Part 2

To meet this responsibility, AT&T is organized to serve the operating companies in matters of engineering and operation, finance, accounting and law, and to assist them in other ways that may help them in conducting their business.

Through AT&T, patent rights covering the results of Bell System research in communications are made available to the operating companies. It is the System’s policy also to make licenses under such patents available to others outside the System on reasonable terms and on a non-exclusive basis.

Among the many AT&T staff services to the telephone companies are those described as “operation and engineering.” These include the entire range of construction, operation, maintenance, methods and practices. The AT&T general staff constantly studies new ideas for improved equipment and practices that may originate anywhere in the System. Promising ideas are developed and tested, usually in collaboration with the Bell Telephone Laboratories. Improvements that result are spread over the whole Bell System.

Besides operation and engineering services, other AT&T groups help the telephone companies devise better business and office routines. Still other groups advise the companies on the most efficient methods in accounting, statistical analyses, public relations and advertising activities, and in all the many other phases of the telephone business.

Out of the savings of the many

One of AT&T’s most important services to the operating telephone companies is financial assistance. This is especially true in periods of rapid growth, like the present. In these times the telephone companies need vast sums of money for equipment and buildings to expand and strengthen the nation’s communications network for defense, and to meet the public demand for telephone service.

The money for improving and expanding telephone service comes from people in all walks of life. It comes from the savings of the many, not the wealth of the few. Most of this money is invested in securities of the AT&T Company, which in turn supplies funds to the operating companies.

By mid-1955 AT&T was owned by about 1,375,000 people. These owners live in all parts of the country, in large cities, small towns and rural areas. They are truly a cross-section of America.

Many AT&T share owners are long-time investors. More than a fourth of them have owned their AT&T stock ten years or more. And over 60 per cent of these have increased their investment during those ten years.

About 351,000 of the shareholdings represent two persons—husbands and wives, mothers and daughters, sisters and brothers—who have invested savings in their joint names.

Besides the direct owners of AT&T, many other people—such as insurance company policy holders and bank customers—help indirectly to finance the business through the AT&T shares held by organizations and trustees. The largest AT&T shareholder is a nation-wide investment firm that holds stock for thousands of customers. Among other institutional holders are some 2,100 churches, 1,100 hospitals and homes, over 1,000 schools and libraries, over 500 foundations and charities.

608,000 WOMEN Average Holding 29 Shares 351,000 JOINT ACCOUNT Average Holding 26 Shares 297,000 MEN Average Holding 38 Shares 51,000 TRUSTEES AND ORGANIZATIONS Average Holding 194 Shares

More than 200,000 Bell System employees own AT&T stock purchased under payroll sayings plans. Many of these, together with other employees, are now buying shares under the current payroll sayings plan.

Such widespread ownership by investors helps make possible the good telephone service you get today.

Ideals and aims

The management of the Bell System recognizes its responsibility to treat fairly _telephone users_, _employees_ and _share owners_. It believes that the interests of these three great groups of people are linked closely together.

Management’s aim and responsibility is to see that telephone users get the most and best possible service. The cost of service must be as low as may be consistent with good wages and working conditions for employees and with a reasonable return for share owners on their investment in the business.

The Bell System believes that the _most and best possible service_ means telephone service for the nation that, so far as possible, is free from imperfections, errors or delays—service that enables anyone, anywhere, to pick up a telephone and talk to anyone else, clearly, quickly, at reasonable cost.

Research Improves Telephone Service

Telephone research began in 1876 in the Boston attic where Alexander Graham Bell carried on his first successful experiments on the “electric speaking telephone.” From Bell’s modest beginning has evolved the Bell Telephone Laboratories of today, where over 9,000 scientists, engineers, technicians and auxiliary personnel constantly seek ways to improve telephone service, widen its usefulness, and keep its cost low.

Some members of the Laboratories are engaged in _basic research_. They explore the physical sciences—physics, mathematics, chemistry—seeking basic knowledge that may contribute to better communications. _Fundamental development_ is the second step in the chain leading toward manufacture and use. In the third step, groups engaged in _systems engineering_ plan how the new knowledge and discoveries of research can be used to create new facilities for telephone service, improve service, or reduce costs. Final step is the specific _development_ and _design_ of new systems or products. This involves the construction of laboratory models, trial models, service tests, and preparations for mass production.

