Western Electric - Development of A Monopoly

Development of A Monopoly

In 1915, Western Electric Manufacturing was incorporated in New York, New York as a wholly owned subsidiary of AT&T, under the name Western Electric Company, Inc.

All telephones in areas where AT&T subsidiaries provided local service, all components of the public switched telephone network (PSTN), and all devices connected to the network were made by Western Electric and no other devices were allowed to be connected to AT&T's network. AT&T and Bell System companies were rumored to employ small armies of inspectors to check household line voltage levels to determine if non-leased phones were in use by consumers.

Western Electric-made phones were owned not by individual customers but by local Bell System telephone companies—all of which were in turn owned by AT&T, which also owned Western Electric itself. Each phone was leased from the phone company on a monthly basis by customers who generally paid for their phone and its connection many times over in cumulative lease fees. This monopoly made millions of extra dollars for AT&T and Western Electric, and had the secondary effect of subsidizing telephone service, keeping basic local phone service very low—under $10 per month, including the leased phone. After divestiture, basic dial tone service went up in price, and the customer was now responsible for all of his building's wiring and telephone equipment, despite the disclaimer permanently molded into the Western Electric-made telephone housings: "Bell System Property—Not For Sale." To increase revenues, the Bell System sometimes refurbished old returned phones, giving them new housings, then leased them for use in new installations. The longevity of Western Electric phone models and the limited number of new designs was a direct result of AT&T and Bell System control of new phone sales in a monopolistic system.

AT&T also strictly enforced policies against buying and using phones by other manufacturers. A customer who insisted on using a phone not supplied by the Bell System had to first transfer the phone to the local Bell monopoly, who leased the purchased phone back to the customer for a monthly charge plus a 're-wiring' fee. In the 1970s, after some consumers began buying phones from other manufacturers anyway, AT&T changed its policy for its Design Line telephone series by selling customers the phone's housing, retaining ownership of the mechanical components — which still required paying AT&T a monthly leasing fee.

Until 1983, Western Electric telephones and/or their inner mechanical components could only be leased by subscribers and never sold, and so had to be repaired at no charge if they failed. This led Western Electric to pursue extreme reliability and durability in design in hopes of minimizing service calls. In particular, the work of Walter A. Shewhart, who developed new techniques for statistical quality control in the 1920s, helped lead to the legendary quality of manufacture of Western Electric telephones. In 1983, Western Electric telephones began being sold to the public through the newly created American Bell subsidiary of AT&T, under the American Bell brand name. One of the terms of the Modification of Final Judgment that led to the Bell System divestiture prohibited AT&T from using the Bell name after January 1, 1984; prior to this, AT&T's plan was to market products and services under the American Bell name, accompanied by the now familiar AT&T globe logo.

One of AT&T's integrated rivals in providing phone service within the U.S., General Telephone and Electronics (GTE), also operated an equipment manufacturing arm, Automatic Electric.