The Master Switch: The Rise and Fall of Information Empires - Tim Wu (2010)
Part I. The Rise
Chapter 3. Mr. Vail Is a Big Man
Located in northeastern New Mexico, the Johnson Mesa is a vast grassy plateau, some 8,600 feet above sea level and fifteen miles from the nearest big town. The grass is thick and runs to the horizon, broken only by the occasional barn, weathered and gray, and a single stone church, long abandoned.
On this mesa, in the fall of 1904, a farmer named Edmund Burch was stringing galvanized wire between lines of barbed wire fence. Using little more than the wire and his own hands, Burch, one of a handful of struggling homesteaders, was building an elementary telephone network to connect his farm with those of his mesa neighbors.1
Today, one rarely thinks of wiring one’s own telephone network. But Burch was part of a movement of telephone self-connectors, the telecom DIYers of the first decade of the twentieth century. Bell had no immediate interest in wiring places like the Johnson Mesa, which lay a grueling two-thousand-foot climb from the nearest town. So Burch urged his fellow mesa farmers to forget waiting for Bell and “do it ourselves.” “The farmer with the telephone,” he asserted, “is with the times.”
Burch had been inspired by, among things, a story in Scientific American entitled “A Cheap Telephone System for Farmers”; published in 1900, it told how an Indiana man had connected the farms in his area with nothing but galvanized wire and barbed wire. A no less inspiring piece in Rural New Yorker said, “Build strictly first-class as far as possible, but build your own lines by all means in some way. Use barbed wire only when absolutely necessary.” Burke took its counsel on quality control. By 1904 he had a direct line to two neighbors and was demonstrating to the community that same magic that Mr. Bell had discovered thirty years earlier.2
Before long, Burch had founded the Mesa Telephone Company to wire the entire settlement, and in so doing became one of hundreds of such small telephone companies springing up across the nation under such names as the Swedish-American Telephone Company, the Home Telephone Company, or the People’s Telephone Company.3 His fellows in the cause styled themselves “the Independents.” They were, by their own description, “an uprising of the people,” a social movement dedicated to “American Industrial Independence.”4
Though a very small group, the Independents would mount the first great challenge to the First Bell Monopoly. After the expiration of Bell’s patent in 1894, hundreds of independent firms had cropped up to provide telephone service. The age of the Independents was the “open” phase in American telephony, characterized by a vision very different from Bell’s. While now forgotten or unknown to most, that vision would profoundly change how Americans communicated.
In contrast to the Independents’ clientele, that of the First Bell Monopoly consisted of businesses and rich individuals living in large East Coast cities; Bell was in no hurry to broaden the coverage of its network. In fact, Bell’s business model was altogether too stagnant for Theodore Vail’s taste. Like the Independents, Vail could sense the potential power of a national network, but if he yearned for industrial greatness, Bell’s shareholders were monotonously interested in dividends alone. That conflict came to a head in 1887 after Bell, rather than plowing profits into expansion, announced a particularly fat dividend. Writing that his position at the company had become “embarrassing and unpleasant,” a dispirited Vail retired to South America in search of adventure.5
The Independents, rooted in the farms and small towns of the West, were innovators, but of a conceptual kind, not the technical kind à la Alexander Bell. They saw a different world, in which the telephone was made cheaper and more common, a tool of mass communications, and an aid in daily life. They intuited that the telephone’s paramount value was not as a better version of the telegraph or a more efficient means of commerce, but as the first social technology. As one farmer captured it in 1904, “With a telephone in the house comes a new companionship, new life, new possibilities, new relationships, and attachments for the old farm by both old and young.”6
Typically, the rural telephone systems were giant party lines, allowing a whole community to chat with or listen to one another. Obviously there was no privacy, but there were benefits to communal telephony other than secure person-to-person communications. Farmers would use the telephone lines to carry their own musical performances. The historian Ronald Kline has described the telephone parties that were all the rage in some areas, with groups assembling to hear, as it were, a phoned-in concert. “The opening of the new telephone line at Ten Mile,” reported the Macon Democrat, a Missouri newspaper in 1904, “was celebrated with gramophone, violin, banjo, french harp, guitar and organ Friday night.”7