This description is, of course, a highly simplified account of the work of the Laboratories. The broad functions of research and development constantly merge. At all times there must be close co-operation among various groups in the Laboratories, between the Laboratories and the telephone companies, where models are tried out, and between the Laboratories and Western Electric, where products are manufactured.

Here is just one example of the way research and development have extended telephony, improved it, and reduced its cost:

Many years ago, the use of a pair of wires instead of a single, grounded wire greatly improved transmission and made it possible to talk longer distances. This increased the demand for service but also increased the number of wires strung on telephone poles. The large number of wires on towering poles along city streets began to cast shadows of doubt on the prospects for further growth. Compact cables had to be developed and a way found to run them underground. Years of painstaking study and trial accomplished this. Now some exchange cables contain as many as 2,121 pairs of wire.

This cable evolution illustrates the dollar value of telephone research and development. The standard cable of 1888 contained 50 pairs of wires and its installed cost was more than $150 per pair-mile. In 1954, despite rising costs, underground cable cost in the order of $20 per pair-mile in place, and much of it was 2,121-pair.

A few milestones in research

Through the years Bell Laboratories has led progress in communications and electronics. No scientific achievement has had more far-reaching effects on communications than the Laboratories’ work in the development of the vacuum tube. Bell scientists were the first to devise a practical amplifier tube which, placed at intervals in long distance lines, restored the energy of weakening voice currents, making it possible to telephone from coast to coast.

The Laboratories was the first to develop automatic equipment that can “remember” telephone numbers and perform other complicated operations in the central office.

By means of filtering apparatus, developed by the Laboratories, one high frequency “carrier” can carry many speech currents at the same time. Largely because of carrier telephony, the Bell System has been able to reduce greatly the cost of long distance telephone service.

The Laboratories pioneered the development of coaxial cable and microwave radio-relay systems. Both can be used to transmit television programs and hundreds of telephone conversations.

Among the many other achievements of the Laboratories have been important contributions to the design of computers—the amazing electronic machines that can work out problems that might otherwise take months or years of work by mathematicians.

A few years ago, scientists at the Laboratories invented the _transistor_. This is a radically new device, simple in design and tiny in size, that performs most of the functions of the vacuum tube and does other things besides. Its effect on communications technology promises to be revolutionary.

Early in 1954, the Laboratories announced a device that realizes one of the ancient dreams of mankind—the Bell Solar Battery, which converts the sun’s light directly into useful amounts of electricity. Research that led to the transistor led also to the battery—and to a tiny and durable switch that one day may handle the automatic switching of your telephone calls, and other things not yet imagined.

The Laboratories and national defense

The Laboratories makes its services available to the armed forces for work to which it is uniquely suited. It specializes in military communications and those instruments of war that depend heavily on communications and electronics.

In carrying out its military responsibilities, the Laboratories follows the same time-tested pattern that guides its Bell System activities. Its military work grows out of _research_, _fundamental development_, _systems engineering_, and finally specific _development_ and _design_.

Reliability and trouble-free operation throughout long life are objectives of the Laboratories in designing new equipment and products for the Bell System. The same objectives are also very important in designing military equipment. Because of this similarity in the two fields, scientists and engineers in the Laboratories often divide their working days between Bell System and military problems. Personnel moves frequently between the two fields of endeavor. Thus the Laboratories’ long experience in the peacetime science of telephony helps strengthen the nation’s defense—and discoveries that grow out of military preparedness help strengthen and improve the nations telephone system.

Service of Manufacture and Supply

The manufacture of reliable, standardized telephone apparatus is a major responsibility of another Bell System unit, the Western Electric Company. It supplies to the operating companies telephone equipment of high quality at reasonable prices.

Western Electric also buys for the operating telephone companies supplies that it does not itself produce. Since large quantities are required, this arrangement results in important economies.

