The Secret History of the Telephone Network

The public utility model of telecommunications was not as inevitable as it seems today.

The People's Network: The Political Economy of the Telephone in the Gilded Age, by Robert MacDougall, University of Pennsylvania Press, 344 pages, $55

Since the early days of the telegraph, North America has seen titanic struggles to define the government's role in telecommunications. The major players in these battles have been policy makers, progressives, and corporations, and the results, for the most part, have been a sort of mutually beneficial collusion. Progressives got universal service and regulation, corporations got government-backed monopolies and other privileges, and policy makers got another lever of power to pull.

In The People's Network: The Political Economy of the Telephone in the Gilded Age, the Western University historian Robert MacDougall provides a detailed history of how this regulatory-industrial complex took different forms in the United States and Canada from the earliest days of telephone networks in the 1870s to the eventual consolidation of national networks in the 1910s and 1920s.

After the telephone was patented in 1876, the Bell Telephone Company licensed the technology to tiny, local-only exchanges-the first phone directory contained just a few individuals and a few dozen listings-which were later interconnected (and eventually owned) by the American Telephone & Telegraph Company, a Bell subsidiary. From the beginning, the embryonic industry was criticized by people who worried that the telephone system would undermine local autonomy and expose seemingly stable communities to the increasing volatility of the interconnected world around them. Many of the populists who fought against the emerging American Bell system, MacDougall writes, "were hardly the proletariat. Yet they…wrapped their complaints about service and rates in the garb of democratic resistance to monopoly."

These anti-Bell activists advocated "an alternative capitalist order, one more open to cooperative and state-based enterprise." They were joined by smaller competitors, independent telephone operators, and cooperatives that arose throughout the country, frequently in cahoots with municipal authorities attempting to preserve local control over the telephone system.

Such control was sometimes regulatory, sometimes financial, and often both. Across the country, MacDougall writes, local governments "seized what powers they did have—sovereignty over their own streets, sidewalks, and skies—and leveraged those for every advantage they could exact."

In 1890, for example, Muncie, Indiana, "passed a 'civic beautification' law that ordered the removal of all telephone poles" from a downtown area where, it so conveniently happened, the local Central Union switching office was located. The Muncie City Council backed down only when the telephone company agreed "to supply free telephone service to the mayor, the fire chief, and every schoolhouse in the city." As MacDougall wryly notes, "Consumer protection and municipal graft, went hand in hand."

Industry learned to play this crony capitalist game. The history of telecommunications is a long story of progressives and populists demanding "public interest" regulations that produce and protect monopolies, followed by progressive and populist demands for regulations to fix the problems that their earlier regulations created. At each step, activists were coached and coaxed by the political and business interests in question.

In the early days, the telephone system was a patchwork of local networks, some built by the Bell system, others by smaller local companies. In one sense, the struggle between Bell—eventually known as AT&T—and the independents can been seen as a competitive fight for customers, standards, and technologies that eventually died down when the government chose sides. This view is not wrong, but it is incomplete. The early days of telecom can also be seen as a cultural struggle between an interconnected society and a society that wanted to retain sovereignty at the edges.

Many communities and independent telephone providers were wary of "foreign"—that is, out of town—corporations providing their telephone service. Some were even opposed to a telephone network that connected beyond their local community. But with an interconnected society increasingly inevitable, the only question was how a universal, interconnected network would be achieved.

Interconnection and universal service took different paths in the U.S. and in Canada. In the United States, AT&T's Theodore Vail argued that "no aggregation of isolated independent systems not under common control…could give the public the service that the interdependent, intercommunicating, universal system could give." The Kingsbury Commitment, a grand regulatory bargain reached in 1913, was followed by gradual consolidation, hastened by the temporary nationalization of the telephone system during World War I. The U.S. road to interconnection and universal service, in other words, established a regulated national monopoly.

Canada, on the other hand, saw a patchwork but reasonably functioning system of interconnected independents and regional telephone systems. As MacDougall writes, there were "seven major regional systems, each enjoying a monopoly or near monopoly within their own territory, but also interconnecting with dozens of much smaller local systems. And Canada's patchwork network has served for over a century. Its alleged impossibility did not prevent Canada's public and private telephone companies from establishing uniform standards and practices for interconnection." Instead of attempting to create a single public utility system, regulators and providers were able to work out standards for interconnection and price.

The phone monopolies, of both countries' varieties, helped to speed us toward universal service, but they did so at a very great cost. Protection from competition led to high prices and relatively slow innovation. It is no accident that the greatest innovations in telecommunications have come in areas—cable and the Internet—that largely avoided traditional telephone regulation. Nor is it a coincidence that so many telecom policy issues are essentially debates over how to eliminate the lingering effects of past monopolies.

Progressives today are traveling the well-worn policy path of trying to fix old mistakes by making new ones. They demand competition while promoting municipal public utility broadband systems. "Open access creates competition," they claim, never minding that the unbundling requirements that force providers to lease their systems to competitors only create "competition" by turning an existing provider into a de facto monopoly. The goals of the modern net neutrality movement—which in effect seeks to prevent Internet Service Providers from providing anything but lowest-common-denominator service—might as well adopt the same early slogan of monopoly-era AT&T: "One System, One Policy, Universal Service."

The urge to make carriers a public utility or regulate them as such remains deeply embedded in telecommunications policy today. After all, if the telephone networks required the guiding hand of regulators, how could the Internet possibly work without regulations to mandate interconnection, to require settlement-free peering, to set prices, or to dictate which services providers are allowed to offer?

And yet the comparative regulatory anarchy of the Internet does work. We all enjoy a global network of independent systems that interconnect almost entirely through contractual agreements. And yet activists seem determined that, in order to prevent gatekeepers from "destroying the Internet," the Federal Communications Commission must become the gatekeeper of the World Wide Web.

MacDougall's book is a rich trip through some forgotten history. He shows that the telephone network's commercial history was more contentious than the stock narrative pulled from the corporate archives of AT&T and Bell Canada; that its cultural history was inextricably linked to the shift from farm to city; that its political history was forged by opportunistic interests and shortsighted policy makers. And crucially, he reminds us that there was a time when commercial telephone competition thrived, and the public utility monopoly model did not seem inevitable.

But while MacDougall pulls these threads together, he never weaves them into a narrative. "This book is a work of history," he writes, "and I have…tried to avoid drawing direct parallels between the early history of the telephone and our own era of rapid change and innovation in communication technology….But I will not be unhappy if readers make their own connections." I have not been shy about drawing my own connections here, but The People's Network might have been a more accessible book if MacDougall had drawn a few more of his own. At times, his book felt like being shown a series of road signs, not in any particular order, and then being told, "and that is how we got where we are today."

Robert MacDougall is a thorough historian. If you start with some knowledge of telecommunications history and policy, The People's Network can add real depth and insight. But as a starting place for understanding telecommunications, you might just skip to the end, where he asks, "Are there lessons in the history of the telephone for us to learn or use today? I hesitate to suggest that twenty-first-century technologies will or should develop like the telephone in any detailed or determining way….Earlier systems like the railroad, the post, and the telegraph shaped ideas about the telephone [which] obscured original thinking and narrowed possibilities at least as often as they provided useful strategies or ideas."

Whether or not we have learned from the history of the telephone, it is instructive to see how many people are eager to repeat it.