Theodore Newton Vail

Theodore Newton Vail (1845-1920) was an American entrepreneur who made his fortune in the telephone and mining business and became the first president of the Bell Telephone Company (later American Telegraph and Telephone or AT&T). President of the company for two separate tenures, he was instrumental in establishing telephone service, both local and long distance. A true visionary when it came to running a corporation, Vail oversaw the building of the first U.S. coast-to-coast telephone system, and it was his dedication to basic science that initiated a new research arm for AT&T's Bell Laboratories.

Vail was born on July 16, 1845, near the town of Minerva, Ohio. His family was rich and influential, its members descended from John Vail, a Quaker preacher who settled in New Jersey in 1710.

Strong Family Heritage

Affluence was not the Vail family's only attribute. There was a strong tradition of mechanical innovation, business acumen, and foresight. Vail's relatives were builders, inventors, and engineers. His grandfather, Lewis Vail, was a civil engineer who moved to Ohio and made his name building canals and highways, relatively new infrastructures at that point in American history. One of his uncles, Stephen Vail, was founder of the Speedwell Iron Works, near Morristown, New Jersey. The Speedwell company built a great deal of the mechanical technology that went into the first steamship that crossed the Atlantic Ocean.

Appropriately enough, other relatives were involved in communications. Vail's uncle Stephen, together with Stephen's sons George and Alfred Vail, funded inventor Samuel F. B. Morse with the money for his wireless transmitter. Cousin Alfred Vail invented the dot-and-dash alphabet utilized by Morse's telegraph. In 1848 Vail himself learned to operate this telegraph when he moved to New Jersey and worked as a clerk in a drugstore. By the time he turned 19, he was working at the Western Union Telegraph Company in New York City.

Married, Vail had one adopted daughter, Katherine, who was actually the daughter of his brother, William Alonzo Vail. She would become one of the founders of Bennington College in Bennington, Vermont.

In 1866 Vail moved his family to Iowa. Three years later, he joined the U.S. Post Office, working in the postal railway service. Like family members before him, he proved to have a knack for innovation. He started the "Fast Mail," the first mail-only train service, which in 1875 began operations between New York City and Chicago. In 1876 Vail became general superintendent of this railway mail service.

Besides being an innovator, Vail was also an investor and entrepreneur. However, not all of his investments flourished. In 1889 he lost a great deal of money when an enterprise he was involved in, the Boston Heating Company, went out of business.

Joined Bell Telephone

In 1878 Vail left the Postal Office to become general manager of the recently established American Bell Telephone Company, which was started on July 9, 1877. The company had been organized by Gardiner G. Hubbard, father-in-law of Alexander Graham Bell. It was Hubbard who lured Vail from the postal service to the new company. Hubbard became familiar with Vail when he was involved in congressional investigations into Post Office methods of payment for mail transportation. Hubbard recognized in Vail the qualities that would be necessary to head a new and technologically innovative company. For his part, Vail recognized the viability of the new invention and realized its potential applications. Though his friends and family advised him against the move, Vail accepted the position.

At Bell, Alexander Graham Bell, inventor of the telephone, became the company's "electrician," earning a nominal salary of $3,000 annually. Bell's assistant, Thomas A. Watson, recipient of the world's first-ever phone call, was named superintendent in charge of research and manufacturing, while Vail held the managerial position until 1887. Years later, Vail would come out of retirement to lead the company a second time.

During his first tenure, Vail demonstrated both a knack for anticipating technical developments and the vision for combining technologies. One of his major accomplishments was directing the expansion of local telephone exchanges. In 1881 he directed the first long-distance phone system, which extended from Boston, Massachusetts, to Providence, Rhode Island. In addition, he organized the financing and business structure of the system. By 1885 Vail had created a vertically integrated supply division as well as a network of affiliates licensed by the parent company. Perhaps even more significantly, he had created a highly creative and effective research and development branch of the company. This division essentially changed the way the people of the world electronically communicated with each other. Also, he helped establish the Western Electric Company, a division of Bell Telephone that built telephone equipment.

Vail proved to be an appropriate choice to head the company, as he introduced business practices than facilitated the almost unparalleled growth of Bell Telephone. At first, however, he might have often questioned his own decision. As a new invention, the telephone was viewed as little more than a "toy," and the public was at first slow to accept the instrument. During Vail's first tenure with the company, less than ten percent of the population had embraced the telephone. Vail also had to deal with legal opposition from communications rival Western Union Telegraph Company. However, after years of legal battles the phone company prevailed in court.

Eventually Vail left Bell following a dispute with the company's board of directors. Board members wanted higher dividends; Vail wanted to put more money back into the company.

