The telephone played a major communications role in American history from the 1876 publication of its first patent by Alexander Graham Bell onward. In the 20th century the American Telephone and Telegraph Company (AT&T) dominated the telecommunication market as the at times largest company in the world, until it was broken up in 1982 and replaced by a system of competitors.
Originally targeted at business users and upscale families, by the 1920s the "phone" became widely popular in the general population. Ordinary people either subscribed to telephone service themselves, or used a telephone in the neighborhood, including public pay telephones. Long-distance service was metered and much more expensive than local, flat-rate calling. Ordinary Americans contacted businesses, friends, and relatives. Business-to-business communication was important, and increasingly displaced telegrams.
The technology steadily advanced. Starting around the turn of the century, the dial telephone allowed users to place calls themselves without operator assistance. By mid-century, mobile radio telephone service became available to free users from fixed locations in some cities.
The arrival of the smartphone in the early 21st century provided every user a small mobile computer with microphone and speaker, that was bundled with powerful features, such as cameras and Internet access by operation of apps. It could easily send text messages, which tended to displace voice calls.Alan J. Reid, "A brief history of the smartphone." in Reid, The Smartphone Paradox: Our Ruinous Dependency in the Device Age (2018): 35–66.
In 1945, forty-five percent of American households had a telephone. By 1957, that number had reached seventy-five percent, and by 1970, over 90 percent.
In 2002, a majority of U.S. survey respondents reported having a mobile phone. In January 2013, a majority of U.S. survey respondents reported owning a smartphone. In 2024 the Pew Research Center reports that 98% of Americans own a cellphone of some kind, with 91% owning a smartphone.
AT&T and the Bell System
According to historian Robert W Garnet, in the six years after Bell's invention of the telephone in 1876, his new company managed to increase its capital from a small amount to US$10 million (equivalent to $ million in ). Furthermore, the company struck a deal with Western Union, the giant telegram company, preventing them from entering the telephone market. It acquired a controlling interest in the Western Electric Manufacturing Company to manufacture telephone equipment and supplies exclusively. It invested in local exchanges throughout the country which led to standardization and more business for Western Electric. This dramatic transformation was primarily due to the backing of New England financiers, who not only supplied essential cash, but also recruited experienced managers, such as Theodore Newton Vail to construct and manage a nationwide system. Vail, for example, had been superintendent of the Post Office's Railway Mail Service, which was in charge of intercity movement of mail.Robert W. Garnet, The Telephone Enterprise: The Evolution of the Bell System's Horizontal Structure, 1876–1909 (1985), pp. 48–73. Alexander Graham Bell moved back and forth to Canada, and his Bell Telephone Company of Canada, although nominally separate, was in practice largely dependent on American Bell/AT&T, for capital, equipment, policy, and priorities.
American Bell Telephone Company (1881–1899) In 1881, President William Hathaway Forbes of the newly renamed American Bell Telephone Company issued the first annual report indicating that the 1880 profits were over US$200,000 (), and it now operated 133,692 telephones. It set a policy that it leased telephones to customers (by the month) and retained ownership. It always installed (and removed) the telephones it owned. Only nine cities were left in the United States with populations over 10,000 that did not yet have a telephone exchange. The young company spent heavily on lawsuits over patents, which it usually won. It reported profits of over US$500,000 in 1881 and nearly US$1 million in 1882 (equivalent to $ million in ). Typical charges for businesses were US$150 for a thousand messages (). Pay stations were being set up around the business district, charging 15 cents per call (). American Bell would send a team to make a pitch to business leaders in a city about starting a branch. They had advantages: Bell's national prestige guaranteed an attentive audience. Bell would provide the expertise and equipment. it manufactured the gear and sold only to affiliates. A Bell setup meant good local service and the very good long-distance service, which was otherwise unavailable in that city.
AT&T (1899–1982)
AT&T was a successor of the original Bell Telephone Company founded by Alexander Graham Bell in 1877. The American Bell Telephone Company formed the American Telephone and Telegraph Company (AT&T) subsidiary in 1885. Its role was long-distance service. In 1899, AT&T became the parent company after the American Bell Telephone Company sold its assets to its subsidiary. After AT&T blocked independents from its long-distance service, and bought control of telegraph monopoly Western Union in 1907, antitrust activists launched an opposition. The Kingsbury Commitment in 1913 was the resulting compromise with the federal government to prevent legal action by the government. In return for the government's agreement not to pursue a case against the company as a monopolist, AT&T agreed to divest the controlling interest it had acquired in the Western Union telegraph company, and to allow non-competing independent telephone companies to interconnect with the AT&T long-distance network.Jodie Griffin, "100th Anniversary of the Kingsbury Commitment", Public Knowledge (December 19, 2013) In 1921, the Willis Graham Act amended Kingsbury to allow the Interstate Commerce Commission to approve AT&T purchases of other telephone companies. AT&T took quick advantage and by 1930, 80% of the nation's telephones were owned by AT&T, and 98% of the remainder connected to its network..Fischer, America Calling p. 51.Brooks, Telephone p. 160.
