From the moment Alexander Graham Bell yelled those famous words, "Come here Mr. Watson, I want to see you!", the business of providing telephone service was off and running. Soon after that fateful day of March 10, 1876, Bell and Watson were demonstrating the instrument.
In July of 1877, the Bell Telephone Company was formed by Gardiner Hubbard. The Charles Williams shop made the first telephones under the direction of 
Watson, who in effect was the Research and Development Department of the company. Alexander Graham Bell opted out of the day-to-day managing of the company and traveled to England, staying for over a year. By the end of 1877 there were three thousand telephones in service.
In mid-1878, Hubbard named Theodore Vail, the Superintendent of the Railway Mail Services as the new general manager of the Bell Company. This one decision alone would become lead to the basic foundation of what would become the giant monopoly, the "Bell System." The Bell company had 10,000 phones in service at this time.
| A Side Note
Theodore Vail's roots hail in telegraphy. His father, Alfred, was Samuel F. B. Morse's closest technical collaborator and was on the end of telegraph line in 1844 when Morse signaled those famous words via telegraph "What hath God wrought." |
Vail fought any and all the competition with vigor. Indeed, over the course of twenty years, the Bell Company would fight over 600 lawsuits...and win ALL of them.
Vail also expanded the business from the New England area west to the towns and cities of the United States. Coupled with these new exchanges, he developed long distance service to connect them. Vail left the company in the late 1880s, but returned in the early 1900s to guide the Bell System to even greater successes as a company that provided, "Universal Service" to anyone wanting a telephone.
Although Western Union refused the offer of Hubbard to buy all the rights to the patents in 1876, they now realized their tremendous mistake and in December of 1877, using Elisha Gray's patents set up the American Speaking Telephone Company. This was clearly an infringement on the Bell patents. Western Union had actually commissioned Thomas Edison to help in the venture and he developed a carbon-button transmitter that was superior to the Bell transmitter.
In 1878 a manual switching board was introduced that allowed many phones to be connected through a single exchange. The first switchboard was located in New Haven Connecticut. Interestingly enough, the first switching board operators were teenage boys. With the invention of the switchboard, exchanges opened rapidly across the country. Because of the fierce competition, some cities actually had two telephone exchanges.
| A Side Note
The first operators were boys, who turned out to be impatient and rude when dealing with phone customers. Their rudeness made them extinct within only a few years, replaced by females who were, "calm and gracious." The 1960s saw the return of male operators. |
Knowing Western Union had a better transmitter, Bell introduced a newer, better transmitter than Edison's, with the help of two inventors: Emile Berliner and Francis Blake. In September 1878, the Bell Company filed suit against Western Union. To put this suit in perspective consider that Western Union was a giant. The Bell Company was still a small fledgling company. Against the odds, the Bell Telephone Company won the suit.
An agreement was reached in November of 1879 the Western Union Company
gave up all its patents, claims, network and inventory of 56,000 phones (a Western Union phone at right). In return, they would receive 20% of the rentals over the next seventeen years--the life of the Bell patents. With this victory, a new company was chartered; the American Bell Telephone Company.
The company flourished in the 1880s. In 1881, American Bell purchased controlling interest in the Western Electric Company. This is interesting for two reasons. First, Western Electric Company was Elisha Gray's Electrical Supply Company. In fact, it was originally "Gray and Barton." Second, this is the company that supplied phones to Western Union. In 1882, Western Electric became the sole supplier to the Bell Companies.
Also in the 1880s the first "metallic" circuits were installed. Simply put, this was an upgrade from one-wire to two-wire circuits. The change was due to the tremendous "noise" and interference over the one-wire grounded lines.
An interesting turn of events happened in 1891. A Kansas City Undertaker by the name of Almon Strowger tired of waiting for operators to answer the phone to make connections. So, he invented an "automatic" telephone that "dialed" a number with the push of buttons--early push button phones. He formed the Automatic Electric Company. This was a major development and it happened outside the Bell Companies.
With the Bell patents running out in 1893 and 1894, and the public tiring of Bell's monopolistic behavior, the era of "Independent Telephony" was born. Almost overnight, hundreds of smaller companies built phones and installed systems all over the country. And most all of those systems were in smaller towns and rural communities--areas in which the Bell company had no interest.
As the new century dawned, the Bell company had 800,000 phones in service compared to 600,000 in independent territories. The figures tell a story. With public distrust of the Bell company and the independents aggressively expanding--even into Bell operating territories, the Bell companies were starting to feel the heat. By 1903 and for a time, these independents had more subscribers than Bell.
1927-28 Montgomery Ward Catalogue
Another third and separate advancement was the availability to farmers to build their own telephone plants with their own phones, wires and switchboard. Many of these systems, "cooperatives" were put into service and served these rural customers for years.
Indeed, the new century was going to put a real strain on the Bell companies. But the telephone industry was exploding.
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