A Tale of Two Telephones:

Competitive Telecommunications in Early 20th Century Montana

 

Óby Dan Elliott

us@50stars.us

 

Unabridged Account especially for DialMontana.com

May 8 with May 28 revisions--2012

 

 

“Do you know, have you had occasion to learn, that there is no hospitality for invention nowadays?  There is no encouragement for you to set your wits at work to improve the telephone, or the camera, or some piece of machinery, or some mechanical process; you are not invited to find a shorter and cheaper way to make things or to perfect them, or to invent better things to take their place.  There is too much money invested in old machinery; too much money has been spent advertising the old camera; the telephone plants, as they are, cost too much to permit their being superseded by something better.  Wherever there is monopoly, not only is there no incentive to improve, but, improvement being costly in that it ‘scraps’ old machinery and destroys the value of old products, there is a positive motive against improvement.”

President Woodrow Wilson in “The Emancipation of Business”

(The World’s Work, June 1913, vol. 26, p. 185) 

 

Prologue

 

The first telegraphic dots and dashes in Montana were heard tapping at its territorial capital of Virginia City in 1866.  This three-decade-old marvel, the reigning gold standard for fast, longer distance communication, famously was initiated with inventor Samuel Morse’s message “What Hath God Wrought!”.   A telegram was a much faster, less private version of millennia old letter correspondence received or sent by mail carrier, although most often it would be impersonal, abbreviated and reserved for important matters. Like mail correspondence, a telegram didn’t barge into one’s home from the ethos as an uninvited electronic visitor --- it properly was hand delivered at the front door.  Telegraphy was a comprehensible, significant first salvo in establishing a new communications paradigm:  it imbued residents in remote places like Virginia City with a current sense of the world afar, and it gave birth to an electronically-based age in which people would expect a new wealth of more information, much more quickly.

 

This matter of expectation soon would change again starting just a decade later in America’s centennial year when the telephone was patented.  It would transform the leap in communications started by the telegraph into a new interactive information age:  Its frequent long distance communications were practiced within one’s home, in real time, by interacting and natural sounding virtual voices.  It was a tool in which inventors took another decade initially to explore, and at least that long for the public to become somewhat acclimated.  Meanwhile, capitalists and corporate executives were devising strategies for its profitable use, beginning in the Age of Empire and extending into the cusp of the Populist and Progressive periods.

 

The account following features a brief supercharged subset of these periods in which competitive telephony would prevail in Montana at the beginning of the 20th century from 1907-1912---just  after Bell’s original telephone patents had expired late in the 19th century.  The story begins with a strong competitive push that quickly resulted in significantly more telecommunications in Montana, some of it on the cutting edge for the time.  It unwinds unfortunately when competition is squelched...and monopoly resurrected.  The deconstruction begins with corporate overextension, shenanigans and deceit.  Ultimately, main actors in this tale claim the dubious distinction of being named principle defendants in the first ever antitrust action brought by the U.S. government against the telecommunications industry.   An unintended consequence for seventy ensuing years, after quick settlement of the litigation, was the attenuated development of the information age in America and Montana.

 

 A Terse Introduction to Automatic Telephony, and Our Main Character

 

Less than a month after President Cleveland signed the Montana statehood bill on February 22, 1889, a Kansas City undertaker named Almon Strowger filed his patent application on March 12th for the first automatic telephone switch.  The new patent was approved two years later—just a couple of years before Ma Bell’s original telephone industry patents were set to expire. (Source: 2)  (Link to Footnote A) A1

 

Telephone service had been provided for a dozen years prior by the monopolistic Bell system, also known as “Bell” or eventually the American Telephone and Telegraph Company (ATT), or, with no love lost, nicknamed the Octopus.  Why?  Because its tentacles were into everything even tangentially related to providing telephone service:  Politics, court cases, franchises, newspapers, you name it, they were involved.  (Below is one depiction of the Bell monopoly of the day.)

 

 

The Bell organization was comprised of a federation of local exchange companies (in Montana known as the Rocky Mountain Bell Company or RMBC), long distance toll operations connecting the local exchange companies and equipment operations.  The regime knew it would face competitive headwinds with the expiration of Alexander Graham Bell’s original telephone patents in 1893-94, and it had planned accordingly, as we shall see.  These years of economic depression saw the telephone industry in America thrown open to twenty years of competition, sometimes knuckle-hard, which resulted in innovation and significant expansion of areas being served and customer numbers. (Learn more about the history of the Bell System at this link: Bell System Sidebar)  BSS

 

Strowger’s automatically switched local calling, and the dial telephones complimenting it, would play a key role in this new competition, innovation and expansion.  His automatic switches, compared to the manually switched operator-based calling of Bell, were advertised to be “girl-less, cuss-less, out-of-order-less and wait-less”.  These words resonated with meaning to the consuming public because callers were connected much more quickly, calls were confidential and callers were relieved from having to interact every time they placed a call with a third party, that being one or more unpredictably impersonal, arbitrary or even pernicious, sometimes cutesy, perhaps too curious, over-worked and inadequately compensated operators.  In fact, an operator intentionally connecting callers with his main competitor’s undertaking business spurred Strowger to invent the automatic exchange switch; the operator was his competitor’s wife. (Source: 2)

 

Within a dozen years, the company producing Strowger’s invention, the Automatic Electric Company (AEC), was operating a six-story headquarters and manufacturing plant in Chicago.  Its early 20th century automatic switching and dial telephone products were tailored for sale to newly emerging Independent telephone companies constructing local exchanges in their attempt to compete with Bell’s older, less economic technology.  So how did this affect Montana?  We’ll first need to visit Ohio and New York. (Source: 3)

 

It was in the dawning of the 20th century that a bright young entrepreneur named Thaddeus S. Lane began developing his skills in the newly competitive telephone industry.  He was born on a Gustavus, Ohio farm on February 10, 1872 to Truman M. and Melissa Lane, hearty descendants of colonial America who drove an ox team to the rural area.  After high school, Thaddeus taught school briefly before taking a job in telephone manufacturing. His marriage to Miss Lilian Payntar at New York City in 1897 soon produced one daughter, Lilian.  With his native talents still undeveloped but in the ready, the stage was set for Thaddeus.  One may wonder how this modest beginning would lead him to embark on a highflying career befitting the era’s cleverest business elite, but that is indeed what would occur. (Sources: 5, 64A)

 

Thaddeus Lane’s manufacturing experience led him, with three other Ohioans, to apply in 1901 for an Independent telephone company franchise at the town of Jamestown, New York.  The Independent local exchange would compete with the Bell system.  Within two to three years his Independent telephone operation, the Home Telephone Company of Jamestown, effectively was rivaling Bell operations in the area.  Part and parcel of successfully competing with Bell inevitably involved skirmishes with its well-oiled publicity machine.  As Lane’s prominence grew, so did the size of his target.  (Source: 6)

 

Bell’s early 1904 publicity campaign in over a dozen New York newspapers targeted N.Y. Independents, including Lane.  His response in the Jamestown newspaper was reprinted in the national journal Telephony in February 1904.  In it he demonstrated his gift of logical expression often used to hoist an opponent by his own petard, his understanding of Bell’s tactics and his first mention of Montana telephony:  “A few failures of Independent telephone companies are noted, although to find them the Bell company has been obliged to go as far west as Montana and as far south as Georgia.  Some of these failures have been advertised by the Bell company no less than thirty-seven times, from which it would appear that material for this style of advertising is somewhat scarce.  It will be noted that the Bell company, in its advertising, makes no claims of superior service, but on the other hand confesses that it has not been equal to the occasion: has not been able to meet competition, and has permitted its competitors, the Independents to occupy and develop territory in many sections of the country driving the Bell company entirely from the field.”  (Pictured below is the generic Independent Telephone Association logo.)  (Source: 7)  (Link to Footnote B) B1

 

 

Although Mr. Lane’s New York operations were located in a competitive Independent company v. Bell system hotbed, by 1906 he had expanded and was thriving as an owner, director or manager of forty-two telephone exchanges, secretary of the New York Telephone Association and delegate to International Independent Telephone Association conventions.  He was well connected in the avant garde of the burgeoning Independent company industry, even in a broadly regional, perhaps national way.  (Source: 8)

 

Transition to Montana

 

This notoriety, which had garnered the attention of a leading (but unidentified) Butte citizen at some important juncture, would have significant consequences for Mr. Lane, and Montana.  The Buttian had attempted in early 1906 to call long distance over RMBC lines, Salt Lake City to Butte.  When billed for this call that was never connected, the man repeatedly refused to pay, that is, until RMBC threatened to terminate his telephone service in Butte. This irascible incident resulted in a Butte brainstorm: Bell in MT needed a good lick of competition.  The man, with quick dispatch, contacted a bright, aggressive and young New York acquaintance: Thaddeus Lane.  After “conferences” with Butte businessmen, the adroit Mr. Lane “was induced to come to Butte”. (Source: 9)

 

Timing in 1906 for a move to Butte would be propitious for T.S. Lane.  A brouhaha of sea-changing proportions was playing out in New York between large moneyed, but poorly run and nearly defunct Independent telephone interests, and even larger moneyed Bell interests.  New York’s attorney general had pushed Bell interests from the catbird’s seat by exposing a secretly proposed anti-competitive sale of the Independent company properties to a Bell intermediary.  Bell had lost the round, but so had the Independents because their big eastern money-center financiers significantly were vested in the large, strategic sale.  A lingering, deleterious effect on Independent companies across America was a narrower choice of financing options from which to choose; even watered stock and ponzi schemes would be used---this requirement would affect Montana.  Whether he intended it, Lane’s operations had been ensnared in the peripheries of the bruising match, with local investors assuming a controlling interest in the Jamestown Home Telephone Co.  Indeed, it was a good time to “Go West, Young Man”. (Sources: 10A, 10B, 10C, 10D, 10E, Horace Greely)

 

Also fortuitous for T.S. Lane as he arrived at Butte were two Montana Supreme Court cases clarifying governmental requirements for new telephone companies desiring to operate within cities and towns.  In Rocky Mountain Bell Telephone v. Mayor of Red Lodge and Crumb v. City of Helena, March 26, 1906, the Court overturned as unconstitutional the 1905 Legislative enactment that excluded rights-of-way within cities and towns from the statewide requirement allowing utility construction in rights-of-way. With these decisions, municipalities were obliged to grant franchises to potential new competitors like Mr. Lane, if they could provide a modicum of proof that they were capable of providing service.  (33 Mont 45, 34 Mont 67)

 

The Crumb in the Helena case was the W.H. Crumb Company of Chicago, a telephone equipment manufacturer.  It was Crumb’s intent at the time of the court case to construct exchanges in Great Falls, Helena and Bozeman, with another Independent company to operate in Montana cities further south and west.  However, company owner W. H. Crumb found himself subsequent to the courts decision to be enmeshed in the corrupt telephone politics in Chicago, a situation in which he found common ground with the vortexual Bell interests.  His quest to build Independent company exchanges competing with Bell interests in Montana clearly had lost its lustre.  That meant Mr. Lane’s fortunes out west could include not just Butte, but potentially a large swath of Montana.   (Pictured below is the dapper Thaddeus Lane.)  (Sources: 11A, 11B, 11C)   

 

 

The very next month following Crumb, Thaddeus and several others organized the Montana Independent Telephone Company (MITC).  Authorized capitalization was $1,500,000 in 6% bonds and common stock of the same amount; papers of incorporation were filed May 12, 1906.  The city council took only two weeks to approve its franchise.  Twenty Montana business leaders immediately subscribed to the securities at $5,000 each.  Even F. Augustus Heintze, one of the copper kings, was interested, although the strength of his finances was in sharp decline.  (Sources: 8, 9, 12A, 12B, 12C, 26) (Link to Footnote C) C1

 

The initial investors and directorate of MITC included T.S. Lane, who was in charge of construction, a cadre of well-known Butte bank presidents, Con Kelley of the Anaconda Company, P.B. Moss of the Billings First National Bank, W.G. Conrad and Thomas Couch, Jr. from Great Falls, Harry Gallwey of the Parrot Mining Company, and Elmer Jones of the Utah Independent Telephone Company.  Soon to be included were John MacGinniss, a Butte banker and Heintze confidant who had married into the family of copper king W.A. Clark’s brother, and former State Auditor and railroad capitalist, A.B. Cook of Helena.  These last two men with Lane would form the nucleus triumvirate of future dealings, some of which would become top-drawer machinations of the era.  (Sources: 13B, 14A, 14B, 14C)

 

Sophisticated Strategic Planning I

 

Part and parcel of MITC’s formation was another company organized by Lane and a few directors one month later on June 16, 1906:  the Inter-Mountain Construction Company.  Its formation was a significant lynchpin as Lane planned construction activities in Butte, as well as a wider expansion into other Montana communities.  A separate construction company could provide flexibility to segregate messy construction liabilities and activities away from the balance sheet of the telephone company.  Raising money from small subscription investors in which early generation investors could be (and often were) paid by subsequent generation investors (a ponzi scheme), if done by the construction company, ostensibly would not tarnish the telephone company’s reputation.  Completed facilities could be transferred to the telephone company, away from construction company creditors.  Contract manipulation between the telephone company and construction company would allow very substantial write ups in the values of telephone company securities held by the construction company and its owners (and corresponding plant value write ups on the telephone company balance sheet), as well as the ability to extract several levels of profit margins from ongoing contracts with the telephone company. If complexities arose, transfers of funds, financing and other details back and forth between the telephone company and the construction company easily could be accomplished with little or no scrutiny.  In short, telephone company financials could be hyped as “conservative” and profitable, while construction company financials and their potentially large profits would be hidden from public view. Two more construction companies eventually would be formed: The Western Engineering Company for Helena exchange construction and the Montana Engineering Company for Great Falls exchange construction. (Sources: 16A, 16B, 16C, 16D, 28)    (Link to Footnote D) D1

