If we were to search for one person who contributed more to the Bell System than anyone else, it would likely be Theodore N. Vail.

The Bell Telephone Company was formed as a “voluntary, unincorporated association” one year after the invention of the telephone. But simply forming a company does not assure its success, and indeed the Bell Telephone Company was having its share of problems. Most specifically, it was desperate for funds to finance expansion. One attempt at solving this problem was to divide itself into two parts – the New England Telephone Company, and a new Bell Telephone Company.

At that time Gardiner Greene Hubbard, a prominent citizen of Boston, was trustee of the Bell Telephone Company. (A year later Alexander Graham Bell would marry Hubbard’s daughter, Mabel). But control of the company passed from Bell and the Hubbard family to Boston capitalists, and Hubbard chose to leave the firm. In the last months before he bowed out he made his final and perhaps greatest contribution, that of bringing in the man who was to be the key figure in the formation and growth of AT&T, Theodore N. Vail.

Vail’s early life had not been particularly auspicious. He attended grade and high school in Morristown, New Jersey, worked for a time as a drugstore clerk and for a time as a medical student. At the age of 19 he took a job with Western Union as an apprentice telegrapher in New York City. During the two years he worked for Western Union he had relatively few ambitions. He moved with his family to Waterloo, Iowa, and became a telegraph operator. Later he settled in Omaha as a postal clerk.

And now things changed; his executive ability started to assert itself.

He rose rapidly, moving to the Washington headquarters of the Railway Mail Service in 1873; in 1874 he became assistant general superintendent, and in 1876 superintendent. It was at this time that he met Gardiner Hubbard. Two years later, in 1878, Hubbard offered Vail the job of general manager of the new Bell Telephone Company.

Vail took the job, and wasted no time! He sent a copy of Bell’s original patent to every Bell agent in the country, along with a covering letter that said in part: “We have the original telephone patents. We have organized and introduced the business, and do not propose to have it taken from us by any other corporation.”

In the following several years the company flourished, and made it a practice to pay out much of the resulting profits to stockholders as dividends. William H. Forbes, president of the company, was committed to making the most of the Bell monopoly while it lasted (patents would be running out in 1893 and 1894). Public service did not move him.

Vail, however, was of a different mind. What would happen, he wondered, when the primary patents ran out? So he took steps to establishing an organization strong enough to survive without monopoly protection. He commented, “What we wanted to do was get possession of the field in such a way that patent or no patent, we could control it.” And this became the philosophy of the Bell System.

First on the list was to arrange for a manufacturing operation that could supply the equipment for the company. The selected organization was Western Electric Co., a company originally formed by a group that included Elisha Gray, the man who lost the patent race for the telephone by a matter of hours. In November, 1881, American Bell bought the controlling interest in the company from Western Union

Vail took other steps. His representative moved into territories that had no phone service and suggested to local promoters that they establish a telephone company and sell stock. Bell would provide financing, and in return get a 30% to 50% stock interest in the newly-formed company.

Finally came the addition of a long distance arm of the company. In 1985 a new subsidiary of American Bell was formed, the sole purpose of which was to provide long distance telephone service between the various operating companies of the growing system. Its name was American Telephone and Telegraph Company - AT&T.

Notice the similarity between the organization at that time and the fully developed Bell System of some years later: a vertically integrated supply arm; a network of licensees substantially owned by the parent company; a long distance arm; and emphasis on research and development. There was, as in later years, strong supervision of the whole system by the headquarters operation.

Vail’s long range vision, however, was at odds with the view of the financial people running American Bell. And in September, 1887, he resigned all connection with American Bell.

But he would be back! After an intensive and prolonged boardroom struggle, the bankers of New York won out over the aristocrats of Boston, and the company passed into different hands. Vail was installed as the new president of AT&T on May 1, 1907. Over the next several years the actions taken and the words spoken and written by Vail provide insight into the structure of the ultimate Bell System:
• Consolidated the research and development activities of the two divisions. This, essentially, created the lineal ancestor of Bell Laboratories.
• Restructured the corporation so as to leave telephone network operations to practical men and conceptual work to a central staff.
• Reversed the secretive attitude of management by saying “If we don’t tell the truth about ourselves, someone else will.”
• Introduced the concept that maximum private profit was not necessarily the primary objective of private enterprise; it was only one element in an equation.
• Believed strongly that competition simply did not fit in the telephone business (thus the concept of a “natural monopoly”).

Vail remained as president of AT&T until June, 1919, when he relinquished the title and assumed the position of Chairman of the Board. Ten months later, in April, 1920, he died at Johns Hopkins Hospital in Baltimore, Maryland.

The author John Brooks had this to say: “To sum up, AT&T under Vail was almost certainly the first large private corporation to adopt a conscious, clearly articulated policy of subordinating the maximization of profit to the provision of services to its customers. It was a policy not always followed in Vail’s time or later; but as a concept, the policy marked a milestone in industrial history.