Building Universal Service in the Early Bell System: The Reciprocal Development of Regional Urban Systems and Long Distance Telephone Networks 1

Transcription

1 Building Universal Service in the Early Bell System: The Reciprocal Development of Regional Urban Systems and Long Distance Telephone Networks 1 David F. Weiman Department of Economics, Queens College and the Graduate Center, CUNY and the Social Science Research Council To be Submitted to History Matters: Economic Growth, Technology, and Population: A Conference in Honor of Paul A. David, June 2-3, Please do not cite or quote without permission of the author.

2 In 1907 at the dawn of an earlier technological epoch, Theodore Vail pronounced AT&T s ambition to build an integrated (or seamless) electronic communications network of continental proportion and, I should add, under Bell control. Vail s ambitious goal, what he termed Universal Service, would require vast investments in building and upgrading long distance lines and fundamental innovations especially in transmission technology. 2 Consequently, it would not be fully realized until the 1930s. Yet, despite the uneven regional diffusion of telephone service and regional telephone networks riven by competition, Vail insisted that the Bell System had assimilated itself into and in fact become the nervous system of American business. 3 Vail s claim could be readily dismissed as mere hype, echoing the pretensions of earlier and later entrepreneurs promoting new electronic communications and information technologies. 4 While not unsympathetic to this reading, I believe that it contained an important kernel of truth. In the interim between his reigns over AT&T, Bell managers and engineers had built a more or less integrated transregional telephone network a hierarchy of hubs-and-spokes that paralleled the maturing US urban system. 5 When viewed from this perspective, Vail insightfully grasped the wholesale connection between regional urban systems and telephone networks. The diffusion of long distance telephone service, it connotes, followed and reinforced established patterns of wholesale trade and so the spatial organization of economic activity at the time. In this paper I elaborate this wholesale connection through an analytic rendition of the strategies and insights of key managers and engineers of the newly formed AT&T Company between 1887 and The argument unfolds in four parts. The first section reviews the basic 1

3 technology of early telephone service and Bell s traffic studies, which suggest an affinity between long distance telephone service and wholesale trade. Sections two and three explain the hierarchical organization of regional long distance telephone networks by the natural flows of long distance telephone traffic and ultimately increasing returns to long distance telephone service. I conclude by specifying the spatial-economic, not technical, sources of increasing returns, which correspond to the very conditions fostering metropolitan or regional urban system development. 1. The Wholesale Connection in Early Long Distance Telephone Service The parallel between regional urban systems and long distance telephone networks is not incidental, a mere correlation. By substituting for direct face-to-face contact, the telephone carried the very economic transactions vital to metropolitan intermediaries open-ended negotiations and non-standardized information. Moreover, because of the novelty and expense of long distance telephone service during this formative period, it was used for little else. 6 In 1887 Edward J. Hall, then general manager of the newly formed AT&T Company, clearly grasped this wholesale connection. Responding to the very pressing question of why customers would purchase more costly long distance telephone as opposed to telegraph service, Hall specified its separate and distinct demand or market segment. 7 When the nature of the business requires personal communication, question and answer, the railroad or the telephone line must be used, and this is our field: quick communication with instantaneous replies and prolonged personal interviews. In other words, he observed, If the long-distance telephone competes with anything, it is with the railroad, and not the telegraph. Once people learn its uses, he 1

4 2 predicted, long distance telephone service will become the most important factor in the transaction of business between distant points. As a corollary, Hall envisioned regional long distance networks in terms of a hierarchy of huband-spoke systems, each anchored by a commercial center and bound by the city s hinterland or trade area. Writing to the president of AT&T s parent company American Bell Telephone in 1888, he recommended the construction of two regional networks, one centered around New York and the other around Chicago. Included within each of these two great circles, he elaborated, would be a host of smaller ones centering at the various large cities from which the business of a state or section radiates. Regional and local toll centers played a pivotal role in his plan, as they would mediate calls within and between their territory and so forge an integrated national network, that is universal service. Universal service would enable telephone customers, regardless of their location, to communicate directly through the flow of traffic between interlocking networks, distinguished by their geographic range, physical design, and mode of service. At the local level, a city or district of a large metropolitan center, the exchange network connected the telephones of residential and business customers to a central office, which housed the switching equipment. Toll and long distance trunk lines, in turn, linked central offices within and between the territories of telephone operating companies and thereby formed larger geographical networks. Local toll networks embraced economically and geographically proximate centers, and in turn were joined by toll and long distance trunk lines, typically between the largest centers, to form regional and transregional (e.g., national or global) networks.