 

A letter segment, Lane to Cook, is worthy of a thoughtful reading because it demonstrates in Mr. Lane’s own words the financial finesse he coaxed and cajoled between construction and telephone company financials.  The telephone company name has been changed to ‘X’ to assist in an easier to grasp understanding of where the pea is under the shells:  “In order that you, MacGinniss and myself show six payments up to date, I can think of no other way to arrange it except on the books of the Telephone Co. ‘X’ to credit each of us with our payments and charge the Inter Mountain Construction. Co.   The Inter Mountain Construction Co. will show a debit against each of us for this amount, which must, in some way, be repaid.  It is not quite clear in my mind just how to handle this, but perhaps the best way is to have the Telephone Co. ‘X’ advance money to the Inter Mountain Construction Co., and the Construction Company loan it to Cook, MacGinniss and Lane, and Cook, MacGinniss and Lane pay it into ‘X’.”   These complex financial arrangements were classic early 20th century financial obfuscation, complimented by the period’s lax accounting standards.  The astute Mr. Lane mastered these practices as a slick modus operandi --- lock, stock and smoking barrel. (Source: 17)

 

This kind of shenanigry may have comprised the building blocks of titans in the Age of Empire, but the Populist and Progressive movements rooted within average working folk in the early 20th century hotly resisted them.  This especially was true in places like Butte.  Trust busting and threats of public ownership of certain private corporations were in vogue, and gaining traction.  Muckraking, such as Paul Latzke’s “A Fight With An Octopus” published in 1906, fueled a populist public angst, in this instance against the competitor Lane would again face, the Bell conglomerate.  (Source: 9)

 

Latzke’s introductory summary at Chapter One heralds the sentiment:  “The story of the Bell companies rise to power that was second only to that of the Standard Oil Company—The betrayal of friends and associates, the sacrifice of great national characters and the desperate purpose of a fight that was carried straight into the White House—The waning of the power of the trust and the triumph of the people.”   The newly transplanted Mr. Lane would need to exercise caution, and employ his personal charisma, to avoid being lumped in with Bell as an abuser of the public trust in the rough and tumble Montana mining camp.

 

It was against this backdrop that MITC planned local exchange networks in Butte, Anaconda, Helena, Great Falls, Missoula and Dillon, along with the purchase of existing local exchange networks, such as those in Bozeman, Livingston, Billings and other small communities. Six of these in the largest Montana communities (comprising most of the populace to be served) would house Almon Strowger’s AEC automatic switches and use dial telephones.  The company over-optimistically predicted a customer base of 10,000 within a year following initial Butte area construction. (Sources: 15, 64A, 66, 67)

 

MITC’s plans for a complimentary instate long distance toll system were in addition to the local exchanges.  The toll system would interconnect the large communities just mentioned, and in so doing would string together a multitude of small town local exchanges with manual switchboards and up-to-date central battery systems, sometimes in leased buildings. With his skills of persuasion and hearty embrace of the Independent company movement, Mr.Lane also would be able to purchase small, relatively rural companies with little more than securities of his own companies for payment.  He thereby could create a synergistic Independent toll system, an avenue perhaps not as palatable for Bell, given its slow capital deployment in rural Montana. (Source: Stock certificate, 13B, 69, 65, 67)

 

Another long distance toll system, that being a rather grandiose multi-state long distance toll system, were explained in a mid-1906 issue of the American Telephone Journal:  MITC would partner with the Utah Independent Telephone Company, joining at Pocatello, Idaho.  To the west, it would connect at Missoula with the Home Telephone Company of Spokane.  Director Jones from Salt Lake City had arranged for the use of Western Union telegraph poles, as well as various railroad rights-of-way allowing eventual long distance toll all the way to San Francisco.  (Source: 15)

 

A Constitutional Wrinkle

 

A year later, these long distance toll plans could have been modified pursuant to a July 1907 decision by Federal Judge William Hunt of Helena, who upheld Montana’s unique constitutional provision requiring telephone interconnection.  The potential importance of this provision and Hunt’s decision can’t be overstated.  The constitution specified that any telephone company had the right to connect its lines with those of any other telephone company.  The Montana legislature had enacted provisions for this constitutional specification nearly coincident in time with the expiration of the original Bell system patents.  (Sources: 1889 Constitution Sec.14 Art.15; 1895 Legislative Code Section 4401; 155 Fed 207)

 

Recall from the sidebar discussion earlier regarding Bell’s lynchpin long distance toll strategy: after the expiration of its patents, Bell planned to isolate Independent company local exchanges from important big city Bell local exchanges by refusing to let the Independents interconnect via ATT long distance toll lines.  In Billings Mutual Telephone Company v. Rocky Mountain Bell Telephone Company, Judge Hunt held that physical interconnection and right of use was compelled by statute and the state constitution, and that damages were to be assessed as provided under the Code of Civil Procedure if a “compensation” agreement for interconnection couldn’t be reached.  (Source: 16)

 

In 1907, only Montana, South Dakota and Texas had enacted specific statutory language regarding interconnection, and of these three, only in Montana was the statutory language buttressed by its constitution and an affirmative decision in a Federal Court.  T.S. Lane could have opted to enter the Montana market with his advanced local exchange automatic switching and dial telephones, and then used RMBC’s long distance toll lines to interconnect his local exchanges.  Even RMBC local exchanges could have been required to interconnect with Lane exchanges.  Many Independent companies in other states agitated for this approach in years to come, but they lacked the legal underpinnings available in Montana.  (Pictured below is a physical interconnection cartoon of the day, with one version of the Bell octopus.)  (Source: 17)

 

 

Lane demurred from this approach; RMBC’s aging technology and his plans to build his own synergistic toll system mentioned above may have been a factor.  More importantly though, the shrewd Mr. Lane knew this critical issue with nationwide ramifications undoubtedly would be bound up in court by Bell.  Sure enough, after three years of further court proceedings, Judge Hunt finally was able to appoint O.T. Crane, N.B. Holter and W.C. Bruskett of Helena to determine the Billings “compensation” question for interconnection.  The 1907 victory for Independent companies in Montana nearly had been laid to waste by RMBC’s legal tactics.  We shall see, though, that the issue retained a spark of life. (Source: 18)

 

Other Planning Considerations

 

Evidence about the competitor MITC would challenge can easily be gleaned from the May 1906 RMBC telephone directory.  It was a mere 6 ¼” x 9 ¼” x 3/8” thick, a minimally sized book considering it included all Montana customers in twenty-five local exchanges, and all customers in six Idaho exchanges.  Several instructions in the book demonstrated RMBC’s spartan, nearly brusk approach to instructing the public on how to use its operator-assisted technology:   

--“Subscribers are requested to call only by number, and to strictly avoid loud and boisterous conversation.”  The first part of this instruction required customers to use the telephone book, rather than asking operators to retrieve numbers.  The second part dictated behavior.  This instruction would be superfluous for most of the customers served by MITC, with it preponderance of automatic switching and dial telephones.

--“Subscribers are not permitted to allow non-subscribers to use their telephones, such being in violation of their written contracts.”  and   “Profane language over the wires is strictly prohibited.  The Company reserves the right to remove the instrument for violation of this rule.”  RMBC operators in the relatively small communities served in Montana would have been able to monitor these behaviors as a kind of “big brother”, while  MITC’s cutting edge equipment would protect most of its customers against such intrusion. 

--“When it is desired to have a non-subscriber called into one of our public offices at a distant place, a messenger will be sent for him, during business hours, at the expense of the party ordering the service.”  The telephone directory provides no further guidance on the cost of the service, but “Messenger Boys” was advertised in at least nine locations in just the Butte section of the thin directory.  This service was convincing evidence of a less-than-optimally served telecommunications market in Montana: it was tantamount to delivery of a telegram.  MITC competition would begin remediating this situation with more technologically advanced and less expensive service, thereby alleviating the need to use “Messenger Boys”.  (Sources: 104 and May, 1906 RMBC Directory)  (Pictured below is the cover of the May 1906 RMBC directory.)

 

 

Another competitive consideration was solved at the 1907 Legislative session, that being the unwillingness of railroad, express and telegraph corporations to allow installation of Independent company telephones in their stations.  These entities predictably didn’t care to facilitate competition of any kind.  However, the issue was of vital importance to the Montana Independent Telephone Company (MITC) because significant numbers of local businesses absolutely needed telephonic communications with these principle transportation and freight operations.  Accordingly, Lane and his MITC supporters pushed House Bill 291 to successful passage.  Its language required all public railroad, express and telegraph stations and offices to install or allow to be installed in every city and town served, a telephone from each telephone exchange operating in the locality.  Furthermore, it required promptness in answering incoming telephone calls, as well as “correct replies to be made to all reasonable and proper inquiries” made during business hours.  Failure to comply was a misdemeanor.  (Source: 80)

 

Labor unrest among Bell linemen and operator corps significantly benefited the fledgling MITC in the midst of its Butte exchange construction when two short strikes were waged, followed by a ten-month strike starting June 8, 1907.   The strike would reduce Rocky Mountain Bell Company’s (RMBC’s) customer numbers.  As well, the effects of this strike spread to the Montana Federation of Labor and Helena Trades and Labor Assembly, which ordered strikes at businesses where Bell telephones were installed.  In December, a mob of 300-500 dangerously drove six non-union Bell employees from Butte, despite a restraining order issued by Judge Hunt.  The next February, Presidential pardons were denied to Lenihan, who was past president of the Electrical Worker’s Union of Anaconda, Plunkett, Shannon, Cutts and Edwards; each was sentenced to 4 months prison time for violating Hunt’s order. (Sources: 19A, 19B, 19C, 19D, 77)  (Link to Footnote E)  E1

 

Another city in which RMBC found discontent was Great Falls, the home of MITC investors W.G. Conrad and Thomas Couch, Jr.   In the spring, 1907 a large meeting of citizens was held to adopt resolutions condemning Bell’s poor service, unfair operator wages and high rates.  One account suggested that citizens unilaterally remove Bell company telephones if a resolution solving their concerns wasn’t forthcoming.  Red Lodge, Billings Livingston, Bozeman and Lewistown also were hotbeds of labor discontent targeted at RMBC.  (Source: 20)

 

Conjecture may lead one to assume that directors were fomenting citizen discontentment in Butte and Great Falls.  However, the business case alone was convincing since it rested upon the precepts that the RMBC facilities and business model in Montana were antiquated in a field evolving quickly with newer technology and lower rates.  In fact, RMBC average rates in Montana were 20% higher than those in every other RMBC state---Idaho, Utah, Wyoming and Eastern Oregon---with Butte and Helena having the highest rates. The high rates persisted even though it was not unusual for used equipment to be recycled into Montana from other RMBC states.  As is many times the case, Montana would not be a recipient of better technology and rates--that is, unless competition forced the issue.  Beyond technology and lower rates was another very basic issue: many Montanans simply didn’t have access to telephone service at all, especially when compared with the more abundant access enjoyed by Americans in other areas, even in states close to Montana. (Source: 105, 111)

 

Statistics relate the dearth of telephone service in Montana in 1907.  Nationally, 1 of every 14.1 Americans had a telephone.  The comparable number in North Dakota was 1 in 14.2; even in mountainous Idaho the number was 1 in 16.0.  Montana lagged 36% behind the National number at 1 in 19.2.  (Several Southern states recovering from the Civil War trailed Montana.)  The year 1907 would prove to be the pinnacle year for Independents in America with about 50% of all telephones being Independent.  Although the small farmer Independents in Montana had done an acceptable job, the truth of the matter was neither Bell nor the Independents had deployed sufficient capital:  Montanans were underserved in the new information age.  Thaddeus Lane was about to change this dynamic in 1907.  Within five years when 1 in 10.9 Americans would have a telephone, the number in Montana would be 1 in 11.3, a difference of less than 4% from the National number.  Much of this rapid positive enhancement in telephone service access and more advanced telephony in Montana was attributable to Mr. Lane and his competitive Independent companies.  These changes within the span of just five years aptly would be described with superlatives: the work of “genius”. (Sources: 5, 23, 70)

 

Independent’s Day, Butte

 

When on September 16, 1907 the Montana Independent Telephone Company made operational its beautiful new three story exchange building at 124 West Granite Street in Butte, its rates and the RMBC rates were as follows per year:  For one party residential—MITC $36, RMBC $42; for one party business—MITC $72, RMBC $80; and, for two party business—MITC $54, RMBC $72.  Approximate numbers of telephones were:  MITC 225, RMBC 2,200.  Within three years, these numbers would be:  MITC 4,750 (an increase of over 2,100%),  RMBC 1,500 (a decrease of 40%).  (Pictured below is an early MITC ad from just before September 16.)  (Sources: 12A, 12C, 104, 109)

 

 