And so, while the Bell Company may have invented the telephone, it clearly didn’t perceive the full spectrum of its uses. This is such a common affliction that we might name it “founder’s myopia.” Again and again in the development of technology, full appreciation of an invention’s potential importance falls to others—not necessarily technical geniuses themselves—who develop it in ways that the inventor never dreamed of. The phenomenon is hardly mystical: the inventor, after all, is but one person, with his own blind spots, while there are millions, if not billions, of others with eyes to see new uses that had been right under the inventor’s nose. We shall see the story repeated throughout this book. For now, suffice it to say that it was simple farmers in the early 1900s who pioneered the use of the phone line for broadcasting long before the rise of radio broadcasting in the 1920s. Burch’s Mesa Telephone Company offered its customers daily broadcasts of weather, train wrecks, and murders, the interval of programming announced by ten short rings. As Kline writes, “Every evening at a designated time, usually seven p.m., an operator would call all farms on a line and give the time, weather and market reports, newspaper headlines and local news, ‘with a spicing of gossip.’ ”
• • •
In the theory of competition that applies to information industries, as to all others, we speak of barriers to entry: the obstacles that a newcomer must overcome to get into the game. But barriers in an information industry, trafficking as it does in expressive content, can represent more than a restraint on commercial aspirations; they can, depending on how crucially the information medium figures in a society’s communications, also restrain free speech. If we want to define how “open” any industry is, we should start with a number: the cost of entry. By this we simply mean the monetary cost of getting into the business with a reasonable shot at reaching customers. Is it in the neighborhood of $100? $10,000? Or more like $1 billion? Whatever the magnitude, that number, most definitively, is what determines whether an industry is open or closed.
In the first decade of the twenty-first century, for instance, if you wanted to start a competitive mobile phone service, to take on AT&T, Verizon, and the rest, the price of entry—for a spectrum license, towers, and other necessities—was somewhere north of $10 billion. It’s not the sort of expense most of us would take on in the pursuit of a hobby. Entry costs of such magnitude are not atypical. Thus, for most of the twentieth and twenty-first centuries, the phone market has been effectively closed. Starting a completely new phone service based on new wires was financially infeasible, as the costs of entry were enough to daunt even the most deep-pocketed firms, let alone rural cooperatives.
But for a brief time in the 1890s, all this was different. While we don’t know exact present-value costs, they were low enough that farmers like Edmund Burch, as well as small-town entrepreneurs and rural cooperatives, could effectively compete with Bell. In this way, many towns ended up with two telephone systems, during what we call the “dual service” era.
Why was market entry cheaper? To begin with, telephony was at the time a decidedly low-tech affair, as evident from Burch’s reliance on simple galvanized wire. In cities, you could generally just run wire aloft on poles, avoiding the costs of burrowing to reach homes. And in the countryside, it was even simpler: farmers like Burch in New Mexico could nail wires to farm fences, creating what they called “squirrel lines,” and attach phones at the ends. It was telephony in the Green Acres style. These simple logistics, taken together with the absence of licensing costs, made things easy for motivated self-starters.
The economics of switching also made it possible for independent phone systems to compete with Bell. In today’s automated world, the larger the network, the better it is, because you can reach more people in more places. But when human operators (“What number, please?”—the “telephone girls” to whom we shall return in another chapter) were needed to physically connect one phone line to another, a larger network meant a slower switching system, prone to bottlenecks and breakdowns. That weakness allowed the Independents room to start with just a few customers. In some places Bell had never even offered phone service, allowing the Independents the advantage of being first to market.
