Like most new businesses involving a revolutionary technology, the telephone service we enjoy today was started by hundreds of small entrepreneurs.
But the financial backers of Alexander Graham Bell's invention of 1876 were as shrewd as most of the Bell System's leadership in the years that followed and it didn't take long for them to realize that they should try to control the telephone business here and elsewhere.
Much as in the 1970s when the owners of local electronics and calculator stores foresaw the impact of home computers and personal information resources--long before Xerox and International Business Machines decided to open their own retail outlets--a Washingtonian named George C. Maynard was the first to see business potential from Bell's invention.
Maynard, who operated an electrical supply store in the District and saw himself as a telegraphist and electronic hobbyist, sought and secured rights from Bell to open the National Telephonic Exchange here in 1877. The first two lines Maynard installed connected offices of the Army's Signal Corps.
Later, Maynard got an exclusive license to use Bell telephones in the District and the neighboring suburbs of Maryland. He opened the first D.C. switchboard central office in 1878 at 1423 G St. NW and the telephone business has had major offices at or near that site ever since.
Maynard went from door to door to promote the new communications service and, in an early example of good Washington public relations, got a public testimonial from W. K. Rogers, a private secretary at the White House, who wrote about the telephone: "At all times, regardless of weather, it has given entire satisfaction."
He used an early promotional gimmick, too, offering free trial services to a shipping company in Georgetown. It wasn't easy, but Maynard was enthusiastic.
By the end of 1879, however, Maynard was back in his electronics store. Something big had been started and a new company headed by Bell's father-in-law moved in and acquired Maynard's local telephone business. The Bell System had started to grow.
Ever since Dec. 1, 1879, when the National Capital Telephone Co. was formed here, local telephone service in Washington has been provided by what is now called American Telephone & Telegraph Co. In a historic business development both for the nation and for Washington, the Bell System's role in running the local telephone company will come to an end sometime in the next 18 months.
The Justice Department, in settling its giant antitrust case against AT&T Friday, forced the Bell System to agree to divest virtually all local subsidiaries around the country.
It is too early to tell consumers or Washington business just what will be the impact of splitting away local telephone service from AT&T. Many experts in telecommunications say local rates will go up and that long-distance rates will fall, but no one really knows how competitive pressures will change and what types of choices will be available to users.
One thing is clear: Confusion that has grown in recent years about telephone services and costs will be more widespread. For example, you may get two telephone bills every month in the future--one for local service from a new company to be built from existing AT&T assets, and a second long-distance bill from AT&T or a competitor of the Bell System. You may find it cheaper to use AT&T for some long-distance calls and a competitior like MCI Communications for other long-distance calls, in which case you'll get three bills.
In addition, it is unlikely that you will be able to escape AT&T, unless you plan to confine telephone calls to your local neighborhood. The Justice Department settlement provides specifically that intrastate long-distance business will go to AT&T and not the new local telephone business.
Presumably, this means that a call from Alexandria to Roanoke or from Silver Spring to Cumberland will not just be handled by Chesapeake & Potomac Telephone Co. (or whatever name the new local telephone business takes, if not C&P). If MCI Communications or some other Bell System competitor doesn't provide long-distance to Cumberland and Roanoke, the Bell System gets the business.
It is not at all clear how a call between the District and the Maryland or Virginia suburbs will be treated. As an interstate service, will it require calling in a long-distance firm? The agreement announced Friday states specifically, for example: "No exchange area located in one state shall include any point located within another state," except with the approval of the federal court.
Does this mean C&P must seek court approval to offer the types of services it does now, with calls to and from customers in the District and the suburbs part of a standard offering? Stay tuned for the answer, as the communications businesses, the courts, regulatory agencies and Congress all begin to grapple with the revolutionary changes that now must be organized and implemented.
There is one other important certainty about the telephone company settlement. Local regulatory agencies, which for decades have been able to duck telephone issues to some extent, will be on the front lines from now on. Pressure already exists for higher local telephone rates and service charges of all kinds, in this area and elsewhere. This pressure is certain to grow and local telephone rates will become somewhat more volatile in relation to local business costs. Neither the local telephone business nor the local regulators will be able to look for long-distance profits as a prop.
The shape of the future local telephone company also is not yet known. Under the antitrust settlement, several courses are open.
Currently, AT&T's wholly-owned area local subsidiary is Chesapeake & Potomac Telephone Companies. For the record, there actually are four C&P companies with separate staffs and directors for Maryland, Virginia, the District and West Virginia. State regulatory considerations in each jurisdiction, in an era when government policy was for the Bell System to operate an effective monopoly, made four separate sets of books and four separate managements to be efficient.
But overall C&P policy for the four companies was made in Washington, where the company's chief executive has been located. In recent months, Robert E. Allen has taken over as president and chief executive of C&P and one of his priority tasks has been a consolidation of overall operations here for the four C&P companies. Ground was broken recently, for example, for a new regional headquarters outside Silver Spring.
It would seem to make sense for the four C&P companies to continue to be grouped together as the new local telephone business for this region. But another section of the antitrust settlement states that a new local service area cannot cover two big metropolitan areas unless the federal courts allow it.
Since C&P today serves many more than two big metropolitan areas (Washington, Baltimore, Richmond, Norfolk and Charleston, to name just five standard metropolitan statistical areas, the definition used in the settlement), it appears that the court must decide first if the current four-state jurisdiction is to be permitted.
Also, the Justice Department settlement allows the local telephone service subsidiaries of AT&T to consolidate ownership. Presumably, all of the subsidiaries that AT&T must divest could decide to form one, giant local telephone service firm. At that point, C&P would become a subsidiary of still another national company.
AT&T's current 3 million stockholders, at first, will be owners of whatever local telephone companies are spun off from the Bell System. They will get shares in the new firms in relative terms to their AT&T holdings. Over time, many of these shares will be sold in the open market and the local service companies will develop a new ownership group. If C&P is formed here, for example, it is likely that stock ownership of C&P will grow to be concentrated in this part of the country and by institutional investors.
What would a new, independent C&P look like? It's hard to say because it isn't known what would be transferred to C&P and what would remain with the Bell System. Assets of the four C&P companies, as of Nov. 30, were up 8.3 percent from a year earlier to $6.96 billion. Revenues in the first 11 months of 1981 were $2.75 billion, up 12.5 percent. Telephones in service in C&P territory numbered 8.8 million on Nov. 30, up about 100,000, or less than 2 percent in the past year (an indication of slow growth as well as competitive pressures). C&P is the largest private employer in the region, with some 45,000 workers. The company provides today all local telephone service in the District, virtually all local service in Maryland and West Virginia and is dominant in Virginia, although there are a large number of communities in the Commonwealth now served by non-Bell System companies.
If C&P got two-thirds of the current assets, that would be more than $4.5 billion to start. In terms of annual revenues, approximately half the current level of about $3 billion has been coming from what has been described in the past as local service.
The four C&P firms obviously would be a big, independent Washington business.