The exchange featured equipment supplied by the Automatic Electric Company (AEC) of Chicago, the leading and enduring Strowger automatic switch provider, which also financed Lane to some degree.  The AEC advertised its facilities, if installed in a city of 100,000 people, would save 1/3, or about $67,000, in construction costs vs. a manual cord board system, and also would save 40% in operating costs each year, due in part to elimination of most operators. (Sources: 25A, 25B, Network Nation p. 356)

 

Other features of the exchange were the duplicity of important equipment, alarms and light sensors for trouble alerts and 100,000 feet of underground conduits for main circuits.  (A somewhat dilatory issue affecting RMBC customer additions was its more extensive use of overhead wire on poles; these were unsightly and placed constraints on new customer numbers.)  Manhole #1 in the basement of the MITC exchange was 6’ x 7’ with twenty-eight ducts each able to handle 400 customers.  MITC private branch exchanges, or PBX’s, were installed at the Anaconda Mining Company and Hennessy Mercantile Company, with other large businesses in the order queue for their own PBX systems.  (Source: 12A) (Link to Footnote F) F1

 

The standard MITC dial telephone was nickel plated, with black and oak models available; their deployment required public education.  The following instruction was featured in an advertisement announcing the opening of a typical Lane automatic exchange:  “The instruments have the general appearance of the old style manual telephone, with the exception that the small dial is installed in the base of the instrument.  The subscriber connects with the telephone desired with three or four pulls of the dial, the ringing signal being given automatically without effort on the part of the subscriber.”  The ad continued by describing how to dial the telephone number “650”.  Independent company publicity included open house showings at new exchange buildings so as to showcase the inner workings of the automatic equipment.  (Pictured below are two models of AEC dial telephones from the period.)  (Source: “The Treasure State”, December 18, 1909, Montana Historical Society)

 

 

Butte’s population of about 86,000 and its substantial industrial and business base afforded MITC an excellent chance to sell the community on the advantages of modern, automatic dial telephone service.  It did so by offering a free service trail for a month or two to every Bell subscriber who expressed interest in MITC service.  Nearly 900 telephones were at customer locations on the day the exchange opened, with 225 connected.  Some customers had dual service with RMBC and MITC.  Nearly 3,000 telephones had been placed within six months, a number nearly 40% higher than Bell’s installed base after doing business for twenty-five years in Butte. Success seemed to be assured.  (Sources: 12A, 12B, 21, 22) (Link to Footnote G) G1

 

The new exchange launched Butte into the next chapter of the budding information age, financed largely if not completely with “Montana capital”.  This included more than 400 Montana investors statewide “representing nearly every large interest in the state, as well as every trade and profession”.  (By comparison, there were just 24 RMBC stockholders in its Montana service territory in late 1906.)  Investing in a local Independent company apparently appealed to a wide swath of Montanans.  Within another 2 ½ years the number would be nearly 2,000.   (Sources: 9, 12A) (Link to Footnote H) H1

 

Independents’ Days, Montana

 

As Lane built out his Independent system in Montana and westward over the next few years, accounts suggest that he was exceptionally capable in his ability to build a shared vision among investors, customers and employees.  Recall while in New York he had parlayed his telephone activities to encompass forty-two exchanges in just a few years.  These same but even more finely honed skills in Montana were heartily appreciated.  For example, the Helena based and unaffiliated “The Treasure State” magazine would extol upon his “invaluable faculty of radiating local confidence, inspiriting dejected enterprise, restoring self-confidence in others and urging forward the rapid economic success of all his undertakings.”  Visionaries, technologists and promoters in Lane’s day and forward, including those operating within the present day of information age technology, may understandably relate to Lane’s skills as he ensured through his sophisticated maneuverings that the most up-to-date technology at reasonable prices would be available to customers.  (Source: 5)

 

Without going too far afield, it is important here to consider the cultural shift occurring at this time in Montana.  Early 20th century Montana witnessed a spirit akin to that of manifest destiny; its optimism spurred the development of what had been pioneered just a few years preceding.  Good and growing rail transport was prospering.  Large corporate mining and timber development were in full swing.  The small farm homestead boom with its irrigation projects and the damming of the mighty Missouri waterway to provide long distance electricity were ready to launch.  Recollections of the bison, open range and original pioneers were etched into the Montana psyche as remnants from the tough frontier, but the 20th century was shoving aside these recollections with its new opportunities of airplane experimentation, mass automobile production, longer distance telecommunications, moving pictures, the phonograph, deForest’s radio broadcasts and even Einstein’s theoretical physics of relativity.  Seemingly frivolous inventions of the period would contribute to convenience and the soon-to-come age of consumerism: the coat hanger, crayons, Popsicle, paper towels, cellophane, life savers, the zipper, the shopping bag and a board game that later would be named Monopoly. Thaddeus Lane, born of the generation following the Civil War, had watched the physical westward line of the frontier disappear.  But a new and rapidly expanding technological frontier arising as the next phoenix was ready for the entrepreneurial taking with few restrictions, if one desired to pull at its brass ring.  Thaddeus Lane would give it a good hard pull indeed, helping Montanans to spread their technological wings during this period and catch a glimpse, albeit partially fleeting, of the future.

 

The “good hard pull” was manifested in the map of the Lane system of telephone companies published by Telephone Securities Weekly a couple of years after the Butte exchange opened showed an extensive system extending north from Butte to Helena and Great Falls, thence north to Conrad, thence from Great Falls east and south to Lewistown, Roundup, Billings and Red Lodge, thence west from Billings through Livingston and Bozeman.  From Butte west it shows Anaconda, Deer Lodge, Missoula, thence south to Hamilton; from Missoula thence north and west to Coeur d’Alene, Spokane, Sand Point and thence back east to Thompson Falls; from Spokane thence south and west as far as Pendleton, Or and Lewiston, Id.  A total of forty-nine local exchanges and many toll offices were depicted.      (Pictures below are:  a 1907 Montana system planning map; the Helena exchange subsequently modified with a second story; and, a circa 1911 Helena exchange telephone directory.)  (Source: 9) (Read about technical and other features of the Lane system at this link: Lane Automatic System Sidebar)  LSS

 

 

 

 

Local exchange and combination local/toll companies of which Lane was president by this time included separate Automatic Companies in Helena and Great Falls, the Billings Mutual Telephone Company, the MITC at Butte, Anaconda, Missoula and Hamilton, the State Telephone and Telegraph Company at Bozeman and Livingston, the Interstate Telephone Company Limited at Coeur d’Alene, Sandpoint and Panhandle, the Idaho Independent Telephone Company at Pocatello, and the Home Telephone and Telegraph Company at Spokane.  Finally, there is one more Lane company to seriously consider, it being of supreme importance in this unraveling tale:  A holding company called the Interstate Consolidated Telephone Company (ICTC).  (Source: 9)

 

Sophisticated Strategic Planning II

 

The genesis of ICTC’s formation as an overarching holding company that would own all of the other companies listed above was detailed in five carefully written pages a few years earlier on December 13, 1908, Lane to A.B. Cook, as follows:  William Mead, a Los Angeles capitalist and high flyer, was pursuing Lane to invest heavily in the Home Telephone and Telegraph Company of Spokane, an Independent company.  (Recall Lane had considered it in conjunction with his westward reaching long distance toll system plans.) It had incorporated in 1906 and contracted with Empire Construction Company of Los Angeles to build an exchange and underground lines; construction had begun by December 1906.  In September 1907 the journal Telephony issued an exposé alleging the Kellogg Company, whose switching equipment had been used by Empire (and others), was controlled by the Bell system, and that this equipment would be used to undermine completed Independent company facilities.  Mead’s National Securities Company of Los Angeles was involved in financing Spokane, with nearly $350,000 spent for an unfinished exchange on Howard Street and 200,000 feet of underground conduit. Mead wanted Lane to invest and finish the languishing construction.  Lane’s letter to Cook listed a Byzantine arrangement of financing, alliances, responsibilities and optimistic completion dates.  It is his first known salvo initiating the Spokane affair.  Eventually it would be Lane’s nadir and would lead to the undoing of his progressive Montana Independent company telephone network.

 

Following up the letter to Cook, Lane persisted with another even more detailed letter to another director in May 1909, Lane to John MacGinniss.  In it he specified how ICTC would acquire the stock of all the other Lane companies, how the corporate structure would be patterned after the Bell octopus model by separating long distance toll facilities from local exchange companies so as to realize higher returns on investment, how centralized financing could be accomplished by ICTC and very importantly, how this financing could be designed to make better use of a favorite Lane financing device, that being watered bonus common stock used to entice potential preferred stock and bond holders, salesmen and underwriters.  (Sources: 13A, 31D)

 

Most importantly of all in the letter, Lane clearly declared his over-riding goal, a seemingly incongruous goal given his theretofore rock-solid reputation in Independent company telephony.  He was proposing ICTC as a vehicle to facilitate the eventual sale of all the Lane-centric properties to Bell because of “unusual profit possibilities”.  He specified that the holding company would have “a property and territory which the Bell Company must eventually acquire, unless it wishes to entirely abandon Montana, Idaho and Eastern Washington, which is not at all probable.”  He surmised that the older RMBC facilities and operations would be wound down so that Bell could “endeavor to hold the field by acquiring the various Independent properties in the Rocky Mountain territory, which have taken the business and have the advantage of superior construction, equipment and public sentiment.”  He continued:  “In this connection, the fact that we will have an absolute monopoly of automatic telephone equipment in our territory, should not be overlooked, as it is one of our strong assets.”  He punctuated the letter’s end by explaining plans for telegraph service on his telephone lines, as well as his pressing desire to enter the Spokane market.  (Source: 31D)

 

The ICTC was breathed to life on October 21, 1909 as the holding company for all of the other Lane companies; its authorized capitalization was $5,000,000.  Directors within a few months after incorporation included:  Lane; T.I  Greenough, capitalist, Missoula; A.B. Cook and John MacGinniss, Patrick Wall, attorney, Butte;  and, William Mead, National Securities Company of Los Angeles.  Others were interested as well, including John F. Davies, a Butte attorney, who would become Secretary.   (Pictured below is an ICTC stock certificate; the owner was Corporation Securities and Investment Company.)  (Sources: 26, 26A, 112)

 

 

Formation of the ICTC holding company marked a bright line transition in Lane’s strategy and the Independent company movement in Montana.  He realized that a single point of ownership would be highly advantageous if the telephone operations eventually were to be sold, which was his new goal.  Balanced against holding company goals and a corporate headquarters relocated to Spokane, was the public relations challenge of at least appearing to be a local Independent operation in the somewhat profitable Montana communities that gave him his start in the West.  They had, after all, heartily embraced the idea of goodwill, financial support and local ownership. 

 

Once again, Latzke’s “Fight With An Octopus” was relevant.  A chapter familiar to Lane and Montanans, “The Fate of a Traitor”, discussed Independent company sales to the Bell octopus:  “It is probably difficult for the ordinary businessman to understand why a person should not have the right, unchallenged, to sell his property as he pleases, even if that property consists of a majority of the stock of an Independent telephone company, which can be turned over to the Bell at a fancy figure. But to the men in this movement the moral wrong of such a transaction is as plain as day; they would as soon concede that Benedict Arnold had a right to sell out to the British.  Nor does their argument lack force or logic.  They insist that, when a man or a body of men organizes an Independent telephone company it is not only the money paid in for apparatus and equipment that is capitalized, but the goodwill, support, and friendship of their neighbors as well.”

 

This populist/progressive sentiment especially was keen in Butte where Lane sorely needed to maintain local confidence; it above all was his foundation.  A good example of his endeavors in this direction was the message to customers and investors in March 1910 when he addressed in writing the “vicious” tactics of Bell, spoke of MITC’s good earnings, and rose to the bully pulpit in praising the local ownership of the Montana Independent Telephone Company (MITC).  (Source: 27)

 

Spokane Becomes The Primary Focus

 

Irregardless, at least a few minority stockholders in Butte, perhaps under Rocky Mountain Bell Company (RMBC) guidance, were becoming suspicious; they provided a detailed, sophisticated written notice of complaints regarding Lane’s modus operandi and called for a meeting of stockholders in the courtroom of a local District Court Judge.  As Butte public opinion clouds were building in 1910, Lane moved his residence from Butte to Spokane.  (Source: 28)

 

Just after his move in the fiscal year ended in April 1911, Montana operations appeared to be performing acceptably:  MITC gross revenues were $218,998.45, expenses were  $178,642.61, which included bond interest but not plant depreciation, and net earnings were $40,355.84.  MITC telephone numbers had increased during the year by 2,095 to 7,278 as follows: Butte 4,880; Anaconda 534; Missoula 1,102; Three Forks 95; Deer Lodge 243; Stevensville 107; Basin 22; Logan 27; Drummond 48; Boulder 68; and, the brand new exchange at Hamilton 152.  Service innovation included a wake up call service, at least in Butte.  If any of the 400 patrons subscribing to it did not answer within ten minutes of the time they designated to receive their call, a messenger was dispatched.  Revolving work shifts at the mines may explain the popularity of this innovative-for-the-times service.  (Sources: 29, 62A)

 

Telephone statistics for other Lane properties, such as the Helena, Great Falls or Billings companies would be shown in their own respective company reports.  Suffice it to say, Independent telephone numbers in Butte were more than five times those of RMBC, Great Falls was three to one and Helena was equal.    The Montana local exchange and long distance toll system operated in abstentia of Spokane likely would have prospered, especially if appropriate RMBC interconnection could be utilized, as provided by Montana law.  Spokane, however, would be a horse of a different color.  (Sources: 30, 83, comparison of telephone company directories for Helena numbers)