Bell’s initial response to the Independents was simply to ignore or dismiss them. The trade journal Telephony reprinted stories of farmer telephones in its humor section, an attitude Bell could afford to share as long as the farmer lines and the Independents operated in communities Bell didn’t want to serve. But as the Independents built more lines, and formed their own associations, they gradually grew to threaten Bell’s control over the American telephone, until, by the turn of the century, the Bell companies undertook a campaign against forces they now called “the Opposition.” It would be a rough campaign by any standard of industrial warfare. AT&T as a matter of course refused to make any connections between the Bell system and the Independents, but it would go much further to protect its monopoly. Relying on its profits in stronger markets, Bell would dramatically undercut the rates of local independent telephone companies in any contested area, a tactic known as predatory pricing. Sabotage of equipment was not unheard of, and it was practiced by both sides. Paul Latzke, a supporter of the Independents, wrote, “there has been wholesale bribery, systematic wrecking, and, at times, violence, almost anarchy.”8 According to one account, Bell would rip out wires and phones, and “in truly medieval fashion, pile the instruments in the street and burn them, as a horrible example for the future.”* 9
With a tendency toward moralizing bombast, the Independents complained to anyone who would listen. As one Independent wrote in Sound Waves, a “monthly magazine devoted to the interests of independent Telephony,” “those who have watched the peculiar and heathen ways of the Bell monopoly know that it is, without doubt or question, the most conscienceless organization in the United States, compared to which the gigantic Standard Oil trust is a mere kindergarten of devious financial and industrial devices.”10
However “devious,” the Bell strategy was ultimately ineffective. No amount of unwiring could alter the fact that the Independents were meeting a demand for cheaper telephone service. By the early 1900s, Bell’s dominance was beginning to erode, the company soon to be pinned like Gulliver by hundreds of Lilliputians. As the Independents grew profitable and more secure, even their rhetoric brightened with a new confidence: “The days of prosperity of the Bell companies are gone, never to return. The public has learned to appreciate good telephone service and courteous treatment, and will not again submit to the extortions and antiquated methods of the Boston trust.”11 By 1907, Paul Latzke would publish a small book called A Fight with an Octopus, in which he revealed the Independents had 3 million phones to Bell’s 2.5 million, and total dominance in the West. Latzke further predicted that the “final battle” would take place in New York City: “The Bell people have made Manhattan Island their Gibraltar. Its defense will be a spectacle well worth watching … the greatest industrial battle of the age.”12
FROM REPUBLIC TO EMPIRE
Sometime in the early 1900s, Vail, then living in Buenos Aires, was invited to Jekyll Island, South Carolina, to play cards with a man known to him only by reputation. During his visit, or shortly afterward, the man told Vail of a plan, then secret. He and a group of other financiers aimed to gain control of the Bell company, wishing not only to reestablish its former dominance but to build the greatest wire monopoly the world had ever seen. And he wanted Vail in charge. Vail knew that this man was to be taken seriously—for this seasonal resident of Jekyll Island was none other than J. P. Morgan, one of the greatest monopolists of that era or any other.13
In 1907, after gaining Vail’s assent, Morgan set his plan in motion. In a lightning-fast series of financial maneuvers, he took control of Bell, forcing out the Boston owners. Vail’s title would be president of American Telephone and Telegraph (AT&T), now the holding company for the entire Bell system. Rather like Steve Jobs’s storied coming back to Apple, Vail’s return to Bell, at age sixty-two, would change everything.
