CINCINNATI BELL INC. History

Company History:

Cincinnati Bell Inc. is a diversified telecommunications company that provides local phone service to customers in Ohio, Kentucky, and Indiana, and also offers marketing services and information processing operations. Originally a telegraph concern, the company became a member of the Bell System in the late nineteenth century.

For the bulk of its history, Cincinnati Bell limited its operations to phone services in its home area surrounding Cincinnati. With the breakup of the American telephone monopoly, however, Cincinnati Bell gained the opportunity to enter unregulated fields, and it has altered its corporate direction in the ensuing years to take advantage of new technologies in the computer and telecommunications fields.

The company that would become Cincinnati Bell was founded in 1873, when the City and Suburban Telegraph Association was incorporated in the State of Ohio. This company, established to provide telegraph links between the workplaces and private homes of businessmen, got its start when Cincinnati transportation executive Charles H. Kilgour hired a clerk to run errands between Kilgour's home and office, after his mobility was curtailed by an injury. When the clerk tired of his daily round, he suggested that a telegraph line be strung between Kilgour's residence and his place of business to allow easier communication. This was done, and soon other businessmen became intrigued by the idea. Together with Kilgour, they founded a company for the purpose of installing home telegraph lines. By 1874 the fledgling company had issued stock to raise funds, held its first shareholders' meeting, and selected a president. In its early years the company operated at a deficit, but by mid-1877, it had installed nearly 50 private telegraph lines between homes and offices. Customers who signed up for the service were also equipped with simple telegraph instruments and code books for sending and deciphering messages in Morse code.

In July of 1877 the managers of the City and Suburban Telegraph Association were given a demonstration of a new communication device, the telephone. First invented by Alexander Graham Bell in Boston in 1875, the telephone had been patented and exhibited to great acclaim at the Great Industrial Exposition in Philadelphia in 1876. The men assembled in Charles Kilgour's study in Cincinnati heard the voice of a telegraph operator come to them over the wires from a post at the Mount Lookout Observatory outside of town. Excited by what they heard, the stockholders of City and Suburban decided to market the new device. They hired the person who had arranged the telephone's demonstration, James O. Shiras, as their first salesman, and assigned him the task of convincing their telegraph customers to switch to the new method, and enrolling the rest of the public as well.

By August 21, 1877, the company lined up its first telephone customer, the Cincinnati Gas & Coke Company. Soon, a grocer followed suit, and other Cincinnati businesses signed on in short order. In the spring and summer of the following year, City and Suburban began negotiations to become the exclusive franchise holder of the Bell Telephone Company in the Cincinnati area. On September 10, a contract was signed, and within a short period 18 customers had been enrolled. They paid City and Suburban $3 a month for service, which doubled to $6 in the following year. To reflect its widening role, the company changed its name to City and Suburban Telegraph Association and Telephonic Exchange.

City and Suburban's switchboard, state of the art for the day, was run by young men, who worked a foot treadle to provide the electricity necessary to ring the call bells. The telephones themselves had one hand-piece, which the operator moved from ear to mouth, and users were required to depress a button on the phone while they were using it in order to maintain the connection.

A short while after City and Suburban introduced telephone service, a competitor in the market--Western Union--appeared and began offering its own telephone equipment, based on the inventions of Thomas Edison and others. After a year-long nationwide struggle for the developing market, Western Union and Bell Telephone reached an agreement in late 1879 in which the former relinquished its participation in the telephone industry, and Bell promised not to compete in the telegraph business.

In May of 1879 Cincinnati's first telephone book appeared, with classified listings of over 500 patrons. Shortly thereafter, the first women were employed in the job they would come to dominate, that of telephone operator. By the end of 1879 telephone lines reached across the Suspension Bridge over the Ohio River to Covington, Kentucky.

In addition to its geographical expansion, the company adopted technological innovations. Its switchboard, which had been designed by Thomas Watson, Alexander Graham Bell's assistant, was replaced by a Cincinnati-built Jones Switch Table. Further, small branch exchanges were built throughout the city and connected by trunk lines.

By 1889 the company served more than 1,000 customers and employed 25 people. As a result of its successful expansion, City and Suburban paid its first dividend. Three years later, the company signed its first contract with the American Telephone and Telegraph Company (AT&T), the corporate heir to the Bell System, for long-distance service. By now, City and Suburban's franchise had expanded to cover parts of Ohio, Kentucky, and Indiana. The company's switchboards required the efforts of 100 operators, who directed calls over 2,000 miles of telephone cable.

In 1883 and 1884, City and Suburban was challenged by a series of floods on the Ohio River, which crested at over 60 feet 13 times in just two years. As a result of these events, the company was compelled to spend over $1 million on reconstruction. Despite these setbacks, by 1885 the system had expanded to include 450 towns surrounding Cincinnati, and an ever-increasing number of customers within city limits. With the introduction of electricity and electric street cars, City and Suburban encountered another problem with its net-work as the electric wires interfered with transmission over the phone lines, and also caused fires. The eventual solution to this problem was to consolidate the maze of overhead wires into one cable, which could be buried underground.

