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AT&T Ignores Its Own Painful History

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to the Bloomberg View. Follow him on Twitter at @smihm.
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AT&T’s proposed merger with the media giant Time Warner has prompted an outcry across the political spectrum, raising worry that a corporate behemoth could control a huge chunk of the U.S. telecommunications infrastructure, along with the content that flows through it.

The complaints should be familiar: Almost a century ago, in the age of radio, the phone company tried a similar gambit. That ended in defeat.

Alexander Graham Bell invented the telephone in 1879. He also founded a company to market his invention, the National Bell Telephone Company. In the following decade, the company expanded and began building the nation’s first long-distance telephone network under the auspices of the American Telephone and Telegraph Company, incorporated in 1885.

AT&T soon controlled the majority of the nation’s phones and local phone lines, as well as the long-distance lines. Theodore Vail, who became president of the company in 1907, declared that “a nationwide intercommunicating system can be obtained only through one system, one policy, one centralized administration.”

The federal government soon hit AT&T with an antitrust suit, which was settled in 1913. Under the so-called “Kingsbury Agreement,” AT&T agreed that it would not absorb any more of the “independents” -- the handful of local companies not yet under its control -- without approval of the Interstate Commerce Commission.

Not long afterward, AT&T began looking for other ways to achieve its monopolistic vision. By the end of World War I, a new, promising technology emerged: radio. Under an unusual arrangement, several major corporations -- notably Westinghouse, General Electric and AT&T -- held stakes in a new entity, RCA, or the Radio Corporation, which would become the focus of radio research.

Westinghouse pioneered the idea of using radio to broadcast programming, and it began setting up stations. AT&T followed suit, establishing what would soon become the most powerful station of the early 1920s, WEAF-New York. Better yet, AT&T figured out how to make money off the venture, selling airtime for advertisements. In time, it began building the first “chain broadcasts,” using AT&T’s telephone lines to transmit the same radio programs in multiple locations.

The company soon articulated a grand vision that wedded communications with content. Its leaders believed that AT&T could own every radio station broadcasting in the U.S. It would control all broadcasts, disseminate them via the company’s telephone lines and sell the radios used by listeners. This meant eliminating the hundreds of competitors who had set up radio stations in the early 1920s.

The company wasn’t shy about its ambitions. In a speech in 1923, an AT&T's assistant vice president noted that AT&T had avoided giving the impression that it "wishes to monopolize broadcasting; but the fact remains that it is a telephone job, that we are telephone people, that we can do it better than anybody else, and it seems to me that the clear, logical conclusion that must be reached is that, sooner or later, in one form or another, we have got to do the job.”

AT&T decided to hasten what it believed to be inevitable by using its control over the telephone lines to crush the competition. For example, when it transmitted a 15-minute presidential speech from Washington, it charged a competing radio station in Chicago $2,500 for the phone call used to rebroadcast the speech, despite the fact that the usual rate for the call was a mere $14.50. 

AT&T also controlled many of the patents governing radio transmitters and it began throwing its weight around there, too. Stations that refused to buy AT&T’s transmitters found that they could not get access to any of the company’s long-distance phone lines to cover news and entertainment originating outside the local studio.

This bare-knuckled expression of monopoly power invited lawsuits, and attorneys representing AT&T’s competitors in the radio industry raised the specter of a single corporation controlling all the nation’s telephone lines, radio stations and, above all, the material broadcast by those stations. AT&T, warned one plaintiff’s lawyer, “will be able to limit the use of radio arbitrarily,” creating the risk that "only one religion, one political party, one candidate and one industry would be given the privilege of broadcasting.”

AT&T’s defense backfired. In a series of public announcements, the phone giant claimed it was only entering the field of radio because of its interest in developing the “radio art,” adding that any fees it imposed were “so reasonable as to represent a return far below the customary profits.” Even more grating, perhaps, was its claim that it had acted in the public interest by limiting competition: too many radio stations, it claimed, might "destroy the value of broadcasting to the public.”

The small broadcasters begged to differ, and as scrutiny of AT&T’s tactics grew, the giant began to backpedal. Its leaders realized that its bid to control broadcasting could imperil its already controversial monopoly on the nation’s long-distance phone service, and could frustrate its future attempts to tighten control over local phone service. It enjoyed that monopoly until an antitrust case led to the division of AT&T into smaller, regional phone companies – the so-called Baby Bells -- in 1982.

AT&T began to reconstitute itself, with Southwestern Bell renaming itself the new “AT&T.” In ensuing years, the resurrected communications giant has embarked on an aggressive expansion into broadband and other ventures. The acquisition of Time Warner -- and its content, including CNN, HBO and many other properties -- would be the logical next step.

The new AT&T isn’t quite the formidable monopoly of old. But it’s still a pretty giant corporation, and the acquisition of Time Warner would give it control of significant shares of the market in two interdependent industries. The last time AT&T tried this, public outcry put an end to its plans. A similar fate may be in store for the company today.

(Removes reference to Time and Sports Illustrated in penultimate paragraph.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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