The turn of the century was a tough time for the Bell Companies. Rapid expansion led to poor service and the public was becoming more apathetic with the big monopoly. As service expanded across the country, the company also had a dilemma in that technology could not keep up with the incredible growth.
The independent companies were at the heels of the Bell Companies and something had to change. And it did.
At the turn of the century, recognizing the many public and competitive concerns, the Bell System executives looked to Theodore N. Vail to lead them once more....and he turned them down flat. Vail didn't feel it was a good time to return, so the Bell company brought in Frederick Fish, who although put in a tremendous effort, was exhausted by 1907 and retired.
The company again turned to Vail. This time around Vail was over 60, his wife and son had passed away, and he felt a real need to get back to the job of heading the Bell System. Vail immediately set to work creating his "universal service" theme, hoping to bring a telephone to everyone in the United States. He also consolidated research and development efforts into one plant at Western Electric. This was in effect, the beginning of Bell Laboratories.
| A Side Note
Vail's Chief Engineer, J.J. Carty, axed the "French" phone design (combined transmitter/receiver handset) in 1907 apparently in the name of cost cutting. The style would not become available in the Bell System until the late 1920s. |
Ripe for expansion, the Bell System completed the first coast-to-coast telephone line in 1915 from New York to San Francisco. Vail also used the "wireless" system to begin overseas cable installations, connecting the U.S. to other countries.
A major business disruption occurred in 1918 when the government took over telephone service in the United States. But with Vail's hard work in coaxing governmental officials and working out contracts, he was able to return control to the Bell System within a few short months.
This tremendous work and frequent travel left its toll. Along with his heart and kidney problems Vail's health declined. He passed away in 1920.
The twenties spawned many advancements. Radio was born and the Bell System owned many stations across the country. By the mid-twenties they had bowed out, following a different direction under the leadership of 
Walter S. Gifford. However, they also had major segments of the flourishing "talking" motion picture business and a new contraption called a television (left, Gifford testing an early television system).
Although dial service was available in many independent areas, the Bell System didn't enter the market vigorously until 1921 when it opened its first public dial office in Dallas.
The economic conditions of the twenties allowed for rate reductions across the board and the "French" handset telephone was finally introduced.
Of course, everything was up for grabs when the depression hit. During a two year period in the early 1930s, telephones in service declined by 10% across the nation and Western Electric laid off 85% of its work force. The only thing keeping Western from an almost total lay off was its conversion of manual telephones to dial.
Long distance calls declined about 40%.
The depression passed by the mid-1930s but something else was standing at AT&Ts doorstep: a new arm of the government formed to regulate the telephone business, the Federal Commerce Commission. The first project the FCC undertook was a massive investigation of AT&T. Four years later and at the cost of $2,000,000, the FCC uncovered several issues, but the most important--to them--was that Western Electric was charging too much for equipment.
Luckily--perhaps--two things occurred to take the spotlight off the investigation. First, a massive hurricane hit the east coast knocking out 500,000 phones. Second, World War Two was lingering, taking more and more of the government's attention.
By the end of the 1930s, AT&T had 15 million phones in service and were sitting quite well in the eyes of the public through its heroic efforts in the aftermath of the hurricane.
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