In 1877 Alexander Graham Bell founded the Bell Telephone Company. It was the world’s first telephone company and would one day become AT&T. Even though Alexander Graham Bell sold his ownership stake in the company after just a couple of years with the company, AT&T would become the largest telephone company in the company the world. In fact, AT&T grew so large that the United States government spent well over 50 years trying to break up what they believed was a monopoly. They succeeded in their goal. However, 35 years after the break up almost all of the subsidiaries have reunited to rebuild the monopoly of old. AT&T is now almost as big, if not bigger than it was before the monopoly was broken up. This is the story of how AT&T became a monopoly, twice.
The History of AT&T
AT&T has been around for a long time. A really long time. In 1877, just a few short years after he successfully patented the first telephone, Alexander Graham Bell opened Bell Telephone Company. Shortly after founding the business, he found his way out to continue working in the sciences. Bell ended up refusing to use a telephone claiming it was a distraction. May we all learn from the harbinger of our distracted modern lifestyle.
The early days of AT&T were wrought with some of the wisest business decisions to date. The company knew that covering the nation in the telephone lines required to use their product would be an immensely cost-intensive endeavor. To avoid shouldering this cost Bell Telephone Company sold the rights of operation to local companies around the nation. These companies had the right to build lines and operate local calls. Bell Telephone Company on the other hand would handle the long-distance calls.
The Long Game
You might be saying, “Well, hey, what is wise about letting other people steal your business.” The early AT&T included a clause in their contracts with local phone operators that after their 20-year patent expired the inventor’s company would buy back the local companies and begin operating all calls nationwide. This was a significant move as it guaranteed AT&T as the leading phone provider in terms of coverage when their patent expired. Only the company would not need to invest any of the upfront cost of building the phone lines across the nation.
Photo courtesy of Wikipedia
When the patent did expire there was no possibility of any company in the nation competing with the behemoth that was AT&T. In reality AT&T ended up not buying back every single local telephone operating company. However, they bought enough to have a head start worth millions of dollars in start-up cost. Again, the millions in start-up cost they did not spend.
Do You Want to Play Monopoly?
The position of the company guaranteed it a monopoly early on. The United States government took note of this and began attempting to dismantle what they saw as a monopoly. Unfortunately for the Federal Trade Commission, they began their efforts in 1907 and before they could see their plan through the nation would be thrust into World War 1. A second effort after the war was dashed by World War 2. Finally after nearly 80 years, in 1984, the FTC successfully broke the largest monopoly the US would ever break up.
A Nasty Break Up
AT&T was broken up into 9 subsidiaries; AT&T, Bell South, US West, Southwestern Bell Corp, Bell Atlantic, Pacific Telesis, Ameritech, Nynex, and Bell Labs. These companies would continue operating much like the former AT&T with only regional capabilities. AT&T sort of lost its way during this period. The company attempted a series of ventures that all fell flat. Other companies like US West, NYNEX, and Southwestern Bell thrived. US West went on to become Century Link. Nynex and Bell Atlantic Merged to become Verizon. Southwestern Bell bought a conglomerate of other companies including the rest of the companies left over after the break up of AT&T. That’s right Southwestern Bell reunited the family. Well, most of the family at least.
A Stronger Monopoly
After acquiring AT&T Southwestern Bell rebranded to carry the name with greater authority than its own. At this point, AT&T had now reunited with 6 of the 8 companies left over after the split. For all intents and purposes, AT&T was back and stronger than ever. Thanks to the purchase of companies like Cingular, DirectTV, and, more recently, Time Warner, AT&T is now operating in a wide array of industries that are all connected. This single company can now operate an individual’s TV service, internet service, phone service, and all the channels on their TV. For AT&T this appears to be just the beginning. Luckily, it looks like the monopoly has got back together and the FTC doesn’t seem to mind because AT&T is spending exorbitant amounts of money in political donations every year.
Conclusion
AT&T rose to power quickly and effectively. It did after all invent a product that would reunite the world, and one day separate but that’s a different discussion. Its business model inevitably birthed a monopoly in the early days. Luckily for AT&T, it took the government 80 years to figure out how to stop it. So those, who benefited from the monopoly likely lived their entire lives before the issue was resolved. Even still, once it was resolved it only took Southwestern Bell about 25 years to get the gang back together and restore the monopoly back to its former glory. It really is kind of impressive.
Learn more about the rise and fall and rise again of AT&T and their monopoly in this episode of Things I Learned Last Night. Things I Learned Last Night is an educational comedy podcast where best friends Jaron Myers and Tim Stone talk about random topics and have fun all along the way. If you like learning, and laughing a whole lot while you do, then you’ll love TILLN. Watch or listen to this episode right now!
Sources
Alexander Graham Bell – Wikipedia
Break up of the Bell System – Wikipedia
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