The surge of competition in the early 1900s prompted a takeover spree of rivals by American Telephone and Telegraph (AT&T). But AT&T’s acquisitions troubled federal authorities, who began mulling antitrust action. This prompted AT&T officials to propose what subsequently became known as the “Kingsbury Commitment.” On Dec. 19, 1913, AT&T agreed to sell $30 million of its Western Union stock and to allow competitors to interconnect with its network. The company also pledged that for every new local system it acquired, it would sell an equal share of lines.
The Kingsbury Commitment was wholly in keeping with the brilliant strategy of AT&T’s President Theodore Newton Vail. The regulatory emphasis on interconnection cemented AT&T’s control of the telephone network. And, the constraints on line acquisition did not keep the company from concentrating its hold in major markets. Thus, Vail was well-positioned to promote telephone service as a “natural monopoly.” Public officials, eager to regulate the nascent industry, embraced Vail’s motto of “One Policy, One System, Universal Service.”
As the nation’s dominant service provider, AT&T had the most to gain from government-erected barriers to market entry. The more difficult it was to launch competitive service, the more secure was AT&T’s market share.
Then, as now, the absence of government interference would likely have spurred technological innovations that would have prevented any one company from achieving market dominance.
Congress first vested federal regulatory authority over telephone services in the Interstate Commerce Commission, under the Mann-Elkins Act of 1910. This legislation adopted the practice of local franchising already begun by states and municipalities to control rates and service quality.
Michigan first regulated telephone service in 1913, when the Legislature directed the Michigan Public Service Commission to oversee the burgeoning industry.