Illinois Bell Telephone Company
Illinois Bell Telephone Company
Wholly Owned Subsidiary of Ameritech Corporation
Revenues: $3.28 billion
SICs: 4813 Telephone Communications, Except
Illinois Bell Telephone Company is the legal name of what has generally been known as Ameritech Illinois since 1993. The firm is the largest provider of local telephone service in the state, and recently has been at the forefront of new technologies such as fiber optics and digital switching. It serves about 80 percent of the population of Illinois.
Illinois Bell was founded as the Chicago Telephonic Exchange in June 1878. It was originally part of the American Bell System, which later became American Telephone and Telegraph (AT&T). Chicago Telephone’s agreement with American Bell allowed it to operate in Chicago and nearby parts of Illinois and Indiana. The firm’s first move was to open a central telephone exchange in Chicago. At this time, use of the newly invented telephone was spreading rapidly in Illinois and throughout the rest of the United States. The Chicago Telephonic Exchange merged with a competing firm to form the Chicago Telephone Company in January 1881.
As a result of this growth, the firm began using five-digit telephone numbers in 1889, and had to expand its numbers again in 1892. In the 1890s the firm began installing automatic switches that could connect calls without the assistance of an operator. The first of these went operational in 1892 at Fort Sheridan, an army base north of Chicago. Long-distance service to New York began in 1892 out of a special office on Quincy Street in Chicago. At this time a private residential telephone cost $8 a month.
With the telephone quickly assuming an important role in American society, Chicago Telephone continued to grow rapidly. By 1905 it operated 100,000 telephones in the city of Chicago alone. As a result of this growth, the firm built a new headquarters in 1912 at 212 W. Washington Street in Chicago, adjoining its former headquarters building on Franklin Street. The two buildings together constituted the largest telephone building in the world. In 1920 the firm began to grow through acquisition, buying the Illinois properties of the Central Union Telephone Company. With this purchase and its already existing territory, Chicago Telephone operated in almost all of Illinois as well as Lake and Porter counties in Indiana. The company acknowledged its statewide presence by changing its name to Illinois Bell.
With ever more subscribers, the company began using seven-digit telephone numbers in 1921. The firm grew throughout the 1920s, until the start of the Great Depression in 1929. The Depression slowed growth for Illinois Bell and most other utilities, as customers hurt by the hard economic times of the period cut back on telephone use and delayed ordering new telephone lines.
World War II produced shortages for civilian telephones, parts, and wires because the needs of the U.S. armed forces received first priority. The war also increased the nation’s reliance on telecommunications, however. The economy began growing again during the war, and after the war ended in 1945, Illinois Bell kept busy filling back orders that could not be filled during the war.
In the late 1940s and early 1950s, a period of tremendous economic growth for the United States, many Americans began moving to the suburbs and having children. These factors created an unprecedented demand for telephones, a demand so strong that in 1952 the firm installed nearly one new telephone a minute. In the mid-1950s Illinois Bell put direct distance dialing (DDD) into effect. This service used area codes and seven-digit telephone numbers, allowing customers to make long-distance calls without operator assistance. DDD began in 1955 with Waukegan and Highland Park, Illinois, two of the first cities in the United States to begin using the new system. It reached Chicago in 1961 and was available across the entire state of Illinois by 1969. At that time, Illinois had five area codes. In another first for the company, in 1959 Elgin became the first city in the United States to use touch-tone dialing.
With the enormous growth of the phone system after World War II, better switching methods were needed to keep up with the volume of calls. Fortunately, advances in the new area of transistor technology made an all-electronic switch possible. Electronic switches decreased switching time to minute fractions of a second, and later made new services possible. The first electronic switching office was tested in Morris in 1960.
At the same time, Illinois Bell and other companies in the Bell system introduced new services. In 1961 wide area telephone service (WATS) gave business customers the ability to make unlimited numbers of calls within a given calling zone for a standard price. The zone could range from the size of Illinois to the entire United States. Another innovation, the Centrex system, enabled customers at large businesses to receive and send calls directly, without having to go through an office switchboard. In 1967 Illinois Bell, which had grown to serve 5.5 million customers by this time, moved into a new headquarters at 225 W. Randolph in Chicago.
In 1970 Illinois Bell put out the dial tone first system, which allowed pay-phone customers to call the operator or information without using a coin. In 1971 the firm introduced the first services made possible by electronic switching: call waiting, speed calling, call forwarding, and three-way calling. At first these services were limited to Oswego and Aurora, but they were soon offered in the entire state of Illinois.