With Vail again in place, there began a great transition in telephony from an open, competitive phase to the Second Bell Monopoly, Bell’s true imperial age of dominance in wire communications, which would last for most of the twentieth century. It was during this transition that the orthodoxy of centralized power in communications took its mature form. In exile, Vail had never ceased nursing dreams of empire, but now with Morgan’s undreamed-of support, he was free to think big, even by his own outsized standards. The new slogan he was able to announce upon his arrival said it all:
ONE SYSTEM, ONE POLICY, UNIVERSAL SERVICE
The terminology is important to understand: it meant “unrivaled,” not “for all.” This was not “universal” as in, say, universal health care, but more nearly in the sense of the universal church. It was, as the historian Milton Mueller explains, universal service as an alternative to options, and as such it was a call for the elimination of all heretical hookups and the grand unification of telephony.14
To Vail and Morgan, building redundant phone lines between any two points was as senselessly wasteful as building twenty duplicate rail tracks between two cities, as sometimes happened in the nineteenth century. Why have twenty lines of varying standards where there could instead be one track of highest quality? They also accepted the other lesson of the railroads: without a single master, systemic chaos would undercut efficiency. Vail thought the “opposition” phone companies would stoop to any cut rate, and cut-rate service, just to be in the game. Using the formidable capacity of the Morgans to absorb loss, he undercut the price cutters.15
Vail’s philosophy is well expounded in AT&T’s annual reports, spirited and personal meditations on both AT&T and the responsibilities of a powerful public corporation. It was in these early years that Vail created what would remain the Bell ideology until the system’s twentieth-century breakup. And interestingly, Vail had much ideological affinity with his foes, the Independents. He saw the merits in an ever expanding system, and he truly believed in the telephone as a “public utility” ultimately meant to serve every American. His reports, though obviously intended for general consumption beyond the ranks of shareholders, do nevertheless portray an earnest and sincere vision of the public good. Where he disagreed with the Independents was simply over the fact of their existence.16
As for J. P. Morgan, he was a mostly silent partner, and his name only rarely shows up in histories of the telephone. Yet Morgan’s financing was absolutely crucial to the realization of Vail’s vision and Bell’s resurrection as a monopoly. Whether Morgan shared any of Vail’s sentiments about the public duties of a corporation we cannot know. But he certainly concurred in his enthusiasm for monopoly as the optimal business model. Indeed, as we shall see over and over again, the shift from an open industrial phase to a closed market usually begins when capital interests spy the potential for vastly increased profit through monopoly, or when they demand greater security for their investments. Vail’s access to Morgan’s capital made his vision of the Bell system possible, but it also came with significant strings attached.
In 1909, at Morgan’s direction and using his money, Vail seized a controlling interest in Western Union, Bell’s childhood tormentor, making himself president of both. AT&T now controlled all instantaneous long distance communications in the United States. As the so-called long lines—those connecting one locality with another—were the scarcest part of the communications infrastructure at the time, to possess them exclusively was the greatest power. A combined AT&T and Western Union now shared customers, offices, and operations, creating a true monopoly in distance communications.17
With the support of Morgan, Vail began to take a softer line against the Independents, who were local. Where the old Bell had followed a scorched-earth policy, Vail now sought integration and consolidation. Former rivals were invited not to die but to join him—to rule over communications together, we might say, as father and son.
Part of Bell’s new strategy was to abandon a tactic that had done so much in the 1890s to decimate the Independents: refusal of network connection. Vail’s approach was now more subtle and complex: he used connectivity as a carrot rather than a stick; and it proved, together with merger and acquisition, an irresistible way to dominate the market. The story holds a powerful lesson for any independent business facing a much superior foe, a lesson as important in the 2010s as in the 1910s.
Vail’s agreements offered the Independents membership in the Bell system, but they required the adoption of Bell’s standards and Bell’s equipment and imposed special fees for use of Bell’s long distance lines, though with no promise of connecting a call to any non-Bell subscriber.18 Vail’s offers were, then, essentially the ultimatums that Genghis Khan made famous: join the network and share the wealth, or face annihilation. But Vail needn’t have looked so far back for a role model; in his own time, John D. Rockefeller had pioneered the “purchase or perish” model to build Standard Oil.
The Independents tried to warn one another off the connection agreements with Bell. As one wrote in a bulletin: “You cannot serve two masters. You must choose between the people and a greedy corporation.”19 But even the relatively strong found resistance unsustainable and were forced to join. As for the relatively weak, they might simply be bought outright, sometimes through agents of Morgan who kept secret their affiliation with Bell. In 1911, Edmund Burch’s Mesa Telephone Company was one of those to give up and sell out to the Bell company. What happened to Burch himself is a mystery, but his lines, and the mesa itself, were abandoned by the 1920s.20
Did the Independents ever have a chance? Not without their own long distance network. Without long lines the Independents were limited in what, ultimately, they could offer the customer. It was the AT&T long lines that connected Bell telephones, and they made the difference between a national network and a neighborhood of virtual cans and strings.