5 3 The distinct domains of local exchange and toll and long distance service suggest an obvious parallel to the differences between retail and wholesale trade. Like trips to the grocer or drug store, households tended to restrict their telephone calling to the immediate vicinity, often only to the neighborhood level. As historical studies of its usage have clearly demonstrated, the telephone did not directly expand households geographic horizons, but instead merely cemented their local ties. 8 Moreover, exchange service satisfied the spontaneous demand for local interactions by completing these connections almost instantaneously that is, in less than a minute or while the caller remained on the line. 9 The speed of service in the era of manual switching technology the time necessary to complete connections reflected the greater facility of mediating local transactions and, in turn, the relative simplicity of exchange technology and operating methods. Subscribers gained prompt access to local operators, because their telephones were directly wired or looped into the central office switchboard. 10 To signal the demand for a connection, the caller just picked up the telephone receiver and within seconds reached an operator. In most cases the same operator could complete the entire transaction. Through a multiple switchboard, she could reach the connecting jack for every exchange subscriber and just bridged the circuit linking the caller to the desired party. 11 As in wholesaling, toll and long distance service mediated transactions over greater distances, within and between operating company territories respectively. These far-flung interactions were more complex, often following indirect routes, and so demanded additional steps and time. Even under the best of circumstances, operators could require almost 10 minutes to make the desired connection. 12 Consequently, when customers contacted an operator to request a toll call, they in

6 4 effect issued an order to be fulfilled at a later, specified time. Callers, in other words, simply reserved a time slot on toll trunk lines. In turn, by accumulating these demands, toll centers coordinated the flow of traffic to and from, as well as within, their territory. Toll service required greater mediation because of the hierarchical design and operation of the network. Unlike in an urban exchange, subscribers acquired access to the toll network indirectly through a limited number of trunk lines connecting exchange and toll switchboards. 13 To complete a toll transaction, the exchange operator funneled the call to a toll operator, who recorded the desired connection and directed the call along the appropriate route to its final destination. The speed of service depended on the number of intermediate switches or relays necessary to reach the end point and the available trunk line circuits at each step along the way. Excess demand for toll circuits at any juncture caused delays and the formation of queues. Thus, as explained in the next section, the efficient organization of the toll network operated according to the principles of pooling bulk transactions analogous to those in wholesale trade. Despite the potential geographic scope of telephone connections, the vast majority of traffic before 1930 was local, restricted to the domain of the local exchange. Between 1890 and 1920 toll and long distance calls accounted for two to three percent of all telephone calls in the US (see Figure 1). 14 Their share barely exceeded four percent by 1929 despite the rapid growth of long distance service in the 1920s. Nonetheless, the utilization of the toll network served as a keen barometer of aggregate economic activity. The volume of toll calls tracked the seasonal flows trade and credit, as well as the peaks and troughs of the business cycle. As evidence of the latter, the relative number of toll and long distance calls declined sharply during cyclical downturns, especially the Great Depressions of the 1890s and 1930s. 15

7 5 Correlation in this case corresponds to causation because of the selective demand for toll and long distance telephone service. Local exchange service mediated both business and personal interactions and so issued mixed signals. By contrast, toll and long distance services were an economic instrument, carrying almost exclusively transactions within and between business enterprises. 16 Even toll and long distance calls made from residences or vacation resorts, while ostensibly personal, were often for business purposes, as managers used the convenience of the telephone to keep tabs on their distant operations. Business demand for toll connections can be ascertained quantitatively from traffic studies of Bell operating companies, which indicate the frequency of toll calls by type of customer residential versus business and even by class of business. An early report from the Bell exchange in Buffalo provides such a detailed breakdown of outward toll traffic in Residential customers, including doctors, accounted for almost a quarter of exchange subscribers and approximately 10 percent of local calls. Yet, only 17 percent of these households called beyond the local level, and made on average only two toll calls per month (see Table 1). Businesses, by contrast, utilized telephone service more intensively, including the toll and long distance networks. Over half of all business customers placed at least one non-local call a month, although most firms did not call frequently. The largest users of toll and long distance services were firms that figured significantly in the nexus of wholesale trade: hotels, telegraph companies, commission merchants, specialized wholesalers, banks, and shippers (see Table 1). Firms in retail trade (such as carting, stationary supplies, and dry goods) made fewer toll calls, as they conducted transactions on a more local (i.e., exchange) level. 17