 

After the Howard street exchange became operational in Spokane, significant sums (see next paragraph) would need to be expended during later 1910, 1911 and into 1912 to make the Spokane operations viably competitive.  Most immediately pressing was the need to actually start providing service to at least 4,000 customers before any revenues at all could be collected, per the franchise.  Lane predicted 15,000 SHTC telephones, then 30,000; but only 3,000 had been placed as of April 1911; this meant no meaningful revenue, and a plethora of expenses accumulating since October 1909.  To build-out the operational capabilities of the system, he constructed a large main office exchange, the Roosevelt Exchange (former President Theodore Roosevelt ceremonially assisted in making operational the Roosevelt automatic exchange in April 1911, the largest in the ICTC system with a 100,000 line potential), another exchange at Hillyard, as well as several smaller exchanges/sub-exchanges.  Also he rebuilt some of the facilities poorly constructed by the Empire Construction Company.  (The Roosevelt exchange building is pictured below.)  (Sources: 30, 31A, 31B, 31C, 31D, 31E)

 

 

To provide long distance toll service between the Interstate Consolidated Telephone Company (ICTC) systems in Montana and those to the west, the company was extending its toll infrastructure through the “wilderness” terrain west of Missoula through Mullan, Idaho.  Not even the Bell system had successfully traversed this terrain.  (The first major Bell long distance line through this area would wait until the mid 1920’s when the Northern Transcontinental toll line was completed.)  To the west, Spokane to Seattle, Lane had arranged to lease lines from the Postal Telegraph Company, which was making a valiant attempt to form alliances with Independent companies across America so as to combat the ATT-Western Union combination.  (ATT had purchased a controlling interest in Western Union in 1909, a highly incendiary decision long contemplated by Bell.)   The roughly $1,000,000 needed for the Spokane local exchange build out and toll facilities east and west of Spokane, all within a 1¾ years timeframe, would stretch ICTC financing needs beyond its capabilities.  (Sources: 22, 31D, 32A, 32B, 32C)

 

Financial Stress

 

Lane found himself in a classic capital squeeze:  Adequate and reasonably priced financing was needed to build large facilities in a larger market in which demand was increasing, but would remain muted until a viable build-out was completed.  Layered on was a long-tenured, entrenched and larger Bell company competitor and the financially debilitating provision in the Spokane franchise requiring free service until 4,000 customers were connected.  (Source: 31B)

 

Adding uncertainty to ICTC plans was the provision in its Spokane franchise allowing the city to purchase ICTC facilities.  Perception amongst potential financiers of this possibility would have been palpable; voters in Seattle passed by more than a 3 to 2 margin in November 1911 an initiative to purchase “its” local Independent telephone company.  (Great Falls citizens also were monitoring the Seattle initiative.)  One important factor working to ICTC’s advantage, if it could find financing over the ensuing couple of years, was the expiration in 1914 of the Bell company’s Spokane franchise.  (Sources:  63A, 63B, 82)

 

Coincident with Lane’s telephone activities in Spokane was another newly undertaken endeavor with the potential to backstop the stressed financial needs of the telephone empire.  Involved in it with Lane were familiar cronies MacGinniss, Cook and others; Lane was president/vice-president, while Cook/MacGinniss were directors.  Together they had had become officers/directors on the bully pulpit for a fire insurance company in Spokane, the Western Empire Insurance Company, and a newly formed life insurance company in Montana, the National Life Insurance Company.  The companies appeared to be financially solid per their year-end 1911 annual reports to shareholders and the Washington insurance regulator.  (Sources: 33A, 33B)

 

A June 6, 1911 letter, Lane to Cook, exemplifies the close relationship between the telephone companies and the insurance companies as it memorializes Cook’s trade of $18,000 of telephone company bonds of the Helena Automatic, the Idaho Independent and the State Telephone, for 216 shares of Western Empire Insurance Company stock.  MacGinniss made exactly the same trade per an August 4th letter.  The Cook/MacGinniss telephone company bonds were traded at par value, while the insurance company stock value was discounted seventeen percent.  What occurred in the context of the significant financial stress and perhaps receivership concerns at the Lane telephone companies was:  at the very least, unethical individual risk mitigation by insiders; or, even more egregious if the insurance company shares were quickly sold on the open market, a subterfuge to transfer $30,000. into struggling telephone company financial needs.   Policy owners and small investors sold on the value of local insurance company patronization would have been clueless to these tactics affecting the stability of their insurance company investments and products.  (Sources: 33, 33C)

 

As the 1911 calendar ticked away, Lane juggled the significant telephone financing needs from many angles, including offering his personal assets as collateral.  Two money sources to which ICTC became more and more indebted were Willaim Mead, and the Automtic Electric Company (AEC).  Smaller creditors, like The Exchange National Bank of Spokane, were tightening the noose on co-signors of ICTC notes.  The bank’s August 31 letter to Cook demanded payment:  “Please take notice that the note of $25,000 signed by the Interstate Consolidated Telephone Company, dated March 11-11 and due July 11-11, with interest at eight per cent, is past due and unpaid.  Repeated demands upon the Telephone Company have failed to bring results.  We therefore look to you for the payment of the same.”   (Sources: 25B, 34A, 34B, 34C)

 

A Giant Awakens

 

Contra to Lane’s troubles, the Bell system was firming up its strategies during the last half of 1911 so as to advance its telephone industry coup-de-grace combination of ATT and Western Union.  In August it offered the first large underwriting for the Mountain States Telephone and Telegraph company (MSTT), which combined the assets of the following companies: Colorado Telephone (Colorado, New Mexico), Rocky Mountain Bell Telephone (Utah, Idaho, Montana, Wyoming) and Tri-State Telephone and Telegraph (Arizona, southern New Mexico, El Paso County Texas).  Pacific states’ operations remained with Pacific Telephone and Telegraph.  The prospectus made particular note of MSTT financial strength.  (Source:  35A)

 

Near years end, Lane was attempting to arrange a hail-mary sale of securities in the east to cover unpaid bills, and most importantly, to pay bond interest expense coming due in November.  Unpaid bond obligations could force ICTC into receivership.  Coincident with Lane’s financing trip to the east coast in late 1911 was a pronouncement made in the Spokane Chronicle by ATT president Theodore Vail that “as soon as the people demand it, the Bell company will purchase the various competing telephone systems now operating in the northwest.”  (Theodore Vail is pictured below.) (Sources: 36A, 36B)

 

 

Vail’s most conspicuous previous attempt to buy or merge with the Independents came a year earlier when a committee of seven leading Independent company representatives were appointed by the Independent Telephone Association at a Chicago meeting. The seven independent representatives, who met with Vail and a representative of ATT owner J.P. Morgan (J.P. Morgan had acquired a controlling interest in ATT in 1907 and reinstalled a favorite son, that being Theodore Vail, who had left Bell employment a couple of decades earlier), were treated to Vail at his finest as he specified “the public had profited up to that time by destructive competition, but that once the merger was formed, the company was going to make the public pay for it.”  Vail proposed a $1.3 billion ($31.8 billion in 2011 dollars) merger at the meeting to take place over several years with multitudes of Independent companies to be merged and acquired.  The Chicago meeting ended without result, but the seed and strategy had been launched.  (Sources: 37A, 37B, Network Nation pp. 312, 346-47, www.measuringworth.com)

 

Lane did acquire financing for the Interstate Consolidated Telephone Company (ICTC) in the east from a German investment bank MacGinniss had used when arranging Heintze financing, that being Hallgarten.  The financing, at fire sale terms, procured $150,000 by giving Hallgarten $190,000 in MITC bonds and the same amount of its common stock as a bonus.  It presaged what could become a death knell scenario, using Montana operations as collateral to shore-up Spokane.  Ironically while in the east, Lane also responded to Vail that the Spokane Home Telephone company was not for sale.  The response came through his talented publicity director, Byron E. Cooney, who later would become a popular union-supported state legislator from Butte.  (His brother was future Montana Governor Frank Cooney, 1933-35.)  (Sources: 38A, 38B, 84, 107)

 

Lane’s response, in his usual “generous and freehanded way”, listed the alliance by Independent companies with the Postal Telegraph Company to compete with Bell and the financial infusion by large international bankers into securities of Independents in the northwest as factors that accounted  “for Mr. Vail’s appearance at this time and his frequently expressed desire to be permitted to operate without competition.”  In the response, he raised the Butte operations as a model of modern automatic telephony.  At the very time of his response, interests, directly and indirectly controlled by Bell, would have been able to force ICTC into receivership if the November 1911 bond interest had not been paid--and the May 1912 payments soon would be due.  In effect then, Lane’s response largely was blustery publicity.  (Sources: 34B, 36B, 38A, 39A)

 

The ICTC financial situation was not unique in the Pacific Northwest.  Vail’s purchase offer was a broad one, and various companies appeared to be financially stressed, or in receivership.  Such was the case with a there-to-for moderately successful toll company in the Seattle area, The Northwestern Long Distance Telephone Company.  Bell interests had engaged in several strategic moves, leaving Northwestern high and dry of much of its business.  Added to this were the usual Bell secretive manipulations, some of which were exposed thusly in early 1912:  A minority stockholder, who with William Mead had been one of the original incorporators and directors of the National Securities Company of Los Angeles, alleged that his former associate Mead, through a title company he owned and which owned many of the bonds of Northwestern, had conspired to force Northwestern into receivership so as to acquire the property at a bargain price for Bell interests.  This expose was the first public revelation of William Mead’s real motives in deals he had been making in the northwest, like that made with Lane in Spokane.  (Sources: 40A, 40B)

 

An End Game

 

Nearly coincident with Vail’s offer to purchase properties in the Pacific Northwest was the formation in Great Falls of a committee to investigate consolidation of Bell and Great Falls Automatic.  (The city had supported a Bell competitor a dozen years prior, The Dunlap Telephone Company, until Bell purchased it.)  Questionnaires were sent to the two companies under the signature of Chairman F.A. Fligman.  Responses made it clear that neither party wanted to sell to the other, but each would purchase the other under conditions specified in its response.  At a January 11, 1912 committee meeting attended by Lane and Bell representative H.P. Story, intermarrying telephone competitors was discussed, with committee member Herbert Strain reporting that Governor Norris, when querried by him, specified that such a merger or purchase was illegal.  The ever-sharp Lane then introduced another “rather startling proposition”:  Great Falls Automatic would agree physically to interconnect with Bell. The meeting ended without result, but within 24 hours both the Great Falls Tribune and the committee concurred with Lane’s offer, with the Tribune calling the proposal “revolutionary”.  The Tribune editorial specified:  “Inasmuch as the Automatic company has a considerably larger number of subscribers in its Great Falls exchange than the old company, its offer cannot be considered otherwise than fair…”.  Lane’s overture was tantamount to a very public request, a dare if you will, to MSTT to interconnect per Judge Hunt’s decision and the Montana constitution.  The Tribune Editorial referenced the Hunt decision.  Lane’s bravado would serve him well, given his tough financial situation; it had painted Bell into somewhat of a corner.  (Sources: 81, 89, 90, 91)

 

Within in few weeks, MacGinniss and Lane traveled to Denver, on the one hand in a sort of grovel to Vail’s financing and purchase overtures, and on the other hand, in a position of some strength gained from what had happened in Great Falls.  The trip was on the sly, although Cook partially was privy.  Although a sale had been in the scheming since 1909, the cash strapped ICTC didn’t appear financially to be very desirable in its nearly busted condition.  Involved in the negotiations were the son of MSTT’s president and corporate counsel Milton Smith.  The discussions resulted in a surreptitious contract whereby MSTT would purchase a controlling interest in ICTC via a newly minted MSTT subsidiary---incorporated on the same day as the purchase/sale agreement on February 3, 1912.  The entity was named Corporation Securities and Investment Company; its three directors were stenographers, two of them (M. Stewart, President and H.C. Davidson, Secretary/Treasurer) in the employ of MSTT.  (Pictured below is a cartoon showing a potential Bell payoff.)  (Sources: 38A, 39A, 41A, 108)

 

 

The illicit purchase was an arrogant abrogation of the clear intent of Montana’s constitution, section 14, article 15:  “No telegraph or telephone company shall consolidate with, or hold a controlling interest in the stock or bonds of any other telegraph or telephone company owning or having control of competing lines of telegraph or telephone.”  Montana’s statute section 4402 included the exact same language, but no penalty clause. (A penalty potentially of concern to Bell was possible revocation of its Montana corporate charter.)  The nexus between Mountain States Telephone and Telegraph (MSTT) and each of Lane’s five Montana companies competing with MSTT was hard to miss: MSTT clearly owned/controlled the Corporation Securities Investment Company and the Interstate Consolidated Telephone Company (ICTC) clearly owned/controlled Lane’s Montana companies.  MSTT’s formation of the narrowly construed Corporation Securities and Investment Company was legal shenanigry parading in its finest illegal attire. (Source: 83)

 

