upgrading U.S. telephone network technology

magneto telephone switchboard

Major upgrades of the U.S. telephone network have taken decades. The first U.S. commercial installation of a automatic (mechanical) telephone switch occurred in 1892.[1] In the Bell System in 1920, nearly three decades later, only 2% of telephones were automatically switched.[2] The share of telephones in the U.S. that were automatically switched didn’t rise to 75% until 1950.  The category “electronic” switch was added to FCC statistics in 1968.  Two decades later, the share of telephones that were electronically switched first rose above 75%. [3]

Implementing these new telephone network technologies required coordinated upgrades in central office equipment and end-user equipment.  The development of more powerful, more general purpose end-user equipment allows central (cloud) service upgrades to be more independent of end-user equipment upgrades.  That independence contributes to more rapid network  innovation.

U.S. telephone companies owned most of the telephones made obsolete by upgrades to mechanical and electronic switching. Technical change that makes obsolete user-owned equipment and requires users to buy more equipment is more likely to be commercially favored. User frustration and anger puts some constraint on forced upgrades.  Nonetheless, user ownership of end-user equipment provides greater network operator incentives for network service upgrades.

Upgrades of telephone network technology occurred faster in larger exchanges.  In 1936, non-common-battery exchanges, which were very technologically backward, served on average 180 telephones per exchange.  Mechanically switched central offices served on average about 5900 telephones, more than twice as many as the average for manually switched central offices.  A higher average number of telephones per exchange correlated regionally with a higher share of mechanically switched telephones.  Larger exchanges’ lead in upgrades continued with the upgrade from mechanical to electronic switches.  In 1980, electronic central offices served on average 31% more telephones than did mechanically switched central offices.

Fixed costs of upgrades and greater service growth favored faster upgrades in larger exchanges.  A significantly share of exchange upgrade costs were likely not highly correlated with the number of telephones served.  Hence an exchange with more telephones had a lower upgrade cost per telephone (and telephones were essentially the revenue unit).  In addition, because population was shifting from farms to towns and cities, larger exchanges were in places that were growing more rapidly in population.  Potential for future subscriber growth favored larger exchanges.

Company size was not strongly associated with the the share of mechanically switched telephones in 1939.  All companies serving more than 25,000 telephones had some mechanically switched telephones.  Many smaller companies had no mechanically switched telephones.  But small companies pioneered mechanical switching. Some relatively small companies had relatively high shares of mechanically switched lines.  Among companies serving more than 1000 telephones and having some mechanically switched telephones, the share of mechanically switched lines was not significantly correlated with company size.[4]

Relative to company size, industry structure deserves more attention in thinking about how to foster innovation.  General-purpose devices, end-user device ownership, and common technology knowledge readily available to small organizations all contribute importantly to faster network innovation.

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Data: U.S. telephone network technology, 1934-1987 (Excel version); financial and operating data for U.S. telephone companies in 1939.

Notes:

[1] The first mechanical telephone switch in the U.S. was installed in La Porte, Indiana.  It used a Strowger switch.  About this time telephone systems began implementing common-battery systems.  These systems powered end-user telephones with a battery at the central office.  In 1936, 5% of U.S. telephones were not powered from a common source in the central office.

[2] Lipartito, Kenneth James, “When Women Were Switches: Technology, Work and Gender in the Telephone Industry, 1890-1920,” American Historical Review, October, 1994, p. 1095, notes that in 1915 about 400,000 independent lines were automatically (mechanically) switched.  Independents served  roughly one-third of total U.S. telephones.  In 1915, the Bell System had no automatically (mechanically) switched telephones.

[3] Other categories of switches separate from “electronic” were “manual,” “step-by-step dial,” “cross-bar dial,” “panel dial,” and “other (rotary and relay dial)”.  “Electronic” seems to mean a switch using transistor (semi-conductor) circuits.

[4] Here’s the individual telephone company data for 1939.  Among the five telephone companies with greater than 90% of telephones mechanically switched, three served less than 10,000 telephones.

mechanical switchboard in San Francisco exchange c. 1900

selling via the title page

Technological change in book production occurred much faster than stylistic change.  Gutenberg began printing Bibles with his movable-type printing press about 1455.  Many others quickly got into the printing business.  Across the second half of the fifteenth century, the books that they printed looked a lot like manuscripts of that time.  Print fonts imitated hand-written scripts.  Printed books had neither a title page nor a specifically formulated title.  A printed book, like a manuscript, was identified by its incipit, the first words of the text.  Information about the printer, like that about the scribe, was included in a colophon, meta-text appended to the main text.

box of type for hand-setting print

The U.S. National Gallery of Art’s exhibit, Announcing the Text, shows the development of title pages from 1470 to 1900.  By early in the sixteenth century, at least some books included a separate, printed title page.  Over time the title page became elaborated with different size and color fonts, specially written text, and information about the printer.  These changes served the purpose of identifying the text among the rapidly growing supply of texts, building up the printer’s brand name, and selling the text to persons browsing the book. Such changes in business models and markets take more time to develop than does innovation in production technology.