In the 1890s telephone installers and repairmen transported themselves by bicycle. In 1893, Cincinnati's first long-distance call was put through to the mayor of New York City. In that same year, the Bell System's patents expired, and competition returned to the telephone industry. Customers of City and Suburban were now free to purchase telephone equipment and service from other firms. In order to have complete telephone service, however, subscribers needed to have one phone from each competing company installed, causing them considerable expense and annoyance at having to locate other subscriber numbers in an assortment of phonebooks. This era ended in 1906, when the mayor of Cincinnati declared that he would veto any franchise granted to competing telephone companies by the city council.

Six years earlier, however, at the turn of the century, City and Suburban replaced its obsolete switchboards and equipment with new facilities which eliminated the use of the magneto crank phone. In 1903 the company changed its name, becoming the Cincinnati and Suburban Bell Telephone Company. In the following year, the first public coin-operated phones were installed, and in 1905 they began appearing on city streets. Cincinnati Bell entered an era of steady expansion in the early 1900s as rates for service dropped.

The government, responsible for regulating telephone service areas and rates in Ohio beginning in 1911, established a regulatory agency, the Public Utilities Commission of Ohio, in 1913. The agency provided protection from competition in exchange for Cincinnati Bell's agreement to limit its service area and set its rates as determined by the agency. Also in 1913 Cincinnati Bell moved into a new headquarters building, lending much-needed room for an additional exchange. Further expansion came in the next few years, as the company acquired the Harrison Telephone Company in Indiana and the Citizens Telephone Company in northern Kentucky.

When America entered into World War I in April, 1917, the economy was transformed. Cincinnati Bell lost employees to the military effort, and the company suffered from high inflation and shortages of materials. In 1918 the federal government assumed operation of all telephone companies until the signing of a peace treaty in November of that year. When the companies were put back in the hands of their owners, an enormous, pent-up demand for new service greeted them.

In July of 1919 the first union of Cincinnati Bell employees was formed when the Telephone Employees Association was voted into existence to advocate for higher wages and better working conditions. Also in that year, the company purchased one of its competitors, located in Hamilton, Ohio, after a prolonged legal battle. Shortly thereafter, Cincinnati Bell also consolidated and purchased a number of independent telephone operations in Clermont County, Ohio.

The 1920s were a period of strong growth and expansion for the company. By 1923, its fiftieth year, Cincinnati Bell's network incorporated almost 141,000 phones. Four years later the company introduced the handset telephone to replace the upright 'candlestick phone,' which had a separate piece to be held to the ear. In that same year, the company's first transatlantic telephone call was made by the president of Cincinnati Bell from Ohio to London.

On a slightly less grand scale, Cincinnati Bell inaugurated its own submarine cable when it laid wires across the Ohio River from Cincinnati to Covington, Kentucky, in 1928. In addition, the company launched the expensive transformation from switchboard operator service to dial service, in which calls were automatically connected by a switching machine. The company brought the ambitious activities of the decade to a close by embarking on the construction of a new twelve-story headquarters building, specially designed with tiled floors and smooth concrete walls to shield sensitive dial telephone switching equipment from dust.

By 1929 Cincinnati Bell boasted a network of nearly 200,000 telephones, and assets worth $38 million. Its momentum, however, was threatened by the crash of the New York Stock Exchange in the fall of that year, which threw the country into the Great Depression. The next decade saw Cincinnati Bell's growth seriously curtailed by the country's poor economic climate. Nevertheless, some forward strides were made. A second underwater cable was laid on the bottom of Licking River in 1934. Two years later, the company announced that it would construct three new telephone exchanges in rapidly growing suburban areas.

In 1937 service to 13,000 Cincinnati Bell telephones was knocked out when the Ohio River flooded once again, spilling over its banks and cresting at 80 feet. Despite this setback, and the widespread devastation it caused within the company's service area, Cincinnati Bell continued its campaign to convert its operations to dial service, changing over two-thirds of its exchanges by the end of the decade. 1939 also marked the end of the company's financial downturn when the number of its telephones in service once again began to increase. In 1941 Cincinnati Bell celebrated the installation of its 100,000th phone.

Later that year, however, this milestone was overshadowed by the involvement of the United States in World War II. Once again, the company suffered wartime shortages of manpower and materials. Within two years of the war's start, Cincinnati Bell had accumulated 10,000 unfilled orders for service. Even though the company began handing out obsolete upright phones it had stored away, it was not able to fill all demands for service. Still, in October of 1946 it became the first Bell System company to clear up its wartime backlog of orders.

In the postwar years Cincinnati's economy began a rapid expansion; Cincinnati Bell grew with it. The company inaugurated service on its 300,000th telephone in 1947. Two years later, as it struggled still with shortages of material, which drove costs up, the company applied for and received its first rate increase in 23 years.