The controlling interest purchase of 17,555 shares was accomplished very quickly at $82.85/share, a spectacular price unfathomable under rational economic calculus, save that of a well-healed quasi monopolist on a mission.  The total amount paid to Lane and MacGinniss was $1,454,400.  The shares largely would have been bonus stock in which these two men had invested little or no money.  Lane and MacGinniss over the next six years helped to acquire the remaining securities of minority interests of the Lane companies.  Questionable tactics sometimes were used, with a few sellers alleging in legal actions that fraudulent tactics were used.  The tactics were of some embarrassment to MSTT, since the purchase/sale agreement clearly specified the average prices it would pay for the securities. (Sources: 38A, 41A, 101)

 

At the time of the Lane/MacGinniss sale to MSTT, ICTC’s book value was about $13/share with the stock trading on the Spokane market at between $12-$20/share.  The price realized by Lane/MacGinniss from MSTT on subsequently acquired shares is not known with certainty; in court proceedings spanning more than the next decade, MacGinniss simply specified that they realized a variety of prices for the shares.  It safely can be stated that many minority shares were purchased by the two men at between $20 and $50 share, knowing that they would sell the same to MSTT at $70/share per the sales/purchase agreement.  Be that as it may be, in real dollars terms a century later in 2011, just the original profit of $1,454,400 is equal to a CPI adjusted $34,800,000, and this profit was realized in advance of income tax requirements enacted in 1913.  Additionally, the bonds these men commandeered previously at substantial discounts immediately would have been worth 100% of face value, an event worth another fortune. (Sources: 38A, 41A, 101, 102, www.measuringworth.com)  (Link to Footnote I) I1

 

Lane danced on a tightrope in Spokane as word of his Denver trip started leaking.  A chief concern was the franchise for the Spokane Home telephone company, which prohibited its sale to a rival concern, i.e. Bell interests.  The January 13, 1913 Spokesman-Review reported Lane refuting rumors and detrimental talk regarding Spokane Home, specifying these were circulated by a few disgruntled stockholders and that the company was in excellent shape:  “It is true the company owed a lot of money some months ago, but the sale of the Great Falls plant wiped that out and the company now is in a good condition.  There is absolutely nothing to the report that the Bell will buy out the Home company in Spokane.”  The article also referred to the sale of the Helena plant.  His scheme was catching up with him, but in the end Lane would slip like teflon through this web of deceit. 

 

The Federal Government Awakens Briefly; Montana's State Government Dozes

 

One office that should have been noticing changes in ownership of Great Falls and Helena telephone companies was the ex officio Montana Public Service Commission (PSC) of the Railroad Commission established in March 1913; it was imbued by that Legislature with regulating all telephone provider rates and services.  Two years earlier, Railroad Commissioner Edward E. Morely wrongly had predicted these duties would be added by the 1911 Legislature:  “Personally, I favor the supervision and control by the commission of the two enterprises just mentioned (telegraph and telephone), if for no other reason than the fact that after the legislature has adjourned, in the twenty-two months to follow, conditions may be such as to require our services.”  (Source: 42A)

 

Two months after its formation, the PSC sought an Attorney General’s opinion regarding its powers to require consolidation with Bell of an Independent company in the Hamilton area, known as the Bitter Root Valley Telephone Company before MITC purchased it in the fall, 1909.  Attorney General D.M. Kelly responded immediately:  The PSC couldn’t require consolidation because Montana law comprehensively prohibited common ownership or control of competing telephone companies.  He further opined that the companies could interconnect so that citizens would be “relieved of the burden and cost of maintaining a double service…”.  If it weren’t already aware, a coming national spectre soon would inform the PSC of the illicit MSTT/ICTC combination affecting the Hamilton exchange.   Once informed, the Attorney General’s opinion could have assisted it in setting the whole of the record straight, according to law.  (Sources: 43A, 65)  (Link to Footnote J) J1

 

Before newly elected President Wilson was sworn into office early in 1913, the U.S. government had begun an investigation into the telephone industry, but it had stalled during the Taft presidency.  The investigation was renewed with vigor within a few weeks of the President’s inauguration in March.  Anti-trust activities in the Pacific Northwest were a first priority on the radar screen of Attorney General McReynolds and his special assistant, Constantine B. Smythe, who formerly was an attorney general in a state in which public ownership of utilities continuously has thrived into the current day, that being Nebraska. (Also in March, J.P. Morgan died, thus ending a personal quest by ATT’s owner to control the telephone industry.)  (Sources: 40A, 44A, 53B, Network Nation pp. 351-353)

 

Just a few months later on July 24th the Justice Department filed in Judge Robert S. Bean’s federal district court in Portland, Oregon its first ever complaint against the Bell system under the Sherman Anti-Trust Act of 1890, United States v. American Telephone and Telegraph Company.  ICTC President Thaddeus Lane and Secretary John Davies, and William Mead also were listed personally as defendants in the action.  The New York Times reported in a “special” on July 25th:  “Among the independents mentioned are the Home Telephone Company of Puget Sound, operating in Tacoma and Bellingham; the Independent Telephone Company, operating in Seattle; the Interstate Consolidated Telephone Company, operating in Montana, Idaho and Washington, and the Northwestern Long Distance Telephone Company of Oregon and Washington.”  (Pictured below is a cartoon showing Uncle Sam “administering” the Sherman Act.)  (Sources: 44A, 45A)

 

 

The suit alleged the Bell system systematically had ruined competitors by enticing them to break contracts, as well as providing below cost or free service to drive competitors out of business, and by the outright and systematic elimination of competition through purchase, including purchase of 2/3’s of the common stock of the ICTC.  Smythe was quoted as saying:  “Today, through unlawful acts of this kind, all the local Independent telephone companies of Washington, Idaho, Oregon and Montana--and there was an Independent exchange in practically every city, town and village in these four states—have been brought under the control of the Bell….” (Source: 46A) 

 

He further opined that it wouldn’t surprise him if Bell admitted its antitrust activities, using the defense that the telephone business was a “natural monopoly”:  “If the Bell wins the present suit and its contentions for a ‘natural monopoly’ are declared in accordance with law, it will have a free hand to go ahead and complete this monopoly, by hook or by crook.”  It was his contention this defense should be defeated on its face because of a paragraph in the Sherman Act forbidding any person “to monopolize or attempt to monopolize or to combine or conspire with any other person to monopolize any part of the trade between states or foreign nations”.  (Source: 46A)

 

Anti Trust Stress Test

 

Hearings over the next few months were held in San Francisco, Tacoma, Portland, Seattle, Spokane, Butte, Denver, Chicago, Philadelphia, Baltimore and New York.  Smythe represented the United States, while Milton Smith, Denver, and E.S. Pillsbury, San Francisco, represented Bell interests.  Smith and Pillsbury were Bell employees.  Ironically in name, the special examiner representing Judge Bean in these hearings was named Mary Bell. Newspapers across Montana reported on the Spokane and Butte hearings, showcasing the corruption and mismanagement by Lane and MSTT.  (Sources: 37A, 39A, 47A, 83, 84, 85, 86, 97)

 

At the Butte hearing, P.B. Moss, who owned 2,670 shares of ICTC stock or about 10% of the company, testified that Lane had waged a vigorous campaign in the fall of 1912 to purchase ICTC stock, while he, Moss, had never been informed of the deal with the Bell subsidiary, the Corporation Securities and Investment Company.  Bell attorney Milton Smith was called under oath at the Denver hearing to explain the secret anti-competitive Independent company purchasing activities of the Bell subsidiary. At the Spokane hearing, E.S. Pillsbury alleged the antitrust suit resulted from revenge indirectly perpetrated by Portland Home Telephone Company owner, Samuel Hill, who was the son-in-law of Great Northern Railroad magnate and Great Falls investor James J. Hill. (Source: 39A, 85) 

 

As 1913 progressed, the once convivial relationships between Lane/MacGinniss and other insiders deteriorated.  A good example is demonstrated in a letter, MacGinniss to Cook, explaining that P.B. Moss had retained the well know firm of Walsh, Nolan and Scallon as legal counsel to settle their differences.  In another letter, Cook to Lane, he stated:  “I do not care who I do business with, providing I get what I think I am entitled to for the securities.”  A plethora of lawsuits eventually would be filed by insiders, some of which were settled, while others were litigated.  Lane was a smooth operator who, as it turns out, had taken advantage of some of his business associates.  (Sources: 48A, 48B)

 

Later in 1913, Bell engaged in a newspaper barrage by its infamous publicity department.  Many major newspapers during August carried large advertisements signed by ATT president Vail specifying that all important Bell system activities had been well communicated to the public in advance, most often with the approval of governmental authorities.  The ads also sounded a conciliatory, but perhaps wily message:  “Every possible assistance will be given by us to the courts in their effort to determine whether our policy is or has been inimical to the public interest.  We desire that anything wrong be corrected; we will voluntarily rectify any wrong that may be pointed out to us; and, so far as it may be determined that our policy or any act under it is against the public interest, we will promptly conform to such determination.”  Lengthy MSTT letters also ran in Montana papers attempting to prop up Bell’s image. (Source: 49A, 96)

 

This kind of advertising may have been Bell’s attempt at contrition to a public and their government learning of nefarious activities, such as that of the Bell system vice president H.D. Pillsbury, son of lead anti trust counsel E.S. Pillsbury.  The junior Pillsbury was the point man with defendant William Mead in Bell’s secret controlling anti-competitive acquisition of the Northwestern Long Distance Telephone Co.  He came by the talent honestly; the senior Pillsbury had been involved in the bribing of San Francisco city officials in a telephone franchise issue several years earlier.  William Mead also was involved. (Sources: 45A, 50A, 64B)

 

Notable among other public pronouncements during the year was the call by Postmaster General Albert S. Burleson on December 17th for public ownership of telegraph and telephone properties:  “A study of the constitutional purposes of the postal establishment leads to the conviction that the postoffice department should have control over all means of the communication of intelligence.”  The post office had just completed its first profitable year in decades, and the new progressive administration was asserting, again perhaps in a wily way to defendants in the anti-trust case, that the postal service would float a $900,000,000 bond issue to finance such confiscation.  ATT president Theodore Vail’s response was predictable:  “If the government wants to take over the telephone and telegraph lines, it will do so.  It’s a long step, however, between appraisement of the properties and taking them over.”  (Burleson’s idea temporarily was put in place under his charge during U.S. involvement in World War One.)      (Source: 51A)

 
A Seventy-Year Deal

 

Just two days later on December 19, Attorney General McReynolds received a letter under the signature of ATT vice-president Nathan C. Kingsbury.  The letter, which can be reduced to one printed 8 ½” x 11” page, outlined what would become the telecommunications paradigm in the United States for the next seventy years until the breakup of the Bell system in 1984; it famously became known in the annuls of telephone history as the “Kingsbury Commitment”.  (Source: 52A)

 

The Commitment resulted from sixty days preceding of negotiations between ATT and the Justice Department:  Western Union would be sold; the Bell system would cease and desist from acquiring Independent company competitors; certain Bell-Independent Company interconnections would be established, particularly long distance toll connections under Bell system specifications; and, where competing Independent companies had been acquired but not yet physically united or consolidated, the Justice Department and Interstate Commerce Commission would be consulted “for such advice and directions, if any, as either may think proper to give, due regard being had to public convenience and to the rulings of the local tribunals.”  (Sources: 52A, 52B)

 

Appertaining to Montana should have been subsequent rulings from Judge Bean in Portland, and particularly with respect to “the rulings of local tribunals”, the Montana Public Service Commission.  Its duties included protecting the Montana public interests in telephone rate and service matters, should it have felt compelled to become so embroiled.  There is no evidence to suggest that the PSC would become involved in any way.  It may have rationalized its approach using extremely convoluted reasoning:  MSTT simply acquired the plant and equipment of a competitor exiting the business, and therefore, it really wasn’t a competitor.  Simple a priori reasoning should have led it on another path consistent with the AG’s opinion, that being to uphold the 1889 Montana Constitution according to their sworn oaths of office.  (Source: 77) (Link to Footnote K) K1

 

On the day the Attorney General received the Kingsbury Commitment, President Wilson wrote the following to McReynolds:  “Thank you for letting me see the letter from the American Telephone & Telegraph Co.  It is very gratifying that the company should thus volunteer to adjust its business to the conditions of competition.”  Such perception regarding competition also was shared by many Independent companies; E.B. Fisher, president of the Independent Telephone Association of America, wrote on December 22nd:  “I am glad that the new policy has been announced, and most earnestly congratulate the telephone industry in all phases, and the public.”  (Sources: 52B, 53A)

 

The perception of the day, then, was that the Kingsbury Commitment would facilitate competition, and that the Bell system “natural monopoly” concept had failed.  So-called “universal service” and innovation would be brought about by increased and freshly invigorated competition, thereby potentially providing fresh purchase to the technologically advanced Independent telephone system that Lane had built in Montana.  This perception would prove to be completely inaccurate.  (Link to Footnote L) L1

 

The commitment, or gentleman’s agreement, would succeed beyond ATT’s proudest dream:  America’s telephone company divide was frozen in time into dominating Bell territories, with territories still retained by Independent companies a very distant second.  (Pursuant to legislation in 1921, Bell once again was permitted and did begin acquiring Independent companies.)  Bell was vested with interconnection standards, a tremendously powerful lever used by it to enforce the “agreement” over the years through Western Electric and Bell Labs equipment standards, and other standards.  (Pictured below are Bell and Morgan shenanigans with the Independents.)  (Sources: 53B,78,79, Contrived Competition p. 173)

 

 

Not until the late 1960’s “Carterphone” case and the formation of Microwave Communications, Inc. (MCI) with its microwave network between Chicago and St. Louis did the ATT empire begin to crumble; its breakup came in 1984 almost by accident during Reagan administration miscues following 15 tumultuous years of regulatory and legal battles.  (Source: Contrived Competition, pp 191-93, 196-210)

 

The breakup just as easily could have occurred in 1913-14, unfreezing seventy ensuing years of cloistered innovation.  Recall President Wilson’s admonition:  Monopoly stifles invention.  Unfortunately for Montana and America, the die had been sealed when this President naively bumbled the implementation of his well-conceived theories.  The initial public policy implementation of the Kingsbury letter would come several months later in 1914, back in Judge Bean’s court at Portland, Oregon. 

