American Telephone & Telegraph Corp. used its monopoly powers to drive Litton Industries out of the telephone busiess after Litton became AT&T's leading competitor in the supply of switchboards and smaller office phone systems, lawyers for Litton charged today.

AT&T lawyers retorted that Litton failed because of its own mismanagement and it inability to compete with the telephone giant, not because AT&T did nothing illegal or wrong.

Many other companies entered the same business after federal regulators opened up comptetition in the provision of some telephone services in 1968, according to AT&T lead attorney Leonard Joseph, "and many, most of them, are doing just fine and have competed against Bell successfully."

Joseph said that Litton -- the $4.2 billion conglomerate that makes products ranging from sophisticated electronic guidance systems for missiles to microwave ovens -- failed because of its own "incompetence, mismanagement" and the dishonesty of its own employes.

Joseph and Litton's lead attorney William Simon fired the opening salvos in Litton's $600 million antitrust suit against companies owned by Bell System, including seven local companies, Western Electric Co. and Bell Laboratories.

Tomorrow the federal government's own antitrust suit against AT&T will go to trial. The government wants to split off from AT&T both Western Electric, the system's manufacturing arm, and the long lines division which carries long-distance calls. Last fall AT&T lost an antitrust suit filed by MCI Communcation Inc. MCI charged that AT&T used its broad monopoly powers to impede MCI's entrance into the long-distance telephone market. MCI, which is still in the business, was awarded $600 million in damages by a Chicago jury that grew to $1.8 billion under the trebling provisions of the antitrust laws.

The Litton trial, in federal district court here, is expected to take at least five months. "We're about to embark on our five-month plan," Judge William C. Conner wryly greeted the 12 jurors and two alternates as they filed into the courtroom for the first time this morning to hear opening arguments from both sides.

Simon told the jury that shortly after Litton entered the telephone equipment business in 1972 it became AT&T's "single largest competitor for this type of equipment" -- so-called PBX's, or switchboards, and key systems, which are smaller phone systems with push-buttons for several incoming and outgoing lines.

He said that Litton, a successful company that grew from annual sales of $8 million in 1953 to $4.2 billion in 1979, developed a nationwide sales network based on a carefully constructed plan. Initially the new supplier, called Litton Business Telephone Systems, sold Japanese equipment, "but our own laboratories undertook to develop its own equipment.

"By the time we were forced out of business, we had developed the most modern equipment in the business. AT&T considered Litton its most serious threat -- even more than RCA Corp. and International Telephone and Telegraph Corp.," large companies that apparently did not intend to zero in on the equipment business like Litton.

Simon said that AT&T required all Litton systems to have a special protective device installed between the Bell lines and the switchboard. The device was designed to prevent foreign equipment from damaging the extensive Bell network. But Simon said the Bell companies used the devices to sabotage Litton's operations -- installing operation of the Litton equipment and often delaying installation of the devices to the consternation of potential Litton customers.