In 1975 Illinois Bell finally served all of Illinois: it bought telephone operations in the last few counties it had not previously served (in southwest Illinois) from Southwestern Bell. At the same time, the utility sold its Indiana properties to Indiana Bell.
Three years later, Illinois Bell began working with a new wave of important telephone technologies. First, it began testing advanced mobile phone service (AMPS) in the Chicago area. The firm also began testing a 1.5-mile fiberoptic system in Chicago, laying it below the streets. In 1981 it connected the Schaumburg-Hoffman estates area using fiberoptic cable, the first such connection in the United States.
It was around this time that events in the American legal system began to have an impact on Illinois Bell. AT & T and the Bell system had been accused of being a monopoly at various points during most of their history. In 1974 the U.S. Department of Justice filed a civil anti-trust suit against AT & T, formally accusing it of being a monopoly. The suit dragged on for years and was finally settled in 1982, when AT & T agreed to divest itself of all of its Bell operating companies, including Illinois Bell. As a result, on January 1, 1984, Illinois Bell became a subsidiary of Ameritech Corporation, one of seven new regional Bell operating companies that acted as holding companies for groups of the local Bells. Also included in Ameritech were Indiana Bell, Ohio Bell, Wisconsin Bell, and Michigan Bell. The reorganization was planned well in advance and resulted in little service disruption or change in the day-to-day operations of Illinois Bell.
Meanwhile, the firm continued its constant adoption of new technology. In 1982 it set up the first digital switching system in the world in Seneca. Digital switches were faster and of a higher quality than electronic switches. Just as important, they made possible another wave of new telecommunications services. Computers were assuming a vital place in modern communications and commerce, and digital switches allowed computer technology to be integrated with the telephone system. In 1984 Illinois Bell became the first telephone company to offer public switched digital service (PSDS), wherein customers could transmit digital information over existing phone lines at 56,000 bits per second.
In 1985 Illinois Bell carried out the first commercial trial of a technology called integrated services digital network (ISDN). This system encoded information (including the human voice) digitally, allowing customers to send voice, video, and digital data simultaneously over a single phone line. In the late 1980s Illinois Bell installed its five-millionth access line and noted that it had installed 50,000 miles of optical fiber, making its fiber network one of the largest in the world. Illinois Bell had become one of the foremost technology users among U.S. local telephone companies.
The utility’s sailing was not all smooth, however. A May 1988 fire in a switching station in Hinsdale caused widespread problems. The fire destroyed most of the station, one of the four largest in the Chicago area. As a result, about 35,000 customers in southeastern DuPage County had no telephone service for over a month. Because the station was a long-distance hub for many in Chicago’s south and southwestern suburbs, hundreds of thousands experienced disruptions to their long-distance service as well. Repairs were estimated to cost over $30 million. Illinois Bell was widely criticized because the Hinsdale station did not have the state-of-the-art fire suppressing equipment found at many small, independent companies.
In 1988 Illinois Bell won a $108.1 million contract with US Sprint to update the telecommunications network of the state of Illinois. The two companies connected the offices of state agencies in Chicago and Springfield to college campuses and other state government locations. The network included voice, data, and video connections to be installed over a seven-year period. Illinois Bell took care of the local portions of the network, while Sprint worked on the long-distance connections. Rivals AT & T and MCI Communications filed protests when the contract was awarded to Illinois Bell, but the state stuck with its original decision.
Also in 1988, the company launched a total quality management program after examining surveys that showed decreasing customer satisfaction. To cut payroll costs and improve customer service, in 1990 Illinois Bell trimmed over 1,000 positions from the ranks of its management. It also consolidated customer sales and service into a single department.
As information services became more important to the U.S. economy, Illinois Bell’s parent company, Ameritech, requested in 1992 that the Illinois Commerce Commission change the way Illinois Bell was regulated so that Ameritech could invest $3 billion in its data-carrying infrastructure over a five-year period.
In September 1993, Ameritech retired the Illinois Bell brand name. Bills for local telephone service were delivered with the name Ameritech at the top, rather than Illinois Bell, while Ameritech’s Illinois operations were referred to in the press and in marketing efforts as simply Ameritech Illinois. However, the company’s legal name remained Illinois Bell. The same switch was carried out at the other state Bells in the Ameritech group, so that Ameritech could promote the Ameritech name.