8 6 The pattern of usage in Table 2, based on a smaller exchange in upstate New York, shows an even sharper disparity in business and residential demand for local and toll services. Households accounted for 44 percent of all exchange customers, but only a third used the toll network during the month. Of those who did, only 5 percent placed more than five toll calls. Businesses obviously constituted the principal source of demand for toll service. Almost twothirds of business subscribers used the toll network, and their calls represented nearly 90 percent of the toll traffic originating from subscriber telephones (see Table 2). Although these data do not identify the actual source of toll traffic, they do show the avid demand for long distance connections by a small segment of the business community. Half of all business users made fewer than 10 calls per month. At the opposite end of the spectrum, the largest 5 percent made at least 20 toll calls per month, and accounted for 40 percent of toll calls by businesses and over a third of all toll calls in the district. Finally, Table 3 lists the largest users of toll and long distance services in New York City in the mid-1920s and so further specifies some of the principal sources of business demand. With a few exceptions, two types of enterprises predominate. The first are hotels. Without discounting their tourist trade, hotels, then as today, furnished business executives and sales agents with lodging and vital services during their routine trips to the nation s economic center. The second set of establishments included the corporate offices, often headquarter facilities, of national and multi-national firms. In both cases, toll connections were essential to conduct wholesale trade, whether to reach retail customers in the trade area or to keep close contact with distant production facilities and distribution centers. Notably missing on the list are intermediaries in New York s financial and mercantile districts. As Bell s head of marketing noted, his tabulation

9 7 would most likely exclude these firms, because their intensive demand for long distance connections justified leasing toll lines directly from AT&T The Bell Standard: The Design and Operation of Regional Toll Networks Under Vail s predecessor Frederick P. Fish, AT&T s Engineering Department had already launched a thorough reorganization of Bell s operating divisions and their long distance networks. In 1904 it circulated a manual on the proper design and operation of regional toll networks. 19 Prepared by Thomas Doolittle head of the Toll Traffic Studies Division, these guidelines would more seamlessly integrate local toll networks into larger regional and transregional systems and thereby maintain the uninterrupted flow of traffic between any points. Like springs, brooks, and rivers, Doolittle observed, toll traffic obeyed forces as immutable as the laws of nature. Despite the choice of metaphor, Doolittle acknowledged the fundamentally spatial-economic nature of the laws governing toll traffic and networks. Bell engineers, of course, adapted their networks to the exigencies of the natural geography the physical distance or natural barriers separating centers. Still, as Doolittle insisted, an efficient regional network should follow the natural trend of the business within its territory. In other words, when designed and operated according to Bell standards, the network would accommodate the flow of traffic among urban centers and so follow the spatial-economic principles governing their interactions. i) Nodality and hierarchy in toll networks Significantly, the adoption of Bell standards forged a hierarchical order of toll centers according to their nodality and function in the network. The term nodality connotes the

10 8 accessibility of a center to other places in a region. Intuitively, it conveys the sense of being close, a general proximity to any destination, not just one or several. This complex relationship embraces: 1) a metric to measure the distances between centers, 2) an aggregation principle to translate the matrix of distances into a more or less unitary ranking, and 3) a reference point to delimit the spatial domain. Depending on the geographic scale, a center might be deemed more or less nodal. It may be the most accessible point in a local area, but occupy a more peripheral place in a larger regional context. In the geography of networks whether communications or transportation, proximity is a deceptively simple term. If it corresponds to physical distance, then nodality is reduced to the site characteristics of a center, such as a central location within the territory. In explaining the efficient routing of traffic, Doolittle seemed to embrace this definition. The shortest and best route for directing traffic, he maintained, minimized the circuit mileage or physical distance traveled. In explicating this rule, however, he subtly shifted tone and replaced this purely physical notion of distance with one rooted in the very structure of the network. An efficient path, he continued, required the least number of [intermediate] switches, and in the case of a tie, the best route was furnished with the greater number of circuits. Proximity in the latter sense is synonymous with connectivity, the complications and cost of linking two points in the network, and depends on the number direct pathways or circuits joining them. 20 By avoiding relays at intermediate points, direct routes minimized the time to complete connections, the likelihood of errors, and the risk of congestion delays along the way. Also, fewer switches diminished the attenuation and distortion of the voice signal and so enhanced the clarity of the message. 21 Finally, stringing additional circuits along toll lines to a destination