 

A New York Times headline on March 27, 1914 announced:  “Phone Trust Dissolved.  Pacific Northwestern Bell System Concedes Government’s Demands”.   A decree had been filed in Judge Bean’s court the day before, signed by 28 of the 42 original defendants, the other 14 being dismissed as minor defendants originally named so as to extract their testimony.  (Source: 45A)

 

Overspent and Lost in the Shuffle

 

The decree significantly addressed the Bell/ICTC ownerships of The Home Telephone Company of Spokane and the Interstate Consolidated Telephone Company Limited, the ICTC toll company subsidiary.  The Bell conglomerate was ordered to divest these two companies within six months as to the former, and within three months for the latter. These findings begged for similar consideration of the Montana situation. (Source:45A)

 

Alas, the Montana companies controlled by Bell/ICTC were not mentioned.  This left the ownership of the following former Bell competitors in Montana, which had not physically been united or consolidated with Bell, illicitly in the hands of the Bell conglomerate: An Automatic Company in both Helena and Great Falls, the Billings Mutual (Automatic) Telephone Company, the Montana Independent Telephone Company (MITC) at Butte, Anaconda, Missoula and Hamilton and the State Telephone and Telegraph Company at Bozeman and Livingston.  These companies encompassed nearly forty exchanges in Montana. 

 

The fate of the Spokane Home Telephone Company would take many twists and turns over the next few years; Judge Bean uniquely had provided the Spokane community the option of retaining Bell system ownership of the Spokane Home company.  Its city council was required to make a decision within three months of the decree. The Council sensibly elected to retain the Bell systems 22,000 telephones; the Spokane Home Company’s 7,000 telephones could be merged.  After the decree was modified, several finger pointing back and forth franchise discussions were held by the city council, alternately favoring Spokane Home and its parent Bell company.  Given the common ownership, it seems curious that the Spokane city government was so taken up in the matter.  (Sources: 54A, 61A)

 

On the other hand, Montana communities, especially those where Independent telephones were equal to or far greater than numbers of Bell telephones, were not given any options.  Beyond individual communities, the whole of Lane’s Montana Independent interconnected system could have been given the choice to continue on as the growing, perhaps dominant, technological superior.   The PSC, with its statewide reach, and other relevant considerations mentioned above could have been considered to allow development of an even more robust, competitive, interconnected telephone system to develop in the State.

 

Montana communities simply were un-represented by the central Montana body politic in the most important state and national telecommunications matter up to that time, with ramifications in seven future decades.  The Montana federal district court, which had shown good understanding of telephony, easily could have been petitioned if jurisdictional issues somehow were held up as lame rational for the lackadaisical inaction.  The newly sworn-in Attorney General in early 1915, Joseph Poindexter from Beaverhead County, and perhaps outgoing AG D.M. Kelly, likely played a part in the inaction.  Mountain States Telephone and Telegraph (MSTT) was of the opinion that if a suit were to be brought by the AG regarding Montana’s constitution, it could unravel MSTT’s very expensive investment in the Lane companies.  One step taken to prevent such action was expressed by MacGinniss to Bell attorney Milton Smith on July 3, 1915 in a letter discussing legal strategy:  “I will visit Helena in the near future and will renew my acquaintance with the new Attorney General.”  (Sources: 102, 103)  

 

With few other options due to Bell ownership of both companies in Butte, where this Montana adventure had begun, a telephone committee of the chamber of commerce arranged a conference in June 1914 to discuss merging the Montana Independent Telephone Company (MITC) and Bell, which were non-competing, but separate companies.  Potential cost savings and modern innovation, without an advocate, no longer outweighed the inconvenience of two non-connecting telephone systems.  (Source: 55A)

 

By August, the journal Telephony reported an “understanding” between the chamber of commerce and MSTT:  Dual telephone service would be eliminated by February 1, 1915.  Until that date, and thereafter if the deadline wasn’t met, a 50% credit would be given by MSTT to customers subscribing to both systems. (Source: 56A)

 

The final flicker in the competitive flame came in a spring 1915 lawsuit against MSTT, Lane and others.  Patrick Wall wanted Montana’s constitution and statutes prohibiting common ownership of competing telephone companies to be applied to the MITC-MSTT situation.  In response, District Court Judge Lynch issued a restraining order prohibiting the removal of the MITC automatic dial telephones.  MSTT successfully sought to have all Butte judges disqualified and Judge Poindexter (just before he became the Attorney General on May 31st) brought to Butte from Dillon.  The case, along with several other similar actions, was settled between the parties with an unknown monetary retainer paid to Wall and other plaintiffs.  (Sources: 38A, 57A, 102)  Read the April 13, 1915 memo to MSTT President E.B. Field detailing the various cases and options at this link: Milton Smith Memo

 

The November 30, 1915 PSC annual report reflects none of the Lane companies remaining in business; rather, Montana revenues of $7,254,110 were vested in MSTT.  One year earlier on November 30, 1914 before MITC had been merged into MSTT, the former’s annual revenues were reported at $3,641,511.  It is apparent that this number includes only MITC, since the Helena, Great Falls, Bozeman/Livingston and Billings companies were not shown in the November 1914 report; their finances had been combined with MSTT by that date.  In April 1916 Judge Michael Donlan of Butte signed the formal order allowing MITC to dissolve and disincorporate….one decade after its optimistic formation. (Source: 87) (Link to Footnote M) M1

 

MSTT would not soon forget the money it poured into Montana in the form of excessive payments to quash and eliminate the competition from Lane’s Montana companies.  It quantified the following in January 1915: total amounts spent; the actual or real values of the properties; and, its overexpenditure, a staggering $55,350,000 in current day dollars.  The table following itemizes these categories for each of the Lane Montana companies, first in 1915 dollars and then in 2011 dollars (in parenthesis).  Not included are excessive amounts paid for Interstate Consolidated Telephone Company holding company securities, i.e. 75% of the payment of $1,454,400 ($34,800,000 in 2011 dollars) paid to Lane/MacGinniss, or amounts paid later in 1915 to plaintiffs, such as Patrick Wall, to settle legal actions  (Source: 99):

 

COMPANY

____________

 

CATEGORY

Montana Independent Telephone Company

Billings Automatic Telephone Company

Helena Automatic Telephone Company

Great Falls Automatic Telephone Company

State Telephone and Telegraph Company

 

TOTAL AMOUNT OVERSPENT

TOTAL SPENT

$1,864,409

($43,100,000)

$383,952

($8,870,000)

$337,744

($7,800,000)

$547,192

($12,600,000)

$502,125

($11,600,000)

 

ACTUAL VALUE

$766,890

($17,700,000)

$175,039

($4,040,000)

$87,968

($2,030,000)

$155,137

($3,580,000)

$54,965

($1,270,000)

 

AMOUNT OVERSPENT

$1,097,519

($25,400,000)

$208,913

($4,830,000)

$249,776

($5,770,000)

$392,055

($9,020,000)

$447,160

($10,330,000)

$2,395,423

($55,350,000)

 

Perhaps partially to assuage this overwrought investment scenario, and to close out the affair, MSTT attorney Milton Smith recapped the purchase of the Montana companies in a May 3, 1916 self-congratulatory letter to his superior, MSTT president E.B. Field.  In it he thanked Field for adopting his recommendation in late 1911 vesting authority for the Montana situation mostly with himself because “to successfully accomplish the result would require one course of procedure followed by one person…”.  He continued by expressing resentment regarding the antitrust case, and perhaps ATT’s Kingsbury Commitment response to the case:  “It has taken a considerable length of time to accomplish all of this, and it has not been without some trouble and annoyance, and without some litigation; but, as you well know, it would have been accomplished long ago had it not been for complications which arose in New York, caused by the attitude of the United States government.”  He ended the letter with a self directed ‘atta boy for a job well done in a matter that “was a great undertaking, and involved some considerable risk.”  Nathan Kingsbury also would address a letter to Field in which he addressed the end of the Montana matter with “much interest and satisfaction”.  He concluded his Montana comments stating:  “I will certainly look up Mr. MacGinniss—I think he usually stops at the Biltmore---and express to him my appreciation of his conduct.”  (Sources: 100, 110)

 

The sun had set on the competitive information age in Montana.  The great spurring on by competitive forces of increased access to telephone service, innovation and higher levels of capital deployment in Montana were laid aside.  Only Great Falls and Billings would retain Strowger’s innovations of automatic switching and dial telephones---due to special circumstances.  The other thirty-five Montana communities lost for decades any chance of seeing the less expensive, more convenient and private method of connecting with ones friends, relatives and business associates.  Their technological staple would be monopoly provided, cord-board, operator-assisted calling.  (Some of the automatic equipment from Butte, Helena, Missoula and Livingston was used to repair and expand facilities in the two automatic exchange cities.)  Butte would not see automatic service again until 1929, while over 40 years lapsed before dial telephony was re-introduced at Helena in 1954-55. (Sources: 22, 86)  (Footnote N) N1

 

As for innovation and ensuing Bell capital deployment in Montana, a discouraging but appropriate example would be MSTT’s substandard eight-party service in rural areas:  it would persist into the 1980’s. Also indicative of Montana’s low position in the pecking order for capital deployment: the last long distance toll cordboard in the whole of the Bell system was scrapped from service at Great Falls on August 4, 1983, ironically just as the Bell system breakup was occurring.  (Pictured below is a similar cordboard switch retired circa 1980 from the Billings exchange, and retained for the MSTT museum.  The woman certainly is not dressed in a 1980 era outfit.)    (Sources: PSC party-line records, THG Museum in Denver)    Links to footnotes O through Q:  (Footnote O) O1    Footnote P) P1    (Footnote Q) Q1

 

 

 

 

 

 

Epilogue

 

At about the time President Wilson wrote on the subject of how monopoly power stifles innovation as quoted before the prologue, the Bell system was attempting (unsuccessfully) to purchase the Automatic Electric Company (AEC), not to foster competition, but to stifle it because converting to automatic switches would render obsolete Bell’s $300 million nationwide investment in manual switching equipment.   Writing off its investment in manual switching equipment would have been very detrimental to ATT’s earnings. (Sources: 25C, Network Nation pp. 355, 384)  

 

Another factor working against Bell owned AEC equipment in Montana was the Bell system fixation to use equipment manufactured by its own subsidiary companies; this was another profit center.  Bell manufacturing, as in Western Electric Company, had no viable automatic equipment to offer.  If AEC equipment needed upgrading or maintenance, MSTT would be forced to acquire it from AEC; this was anathematic to Bell.  Only after an April 1919 operator strike in Boston exposed its vulnerability to labor demands did the Bell system finally contract with AEC for automatic switching, which was implemented slowly over ensuing years. (It had acquired manufacturing rights for Western Electric in 1916, see Bray’s Innovation.) (Source: 4)

 

As the Wilson Administration was endorsing the Kingsbury Commitment in December 1914, it was simultaneously planning for legislation to augment the Sherman Antitrust provisions enacted in 1890.  It desired a complimentary, but proactive law that would curtail monopolistic organization in its youthful stages.  Undoubtedly it wanted calm legislative waters when it proposed its new theoretical framework, which perhaps explains the Kingsbury settlement only five months after the ATT antitrust case had been initiated.  A month after Kingsbury as legislative drafting was being finalized, the President wrote:  “The antagonism between business and government is over.”  When President Wilson signed the Clayton Antitrust Act into law nine months later in October 1914, he attached an inscription that was remarkably ironic for telecommunications in Montana and America:  “It is our purpose to destroy monopoly and maintain competition as the only effectual instrument of business liberty.  We have seen the nature and the power of monopoly exhibited.  We know that it is more apt to control government than to be controlled by it; for we have seen it control government, dictate legislation, and dominate Executives and courts.  We feel that our people are safe only in the fields of free individual endeavor where American genius and initiative are not guided by a few men, as in recent years, but made rich by the activities of a multitude, as in days now almost forgotten.”  (Sources: American Review of Reviews, Feb 1914 pp. 135-140; Nov 1914 p. 533) (Link to Footnote R) R1

 

With monopoly reigning in Montana telephony, the arcane, politically driven world of public utility regulation became competition’s surrogate.   To establish the plodding paradigm following the events prior to 1916, Bell took several years to sell itself to the public and calm the waters; meanwhile PSC regulatory efforts were smallish, consistent with its resources.  Following a failed WWI experiment when Postmaster Burleson temporarily managed American telecommunications, Bell, early in the 1920’s, ushered in its golden decades of monopoly power in America.  In Montana, House Resolution #10 was passed by the Legislature on February 8, 1923 to spur a somewhat resentful and overworked PSC into a full-blown investigation of MSTT “initial” rates; docket  #835 went to hearing in November, and was decided February 26, 1924.  The familiar Milton Smith was Bell’s attorney.  An overwhelming ninety-nine volumes of MSTT prepared property appraisals were entered into evidence to be evaluated by the PSC’s lone, short-tenured staff engineer in a regulatory process premised upon current market values, rather than original costs.  Given the parameters, the case predictably showed that MSTT had been operating at a deficit since 1916. The PSC found the expensive “license fee” levied against MSTT by parent/affiliate ATT-Western Electric to be in the “best interests of the company and its patrons”.  It formally blessed a value-of-service rate design scheme proposed by MSTT, which used population and convenience as parameters, rather than specific costs.  Within this framework, up-charges were approved for customers in the remaining automatic (dial telephone) exchanges from the Lane years--for a service that actually cost less to provide than manual cord board operator service.  The automatic exchange up-charges were:  20% more for single party residential, and 75% for single party business.  This stroke of the pen in the PSC’s order ironically provided a disincentive to customers for the dial service, while simultaneously it would provide excessive returns to monopolist MSTT when it upgraded to automatic dial telephone service in the future.  (Implementation of new rates was delayed due to a poor Montana economy in 1924.)  (Sources: 95, 17 Mont Utility Reports, pp. 541-666)

 

While value of service upcharges are not a good proxy for the competitive marketplace in the context of ratemaking, they are somewhat useful to this historical narrative in that they at least partially quantify the value of automatically switched dial calling compared to operator-assisted cord board calling.  Although docket #835 supporting documentation was discarded by State government many years ago, it safely can be said that the transcript of the hearing would have included testimony from MSTT establishing the value basis for the 20% residential upcharge and the 75% business upcharge.  The PSC’s order approving these upcharges simply confirms and quantifies monetarily the increased value, and lost opportunity, of Lane’s automatic dial telephony to the telephone using public in Montana. If the competitive market had prevailed, the public would have benefited from these increased intrinsic values plus lower telephone rates due to the lower costs of providing automatic service compared to manual operator service.