The economic functions of the title page are not closely related to printing technology.  Consider, for example, the vibrant book market of the Roman Empire.  Most Roman texts have been transmitted to the present through medieval manuscripts.  The original presentation style of Roman texts, however, may have looked a lot less like medieval manuscripts and a lot more like eighteenth-century printed books.

early DIY wireline network

Country gentleman Andrew Crosse began studying atmospheric electricity on his estate in Somerset, England, in 1807. To serve his experiments, he constructed an impressive wireline network. The network consisted of “copper wire one-sixteenth of an inch thick, stretched and insulated between stout upright masts from 100 to 110 feet in height.”  The wire originally extended for a mile and a quarter, but difficulty in maintaining the wire’s insulation in fog and snow prompted Crosse to shorten it to 1800 feet. He maintained this wire for at least 18 months.[1]

metal tree at Sculpture Garden, Washington DC

Crosse’s network connected atmosphere electricity to a Leyden-jar apparatus in his home laboratory.  An author of an early treatise on electricity, who was Crosse’s friend and correspondent, noted:

none but a spectator can conceive the awful though sublime effect of such phenomena. At every flash of lightning an explosive stream, accompanied by a peculiar noise, passes between the balls of the apparatus, and enlightens most brilliantly every surrounding object, whilst these effects are heightened by the successive peals of thunder, and by the consciousness of so near an approach to its cause. During this display of electric power, so awful to an ordinary observer, the electrician sits quietly in front of the apparatus, conducts the lightning in any required direction, and employs it to fuse wires, decompose fluids, or fire inflammable substances; and when the effects are too powerful to attend to such experiments securely, he connects the insulated wire with the ground, and transmits the accumulated electricity with silence and with safety.[2]

Crosse made no major contributions to electrical science or electrical applications.  He did, however, demonstrate that one extraordinarily motivated persons could build amazing communication infrastructure.

Notes:

[1] Singer, George John, Elements of Electricity and Electro-Chemistry (London: Longman, 1814) p. 271-2.  Giambatista Beccaria had in the mid-eighteenth century conducted electrical experiments using a wire 141 (English) feet long.  Id. p. 269. Additional information about Crosse can be found in Pocock, R.F., “Andrew Crosse: Early nineteenth-century amateur of electrical science,” IEE Proceedings-A, vol. 140, no. 3 (May, 1993) pp. 187-196; and Crosse, Cornelia, Memorials, Scientific and Literary, of Andrew Crosse, the Electrician (Longman: London, 1857).  Cornelia Crosse was Andrew Crosse’s second wife.

[2] Singer (1814), p. 273-4.  Using frictional electric machinery, Crosse also delivered electrical shocks to local residents who sought treatment for various pains.

opex per phone fell 4% per year, 1880 to 1916

On March 10, 1876, telephone inventor and entrepreneur Alexander Graham Bell made his first telephone call.  The Bell Telephone Company was formed in the U.S. in July of 1877.  By the end of 1877, three thousand telephones were in service.[1] The first commercial telephone exchange began operation in New Haven, Connecticut, on January 28, 1878. By mid-1878, about 10,000 telephones were in service.  The U.S. Census of 1880 noted:

the census year 1879-’80 was the year in which the [U.S.] telephone business passed through the stages of an unprecedented development.  At the beginning of that year this business amounted to little or nothing; at the end of the year it represented one of the great interests of the country.[2]

The Census of 1880 reported income statement, balance sheet, and operating figures for 148 telephone companies.  These data thus provide a snapshot of the telephone business less than three years after its commercial beginning.

early telephone exchange in New York City

The early U.S. telephone business reduced its operating expenses per telephone relatively rapidly.  Comparing telephone companies serving between 500 and 2000 telephones in 1880 and 1916, operating expenses per telephone fell on an inflation-adjusted basis about 4% per year from 1880 to 1916.[3] That cost trend compares favorably to the 1.7% inflation-adjusted cost reduction in a broad measure of telephone company operating expenses from 1988 to 2007. The relatively good cost performance from 1880 to 1916 isn’t attributable to a shift from manual switching to automatic switching. Only about 4% of U.S. telephones were automatically switched in 1915.[4]

The Internet is associated with extraordinarily rapid technological change.  At least in terms of cost efficiency, the telephone business seems to be changing more slowly in recent decades than it did about a century ago.

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Data: cost trend calculation and selected summary telephone statistics for 1880 (Excel version); full telephone company returns in the Census of 1880

Notes:

[1] See the Telephony Museum’s Telephone History. The telephone counts are for telephones in the U.S.  The figures from that source differ slightly from those given in U.S. Historical Statistics, Series R-1.  The former seems to me more plausible.  Gardiner Greene Hubbard and Thomas Sanders formed the Bell Company on July 9, 1877, with these two men established as company president and treasurer, respectively. Renamed the National Bell Telephone Company in March 1879, it became the American Bell Telephone Company in March 1880. As these name changes indicate, the Bell Company rapidly internationalized.

[2] Census of 1880, v. 4, Telephones, Remarks, p. 787.  The enumeration date for the Census was June 1, 1880.  In its appropriating act for the 1880 census (March 3, 1879), Congress explicitly included telegraph companies but not telephone companies.  The Census Office went ahead and included telephone companies.  See Census of Electrical Industries, Telephones, 1902, p. 3.  The above statement probably reflects in part a Census Office attempt to justify its coverage of telephone companies in the context of its authorizing legislation.

[3] Excluding smaller telephone companies from consideration provides better comparability with 1916 and probably lessens errors from capital investments included in expenses.

[4] In 1915, the Bell System had no automatically switched telephones.  Independent companies had 400,000 automatically switched lines, which totaled about 10% of independent telephones.  On the number of (independent companies’) automatically switched lines, see Lipartito, Kenneth James, “When Women Were Switches: Technology, Work and Gender in the Telephone Industry, 1890-1920,” American Historical Review, October, 1994, p. 1095.  The earliest telephone operators were boys.  Shifting from male to female operators may have reduced labor costs and increased operating efficiency.