The Independents weren’t stupid. There were some Independent long distance companies, though none individually or in any simple combination formed a network with the reach of AT&T’s long lines. There were also efforts to build alternative nationwide long distance networks as early as 1899. That year, a group of financiers from Philadelphia known as the “Traction Kings” allied with others to form the “Telephone, Telegraph, and Cable Company of America.” It announced that “the main object of this company will be the extension and perfection of long distance telephone service throughout the country, and in a secondary way the lessening of the rates.”21
Here were the progenitors of MCI and Sprint, and the beginnings of long distance competition. Unfortunately, before it had even gotten under way, all the backers suddenly pulled out for reasons that remain mysterious. According to an FCC investigator’s report decades later, in 1936, the pressure on the Traction Kings had come from J. P. Morgan himself, whose designs on a telephone monopoly were by then already formed. Indeed, as the FCC documented, no rival national long distance network could get financing in the United States or abroad. And so, in the absence of capacity, coordination, and cash, no real challenger to AT&T long lines would appear until the 1970s, some sixty years later. That was J. P. Morgan’s lasting legacy.
Even putting aside the Morgan factor, however, Vail’s strategy shows how selective openness can be even more treacherous for would-be competitors to navigate than a completely closed system. The option of being invited to dinner very effectively softens the fear of becoming dinner. It is the same logic Microsoft would follow in the 1990s, when its Windows operating system was similarly run as a partially open system. Like AT&T, Microsoft invited its enemies to connect, to take advantage of an open platform, hoping they wouldn’t notice or worry that the platform came with a spring trap. For as with Bell, once having made one’s bargain with Microsoft, there was no going back.
With “One Company, One System,” Vail made explicit his vision of a communications monopoly. It cannot, however, have pleased Bell’s attorneys to labor under a slogan expressing clear intent to flout the antitrust laws.
In the 1910s, laws such as the Sherman Act, the broadest antitrust statute, were still fairly recent efforts to contain the trusts that had grown to dominate American industries such as oil, steel, and the railroads. The law prohibited “agreements in restraint of trade” and punished a monopolist who abused its power. The Roosevelt and Taft administrations had made clear the bite of these laws in the early 1900s, culminating in the Justice Department’s 1909 prosecution of Standard Oil and John D. Rockefeller for acts not so different from Bell’s campaign against the Independents. The ensuing verdict would break Standard Oil into thirty-five pieces.
It was the year before that verdict when Taft administration officials came knocking, to begin what must by then have seemed the inevitable investigation and lawsuit against AT&T over its consolidation of the telephone industry. But from AT&T’s first meeting with Justice, we see for the first time something that will occur again and again in the history of communications, the state’s calculated exercise of discretion over whether to bless or destroy the monopoly power, deciding in effect what industry it will allow to be dominated. Theodore Vail will prove himself a high priest at winning the blessing of the state for monopoly dominance.
The threat posed by the Justice Department’s case was hardly trivial. Just as Bell came under investigation, Thomas Edison’s movie trust (the subject of a later chapter) was also under federal attack and would be dissolved in 1915. There was every reason to think the same would happen to the Bell system. But also at that very moment, Vail executed his most ingenious and surprising maneuver.
In a manner nearly unimaginable today, Vail turned to the government, agreed to restrain himself, and asked to be regulated. Bell agreed to operate pursuant to government-set rates, asking in exchange only that any price regulations be “just and fair.” Imagine Microsoft in the 1990s asking the states and the Clinton Justice Department to determine the price of installing Windows, or Google today requesting federal guidelines for its search engine. Having spun much rhetoric about Bell as a public trust, Vail now seemed to be putting his money where his mouth was.
With this conciliatory if not quite prostrate attitude, AT&T was able to settle the lawsuit in 1913, acceding to a consent decree named the “Kingsbury Commitment” after Bell’s vice president. Under the settlement, Bell made one big concession: it agreed to sell Western Union. It also agreed to permit Independents to retain their independence while enjoying access to its long distance services, and to refrain from acquiring further Independents in over one thousand markets.22
While the Independents may have regarded the Kingsbury Commitment as salvation—a “gift from Santa Claus Bell,” in the words of one—the deal was not, in fact, all it may initially have seemed. True, by divesting itself of Western Union, Bell was giving up the dream of a complete monopoly over wire communications, but actually the telegraph was fast becoming a dinosaur anyway. True, Independents suddenly could hook up with Bell’s long distance lines, but there is little evidence that many of them actually did. Superficially a victory for openness and competition, in time the Kingsbury Commitment would prove the insidious death knell of both.