Western Electric speeds delivery to the telephone companies of the right equipment and materials, and the right time, from stocks maintained in distributing houses from coast to coast.

Also, specially trained western Electric forces install for the Bell companies most of the complicated central office equipment required to connect all parts of the telephone system.

Experience has proved the great value of centering these responsibilities in an organization that works as a unit of the System toward the same goals as the telephone companies—a service steadily improving and increasing in value to more and more people.

Evolution of an Industry

In the first few years after the telephone was invented, six different manufacturers made telephone apparatus for the Bell companies. Each produced equipment of different design and quality. It quickly became apparent that progress depended upon standardized equipment of the best possible quality.

In 1882, the Bell System purchased the Western Electric Manufacturing Company. This company had grown out of a partnership formed in 1869 by Enos M. Barton and Elisha Gray. It had specialized at first in telegraph and then in telephone equipment. Ownership of Western Electric gave the System assurance of standardized equipment of high quality, reasonable prices, and a dependable source of supply.

Growing with the System, Western Electric became an enterprise of national stature. Its manufacturing operations are principally in Chicago, Ill., Kearny, N. J., Baltimore, Md., Allentown, Pa., Tonawanda, N. Y., Indianapolis, Ind., and Winston-Salem, N. C.

In the years since World War II the company’s manufacturing facilities have undergone an almost continuous modernization and expansion. In addition to building a number of new factories, the company has rented or purchased other plants to obtain the manufacturing space required for the dual job of furnishing equipment needed by the armed forces and continuing to meet the requirements of the Bell System.

A complex manufacturing job

As manufacturing unit of the Bell System, Western Electric must be ready at all times to produce over 200,000 different kinds of apparatus and component parts for telephone equipment. Each year, about 70,000 of these are required and manufactured. The quantity of each item produced varies from one to many millions. Mass production methods are used wherever possible, but the items required in large quantities are very much in the minority. In a recent year, less than one per cent of the products manufactured were made in quantities of over 100,000. About 30 per cent were made in quantities of less than 10.

Because telephone equipment must be tailor-made—much of it in small quantities—it is necessary for the manufacturing and supply unit to have intimate knowledge of Bell System plant everywhere. And since telephone plant must give trouble-free service 24 hours a day, telephone equipment must be of the highest quality and built to exact, uniform standards. Experience has proved that the design, manufacture and operation of standard telephone equipment can be accomplished best when the designers, the makers, and the operating people work closely together on the same team.

Supplies—when and where needed

Western Electric’s purchasing people constantly study world markets, prices and potential sources of raw materials and finished products. They work closely with suppliers that provide equipment and supplies that Western itself does not make, so that these will meet the Bell System’s high standards. Western also helps them develop better production methods.

In a recent year Western Electric purchased from 28,000 large and small suppliers located in over 3,000 towns and cities in all the 48 states. Purchases included, in addition to all kinds of raw materials, finished products ranging from pencils and pen points to automobiles and telephone poles.

Western Electric operates 29 distributing houses through which materials flow to the Bell companies. Each house is set up to meet the supplies requirements of the telephone company it serves. It works closely with the telephone organization to deliver the goods promptly and efficiently. Each distributing house maintains a repair shop to recondition service-worn telephone apparatus so that it will give good service again, or, if not economical to repair, to dismantle it for salvage. In a recent year the repair shops reconditioned over $155,000,000 worth of used equipment for the telephone companies, including 5,400,000 telephones.

Highly trained Western Electric men install central office equipment for the Bell telephone companies. Altogether, Western Electric is able to supervise all steps in making the equipment ready for use, from purchase of raw materials to finished installation. This assures the telephone companies that new apparatus will give the best possible service.

A national asset

Time and again the unified service of supply within the Bell System has proved to be a national asset. After hurricanes, floods and fires, when telephone company people go “all out” to restore service, Western Electric swings into action to deliver the needed equipment and supplies. And this equipment is standardized. It is familiar to all telephone people and can be installed quickly anywhere.

Western’s productive capacity is ready also in any national defense emergency. Throughout World War II all of the company’s resources were devoted to the needs of the United States and its allies for electronic and communications equipment, including radar, sonar and various types of radio equipment.

