the U.S. telephone industry has developed like agriculture

While everyone appreciates the importance of family farms, few realize that the U.S. has a lot of small local telephone companies.  A specific count of companies depends on distinctions among legal entities, operating companies, and holding companies; incumbent local-exchange companies (ILECs) and competitive local-exchange companies (CLECs), both of which can be part of one holding company; and wireline and wireless businesses.  But to see the big picture, you need to know only that, roughly counting, about 800 independently controlled companies provide essential local telephone service to U.S. residents.  About 600 of these telcos serve less than 10,000 customers.[1]

Early in the twentieth century, the U.S. had many more small local telephone companies.  About  51 thousand telephone companies in 1917 had  annual revenue less than $5000.[2]  These companies served on average 35 telephones per company, but in aggregate served 15% of all telephones. Today telephone companies with less than 20 thousand lines serve less than 4% of total telephone lines. Very small telephone companies extended telephone service to an amazingly large share of U.S. customers early in the twentieth century.

Much consolidation has occurred in the U.S. telephone industry over the past century. The turning point seems to have been the Great Depression.   The Great Depression hurt smaller telephone companies much more than larger telephone companies. From 1927 to 1932, the number of telephones that the Bell System served fell 0.5%,  the number of telephones that non-Bell companies with annual revenue greater than $10,000 (but much smaller than Bell companies) served fell 17%, and the number of telephones that companies with annual revenue less than $10,000 served fell 37%.[2] In 1917, the Bell system served 63% of all telephones.  In 2007, AT&T, Verizon, and Qwest (the main Bell descendants) served 83% of all telephone lines.  More than a thousand telephone companies were needed to account for that share of service in 1917.

The roots of the U.S. telephone industry in many small companies has important implications today.  The U.S. telephone industry has developed like agriculture in the transition to mechanized farming.  Because persons are much more reliant on a single telephone company for telephone service than they are on a single farm for food, regulating telephone companies is more important than regulating farms.  While 800 telephone companies is many fewer than existed early in the twentieth century, that’s still a large number of companies to regulate effectively.[4]  In addition, telephone company subsidies, like farm subsidies, have strong political support.  Telephone company subsidies present even more complicated problems than farm subsidies. Monolithic state-owned telephone companies may have performed relatively poorly, but they are far easier to change than 800 privately owned telephone companies.

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Data: U.S. telephone industry development workbook (Excel version).

[1] Based on consolidating common-control regulated service areas.  Here’s the resulting list of telephone companies. Because identification of common control appears to be crude, these figures are approximate.

[2] Data from the telco size distribution worksheet.  The term used in the Census report for 1917 is annual income.  The term “income” in that report apparently means gross revenue.

[3] Here’s information on trends in the U.S. telephone business across the Great Depression.  The data on changes in telephones served is from the “call volumes, 1912-37” worksheet in the associated data workbook.

[4] Consolidation in the U.S. telephone industry preserved to some extent differences across states in the number of telephone companies. Compare the state distribution of telephone operating companies in 1917 to the state distribution of regulated service areas in 2007.  Iowa had the largest number of telephone service entities in both 1917 and 2007.   Underscoring the regulatory challenge, Iowa has become a center of legal battles over telephone interconnection rates and practices.

One thought on “the U.S. telephone industry has developed like agriculture”

  1. I am looking for information on the “Big Point Telephone Co.” that was located in Jackson County Mississippi in 1922. I found a Capital Stock certificate that my grate grandfather purchased in 1922.

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