The Great American Information Emperors

How Theodore Vail Built the AT&T Monopoly
Innovation, the Internet, gadgets, and more.
Nov. 7 2010 10:22 PM

The Great American Information Emperors

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Tim Wu's The Master Switch tells the story of how America's information empires—from the AT&T monopoly to today's Internet giants—have been shaped by disruptive inventions, federal intervention, and, above all, a will to power. This week, based in part on excerpts from The Master Switch, Wu will present the stories of five men who disproportionately influenced the shape of the American information industries in the 20th and 21st centuries.

Theodore Vail, the Theodore Roosevelt of the American information industries.
Theodore Vail, the Theodore Roosevelt of the American information industries.

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Theodore Vail is not a familiar figure to most Americans, but his life's work is. Vail built the AT&T monopoly, the greatest and longest-lasting communications monopoly in American history. AT&T ruled the American telephone for nearly seven decades in a close partnership with the federal government. For long periods, it was the largest corporation in the world. The AT&T model centralized all authority in a single monopolist overseen by the government, and (in theory) endowed the corporation with duties to the public beyond that expected of a normal business. In Vail's design of AT&T, we see patterns that would deeply influence every American firm that has sold information or communications services, from the radio and broadcast networks through today's powerful Internet firms.

At the height of his influence in the 1910s, Vail was a man widely seen as the living incarnation of the Bell system. With a large body, intense gaze, white hair, and mustache, he resembled a private-sector version of his role model, Theodore Roosevelt. Like Roosevelt, he coated his imperial instincts with the language of public duty. "We recognize a 'responsibility' and 'accountability' to the public on our part," wrote Vail in 1911, as the voice of AT&T, "which is something different from and something more than the obligation of other public service companies not so closely interwoven with the daily life of the whole community." Serving whatever good, Vail's taste for grandeur was unmistakable. "He could do nothing in a small way," writes his biographer, Albert Paine. "He might start to build a squirrel cage, but it would end by becoming a menagerie." Thomas Edison said of him, simply, "Mr. Vail is a big man."

While new to communications, Vail's ideas for what AT&T should be fit the tenor of his times. He came to power in an era that worshipped size and speed (the Titanic being among the less successful exemplars of this ideal) and in which there prevailed a strong belief in both human perfectibility and the single optimal design of systems. These were the last decades of "Utopia Victoriana," an era of faith in technological planning, scientific management, and social conditioning that had seen the rise of eugenics, Frederick Taylor's "scientific management," socialism, and Darwinism. * And so to believe in man's ability to perfect communications was far from a fantastical notion. In a sense, Vail's extension of social thinking to industry was of a piece with Henry Ford's assembly lines. His vision: a communications empire akin to the British Empire, one on which the sun never set.

It may sound strange to our ears, but Vail, a full-throated capitalist, rejected the idea of "competition." He judged monopoly, when held in the right hands, to be the superior arrangement. "Competition," Vail had written, "means strife, industrial warfare; it means contention; it oftentimes means taking advantage of or resorting to any means that the conscience of the contestants ... will permit." His reasoning was moralistic: Competition was giving American business a bad name. "The vicious acts associated with aggressive competition are responsible for much, if not all, of the present antagonism in the public mind to business, particularly to large business."

Adam Smith, whose vision of capitalism is sacrosanct in the United States, believed that individual selfish motives could produce collective goods for humanity, by the operation of the "invisible hand." But Vail didn't buy it: "In the long run ... the public as a whole has never benefited by destructive competition." Smith's key to efficient markets was Vail's cause of waste. "All costs of aggressive, uncontrolled competition are eventually borne, directly or indirectly, by the public," Vail wrote in one of the Bell telephone system's annual reports. In his heterodox vision of capitalism, shared by men like John Rockefeller, the right corporate titans—monopolists in each industry—could, and should, be trusted to do what was best for the nation. But Vail also ascribed to monopoly value beyond mere efficiency. With the security of monopoly, he believed, the dark side of human nature would shrink, and natural virtue might emerge. He saw a future, free of capitalism's form of Darwinian struggle, in which scientifically organized corporations, run by good men in close cooperation with the government, would serve the public best.

Henry Ford wrote in My Life and Work that his cars were "concrete evidence of the working out of a theory of business." The Bell system was similarly the incarnation of Vail's ideas about communications. AT&T was building a privately held monopoly, yet gave sincere expression of its commitment to the public good. It was building the world's greatest network, yet promised to reach every American with a telephone line. Vail called for "a universal wire system for the electrical transmission of intelligence (written or personal communication), from every one in every place to every one in every other place, a system as universal and as extensive as the highway system of the country which extends from every man's door to every other man's door." As he correctly predicted at a 1916 dinner honoring the achievements of the Bell system, one day, "we will be able to telephone to every part of the world."

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It was not until Vail's 60s that he began to forge AT&T into its monopoly form. In 1907, J.P. Morgan and other New York investors took control of the firm and installed Vail as president. At the time, the firm was struggling and widely seen as falling behind hundreds of "independents" that arose in the 1890s and 1900s to challenge Bell's early monopoly, which had been derived from Alexander Bell's patent. Rather like Steve Jobs coming back to Apple, Vail's return to Bell at age 62 would change everything.

Best phone system.

The new slogan Vail announced upon his arrival said it all:

ONE SYSTEM, ONE POLICY, UNIVERSAL SERVICE

The meaning of the word universal here is important to understand. This was not universal as in, say, universal health care. Rather, it was something more akin to one universal church. It was a plan that called for the elimination of all heretical hookups and the grand unification of telephony.

In 1908, when Vail announced AT&T's new slogan, he faced a grand coalition of hundreds of telephone companies waging a broad-ranging industrial war against the Bell company. Once in charge, Vail's approach to the conquest of his opponents was subtle and complex. He used connectivity as a carrot rather than a stick, a technique that proved, together with merger-and-acquisition, an effective way to seize control of American telephony. 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 approached each independent telephone operator and, in effect, suggested they rule the telephone empire as father and son. He offered the independents membership in the Bell system, but required the adoption of Bell's standards and Bell's equipment. He also imposed fees for use of Bell's long-distance lines, though without making any promise of connecting calls to non-Bell subscribers. Vail's offers were essentially ultimatums of the kind Genghis Khan would have approved: 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.

Excerpt from a book on the battle between Bell (the "octopus") and the independent telephone companies. Click image to expand.
Excerpt from a book on the battle between Bell (the "octopus") and the independent telephone companies.

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." 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 J.P. Morgan who kept secret their affiliation with Bell.

Vail died in 1920 at age 74, 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. The idea of an open, competitive system had lost out to AT&T's conception of an enlightened, licensed, and regulated monopoly. AT&T would remain in this form until the 1980s, and it would return in not so substantially different form in the 2000s. As historian Milton Mueller writes, Vail had completed the "political and ideological victory of the regulated monopoly paradigm, advanced under the banner of universal service." 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."

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Correction, Nov. 12, 2010: This article originally misspelled the first name of engineer Frederick Taylor. (Return to the corrected sentence.)

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