In the present national defense program, Western is not only helping to expand and improve America’s telephone system, but is using experience gained in its regular telephone job to supply specialized military equipment to the armed forces.

After World War II Western Electric produced record-breaking quantities of equipment to meet America’s telephone needs. It increased its production tremendously to meet the big demand for telephones, willingly undertaking the financial risks of a big expansion program so that the operating companies could serve millions of people faster than otherwise possible.

Since the end of World War II, prices of manufactured goods of all kinds have gone up, but Western Electric prices have gone up far less than the average—as of the end of 1954, they had gone up less than half as much.

Because it works as a unit of the System rather than toward a separate end of its own. Western Electric plays an essential part in furnishing Americans with the best telephone service at the lowest possible cost.

From Bell to Bell System

The telephone we use today is very different in design from the first instrument invented by Alexander Graham Bell, but it works on the same principle. As soon as Bell proved his invention practical, he foresaw it could link homes with offices, sweep aside the isolation of farms, and bind together cities and nations with electrically transmitted speech.

Alexander Graham Bell had prepared himself to follow the professional footsteps of his father and grandfather in the teaching of proper articulation and the correction of speech defects. He became a teacher of speech to the deaf. Early in his training, his investigations into the nature of sound led him to study electricity. It was out of this work, together with his understanding of the organs of speech and hearing, that his invention grew.

He attempted to apply sound to telegraphy in a device called the harmonic telegraph. He hoped it would transmit several Morse messages tuned at differing levels over the same circuit simultaneously. While he was working with this device, Bell conceived the principle of the telephone.

He told his young mechanical assistant, Thomas A. Watson: “If I can get a mechanism which will make a current of electricity vary in intensity as the air varies in density when a sound is passing through it, I can telegraph any sound, even the sound of speech.”

The twang of a reed

This idea was clear in Bell’s mind by the summer of 1871, but he did not then know how to reduce it to practice. On June 2, 1875, he succeeded in doing so. In adjoining attic rooms at 109 Court Street, Boston, he and Watson were trying out several pairs of harmonic telegraph instruments each consisting of an electromagnet with a steel organ reed vibrating over it. One reed stuck. Watson plucked it with his finger to start it again, but it did not come free, so Bell heard an unusual sound. Instead of hearing a series of electric pulsations, he recognized the twang of a vibrating reed! He knew then that, as Watson has put it, “he was hearing, for the first time in human history, the tones and overtones of a sound transmitted by electricity.” That afternoon Bell directed Watson to make the instrument that was to be the first Bell telephone. This instrument transmitted voice tones, but not until March 10, 1876, did Bell succeed in transmitting an intelligible sentence of speech.

The telephone talks

On the evening of that day, as the young inventor prepared a crude experimental transmitter to try to send his voice over a wire to a room down the hall where Watson was listening, he upset the acid of a battery. It spilled over his clothes. Impulsively, Bell called out, “Mr. Watson, come here: I want you!” An instant later Watson burst into the room shouting “Mr. Bell, I heard every word you said—distinctly!”

Bell exhibited and demonstrated his telephone at the Philadelphia Centennial in June, 1876, where it won the enthusiastic approval of leaders in the scientific world. But the general public showed little interest. The young inventor had no financial backing other than that of Thomas Sanders and Gardiner C. Hubbard. In the fall of 1871 these men had agreed to supply funds for Bell’s telegraph experiments in return for a share in whatever patent rights might result from his experiments. His telephone patents were later included in this agreement.

Bell’s first telephone patent had been granted on March 7, 1876, but was earning no return. Sanders and Hubbard had advanced all they could. In order to eke out his small personal income as a teacher, and to provide funds for further experimentation, Bell began, early in 1877, to give lectures at which he demonstrated the telephone. These were well attended, and accounts of them were widely published. A few forward-looking people began to realize the usefulness of the telephone. In May, 1877, the first telephones were put into use on a commercial basis. Soon people throughout the country began to inquire about how to get into the telephone business.

How the Bell System was formed