Contrary to its gentle image of later years, created largely through one of the great public relations machines in corporate history, Ma Bell in its first few decades was close to a public menace—a ruthless, rapacious, grasping “Bell Octopus,” as its enemies would describe it to the press. “The Bell Company has had a monopoly more profitable and more controlling—and more generally hated—than any ever given by any patent,” one phone company lawyer admitted. Jewett came into the business nearly thirty years after Alexander Graham Bell patented the telephone; by that point approximately two million subscribers around the country, mostly in the Northeast, were using AT&T’s phones and services. And yet the company was struggling. Bell’s patents on the telephone had expired in the 1890s, and in the years after the expiration a host of independent phone companies had entered the business and begun signing up subscribers in numbers rivaling AT&T. By then the company’s competitive practices—its unrelenting aggression, its flagrant disregard for ethical boundaries—had already won it a host of enemies. Almost from the day the Bell System was created, when Alexander Graham Bell became engaged in a multiyear litigation with an inventor named Elisha Gray over who actually deserved the patent to the telephone, the Bell company was known to be ferociously litigious. In its later battles with independent phone companies, however, it would often move beyond battles in the courtroom and resort to sabotaging competitors’ phone lines and stealthily taking over their equipment suppliers.

All the while, the company maintained a policy of “noncompliance” with other service providers. This meant that AT&T often refused to carry phone calls from the competition over its intercity long-distance lines. In some metro areas, the practice led to absurd redundancies: Residents or businesses sometimes needed two or even three telephones so they could speak with acquaintances who used different service providers. In the meantime, AT&T did little to inspire loyalty in its customers. Their phone service was riddled with interruptions, poor sound quality, unreliable connections, and the frequent distractions of “crosstalk,” the term engineers used to describe the intrusion of one signal (or one conversation) into another. In rural areas, phone subscribers had to make do with “party lines” that connected a dozen, or several dozen, households to the local operator but could only allow one conversation at a time. Subscribers were not supposed to listen in on their neighbors’ conversations. Often, they did anyway.

AT&T’s savior was Theodore Vail, who became its president in 1907, just a few years after Millikan’s friend Frank Jewett joined the company. In appearance, Vail seemed almost a caricature of a Gilded Age executive: Rotund and jowly, with a white walrus mustache, round spectacles, and a sweep of silver hair, he carried forth a magisterial confidence. But he had in fact begun his career as a lowly telegraph operator. Thoughtfulness was his primary asset; he could see almost any side of an argument. Also, he could both disarm and outfox his detractors. As Vail began overseeing Bell operations, he saw that the costs of competition were making the phone business far less profitable than it had been—so much so, in fact, that Vail issued a frank corporate report in his first year admitting that the company had amassed an “abnormal indebtedness.” If AT&T were to survive, it had to come up with a more effective strategy against its competition while bolstering its public image. One of Vail’s first moves was to temper its aggression in the courts and reconsider its strategy in the field. He fired twelve thousand employees and consolidated the engineering departments (spread out in Chicago and Boston) in the New York office where Frank Jewett then worked. Meanwhile, Vail saw the value of working with smaller phone companies rather than trying to crush them. He decided it was in the long-term interests of AT&T to buy independent phone companies whenever possible. And when it seemed likely a few years later that the government was concerned about this strategy, Vail agreed to stop buying up companies without government permission. He likewise agreed that AT&T would simply charge independent phone companies a fee for carrying long-distance calls.

Vail didn’t do any of this out of altruism. He saw that a possible route to monopoly—or at least a near monopoly, which was what AT&T had always been striving for—could be achieved not through a show of muscle but through an acquiescence to political supervision. Yet his primary argument was an idea. He argued that telephone service had become “necessary to existence.” Moreover, he insisted that the public would be best served by a technologically unified and compatible system— and that it made sense for a single company to be in charge of it. Vail understood that government, or at least many politicians, would argue that phone subscribers must have protections against a monopoly; his company’s expenditures, prices, and profits would thus have to be set by federal and local authorities. As a former political official who years before had modernized the U.S. Post Office to great acclaim, Vail was not hostile toward government. Still, he believed that in return for regulation Ma Bell deserved to find the path cleared for reasonable profits and industry dominance.

Excerpted from ‘The Idea Factory’ – by Jon Gertner, pages 17-19