During most of the 20th century, due to federal agreements, AT&T maintained a monopoly on telephone service in the United States. It was usually the largest company in the U.S. in terms of assets. In 1900, the Bell system plant was valued at $181 million; operating revenue included $32 million from local calls and $12 million from long-distance calls. The net income was $13.4 million. The payroll comprised 37,000 employees. By 1920, assets were $1.4 billion; local revenue was $301 million; long-distance revenue was $142 million; profit was $48 million, and there were 231,000 employees. By 1950, assets had climbed to $10.3 billion; local call revenue was $2.0 billion and toll revenue was $1.2 billion, with a profit of $367 million, and 535,000 employees. Inflation measured by the price index was 24.3 in 1900, 65.4 in 1920, and 80.2 in 1950,Bureau of the Census, Historical Statistics of the United States (1976) series F5, R17–R30, pp. 224, 785–786. For the year 1927, the number of calls in the U.S. was 29 billion, or 5.4 calls per telephone per day.Willey and Rice (1933) p. 199.
Research priority Historian Leonard S. Reich (1985) argues that in the early 1900s, AT&T and other companies established research labs as a defensive measure against competitors threatening their core businesses. Despite AT&T's very large investment in its telephone system, it faced fierce competition from smaller regional firms. To maintain dominance, AT&T concentrated on creating a nationwide telephone system that provided good technology and the widest possible long-distance service. A key invention that would leave the competition far behind, would be a repeater device to allow coast-to-coast telephone transmission. This research became even more pressing when the engineers realized that the device would also be pivotal for radio development, which had the potential to render wired communication obsolete. The vacuum tube was the critical device. AT&T did not invent it but did purchase the patent and then significantly improved it. AT&T continued research to reinforce its existing telephone system. The research philosophy, according to Frank B. Jewett, the research director, centered around science's usefulness in the systematic advancement of electrical communication. The vacuum tube thus played a critical role in the company's success in both telephone and radio industries.Leonard S. Reich, The Making of American Industrial Research. (Cambridge UP, 1985).
Targeting an audience The Bell company manufactured its own telephone gear in the Western Electric subsidiary founded in 1869.Stephen B. Adams and Orville R. Butler, Manufacturing the Future: A History of Western Electric (1999). Large local businesses and upscale customers were the first target, in an era when a dollar a day was good pay for a worker. In one of the first newspaper ads for the new telephone, the Bell Telephone Association stated: "The terms for leasing two telephones for social purposes connecting a dwelling house with any other building will be $20 a year; for business purposes $40 a year, payable semi-annually in advance."J. Warren Stehman, The Financial History of The American Telephone and Telegraph Company (1925) p.7.
Theodore Vail, president of AT&T (1907–1919) and his successors Harry Bates Thayer (1919–1925) and Walter Sherman Gifford (1925–1948) gave heavy emphasis and large budgets to advanced engineering innovation. This was shown by the upgrading of the Western Electric Engineering Department to the Bell Telephone Laboratories in 1925. Research often led to opportunities for increased automation.Louis Galambos, "Theodore N. Vail and the role of innovation in the modern Bell System." Business History Review 66.1 (1992): 95–126. In particular, the proposed dial telephones would sharply reduce payroll expenses. Company executives were worried about the negative effects of depersonalization and the possibility of labor strikes. Vail and his inner circle exhibited great caution and hesitancy in adopting the new Bell dial telephone system. They cited multiple reasons involving societal, cultural, economic, technical, and labor concerns. One key reason was their awareness that telephone users were pleased that the switchboard operators acted as personal assistants, and this supposed role helped increase demand across all segments of the working population.Venus Green, "Goodbye central: Automation and the decline of 'personal service' in the Bell system, 1878–1921" Technology & Culture (1995) 36#4 pp. 912–949.
Initially telephone companies had designed their product with a primary focus on emergency situations and business needs. They ignored its potential for social interaction. Vail recognized the importance of educating the public about the social opportunities created by the telephone. To achieve this, he hired J. D. Ellsworth to create a nationwide advertising campaign. By the 1930s, telephone companies were promoting this aspect of their service with the slogan, "Reach out, reach out and touch someone!".Claude S. Fischer, " 'Touch Someone': The Telephone Industry Discovers Sociability." Technology and Culture 29.1 (1988): 32–61.
Urban public telephones The telephone booth, where one could use a coin to make a call, was introduced in the 1890s by William Gray.Jimmy Stamp, "The Pay Phone's Journey From Patent to Urban Relic". Smithsonian (Sept. 2014) [ online] By 2000 there were 2 million public pay telephones. Only 300,000 pay telephones remained in service by 2014, with the largest concentration in New York City, and they were nearly all gone by 2020.Jen Carlson, "Most of the Last Remaining Pay Phones in NYC Will Be Ripped Out," Gothamist (Feb. 28, 2020) online
Rural telephone service