11 9 significantly lowered bottlenecks at toll centers, while direct lines to other nodes in the network furnished more efficient secondary routes in case of congestion or service interruptions on primary ones. Thus, a nodal center insured immediate contact to any destination in the network, because it furnished more direct connections to a wider range of points, especially other pivotal nodes. The case study analyzed by Doolittle neatly illustrates this principle. The circuit map in Figure 2 depicts a regional network, redesigned by Doolittle according to Bell standards. 22 It contains two kinds of centers. Large urban exchanges (denoted by lettered boxes) serve as toll centers mediating the flow of traffic through the network. Smaller centers are furnished with branch exchanges (numbered boxes and unfilled circles) or toll telephone stations (filled dots). The latter were nothing more than public telephones, centrally located at a general or drug store, where residents could make and receive long distance calls. Finally, the lines represent wire circuits, the physical medium for transmitting messages between centers. Comparing the site characteristics and connectivity of exchanges in Figure 2 sharply contrasts physical and spatial-economic notions of distance and nodality. In terms of their geographic location, exchanges I and J are located closer to the center of the territory, while A and D are situated on the perimeter. The latter two, however, are more nodal, when ranked by the facility of communication the cost and complications of completing connections such as the average number of switches or routes connecting a center to any point in the territory (see column 2 in panel A of Table 4). Following the primary or most efficient routes as designated by Doolittle, traffic to or from centers A and D required on average less than one intermediate switch

12 10 (0.83 and 0.70 respectively). By contrast, routes connecting J and I to other points in the network were more roundabout, averaging 1.04 and 1.43 intermediate switches. This index abstracts from the quality of toll connections in relation to the spatial patterns of traffic and so understates differences in nodality between these places (see panel B of Table 4). Exchanges A and D were furnished with direct circuits to almost twice as many destinations in the network as were J and I (35 and 40 percent of all centers versus 22 and 17 percent), and the bulk of their traffic (between 86 and 90 percent of total calls) flowed along these uninterrupted routes. 23 Moreover, multiple circuits along the most heavily traveled lines (such as from A to U and B and from D to B and H) greatly enhanced transmission capacity and hence the reliability and speed of service. Finally, with one exception, the more nodal centers afforded a greater range of auxiliary routes (see columns 3 and 4 in panel A of Table 4). 24 The anomaly, exchange J, illustrates a potential benefit of its central location at the cross-roads of routes connecting other centers. At the opposite end of the spectrum, centers W and K were marginal because of their spatial isolation, the sparsity of their network connections. Situated on the very edge of the network, exchange W gained access to other centers only through the line joining it to exchange A. This indirect link required an additional relay to complete calls to other centers and accordingly diminished its nodality as measured by the average number of intermediate switches (from 0.8 for A to 1.8 for W). Significantly, over 40 percent of the traffic to and from W required at least one intermediate switch, and 7 percent, at least two. Despite an additional outlet, exchange K was, if anything, more marginal. In fact, Doolittle had replaced the direct circuit from K to V with an indirect connection, and so restricted its

