The Kingsbury Commitment of 1913 established AT&T as a government-sanctioned monopoly, as an out-of-court settlement of the government's antitrust challenge. In return for the government's agreement not to pursue its case against AT&T as a monopolist, AT&T agreed to divest the controlling interest it had acquired in the Western Union telegraph company, and to allow non-competing independent telephone companies to interconnect with the AT&T long distance network.
The government had been increasingly worried that AT&T and the other Bell Companies were monopolizing the industry. Under Theodore N. Vail from 1907, AT&T had bought Bell-associated companies and organized them into new hierarchies. AT&T had also acquired many of the independents, and bought control of Western Union, giving it a monopolistic position in both telephone and telegraph communication. A key strategy was to refuse to connect its long distance network — technologically, by far the finest and most extensive in the land — with local independent carriers. Without the prospect of long distance services, the market position of many independents became untenable. Vail stated that there should be "one policy, one system [AT&T's] and universal service, no collection of separate companies could give the public the service that [the] Bell... system could give."
In the Kingsbury Commitment, actually a letter from AT&T Vice President Nathan Kingsbury of December 19, AT&T agreed with the Attorney General to divest itself of Western Union, to provide long distance services to independent exchanges under certain conditions and to refrain from acquisitions if the Interstate Commerce Commission objected.
The Commitment did not settle all the differences between independents and Bell companies, but it did avert the federal takeover many had expected. AT&T was allowed to buy market-share, as long as it sold an equal number of subscribers to independents. Crucially, while the Kingsbury Commitment obliged it to connect its long distance service to independent local carriers, AT&T did not agree to interconnect its local services with other local providers. Nor did AT&T agree to any interconnection with independent long distance carriers.
Consequently, AT&T was able to consolidate its control over both the most profitable urban markets and long distance traffic. The Willis Graham Act allowed AT&T to begin acquiring more local telephone systems, with the genial oversight of the Interstate Commerce Commission. By 1924, the ICC approved AT&T’s acquisition of 223 of the 234 independent telephone companies. Between 1921 and 1934, the ICC approved 271 of the 274 purchase requests of AT&T. With the creation of the Federal Communications Commission in 1934, the government regulated the rates charged by AT&T.
The entire network was nationalized during World War I from June 1918 to July 1919. Following re-privatization, AT&T resumed its near-monopoly position. In 1956, AT&T and the Justice Department agreed on a consent decree to end an antitrust suit brought against AT&T in 1949. Under the decree, AT&T restricted its activities to those related to running the national telephone system, and special projects for the federal government.
In 1968, FCC regulators intervened when the Bell System tried to prevent a mobile communications system, the Carterfone, from connecting to telephone lines. That decision established the principle that customers could connect any lawful device to the telephone network, even to offer a competing service. In the mid 1970s, emerging long distance competitors like MCI and Sprint faced the same tactic of denying interconnection, which regulators quashed, followed by a series of efforts by the Bell System phone companies to escalate the costs of interconnection as an indirect means of excluding competition. These battles resulted a large amount of antitrust litigation and ultimately led to the 1982 breakup of the Bell System. In 1982, AT&T and the Justice Department agreed on tentative terms for settlement of anti-trust suit filed against AT&T in 1974, under which AT&T divested itself of its local telephone operations, which became known as the "Baby Bells." In return, the Justice Department agreed to lift the restrictions on AT&T activities contained in the 1956 Consent Decree.
- United States Independent Telephone Association
- Sherman Antitrust Act
- Communications Act of 1934
- Telecommunications Act of 1996
- Bell System divestiture