But AT&T'S Magnificent R&D Program, which helped the company consolidate its monopoly and dramatically improve phone service for its customers, also contributed to the company's dissolution, as noted by Christopher Rhoads in a recent Wall Street Journal article. Consider, for example, the transistor, the invention that today lies at the heart of all things digital, from DVD players to satellite transponders. AT&T at first licensed the patent rights to the invention for a paltry $25 000 and later put them in the public domain as part of a 1956 consent decree that averted a court breakup of the monopoly.

AT&T leaders recognized that the transistor was just too important to keep to themselves—and the courts probably would not have allowed that anyway. But more than that, Bell Labs and Western Electric actively encouraged the diffusion of their semiconductor technology by offering a series of workshops during the 1950s that were well attended by engineers from many other companies. The participants included Jack Kilby, who would go on to pioneer the integrated circuit at Texas Instruments, and a handful of engineers from a small Tokyo electronics firm that would parlay early success with the transistor radio into a decades-long dominance of consumer electronics: Sony. If the invention of the transistor can be said to have sparked the information age, it really became a global phenomenon after those workshops helped stoke the fires.

At the time, Bell Labs managers generally regarded their company as a quasi-public institution contributing to the national welfare by enriching the country's science and technology. Seen in that light, AT&T's vigorous promotion of semiconductor technology made good sense—especially during a time the company was churning out profits and didn't feel any competition breathing down its neck.

But such generosity may have been one of the crucial forces behind its eventual downfall, as smaller, nimbler, and more legally unfettered firms seized the opportunity to develop and deploy innovations that would help undermine AT&T's dominance of U.S. telecommunications. "After its forced breakup in 1984," The Wall Street Journal's Rhoads wrote, "it was slowly crushed by technologies that drove down the price of a long-distance call, and more recently by wireless calling and Internet phoning."

At the same time Bell Labs and Western Electric were working on their many innovations, there was a resistance to rapid change rooted deep within the parent company's culture. According to Sheldon Hochheiser, former AT&T corporate historian, "a service ethos and the absence of the countervailing pressures of competition produced a corporate culture dominated to a great degree by an engineering mentality." That culture, he adds, "encouraged a value system where managers tended to take the time to get innovations right, as an engineer would define right."

Thus, AT&T engineers usually emphasized reliability and robustness of the network over the rapid introduction of advanced technologies. Often a decade or more passed before new features, such as long-distance direct dialing and touch-tone phones, would finally percolate throughout the system. And cellular telephony, first described in detail by Bell Labs engineers in 1947, never gained widespread commercial operation as part of the Bell System.

Perhaps The Most Egregious Example of the company's technological conservatism was the languid introduction of electronic switching, conceived in the 1930s by Bell Labs research director Mervin J. Kelly (who later became president). Kelly was the one who had hired Shockley, directing him to find a solid-state replacement for the electromechanical relays used in the switches in the Bell System's many central offices.

The noisy, clunky relays opened and closed circuits to establish continuous physical connections between any two phones. A solid-state switch, on the other hand, would have no moving parts, making it smaller, faster, quieter, and more reliable. Although electronic switches based on solid-state components had been developed by 1959, AT&T didn't introduce the first digital switch into the Bell System until 1976. And electronic switching was still being gradually rolled out well into the 1980s, when AT&T's monopoly on telephone service came to an abrupt end. The much more rapid introduction of digital switches by MCI and Sprint probably contributed to AT&T's downfall.

And even though Bell Labs and Western Electric developed most of the underlying silicon technology required for the integrated circuit, which eventually became the guts of the electronic central-office switch, AT&T wasn't in on its creation. The upstarts Fairchild Semiconductor and Texas Instruments, focused as they were on miniaturizing electronics for their military and aerospace customers, led the way instead. Here again, AT&T engineers probably contributed to the lapse by insisting on high-performance discrete components built for 40-year lifetimes in the Bell System. There was no great drive for miniaturization in the system, acknowledged Ian Ross, the president of Bell Labs at the time of the breakup. "The weight of the central offices was not a big concern," Ross said.

Another factor contributing to the technological inertia was the billions of dollars already sunk into the Bell System. Any responsible corporate manager would prefer to amortize such investments before introducing newer, better devices, especially when no real competitors existed. As the historian Hochheiser notes, the "absence of competition allowed the Bell System's managers the freedom to take an extremely long view."