Reorganizing AT&T: From Vertically Integrated to Customer-Centric Organization (A)

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Background Note

Alexander Graham Bell (Bell) invented a talking machine in 1876 for which he received two patents. With the help of two financiers, Bell established the American Bell Telephone Company (ABTC) in 1877. In 1878, ABTC's first telephone exchange started functioning in New Haven, Connecticut in the US.

In 1882, in order to establish control over Western Electric Company (WEC), a supplier of telephone equipment, ABTC acquired a majority stake in Western Union, its parent company. In March 1885, the American Telephone and Telegraph Company (AT&T) was founded as a subsidiary of ABTC with the objective of building and operating a long-distance telecommunications network in the US.

In 1894, Bell's second patent expired, thus opening the telephone industry to competition. Soon, with more than 6,000 private telephone companies operating in the US, ABTC struggled to maintain its leadership, relying heavily on its managerial experience and developing its long-distance network.

In December 1899, in a corporate reorganization, AT&T acquired the assets of ABTC and assumed the status of Bell's flagship company. The organizational pattern of AT&T and the structural relations between AT&T and associated companies were formalized at this time. In the early 1900s, AT&T engaged in businesses that extended well beyond the national telephone system.

Through WEC, its manufacturing subsidiary, AT&T met the telephone equipment related needs of telecom companies worldwide. In 1913, AT&T had to face its first federal antitrust suit.⁵ The company settled the suit by signing an agreement known as the 'Kingsbury Commitment.'

Under the agreement, AT&T agreed to sell its stake in Western Union, buy no more independent phone companies without regulatory approval, and allow non-competing independent telephone companies to access the company's long-distance network.

In 1925, AT&T established a research and development division, Bell Labs...

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5] Antitrust law protects the public against companies that attain an undue dominance of the marketplace via mergers, the tying of one product to another, vertical integration, and other practices tending to eliminate competition or bar entry to a marketplace to newcomers.