The Monopoly Issue

The legitimacy of AT&T’s monopoly was an issue that recurred periodically. In 1907, AT&T’s president, Theodore Vail, asserted that service efficiency dictated that telephone services should be controlled by a single provider, with government regulation supplying restraints in lieu of market forces. Many other countries accepted the notion of telephone services as a natural monopoly and created state-owned telephone utilities to prevent the potential abuses that might arise from private ownership. While state ownership did not accord with American free enterprise ideals, concerns about monopolies had resulted in the Sherman Antitrust Act of 1890, which was intended to prevent monopolistic practices. In practice, the Sherman Act was applied only selectively, and AT&T built up its business in the early twentieth century with little opposition.

One acquisition that did attract government scrutiny was AT&T’s purchase of 30 percent of Western Union’s stock in 1909. Threatened with the possibility of antitrust action, AT&T sold off the stock only four years later. Meanwhile, the company was expanding internationally and had Western Electric manufacturing plants in Europe, the Far East, Australasia, and South America. For a short period during World War I, the government took over the running of a number of key industries, including telephone and rail services. In the postwar boom, the government was keen to stimulate the economy and remove restrictions. One consequence of this was the Graham Act, which exempted telephone services from antitrust law. With its national role thus strengthened, AT&T decided to divest itself of its foreign interests, except those in Canada. In 1925, AT&T sold the International Western Electric Company to the new International Telephone and Telegraph Company. Four years later, AT&T became the first American company to reach the $1 billion mark in annual revenues.