The trick of the Kingsbury Commitment was to make relatively painless concessions that preempted more severe actions, just as an inoculation confers immunity by a exposing one’s system to a much less virulent form of the pathogen. By offering to renounce hegemony in a dying industry and make available a service relatively few could still exploit, Bell spared itself the brunt—and the one truly meaningful remedy—of most antitrust proceedings: a breakup of the firm. With the government satisfied, and even Woodrow Wilson hailing it as an act of business statesmanship, Kingsbury’s greatest achievement was to free Bell to consolidate the industry unmolested.23
The jujitsu of Vail’s anti-antitrust strategy of the 1910s remains an apt lesson to any aspiring monopolist. The key was earnest profession of a good no one could dispute: making America the best-connected nation on earth by bringing the wonder of the telephone into every American home. Appropriating the most appealing rhetoric of the Independents, and arguing persuasively that the Bell system could get the job done more effectively, Vail turned his monopoly into a patriotic cause.
There is a long-running debate in the field of antitrust theory as to what should matter when judging the conduct of a monopolist. Robert Bork, the onetime federal judge and notoriously rejected Supreme Court candidate, is famous for arguing that the corporation’s intent, whether malign or beneficent, should be irrelevant.24 Yet as Bork himself knew, for most of the history of antitrust, attitude is everything, even if market efficiencies are supposed to matter most.
This was something Vail seemed to understand intuitively: that antitrust, perhaps all law, is ultimately pliable by perceptions of right and wrong, good and evil. He understood that the public and government would rise up against unfairness and greed, though not necessarily against size in and of itself. Had Goliath not cursed David by his gods, David might have kept his sling in his pocket. Vail heralded AT&T as the coming of enlightened monopoly, a public utility of the future. He promised to do no evil. And the government bought it.
TO BE A COMMON CARRIER AND FRIEND OF THE STATE
From his handling of Bell’s antitrust problems emerges a central tenet of Vail’s thinking: the enlightened monopoly should do good as it does well, serving the public in close cooperation with the state. Vail’s view of his firm as the handmaid of government, the telephone as a public utility, is at once the most sympathetic and scariest element of his vision. Vail saw no harm in, and indeed believed in, giants, so long as they be friendly giants. He believed power should be beneficently concentrated, and that with great power came great responsibility.
Vail’s most meaningful concession—in principle if not in practice—was agreeing to serve as a common carrier.* That pledge, in contrast to Western Union’s original modus operandi, meant that Bell would refrain from picking winners in other sectors of the economy or public life—any area that privileged access to the growing reach of communications could influence. Despite being a monopoly, Bell was committing itself to noninterference and making itself equally open to all users of its service—that is, universal in the sense its initial claim of being universal had belied.† This is the essence of common carriage, a concept that may seem esoteric, but is as fundamental to free communications over wires and frequencies as the First Amendment is to free expression. The phrase itself is old, dating to fifteenth-century England and born of the need to reconcile the fact that in England, private entities were running what in most countries were public functions, such as roads, ferries, and so on.
Bell’s dedication to common carriage was a promise to serve any customer willing to pay, charge fixed rates, and carry his or her traffic without discrimination. It made Bell’s telephone service offer rather what a taxi service is meant to provide in most cities—a meaningful similarity, since the concept has its origins in transport.
At the heart of common carriage is the idea that certain businesses are either so intimately connected, even essential, to the public good, or so inherently powerful—imagine the water or electric utilities—that they must be compelled to conduct their affairs in a nondiscriminatory way. As a simple example, if a man operates the only ferry over to town, that simple boatman is in a position of great power over other sectors of the economy, even the sovereign authorities. If, for example, he decided to charge one butcher more than another to carry his goods, this operator could bankrupt the one who didn’t enjoy his favor. The boatman is thus deemed to bear responsibilities beyond those of most ordinary businesses.
