ROCHESTER TELEPHONE CORPORATION History

Address:

Rochester Tel Center
180 South Clinton Avenue
Rochester, New York 14646
U.S.A.

Telephone: (716) 777-1000
Fax: (716) 325-4624

Public Company
Incorporated: 1877 as the Rochester Telephonic Exchange
Employees: 4,560
Sales: $703 million
Stock Exchange: New York

Company History:

Rochester Telephone is the thirteenth largest diversified American telecommunications company and the largest telephone company in New York. It provides local telephone service to customers in 14 states and operates subsidiaries in a number of related fields. The company was founded in the fledgling days of the telephone industry as an independent telephone operation, not affiliated with the nationwide Bell network. After suffering the effects of poor management in the middle years of the century, Rochester Telephone recovered and grew rapidly in the 1960s and 1970s. This strong progress allowed the company to successfully diversify in the 1980s.

Rochester Telephone got its start late in the nineteenth century. Alexander Graham Bell invented the telephone in 1875, and the following year he patented it and exhibited his device to great acclaim at the Philadelphia Centennial Exhibition. By July of 1877, the telephone had made its way to Rochester, New York, where a line was strung between the offices of the Phillips Coal Company and its coal yards a mile and a half away. Following this precedent, in 1879, Rochester established two telephone companies, one a franchise of the American Bell Telephone Company, and one a part of the Edison company. The Bell affiliate, called the Rochester Telephonic Exchange, was a branch of the Bell Company of Buffalo.

The two telephone companies competed for less than 18 months before merging under the aegis of the Bell system. In 1880 the company had 50 phone lines, which it provided to residential customers at the rate of $24 a year; businesses paid more for the service. Within six years the number of telephone users in the city had increased exponentially, reaching 1,000. All lines were party lines, and there were no telephone numbers; calls were placed through a switchboard manned by operators, who connected parties by name. Calls passed over lines strung along streets on poles with crossbars, which observers complained were unsightly.

In 1886 the Bell Company announced that customers would no longer be charged a flat fee, but would be charged by call for all telephone use over 500 calls a year. Outraged customers objected, and the Rochester city council revoked the company's franchise. In addition, telephone users staged a strike, removing their receivers at noon on November 20, 1886, and leaving them off the hook for 18 months while the company stood fast. Finally, Bell gave way, offering lower rates, and the strike was ended.

The telephone strike had stimulated in Rochester's citizens a desire for a locally-owned telephone company. When the Bell Company's patents expired in 1893, many competing telephone enterprises sprung up. In early 1899, a group of Rochester businessmen joined this movement when they founded the Home Telephone Company. By the end of the year, the company's name had been changed to Rochester Telephone Company.

The upstart company drummed up about 1500 subscribers for its services and presented a petition to the Rochester City Council for a franchise, which was approved in April of 1899. On May 13, 1900, Rochester Telephone inaugurated service to about 1,800 customers. Steady expansion took place in its early years. The company added 1,000 new lines to its switchboard, a second story to its headquarters building, and an entire second switchboard. In addition, Rochester Telephone widened its area of service to include the towns of Charlotte, Fairport, and Pittsford outside city limits. Other counties in western New York were served by company subsidiaries, the Genesee Valley Telephone Company, and the Interlake Telephone Company.

Although customers professed higher satisfaction with the service of the independent Rochester Telephone Company than they had with the Bell system, they were unable to make long-distance calls. In an effort to provide a nationwide network that would allow long-distance calling, the country's alternative telephone companies established the United States Independent Telephone Company in 1905. Two years later, however, after its failure to win entry to the key New York City market, the company failed. Rochester Telephone, which had invested heavily in the enterprise, suffered severe financial damage with its bankruptcy. This, coupled with the high costs of competition with the Bell network prevented the company from raising any new investment capital for the next four years, and it continued to limp along throughout the 1910s.

The inconvenience of a dual telephone system, which required two sets of phones in each residence or business, and two sets of lines criss-crossing the city, brought growing pressure for consolidation of operations. In 1915, negotiations between Bell and the independents began in New York State. Two years later it was agreed that a new corporation, independent of the Bell organization, would be created to buy and operate the telephone systems of both companies.