Vail played a large part in the success of Bell Telephone due to his strong business sense and his forward-looking vision. He has been credited with seeing the company as more than just a communications business. He recognized early on that the overriding concern was customer service. Vail stated as much to his management staff and brought them all in line with that vision. Later, when he returned from retirement to head the company a second time, he clarified this notion as "universality of service." The strength of the Bell System, he wrote in the company's annual report to shareholders in 1907, resided in its universality, which "carries with it the obligation to occupy and develop the whole field."

Retirement and Return

Vail retired from the Bell Telephone Company in 1889. True to his entrepreneurial spirit, he then involved himself with investments in mining, waterpower plants, and railway systems in Argentina. When not in South America, he reportedly lived a peaceful life on his Vermont farm. However, the company would eventually come calling again, and Vail was lured out of retirement in 1909.

Vail was 62 years when he went back to work, lured by financier J. P. Morgan, who now controlled the company. By this time the Bell Telephone Company had become American Telephone & Telegraph (AT&T). Vail's mission was to save the troubled organization, which had gotten into trouble because its phone patents had expired and other smaller companies were coming into the telephone communications business.

Vail was repositioned in his previous job but faced a situation and territory that had changed substantially. AT&T now faced competition. When Bell's telephone patents expired in 1893 and 1894 many independent telephone companies entered the game. By 1900 almost 6,000 new companies provided service to nearly 600,000 customers. Vail confronted this new problem with three workable solutions. First and most importantly, he decided AT&T should offer the best phone system possible. To this end he focused the company on establishing a long-distance phone network that would encompass all of the United States. To accomplish this ambitious aim, Vail knew he would have to commit large-scale investments into the area of scientific research. This commitment resulted in the creation of the company's own research branch, Bell Laboratories.

Vail's most significant accomplishment in the direction was establishing a connection with all existing phone companies into the AT&T system. This resulted in the creation and implementation of the envisioned long-distance system. On January 25, 1915, the first transcontinental phone line was up and running. Vail himself was part of this first transmission that connected Alexander Graham Bell in New York to Thomas Watson in San Francisco. The connection would also include President Woodrow Wilson in Washington, D.C. Only a year later, long-distance phone service was established to Europe.

Vail's second solution involved cooperation with competitors and leasing them use of his company's phone lines. Third, and perhaps most tricky, he convinced the U.S. government that the best possible phone service—his concept of "universal service"—could best be accomplished through a monopoly. At first the government had balked at the idea. Federal regulators were unhappy with what it felt was the ruthless behavior the company demonstrated during the interim between Vail's two leadership tenures. In addition to prohibiting smaller companies the use of its network, AT&T also held a stranglehold on long-distance circuits. The smaller companies, lacking the funds to battle a giant like AT&T, were swallowed up by the larger company. In fact, not only was the government unhappy with AT&T; the public was, too.

To counter the government's resistance, Vail advanced a rather interesting argument: that telephone service essentially amounted to a natural monopoly, like postal service, and that everyone was best served by such a monopoly. The government saw the merits in this notion. In 1913 the legal department of President Woodrow Wilson's administration granted AT&T a phone monopoly in exchange for certain concessions. For one thing, AT&T had to agree to allow independent companies to connect to its network. This agreement was known as the Kingsbury Commitment, as it was initiated by AT&T Vice President Nathan C. Kingsbury, who understood that such an agreement would diminish the perception that his company was a bullying giant. The agreement was concluded without the public's knowledge, and it would stand for decades until the deregulation that came late in the 20th century.

Benevolent Monopoly

The company's monopoly served both the company and customers well, and AT&T grew both financially and technologically. In the ensuing decades it became the most advanced and reliable phone system in the world. In the process, the telephone—in the hands of AT&T—had a profound effect on society and business. Indeed, as early as 1934 telecommunications had become so firmly entrenched that Congress felt compelled to create the Federal Communications Commission.

A great part of the great transformation wrought by the industry is directly attributable to Vail's vision as a leader. When he combined the engineering departments of AT&T and Western Electric he created a research department— Bell Laboratories—that produced innovations that would have far-reaching implications, such as the transistor, touch-tone telephones, data networking, and optical and digital technologies. Through the years Bell Labs and its researchers would be honored with six Nobel Prizes, nine U.S. Medals of Science, six Medals of Technology, and many other awards.

Second Retirement

Vail retired a second time in 1919. He joined the company's board of directors, but died a year later on April 16, 1920, in New York state. He was survived by his adopted daughter, Katherine Hurd; two sons, Theodore N. V. and Andrew C.; 14 grandchildren; and nine great-grandchildren.

After his death, the Vail Award was established to honor his memory. It is awarded to individuals who perform above and beyond the call of duty on their jobs or who display unusual bravery or heroism during emergencies.


Fortune, September 18, 2001.


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