 

Thaddeus S. Lane’s future, mostly in Spokane in subsequent years, was a prosperous and successful one.  He actively was involved in many activities including:  Mining ventures; the 22,000 acre 1,000 cow Pleasant Valley Ranch development forty miles west of Kalispell; an unsuccessful attempt to purchase for $79,000 the bankrupt Billings Gazette formerly associated with P.B. Moss; unsuccessfully planning with MacGinniss to build the two million dollar Utah Interurban Electric Railroad Company between Salt Lake City and Payson (in competition with Walter Orem); forming with two others the National Parks Highway Association to demonstrate poor roads in the Northwest; president of the Spokane Chamber of Commerce; rumored candidate for governor as encouraged by Seattle mayor Ole Hanson; helper in the Boy Scouts movement; and, in many Spokane area sports related activities, such as auto racing in the Thaddeus Lane 50 Mile Trophy Cup to benefit Red Cross, the Thaddeus Lane International Trophy for polo, president of the Spokane Arena Company where professional hockey was played and chief admiral in the Spokane/Coeur d’Alene Regatta Day club.  (Source: 60A) 

 

T. S. Lane, always the master in his endeavors, adroitly used the opulent personal gains he won in the telephone industry to polish away the tarnish in his beloved community of Spokane.  He had achieved his own version of The Great Gatsby life.  Hard working Montana folk, the solitary heroes in this tale, simply were his unwitting financiers and accomplices.  (Footnote S) S1

 

 

-------------------------------------------------------------------------------------------------------------------------

 

 

 

Footnote A:

     Stowger was an excellent New York State university student, served in the Civil War from 1861 to 1865, taught school in Kansas and Ohio, and finally became an undertaker in Topeka and Kansas City.   Source:  Swihart, Stanley. "The First Automatic Telephone Systems" Telecom History: The Journal of The Telephone History Institute No. 2. Spring, 1995: 3  (Return)

 

Footnote B:

     Research points to a telephone franchise awarded by the city of Billings to a group of small businessmen in October 1894.  A company was formed which at least planned the exchange construction.  Bell bought out the stockholders in April 1901.  The Dunlap Telephone Company in Great Falls at the turn of the century, also purchased by Bell,  is another likely candidate.  It was Bell’s practice to advertise such purchases as Independent company failures.  (Source: 98)  (Return)

 

Footnote C:

     Over time, other monies would be raised through what were known as subscription stock sales (a promise to purchase securities while plant and equipment are being constructed and installed) arranged by salesmen, either at company offices or traveling.  A directorate and initial investor base of important citizens, hyped publicity and financial statements appearing on their face to be solid would lure mostly small investors, many of whom also would use the telephone service of the company in which they were investing.  Sources:  9, 13A, 13B, Network Nation p. 322  (Return)

 

Footnote D: 

     For example, the construction estimate for the initial Great Falls Automatic Telephone Company (GATC) facilities likely was $105,000 to $110,000.  The Montana Engineering Company assumed some degree of risk in construction, and its payment was in the form of GATC securities for resale, payable after construction completion (GATC would not directly sell securities):  18,000 shares of voting no-par “bonus” common stock, 1,000 shares of interest bearing cumulative 7% preferred stock with a $10 par value and 350 bonds bearing 6% interest with a face value of $500.  From a Montana Engineering perspective, the bonds likely were taken assuming a 45% discount to cover construction risk, external financing needs during construction and selling costs.  The par value of the preferred stock of $10,000 plus the discounted face value of the bonds of $96,250 approximated the total value of the $106,250 construction project.  The owners of the construction company, Lane, Jackman and Wall from Butte along with Couch, Durrett and Stanton from Great Falls, each purchased from the construction company a mix of the securities at the initial unit values above mentioned.  This infused just enough cash so as to start construction.  One or more of these owners may have attempted to borrow this “infusion” money from a friendly bank by using the very same securities as collateral, perhaps at inflated values.  Suppliers selling goods on credit for the construction project, such as automatic switching from AEC, also provided indirect construction funding.  Savvy creditors may have required personal guarantees from the owners.

     Once construction began, the project was hyped to the public as a viable and valuable project with a well-respected board of directors and investor group.  This allowed for inflated-value subscription sales of preferred stock and common stock, with the six men above retaining the bonds due to their first creditor position.  The stock certificates transferred to small investors included the clause:  “This preferred stock is subject to redemption by the company at $110 per share, and accumulated dividends…”  By introducing this price dynamic, the preferred stock could be hyped to a public fed up with RMBC service, and then sold for $100 share with a 100% common stock bonus.  Just a few of these sales were needed to establish an “initial offering” market price of $100, thereby allowing a 1,000% markup to be recorded on the construction company books.  The $10 par value became a $100 market value, with the balance of the $110 amount being ascribed to establish a market value of $10 for the common stock, an increase from $0 to $10.  With the new values of the stock, the rational for the bond discount was erased, thereby allowing the bond face values at $500 to be valid.  These much-inflated values then were recorded into plant values on the books of GATC.

     So with a few pen strokes and a bold plan, the construction company owners had amassed a dramatic profit margin to show potential financiers for the next exchange project.  At least on paper, the $106,000 construction contract was translated into a $455,000 value. If securities sales proceeded as hoped, which they did not for Montana Engineering and indirectly GATC, the paper profit would have become a solid, convincing value to potential financiers.  Sources:  113, Stock certificates owned by the author, Thomas Couch, Jr. papers, Mansfield Library, University of Montana, and Review of Reviews, February 1910 p. 246.  (Return)

 

Footnote E:

     On August 7, 1907 Judge Hunt issued a temporary restraining order In Rocky Mountain Bell Telephone Co. v Montana Federation of Labor.  He held that the Labor organization acted in what was tantamount to a conspiracy when it posted circulars.  A typical circular specified the following:

“Don’t Patronize

The Bell Telephone Company.  Is is unfair to Montana Federation of Labor

The girls are on strike for living wages in the following places:  Billings,

Red Lodge, Livingston, Bozeman, Lewistown, and Great Falls.

The company is offering inducements to ‘scabs’ advertising in the papers

to pay board and room in addition to wages.

Don’t disgrace your sex.  Keep away.  We will win, or put the corporation

out of business.  We ask your help in this fight.  Humanity demands it.”

In part, the Judge’s decision was based on the report of special master-in-chancery, O.T. Crane, who found the union activities significantly had damaged RMTC’s business.

     In another legal proceeding, District Court Judge C.T. Bach of Helena ordered Rocky Mountain Bell, which had closed its offices, to reopen them: “…as a public utility corporation, it must operate its lines regardless of the cost involved”.  Sources: 73, 156 Fed 809-822, 75  (Return)

 

Footnote F:

     Since automatic dial telephones do not require an operator, a tone system was developed to indicate to the caller the progress of his or her call.  The distinctive tones were produced by what is known as a Ring Generator, which was an electromechanical device.  The tones commonly were known to the public as Dial Tone, Busy Line Tone, Ring Tone and Number Not Available Tone.  A very good demonstration of these tones unique to the Strowger automatic switch can be heard at the web site:    www.seg.co.uk/telecomm/sounds.htm   (Return)

Footnote G:

     It wouldn’t be long before Bell would retaliate by offering free service to some if not many Buttians “for practically an unlimited period”.   This forced MITC to disconnect service and seek judgments in court for amounts due.  Clearly this constituted illegal predatory pricing in violation of antitrust law.  Source: 68 (Return)

 

Footnote H:

     As the new exchange opened, Thaddeus Lane had replaced Utah’s Elmer Jones in the role of managing director. The journal Telephony in 1911 exposed the 1907 activities of Jones and Utah Independent Telephone Company as being secretly controlled by the Bell system, thus enraging Utah citizens. Source:  24 (Return)

 

Footnote I:

     A reason MacGinniss was featured prominently in the ICTC sale to MSTT’s Corporation Securities and Investment Company is that he resigned all his positions with the Lane companies just prior to the contract signing in 1912; the contract was signed with him.  The delivery of ICTC securities was channeled through him in a legal slight of hand.  President Lane, if pressed under oath, would have been able to testify that he at least tactically wasn’t involved at the time control passed to MSTT’s subsidiary.  Documents proving his strategic involvement would be unavailable until years later.  Sources: 71, 38A pp. 33-34. (Return)

 

Footnote J:

     It was reported that the PSC did hear the matter in late October 1913, apparently with no resulting order.  Source:  43B  (Return)

 

Footnote K:

     The PSC annual report, 1914-15, in Farmers Committee v. MSTT (heard April 7, 1915; decided July 26, 1915) included a reference to the competitive period between Billings Automatic (Mutual) Telephone Company (BMTC), a Lane company, and MSTT.  It’s order: declared invalid pre-existing discriminatory toll price contracts; took notice of the competitive period between BMTC and MSTT (RMBC) and most importantly, took notice of the acquisition of the lines and equipment of BMTC rather than the company as an entity. (Return)

 

Footnote L:

     An esteemed economist specializing in telephone companies and regulation would write in 1994 of the “natural monopoly” argument:  “By contrast, the review of AT&T’s conduct from 1894 to 1910 presented in this article suggests that the monopoly structure of the telephone market was not merely the result of “technological and economic imperative,” (as was asserted by AT&T) but also resulted from such Section 2 (Sherman Antitrust Act) violations as predatory pricing, funding of court cases in order to interfere with price increases granted to the Independent by municipalities, acquisition of manufacturers of telephone equipment in order to limit the Independents’ access to the capital markets, and bribes or threats to financiers to discourage financing of the Independents.”  He ascribed the Independents’ demise to “more than anything else to predatory actions by AT&T.”   Source: David Gabel, Competition in a Network Industry: The Telephone Industry, 1894-1910, The Journal of Economic History, vol. 54, #3, pp. 545, 569. (Return)

 

Footnote M: 

     Months in which the following automatic exchanges were connected with or combined into MSTT:

Helena, Great Falls and Livingston—September 1914; Billings—October 1914; Butte and Missoula—October 1915.  Source:  17 Mont Utility Reports p. 554. (Return)

 

Footnote N:

     Automatic dial service was retained in Great Falls because of the efforts of the Fligman committee.  The two exchanges were interconnected in 1912 due to the committee’s active role.  After interconnecting, call volume increased dramatically.  This successful experience necessitated installation of more automatic equipment, likely from the Livingston exchange, then perhaps from the Helena exchange.  In Billings, interconnection of the manual Bell exchange and the older technology three wire automatic service was “made possible by the recent settlement of litigation started by P.B Moss, who was heavily interested in the automatic system and originally installed it in Billings, against some of the men who sold the automatic system to the Bell interests, whereby Mr. Moss received in settlement of his claims $336,000”. It is very probable that equipment taken from the Butte automatic exchange was used in Billings, since it also was a three-wire exchange.   Sources: 22, 86, 92, 93, 111  (Return)

 

Footnote O:

     Symbolic of the new monopolistic telephone industry paradigm in Montana was the complaint filed with the PSC in March 1915 by W.E. Carroll, a man who later would become a District Court Judge in Butte.  He alleged MSTT had “increased its rates in Butte over the schedule on file with the commission and that the increase is unjust and discriminatory.”  How the complaint was settled is lost to history.  Source:  72  (Return)

 

Footnote P:

     Tim Wu’s recent book, The Master Switch, also is relevant reading regarding innovation and monopoly.  One reviewer recapped a part of this conundrum as follows:

 “The histories Wu relates are unexpectedly fascinating, partly because fierce conflicts make for good stories and partly because they invite us to imagine such scenarios as what the world might have looked like if Bell hadn't postponed the introduction of innovations like voice mail, fax machines and modems for so long. Mammoth communications monopolies might be stable, Wu points out, and they do encourage the development of new ideas that stand a chance of enhancing their current business, as in corporate-sponsored hotbeds like Bell Labs. But they also reflexively shut down anything that threatens to usher in …….. true innovation. A form of irrational ‘paranoia’ (Wu's term) caused Bell to stifle the invention of magnetic recording tape by one of its engineers in the 1930s -- somehow they thought it would ‘lead the public to abandon the telephone.’"   Laura Miller at www.salon.com , December 29, 2010  (Return)

 

 

Footnote Q: 

     In the category of “life imitates art”, a play called “Bought and Paid For” toured Montana in 1914.  Its story features a young “telephone girl” who marries a millionaire.  She soon finds him to be a drunken brute, and locks herself away.  He breaks down her door to tell her she can’t refuse him because she is “bought and paid for”.  After more travails in which he says he can’t reform, the couple in the final act reconciles to work out their difficulties. A Tale of Two Telephones, save the final act, has certain parallels.  (Pictured below is an account of the play from the Livingston Daily Enterprise January,12 1914.)  Source:  88  (Return)

 

 

Footnote R:

     The Clayton Act embodies the Wilson Administration’s effort to close loopholes in the Sherman Act by among other things, shifting the burden of proof to the accused and providing treble damages.  It’s genesis in late 1913 and 1914 also may have considered the political repercussions of personally prosecuting many powerful business leaders for potentially illegal activities brought to light in the ATT antitrust case hearings.  (Return)

 

Footnote S:

     Current relevance brings meaning to the study of history.  A recent Montana meltdown replayed a main underlying theme in A Tale of Two Telephones, that being the abuse of monopoly power. 