The newly constituted company, which had been given the name Rochester Telephone Corporation, had 1,200 employees and assets worth about $6 million. On August 1, 1921, the two halves of the new independent system began operating as one. During the ensuing decade, Rochester Telephone grew dramatically, as the nation's economy boomed in the aftermath of World War I. At the end of 1921, the company had more than 55,000 phones in service. Two years later, after a long controversy, Rochester Telephone won the right to bill its business customers by call, rather than on a flat rate. By 1926, the number of phones had grown to 84,000. Despite these gains, Rochester Telephone worked continuously to convince people that the telephone was not just a luxury or a gimmick--it was a necessity. The company ran ads in newspapers and on the fledgling medium of radio and also enlisted its employees in sales drives. In 1928, the company recorded its largest jump ever in the number of telephones on line and passed the $1 million mark in revenues.

In addition to these gains, Rochester Telephone made a decision in the 1920s that would ultimately result in a setback for the company. In that decade, dial service, which replaced the services of an operator at a switchboard with automatic routing of calls to their destination, was first introduced. After conducting a study, the company decided against undertaking the costly conversion to the new technology. In the 1930s and 1940s, while other telephone companies across the nation were implementing the new, more efficient service, Rochester Telephone, unable to raise the necessary capital for the conversion because of the effects of the Great Depression and the war effort, was forced to continue using archaic equipment.

The 1930s proved to be a difficult decade for Rochester Telephone. Strapped for cash in the midst of the Great Depression, many of the company's customers gave up their phone service, and cancellations exceeded new orders for several years in the early part of the decade. As revenues and earnings fell, Rochester Telephone began to cut its work force in an effort to keep costs down. Remaining employees were put on shortened hours, and their wages were reduced.

The company's darkest hour had passed by 1934, however, and its count of telephones in service and revenues began to creep upward that year. Three years later, the company got further relief when it received its first rate increase from the commission that regulated public utilities in its area. This boon produced over $60,000 in additional annual revenues for Rochester Telephone.

Despite the Depression, Rochester Telephone expanded its facilities during the 1930s, adding new central office space in downtown Rochester and outlying communities. By 1941, Rochester Telephone's revenues had climbed back to their highest point ever. That same year, however, the United States entered World War II, and the economy was converted to a wartime footing. Resources were diverted to the military effort, leaving widespread shortages in the civilian world.

With the gear-up for the war effort, demand for telephone services increased dramatically. The ranks of company employees to meet that demand, however, were thinned by military call-ups. Caught without dial equipment in a situation where new equipment was impossible to procure, Rochester Telephone had difficulty handling the growing volume of calls. Customers were asked to limit the duration of their calls, and tones sounded every three minutes on the line to remind them to get off the phone. On long-distance calls, operators broke in every five minutes to tell callers that others were waiting to use the lines. In addition, Rochester Telephone received many orders for the installation of new equipment which it was unable to fill. By the war's end, the company's waiting list had grown to include 8,000 names.

In 1944 Rochester Telephone sold stock to the public for the first time. Demand for telephone services continued to grow astronomically in the postwar years, and the company found itself unable to keep up with its customers' needs. Rochester Telephone struggled to raise capital to provide for expansion and conversion to more efficient dial switching, and in the meantime, urged its customers not to make nonessential calls. Rochester citizens, relatively tolerant of the company's weaknesses during the war, responded in the postwar period with frustration and criticism. Letters to local papers characterized phone service in the area as 'wretched' and 'outrageous.' Eventually, a state regulatory agency undertook an investigation of Rochester Telephone's operations.

By 1948, Rochester Telephone had a backlog of 12,000 requests for telephone installation. In that same year, the company was finally able to commence a program of conversion to dial telephone service. The costs of this program caused the company to eliminate the dividend on its stock for that year. Partial relief for the company's financial woes came when Rochester Telephone was granted two consecutive rate increases, which provided the company with $1.4 million in extra funds.

Rochester Telephone in the late 1940s faced a severe public relations problem. Open house events at its manual switching centers in 1949 helped to appease the public somewhat, but soon, tempers rose again, as consumers complained about the company's slow and unreliable service.

In the 1950s Rochester Telephone made a number of stock offerings to pay for its long overdue capital improvements. By 1954 the company was finally able to respond promptly to requests for service. Rochester's population and economic base grew rapidly during the decade, particularly in outlying suburban areas, and Rochester Telephone's operations grew along with them. By the end of the decade, the company had 290,000 phones in service, and its revenues and earnings had more than doubled.

