[short series on AT&T inspired by their announcement to buy T-Mobile: Part 1]
In one of those great historical ironies, “Bell” was the inventor of the first practical telephone, so that the “Bell Telephone Company” was named after the inventor and not the ringer. Through a series of business shenanigans that only an MBA could find interesting, the Bell Telephone Company sold its assets to one of its own spin-offs: American Telephone & Telegraph company, AT&T for short. This spin-off had originally been set up to run the long distance lines for Bell Telephone, but now the child ate the parent.
I told you only an MBA would find that interesting.
As any engineer will tell you, the easiest way to ensure compatibility between technologies is to have it all come from one source. There are plenty of examples of this: Edison’s first power systems, IBM’s 360 computer. In the case of AT&T, the focus was the telecommunication system. However, Bell’s original patents expired in 1894 and AT&T needed a reason to prevent competitors from hooking their phones into AT&T’s system. And so, in 1907, under the corporate mantra “One Policy, One System, Universal Service”, AT&T began buying all its competitors.
Now the various phone systems would work together for sure. And AT&T would have a monopoly.
Accidents will happen.
Of course, when only one company is in charge of all national telecommunication operations, it becomes in the nation interest to pay attention to that company! Or least that was the thinking 100 years ago when people felt that government could do valuable things. So it wouldn’t fly if AT&T said directly that they were happy to be a monopoly. Instead they spruced it up with this nice language in 1917:
“A combination of like activities under proper control and regulation, the service to the public would be better, more progressive, efficient, and economical than competitive systems.”
How in the public interest! And not only that: AT&T agreed to become a regulated monopoly. In other words, the government limited what businesses AT&T could not get involved in. Specifically, wireless broadcasting. And, in return, AT&T could charge whatever rates it could get past the government regulators. Specifically, a lot.
What did this bring us? Well, AT&T was in the information business. More precisely, information routing.
What you and I refer to as “making a phone call”.
Switchboard operators (seems always to be women, probably because you could pay them less and the work wasn’t skilled) would literally patch circuits together to connect one phone to another. While this scheme created employment, it also cost a lot of money. So AT&T set up a technology laboratory, Bell Laboratories, to look primarily at the problem of how to move information around efficiently without having to employ all these operators. This was both a hardware problem (you had put all these circuits together and propagate signals over hundreds of miles) and a software problem (you had to figure out which circuits would connect phone A to phone B).
What came out of Bell Labs? Oh, nothing much. Except the transistor, the fundamental circuit element for nearly every single piece of our electronic technology. And an operating system called Unix. Unix is pretty much everywhere today, all of Apple’s current operating systems are based on it and most servers on the Internet run it (or a variation of it like Linux). So between the transistor and Unix, AT&T can lay a good claim on defining our modern technological age. And because AT&T was a regulated monopoly, they had to give away these inventions (resulting in the idea of open source software among other things).
Q: Where did all the money come from to develop this cool stuff?
A: Outrageous prices that AT&T was charging.
Not too long ago getting a long distance call was a big deal. In my family, my father would sit over us with a stop watch and time us as we thanked relatives for our Christmas presents. My brothers and sister would line up at the phone and, like a relay race, pass the baton of the phone receiver to the person behind them so everyone could talk to my grandparents. And while you were waiting for your turn to talk in your leg of the race, you’d hear my dad grumbling in the background: “For 20 cents, you could have mailed a thank you note. Instead you are just burning dollars. Burning dollars!”
Try being a 10-year-old boy feigning excitement to your grandmother about the socks she sent you for Christmas with that going on in your ear. And all the while, your father pointing at the stopwatch.
To this day, the television ads for 60 MINUTES make me shudder.
Long distance calling wasn’t the only way that AT&T made big money. They made it off your phone. Literally. Because they owned it. For real. You had to pay rent on it each month. Like going to the coal mining company store. You thought it was your phone, but it really was AT&T’s. Does this sound familiar? It should. How many cable companies require you to rent the decoder box from them if you want their service? In this way, the captured customer pays many times the actual cost of the box by having to lease it forever without amortization.
In fact, almost every scheme designed to bilk captured customers in telecommunications was first figured out by AT&T.
It’s nice to have a regulated monopoly.
Because telephones weren’t available for direct purchase, a grey market developed around them. Companies going out of business or changing locations would mysteriously lose their telephones as employees would grab them. What would you do with such a phone? You’d string some wires of your own and have “an extension”. This meant not having to run around the house to get to the one phone allotted you by the phone company. Of course, having an extension that wasn’t put in by the phone company was illegal. That’s why my grandfather put his extension in the basement where no guest of the home would find it. It would have made more sense putting it in his bedroom where he really needed it but it was too risky. By putting it in the basement next to the phone box, the extra wires wouldn’t be that long and so little additional resistance and inductance would be detected by the phone company and the secret would stay safe. I’m still not sure what value a bedroom extension placed in the basement had. But my grandfather enjoyed the idea of “beating the phone company”.
Other people did too. Many would try to get information transmitted in a long distance call for free by having a pre-arranged code. Then you’d call the operator, ask to make something labeled a person-to-person call at the number. The operator would then ask for two pieces of information: what was your name and what was the name of the person you were trying to call. And the code was such that the combination of the two names was the info you wished transmitted. So, for example, the operator would dial your long distance number and say something to the person who answered like “I have a person-to-person call from Eric to Nick. Is Nick there?” And my grandmother would know that I was calling to thank her for my Christmas gifts and she would tell the operator, “No, Nick isn’t around now, try again later.” And that was the end of the call. Message sent. Cost to my father: zero.
And it kept the operators employed. And AT&T raised the rates for everyone else.
There were other ways of getting info over long distances for free. John Draper discovered you could use the tone generated by a give-away Cap’n Crunch whistle to fool the phone system into opening up a line thereby allowing you to make a free call. This helped inspire an early generation of hackers who built “blue boxes” to allow them to probe the phone system (and get free calls). Steve Wozniak and Steve Jobs (yes, those guys) were personally shown many phone hacks by Draper.
(Ah. Innocent times. Try hacking Apple code today. Or get a software developer kit from Apple without giving up your right kidney.)
The casual nature of ripping off the phone company stemmed from the two things that have been an AT&T mainstay since its founding: high prices and crummy customer service. You could make any disparaging comment about Ma Bell and no one would disagree with you. Sort of like talking about Nazis. Who’s going to defend a Nazi? You could publicly hate with impunity.
And hate people did. Look at this clip from LAUGH-IN where Lily Tomlin parodies what many people felt were the phone company’s attitudes to its customers:
($23.64 in 1969 – the time of this clip – would be $142.55 today.) As Tomlin’s Operator put it in another sketch:
We don’t care. We don’t have to. We’re the phone company.
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