     Unfortunately for folks in Butte and Montana, another telecommunications-information age-monopoly fiasco played out in their theatres just ninety years following Kingsbury when a Montana Power Company (MPC) affiliate named Touch America went bust.  Slick New York investment bankers spin-doctored gullible young top executives into peddling MPC’s electric-monopoly generating assets to a Pennsylvania company.  (This portfolio, which long had been the state’s largest and most inexpensive for a wide swath of MPC consumers, quickly became quite expensive.)  The proceeds were used to finance an all-in gamble in the overbuilt telecommunications fiber optics market in which Touch America specialized.  Overly political, too-quick-to-act and errant Montana elected officials by the score were complicit through legislative action in 1997 that facilitated the sale of the electric monopoly assets.  Six years later, Butte based Touch America declared bankruptcy. The losers each month when they pay their electric bills are hard working Montanans. (Return) 

 

 

 

Bell System sidebar:

 

Common lore credits Professor Alexander Graham Bell of Boston University as the inventor of the telephone since it was he who was granted on March 7, 1876 a seventeen year patent for an improvement allowing telegraphic transmission of human speech.  Such transmission was by “undulatory currents” analogous to the undulatory rhythm of the human voice, and was accomplished by inventing a transmitting device with variable electrical resistance.  The next year on January 30, Bell received a complementary patent for an improvement to the “electric telephone”.  Bell exhibited the talking telegraph at America’s Centennial Exhibition in Philadelphia, but found few parties interested in his freshly hatched novelty.   (Pictured below is A.G. Bell with a telephone similar to that which he exhibited at the Centennial Exposition.)

 

 

The field of voice telegraph was by no means exclusively Bell’s in 1876.  Names such as Johann Reis in 1861, Antonio Meucci in 1871 and especially Elisha Gray in 1874 to this day receive credit in the invention.  Lack of practical interest, money pressures and early potential patent issues played a part when Bell offered, also in 1876, to sell his original patent to Western Union for $100,000.  An internal Western Union memo recommended against the purchase specifying that Bell’s device sadly was deficient in its technological and practical capabilities:  “Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?”  The sale was not consummated. 

 

On July 9, 1877, Bell and his wealthy father-in-law as of July 11th, attorney Gardiner Greene Hubbard, formed the Bell Telephone Company.  Of critical importance the same year, they chose to lease telephone instruments in conjunction with providing telephone service, rather than selling telephone instruments.  Therefore, Bell Telephone Company was a telephony leasing and service company, rather than a retailer of telephones.  This metric defined the industry structure until 1984. 

 

In its October 6th, 1877 issue, Scientific American featured Bell and his telephone, specifying it had “advanced considerably beyond the status of a beautiful scientific toy….”.   Even popular press like Scribner’s magazine would laud the benefits of the telephone within the next year.  The telephone had found its legs in the scientific community, and with nearly one thousand early customers on the east coast. 

 

The next year on February 12, the Bell Telephone Company was reorganized, this being of vital importance because the elite Boston venture-capitalists assumed a controlling interest.  Theodore Vail, formerly a railway mail service clerk, was its general manager.  (Vail’s first cousin, Alfred, was instrumental in assisting Samuel Morse when he invented the telegraph.)  Another reorganization in 1879 resulted in the National Bell Telephone Company, the President of which was Ralph Waldo Emerson’s son-in-law, capitalist William H. Forbes.  A third reorganization in 1880 established the overarching holding company, American Bell, which controlled all business operations and an expanding portfolio of patents.  Bell himself would resign his director position in 1880, with Forbes and his wealthy partisans in firm control.  American Bell acquired in 1882 a controlling interest in Western Electric.

 

American Bell business strategy in the 1880’s was:  to pay substantial dividends to its elite Boston investors rather than reinvesting all monies into the growing business; to always prevail in legal actions protecting its patent portfolio; and, to structure its business to outlast inevitable patent expirations in 1893-94.  Integral to these efforts included:  ongoing technological improvements to its governmentally franchised local exchanges in large, important cities where affluent customers were served; and, designing the framework for a highly profitable, exclusive long-distance toll network complimentary to its local exchange federation of companies.   Manufacturing and leasing its telephones continued to be important.

 

Patent lawsuits toughened Bell’s corporate mindset in the 1880’s as it marched through the process of filing nearly six hundred infringement actions.  Stinging press accounts, like those repeatedly printed by New York Times editor George Jones opining that Bell’s patents “were fraudulent”, further seasoned Bell’s resolve.  The royal donnybrook of its litigation culminated at the US Supreme Court in 1888 with Chief Justice Morrison Waite’s decision upholding Bell’s patents in the Court’s most technical and voluminous case up to that time.  Some suggested stress from the litigation might have killed Waite; he died four days following the decision. 

 

The technological heart of American Bell local exchanges was the manual, or operator assisted switchboard.  Its technology progressed during the 1880’s so that by decades end each operator could connect more calls, more quickly:  The call connection delay early in the decade was five minutes or longer, but was reduced to forty-five seconds late in the decade by the “multiple” switchboard at which one operator could control many wires, or cords.  (Pictured below is a Bell central exchange circa 1884.)

 

   

 

American Bell’s linchpin long distance toll business was carried out by American Telephone and Telegraph (ATT), a subsidiary formed circa 1885 in New York to sidestep tougher corporate capital requirements promulgated by Massachusetts.  ATT’s formation embodied a peremptory strategy calculated to protect the conglomerate when original Bell patents would expire in 1893-94:  It would isolate Independent company local exchanges inevitably that would attempt to form, many in smaller communities, because Bell would prohibit them from connecting to ATT toll lines which exclusively served the Bell federation of local exchange companies in large and important cities.  In 1899, ATT would become the holding company, replacing American Bell, as well as continuing to be the long distance intertie or bottleneck, depending on one’s perspective.

(Return)

 

Sources: 

1.     www.cybertelcom.org

2.     Scribners magazine, April 1878 pp 848-855

3.     Network Nation, pp. 201-234

4.     www.toptenz.net  

5.     http://en.wikipedia.org/wiki/Alfred_Vail

 

 

 

 

 

 

 

 

Lane Automatic System sidebar:

 

Automatic telephone equipment used by MITC starting Sept. 1907 and its sister companies in Montana were Strowger inspired and Automatic Electric Company (AEC) manufactured.  The long manufacturing tenure of Strowger inspired equipment, which continued for most of the 20th century, has been described as one of the longest in the history of modern technological products. (Chapuis, 100 Years of Telephone Switching, Vol 1, p. 68)

 

The basic Strowger Switch is a “can” in which ten levels of ten fixed contact points at each level are arranged in a semi circle.  A carriage within the “can” moves up and down within it to the appropriate level as determined by the number of electrical pulses it receives from the originating device, a dial telephone.  If one were to dial the number four, the carriage would move to the fourth level.  When the next number is dialed, a “wiper” integral to the carriage rotationally selects the appropriate contact in the fourth semi-circular level of ten contacts.  With its 10 x 10 arrangement, each “can” is able to connect 10 times 10, or 100 subscriber lines.  The addition of a second “can”, which would be connected electrically to the first, theoretically could expand the number of subscribers served to 100 times 100, or 10,000.  Just two subscriber lines would be able to connect at any given time in this impractical arrangement.

 

Other devices, which were invented to achieve a workable switching arrangement, considered a countervailing dynamic: far less than 100% of subscribers were simultaneous users. (Only 6 conversations per day per telephone was the norm, of which only .16 were toll calls.) With this in mind late in 1905, AEC engineer Alexander Keith made a most significant enhancement to Strowger switching:  His plunger-based line preselector would very efficiently identify unused connections over which to route calls in the second and higher levels of “cans” in the decimal-based calling hierarchy.  His invention allowed Strowger switches first patented in 1891 to be installed in medium sized and smaller communities as good, reliable automatic systems, starting in 1906.  (The systems also were installed in large exchanges, such as those in San Diego, Los Angeles and San Francisco.)  Two-wire central battery innovations at about the same time further increased system utility.  (Pictured below are AEC automatic exchange “racks” circa 1912.) Source:  23, Technical narrative reviewed by an expert telephone engineer.

 

 

Technological timing for the Lane Independent companies was very good, with Butte automatic dial exchange construction commencing in 1906 and concluding as the exchange opened in September 1907.  The Billings Automatic exchange followed a year later.  These two systems were three wire systems requiring callers to push a ring button on their telephones after dialing; this action completed the call.  Other automatic exchanges openings, late 1909 at Helena and within the first eights months of 1910 at Great Falls, Missoula and Livingston, were of two wire design in which a ring button was unneeded.  Lane’s largest two wire automatic exchange would be completed in Spokane.  (The Treasure State full page spread, Helena exchange, December 1909)

 

Lane coordinated with well-known local capitalists in these cities so as to raise initial capital for exchange construction, and to sell securities to small investors in communities in which automatic exchanges were constructed.  To lend a sense of permanence, city-center exchange buildings were constructed to be attractive, as well functional.  For example, Lane specified for Helena’s exchange:  “…I would be very much in favor of substituting this brick with terra cotta trimmings for the sand lime brick which we contemplated using.  The use of white enamel brick would give us the most striking building in the City.”  Well-known local architect George Shanley designed the Great Falls and Butte exchanges, the latter being designed in the grandiose and exuberant Beaux Arts style.  (The Missoula automatic MITC exchange building is shown below, as of April 2012.) (Lane to Cook, Source:  14B)

 

 

The significant availability in Montana of automatically switched dial telephony by the end of 1910 moved the State from its second rate status before 1907 into the vanguard of advanced telephony.  Numbers of telephones world wide in 1910 were about 11,200,000, of which 7,596,000 were in the U.S.  About 200,000 of these were dial models in 131 automatic exchanges, or slightly less than 2.7% of this U.S. total.  Since Lane’s automatic exchanges were in Montana’s major cities of Butte, Billings, Helena, Great Falls and Missoula, as well as Livingston, it safely can be inferred that Montana’s populace was much more highly served by advanced telephony than were other Americans.  As important was Lane’s commitment to dial phones and automatic switching; undoubtedly these would have spread to other Montana communities, if given the chance to do so. Communities in Idaho and Washington in which Lane was involved would have seen similar progress.  (Chapuis in 100 Years of Switching, pp. 67,138)

 

Also significant during these years of automatic switching deployment by the Lane companies in Montana was partial Bell reconstruction of its Montana manually switched exchanges, done in part to incorporate central battery systems, but also as a competitive response to Independent company activity.  The central battery allowed old magneto style telephones with bothersome leaky batteries at customer premises to be scrapped; it was a Bell initiative nationwide early in the 20th century.  Once these investments were made (although in Montana recycled equipment was sometimes used from other RMBC states), the central battery manual cord board exchanges would have been reliable and uneconomic to scrap, unless ongoing competition forced better technology to be installed.  (Chapuis in 100 Years of Switching, p.149-150 and Source 111)

 

In comparing the two approaches to switching, the oft-updated authoritative manual Modern America Telephony, In All Its Branches included the following conclusion in its 1911-12 edition:  “The chief disadvantages felt in manual telephone switching were slowness in connecting and disconnecting, wrong numbers, discourtesy and irregular attention to the want of subscribers, evesdropping on conversations, and increasing cost of operation.  Though the modern operator is as well drilled as a human being of her capacity can be, much of the above trouble still exists, for it is inherent in humanity.”  The early adoption of dial telephones and automatic switching in significant areas of Montana began the process of ameliorating these issues.

(Return)

 

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