Spread of Telephone Service, 1880-1920
"When Alexander Graham Bell patented the telephone on March 7, 1876, few people realized just how important his new invention would become for American commerce and society in general. America was still in love with the telegraph and saw little immediate use for the telephone. Mark Twain even likened investment in the new technology to "wildcat speculation." Western Union, the most powerful telegraph company of the era, actually passed up the opportunity to buy the Bell patents for $100,000 believing the device was nothing more than a passing novelty.
Unfortunately for Western Union, the telephone turned out to be anything but a passing fad. Use of the device slowly gained acceptance, primarily among business users. Yet, compared to later decades, this Bell patent monopoly era was characterized by limited growth of service. From 1880 to 1895, average daily calls per 1,000 of population rose from only 4.8 to 37. Contrasting this 15-year patent monopoly period with the competitive period that followed the expiration of the Bell patents in 1894, average daily calls per 1,000 people jumped from 37 in 1895 to 391.4 in 1910. The number of telephones per 1,000 people also showed much more dramatic expansion during the competitive period after patent expiration than before. Telephones per 1,000 people rose from only 1.1 in 1880 to 4.8 in 1895, but skyrocketed to 82 by 1910. (See Table 1.)
Clearly, the Bell patent monopoly period was not as beneficial for the extension of service as the competitive period that would follow. Yet, by the end of its patent monopoly period, the Bell System had grown large enough to pose a formidable challenge to Western Union, the same company that had failed to buy up the original patents just 20 years earlier. But, with the expiration of their crucial patents between 1893-94, the Bell system faced an uncertain future. Although Bell had filed over 600 patent infringement suits to defend its 900-plus patents during this period, the company had no choice but to try its hardest to fend off the many new firms that were waiting for a chance to gain access to this lucrative new market. The Bell monopoly was, at least temporarily, dead."
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