Giant

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.

1. History of Telephone

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, and others started 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 its 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.

2. Bell Company made long-distance calls possible with AT&T

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 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 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 network of long-distance telephone lines and, although in doing so, it ended up with a ton of debt, it now had a 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.

3. Theodore Newton Vail was made President of AT&T by J.P. Morgan

Even after all, of Bell’s patents had expired AT&T was 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 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, 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 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.

4. Bell Labs started Penetrating Satellite Communication

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 that 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 to 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 heavy involvement with the government in 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 also required it to license its patents to anyone interested. In 1968. A further ruling by the FCC forced AT&T to allow third parties to connect to their network 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.

5. AT&T was broken into 7 Companies

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 the 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 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 fiber optics, which, coincidentally, was inspired by Alexander Graham Bell’s photophone that had transmitted a voice message using light 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.

6. AT&T acquired many companies and became the 2nd largest Telecom Company in the US

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 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, the planned acquisition of Time Warner.

It’s not very clear whether US regulators are going to 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 has learned its 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 wants this deal to go through, but for now, we’ll just have to wait and see what happens.

AT&T - From Selling Telephone To Becoming Telecom Giant