The big question—now often the multi-billion-dollar question—is how to decide, as a matter of policy, what businesses should be considered common carriers with special duties to the public (as Bell positioned itself), which companies should be run by government (as the Post Office has been since Franklin founded it), and which should be “ordinary services” left mostly to forces of the free market.* In the Anglo-American common law tradition, one asks how essential or necessary the service is—how much other industries depend on it. Those industries that supply the means of trade in information, goods, or cash are more obviously vital even than, say, a country’s sole producer of sugar.
Practically, this focus has led to four basic industries being identified as “public callings”: telecommunications, banking, energy, and transportation. Each plays a certain essential role in the workings of the nation and the economy, and thus these are the industries that have attracted regulation as common carriers, or infrastructure.
Vail himself offers as apt a description as anyone of the common law orthodoxy:
For the protection of the community, of individual life and health, there are some necessities that should be provided for all at the expense of all, such as roads, pure water, and sanitary systems for concentrated population, and reasonably comprehensive mail service. The determination between services that should be operated by the government and those which should be left to private enterprise under proper control should be governed by the degree of necessity to the community as a whole as distinct from personal or individual advantage.25
So if we regard the Kingsbury Commitment as having sanctioned the most lucrative monopoly in history, it also made good on the essential goals of common carriage. Bell did, eventually, wire every home in the United States, and it provided decades of reliable service. But it should also be obvious to anyone—one need by no means be a raving libertarian—that there are some substantial dangers implicit in aligning the immense power of the state with the greatest of information monopolists.*
Vail died in 1920 at age seventy-four, shortly after resigning as AT&T’s president, but by that time his life’s work was done. The Bell system had uncontested domination of American telephony, and long distance communication was unified according to his vision. In 1921, Congress passed the Graham Act, recognizing AT&T’s monopoly and removing any remaining obstacles to integration. The idea of an open, competitive system had lost out to AT&T’s conception of an enlightened, licensed, and regulated monopoly. In this form, AT&T would remain in charge until the 1980s, and in not substantially different form it would return in the new millennium. As Milton Mueller writes, Vail had completed the “political and ideological victory of the regulated monopoly paradigm, advanced under the banner of universal service.”26 Vail’s biographer adds, “the great work he created remains, never to come to an end so long as men buy and sell in the market place and social life endures.”
What to make of Vail’s legacy? Outside official Bell histories, Vail remains a controversial figure for being such a staunch and vocal monopolist. A man who takes a highly diverse and competitive industry and eradicates all competitors is an unlikely hero beyond his own company. Even among the hardest of the hard-grabbing moguls, he has few peers. And so the temptation to paint him as a villain is strong.
Yet if there is ever a logic and a benefit to dictatorship, industrial or otherwise, the verdict on the particular regime must, as Plato suggested, inevitably depend on how one holds dominion. In this way the implacable megalomaniac Vail might well be redeemed by his sense of great power’s great responsibilities and his avowed dedication to the public good, to which he always gave far more than lip service. He never pretended that Bell had no choice in how the business was run; he simply insisted that the non-free-market arrangement yielded higher dividends for all. He accepted the duties of common carriage, as well as regulated prices, but in return for monopoly’s security and peace of mind. Proportionately, he probably delivered less profit for shareholders than Wall Street might expect today. Vail was acutely aware of how important the telephone network would be to the nation, and there is no evidence that he ever put AT&T’s profitability ahead of its obligation to serve. He presents us therefore with a challenging figure: an unabashed monopolist, but a benign one, who lived up to his own ideals of enlightened despotism. The fault in this arrangement therefore lay not so much with Theodore Vail as with the men who would succeed him.
* There is a difference between creative destruction and merely destructive destruction.
* Technically, Congress declared telephony and the telegraph a common carrier in the Mann Elkins Act of 1910. But more important was Vail’s embrace of the role.
† The alternative phrase for a common carrier is a “public calling,” and the latter may capture more of the original meaning.
* Opponents of regulation in the twentieth century pushed the idea that only true monopolies ought to be considered public callings or common carriers. On the other hand, in the original English view, an industry need not be monopolized to be essential.
* The technical term for such a system is “corporatism”; in its extreme manifestations it is called “facism.”