This growth in earnings was possible, in part, as a result of rate increases that the company won in 1951 and 1954. In 1958, when Rochester Telephone petitioned the state public utilities commission for yet another rate increase, the anger of some of its customers again spilled over onto the editorial pages of newspapers. Some Rochester Telephone customers in outlying areas were still forced to rely on magneto crank telephones, and in certain suburbs customers were grouped into four- and eight-party lines. The company's preoccupation with the all-important and enormously expensive dial conversion effort had resulted in serious lapses in service in other areas. After the Public Utilities Commission publicly scolded Rochester Telephone for its inept management--calling its incompetent conduct of business 'inexcusable'--the company underwent a major reorganization, and a significant portion of its management was replaced.

The retooled Rochester Telephone entered the 1960s poised to rectify the faults of the past and seek new growth. The company was listed on the New York Stock Exchange for the first time, and it set out to use the capital generated by stock sales to improve service in the rapidly growing suburbs. In 1961, however, this progress was slowed by a nine-week strike of telephone workers that again resulted in a backlog of service calls.

Throughout the rest of the 1960s, the company expanded its infrastructure of cables and switching equipment while adding new lines to keep pace with Rochester's growth. In 1966 Rochester Telephone completed conversion of its entire system to dial switching and established a seven-digit phone number system. By the end of the decade, the company had added 200,000 new phones to its network.

To prepare for further growth, Rochester Telephone initiated employee training programs in the late 1960s. The first sign of that growth came in 1972, when the company made its first acquisition outside the geographical limits of its service area, purchasing the Sylvan Lake Telephone Company. This move was made in response to the slowing rate of economic growth in the company's traditional area of operation. Four years later, a second, much larger purchase was made, when Rochester Telephone acquired the Highland Telephone Company.

In the mid-1970s, Rochester Telephone experienced its first taste of the competition. Around this time, the telephone industry was rocked by a Supreme Court ruling that allowed customers to attach their own phone equipment to company lines. No longer were telephone users required to purchase equipment only from the telephone company itself. Inroads caused by this development, along with other factors, caused a drop in company revenues and earnings during this time. In 1974 the company suffered a strike by telephone workers that lasted 28 weeks, and in the following year, the company also began layoffs, which continued throughout the late 1970s as demand for its services slackened.

In 1978, rebuffed by its regulators in its attempt to form a holding company, Rochester Telephone spent $2 million forming two subsidiaries instead. Rotelcom Business Systems and Rotelcom Consulting Services provided equipment and expertise in the burgeoning telecommunications field. The next year, the business systems unit opened an office in Honolulu to serve hotels there and set up a long-distance service from Hawaii to the continental U.S. known as Call America. One year later, the company added Rotelcom Data, Inc., and a Supply and Set Refurbishment Division, which fixed up used telephones for resale. In their early years, the company's subsidiaries reported strong profits.

In 1983, as the federal government's breakup of the Bell telephone monopoly increased competition in the telecommunications industry dramatically, Rochester Telephone launched its second unregulated venture, founding the RCI Corporation. RCI installed a microwave communications network in New York State and a fiber optic hookup with Chicago. After purchasing an additional fiber optic link with Washington, D.C., the company's operations spanned 12 cities. In the mid-1980s, Rochester Telephone also entered the new radio telephone industry, when it founded Rochester Tel Mobile Communications. By the end of the decade, it managed cellular phone services in six states.

Along with its forays into unregulated industries, Rochester Telephone expanded its holdings in the local telephone exchange business dramatically during the 1980s. In 1984 it added its third New York phone system--in AuSable Valley--and in the ensuing years, the company purchased 34 other telephone operations in 15 states. This geographical expansion was designed to offset the effect of a gradual but unmistakable economic retrenchment in the company's home area, Rochester.

Rochester Telephone entered the 1990s as a company with extensive local telephone holdings across a broad geographical area, augmented by long-distance and business communications services and cellular telephone holdings. The breadth of the company's activities allowed it to ride out the general economic recession of the early 1990s in relatively good shape. Rochester Telephone appeared, therefore, to be well suited in its present incarnation to thrive in coming years.

Principal Subsidiaries: RCI Long Distance; Rotelcom, Inc.; Rochester Tel Mobile Communications; Rochester Tel Cellular Holding Corporation.

ROCHESTER TELEPHONE CORPORATION History

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