By 1952 Cincinnati Bell had attained its goal of converting its entire system to dial service. The transformation cost $30 million over the course of 23 years. In that same year the company installed its 400,000th telephone. The postwar baby boom and the rapidly growing American economy caused strong expansion of company activities throughout the decade. However, stringent regulation kept profits down, and Cincinnati Bell was forced to turn to marketing efforts for the first time in the 1950s, as it tried to strengthen its bottom line. The company looked to sales of additional phones in a given household, phones in different colors, speaker phones, springy cords, shoulder rests, and other optional paraphernalia to boost revenues.

In the 1960s Cincinnati Bell continued to add new phones to its system and implement technological breakthroughs. 1962 marked the installation of the company's 600,000th phone, as well as the first billing of long-distance customers by the number and destination of their call. Innovations such as Touch-Tone service, wide-area switching service, and advanced electronic switching systems helped to upgrade the company's offerings. In the mid-1960s the old system of configuring telephone numbers with the first two letters of a word and five numbers was replaced by a new system which simply used seven digits. This change helped to avoid confusion in long-distance dialing.

In 1968 Cincinnati Bell suffered a strike by the Communications Workers of America; it lasted for two weeks before the company granted workers wage increases. The higher costs this brought about, as well as the expenses of implementing technological developments such as electronic switching, prompted Cincinnati Bell to request rate increases for two years running in the early 1970s, with only partial success. The company subsequently undertook a program of cost controls. This was followed by an official change in the company's name in 1971. What had been the Cincinnati and Suburban Bell Telephone Company was simplified to Cincinnati Bell Inc.

Perhaps the most dramatic change in Cincinnati Bell's history came in the early 1980s, when the federal government broke up the Bell telephone monopoly. Cincinnati Bell was now free to enter non-regulated industries, while retaining its local exchange business, its long-distance holdings, its directory operations, and its role as AT&T's agent for AT&T equipment and service in the Cincinnati area. Taking advantage of this opportunity, Cincinnati Bell reorganized itself as a holding company and entered the software business, forming Cincinnati Bell Information Systems, Inc. in 1983 to sell computer programs for telecommunications systems. In January of 1984 the company began to repurchase the 33 percent of its stock held by AT&T, severing a financial relationship, but not the business relationship, that had lasted for more than a century.

The following year Cincinnati Bell suffered a setback in its local telephone business when the company lost a court case to retain a rate hike, and was ordered to refund between $6 and $7 million to customers, in addition to reducing its fees for service. Two years later a decision by the U.S. Supreme Court in the same matter forced a $20 million refund to customers.

During the mid-1980s Cincinnati Bell beefed up its holdings in other fields of operation by buying computer software companies. Acquisitions included Creative Management Systems, located in McLean, Virginia; Commtrack, a unit of the Control Data Corporation; and Auxton Computer Enterprises, which Cincinnati Bell purchased for $92 million. In 1988 the company also bought Vanguard Technologies International, Inc., for $72 million. One year later Cincinnati Bell formed a joint venture with a British firm to market software in the United Kingdom, which was later dissolved.

During this time the company also invested in firms that produced testing devices for telecommunications equipment, and accelerated efforts to expand and upgrade its telephone network with digital switching fiber optic cables. In the late 1980s Cincinnati Bell branched out further, buying firms that specialized in telephone marketing, which allowed it to form MATRIXX Marketing, Inc., a national telemarketing subsidiary. In addition, the company expanded its radio paging business with the purchase of Metro-Page of Kentucky and formed a new company, Cincinnati Bell Directory, to focus on the Yellow Pages and electronic information markets.

By the end of 1991 Cincinnati Bell had acquired and enfolded nearly 20 separate companies into its corporate structure, expanding its customer base from Cincinnati and its environs to much of the United States, Europe, and Japan. The company's activities fell into three groups: telecommunications, marketing, and information services. The company faced two sharp setbacks in 1991: the bankruptcy of a company in which Cincinnati Bell was a minor investor and the failure of a program developed by the company's software arm. Cincinnati Bell saw overall profits sink by more than 50 percent in 1991 and cut about 550 staff positions. Although the general economic recession of the early 1990s made the company's short-term prospects somewhat bleak, its long-term prospects, buoyed by its strong local telephone operations, appear to be brighter.

Principal Subsidiaries: Cincinnati Bell Telephone Company; Cincinnati Bell Information Systems; MATRIXX Marketing, Inc.; Cincinnati Bell Directory, Inc.; Cincinnati Bell Long Distance, Inc.; Cincinnati Bell Supply Company.

Further Reading:

• Corporate History, Cincinnati, Cincinnati Bell, 1973.
• White, James A., and Ingrassia, Paul, 'AT&T Break-Up Gives Its Two Mavericks an Opportunity to Compete in New Fields,' Wall Street Journal, March 10, 1982.
• Sangor, Elizabeth, 'Eat Well or Sleep Well?' Barron's, October 10, 1983.

Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.

Directory of Sample Business Plans Directory of Company Histories Contact Us Advertise