While the change was in some ways superficial, it reflected Ameritech strategies with the potential to profoundly impact Illinois Bell and its local phone service. Parent company Ameritech wanted to get into the highly profitable long-distance telephone market. The 1983 consent agreement that led to the breakup of AT & T had specifically barred the regional Bells from competing in the long-distance market, while AT & T was to stay out of the local market. But Ameritech proposed allowing competition in its local markets if regulators would allow it to compete in the long-distance arena. The motivation for this was strategy was simple: while local telephone service was profitable and safe, revenues were not growing quickly. For instance, Illinois Bell revenue grew from $2.98 billion in 1992 to $3.08 billion in 1993 to $3.28 billion in 1994. Further, the utility actually reported a net loss in income for 1994 of $402.2 million, primarily because of its discontinuance of regulatory accounting practices, and a loss of $175.2 million in 1992.
Ameritech initially proposed relinquishing its monopoly on local phone service in Chicago in return for access to the longdistance and cable television markets. That plan was rejected by state and federal regulators, who insisted that Ameritech first give up its local monopoly. They further stipulated that Ameritech only gain access to the long-distance market after competition existed in its local markets. With this goal in mind, Ameritech began offering competitors the right to purchase access to the Illinois Bell local network at wholesale prices that they could, in turn, sell to potential customers. Soon Illinois Bell was looking at potential competition from AT & T, the largest longdistance company, and MCI, the number-two long-distance company. It already faced competition in Chicago from four smaller companies, including Teleport Communications Group and MFS Communications, which had built their own fiberoptic loops in downtown Chicago to compete for the business market in that area.
An April 1995 agreement between Ameritech, AT & T, and the U.S. Department of Justice, would have created two areas—one of which was Illinois Bell’s Chicago territory—in which the local telephone market would be opened to competition in return for access to the long-distance market. Before this agreement was approved by the U.S. District Court, a separate congressional attempt to rewrite U.S. telecommunications law ensued. Some versions of congressional telecommunications legislation offered the local Bells access to the long-distance market without giving up their local monopolies.
Meanwhile, Illinois Bell’s market was changing in other ways. For years the firm had an earnings cap placed on it by the Illinois Commerce Commission. In October 1994 the Illinois Commerce Commission voted to allow Illinois Bell to keep whatever profits it could earn after putting into effect a price-regulation formula based on inflation and other indices. As part of the ruling, Illinois Bell reduced rates by $93 million a year on certain services and put a five-year cap on basic residential telephone service rates. The same month, a federal appellate court ruled in favor of Ameritech in a suit over whether or not the Bells could offer cable television services. Originally forbidden from doing so by the Cable Communications Policy Act of 1984, the ruling allowed Illinois Bell to begin construction of a digital video network on which it planned to offer cable television services.
As a result of these changes, by the mid-1990s, Illinois Bell was in the midst of a quickly evolving market. It hoped to soon enter the long-distance and cable television markets, but its ability to do so depends in large measure on the contents of various congressional bills. In the meantime, local competition had already appeared in the form of small independents with their own fiberoptic loops in downtown Chicago. Sprint Communications Inc., working with Chicago-area cable companies, was also conducting tests with a eye to offering residential telephone service over cable television wires in 1996. Cellular telephones offered rival communications companies another point of competitive access to the local telephone market as well.
“Illinois Telephone History,” Independent Telephone Pioneer Association, 1991.
“News of the Week: Bell Focuses on Customers,” Telephony, April 9, 1990, pp. 18, 22.
McCaughna, Dan, and Tasia Kavvadias, “Illinois Bell Center Hit by Fire Was a Crucial One,” Chicago Tribune, May 10, 1988.
O’Shea, Dan, “Illinois Bell Program Stirs Regulatory Ire,” Telephony, March 22, 1993, pp. 8-9.
Van, Jon, “For Whom Bill Tolls—Now It’s Ameritech,” Chicago Tribune, August 10, 1993.
——, “State Panel Places Call for Local Phone Rivalry,” Chicago Tribune, April 8, 1995.
Winter, Christine, and Rob Karwath, “Phone Office Lacked Best Fire Protection,” Chicago Tribune, May 15, 1988.
Winter, Christine, “Illinois Bell, Sprint Keep $108 Million State Job,” Chicago Tribune, September 9, 1988.
—Scott M. Lewis