13 11 access to a single circuit each on the other two lines. Although the bulk of traffic to and from K (75 percent) was direct, requiring no intermediate switching, 16 percent of all calls had to be relayed at least two times. Another consequence of its peripheral position was the limited range of tertiary paths (to only 4 percent of other points) and so the greater risk of isolation in case of damage to primary and secondary lines. The design and organization of the network also illustrates the dual relationship between the nodality and hierarchy of centers, the latter referring to functional position of toll centers in mediating the flow of traffic. Nodal centers assumed more pivotal roles in controlling and coordinating traffic through the network (e.g., the routing of toll calls and financial accounting). Conversely, marginal centers reached other points indirectly via more nodal exchanges, and so were rendered, in effect, tributary to them. The nodality of centers, in turn, defined their spatial range, the scope of network traffic which they mediated or equivalently the number and location of places in their tributary area. The hierarchy of centers operated immediately in the formation of exchange districts, which essentially extended the domain of large urban exchanges to encompass smaller nearby towns and villages (as illustrated by the irregular boundaries surrounding toll centers in Figure 2). Implementing AT&T s center checking system, Doolittle removed branch exchanges and toll stations from the direct circuits connecting toll centers and placed them on tributary lines wired into switchboards at an adjacent exchange. 25 The very design of the network treated toll stations practically as subscribers of the exchange centre in terms of their access to toll lines and thereby increased the financial and operational control of toll centers over traffic in their immediate vicinity.

14 12 Network design imposed a similar hierarchy among toll centers. The toll center in exchange A, as noted above, mediated the traffic of nearby exchange W. Similarly, by removing the direct circuit between Q and F, Doolittle channeled the traffic of the former exchange through the center at point D. Such relationships, however, were less rigid than those defined by the center checking system. For example, with the completion of the proposed circuit between centers E and B, the former exchange would gain comparable access to the network through two nodes, not one. Routing instructions, which directed traffic through intermediate points to its final destination, reflected these more flexible hierarchical relationships. Following Doolittle s simple rule, they specified the most efficient paths between all points in the network. When confronted with alternatives, this early application of the turnpike principle tended to channel traffic through more nodal toll centers, even if the resulting routes did not minimize the physical distance traveled. In other words, greater connectivity often trumped mere proximity in governing the flow of traffic, and in turn greatly expanded the spatial range of more nodal centers. To cite an example, Doolittle routed calls between points D and U through center A. Despite some backtracking, this path required only one intermediate switch and offered a greater number of available circuits. In the reverse direction, traffic between points A and H was routed through J, although the alternative through D was nearly as efficient. Following the evolution and systematic development of toll operating methods, especially for handling calls between geographically proximate centers, traffic engineers at New England Telephone elaborated Doolittle s guidelines. 26 To exploit fully these potential economies, their toll center plan relayed the traffic of smaller centers through toll offices at nearby larger ones. This method substantially lowered circuit (or capital) and labor requirements and so total unit

15 13 costs. Moreover, it extended the hierarchical organization of toll networks to encompass the relationships among toll centers. Applied to the territory of New England Telephone, it consolidated control and coordination functions in its 79 largest toll centers, as compared to nearly one center for each of its 730 exchanges previously. The resulting design clearly anticipated the top-down structure of Bell s General Switching Plan introduced in the late 1920s. ii) Proximate sources of nodality in long distance telephone networks Following his most fundamental tenet, Doolittle organized the network in accordance with the trend of traffic. The implied relationship between the nodality of center, its hierarchical order, and the flow of traffic that it mediated reflects the influence of increasing returns, due in part to large indivisible investments in transmission and switching facilities. For example, direct access to the network via a toll center and lines to other centers entailed substantial capital outlays: laying poles, stringing higher quality wire circuits, and installing or upgrading central office equipment. Profitability, therefore, depended on capacity utilization and hence traffic density. At a minimum, the volume of traffic was expected to cover fixed and quasi-fixed costs, including depreciation and maintenance of the plant and employment of full-time operators and supervisory personnel. If markets were too small to support an exchange let alone additional toll center facilities, they could be furnished with toll stations, wired into an adjacent exchange by lower quality circuits. Acquiring even this limited access depended on whether projected revenues exceeded break-even levels, determined by the overhead costs of the physical plant. Doolittle did admit one exception, which seemingly allowed an independent role for geography. It is sometimes advisable, he counseled, to build lines that do not promise an immediate return, in order to round out a system. 27 Although he did not elaborate this criterion, it suggests extending the network to

16 14 nearby towns, regardless of the expected volume or trend of traffic. At the very least, the incremental cost of building these lines would be small because of the short distances involved. Yet, as shown in the concluding section, he implicitly offered an alternative interpretation, consistent with his principle relating network design to the spatial-economic patterns of toll traffic. The center checking system, which delineated the geographic boundaries of exchange districts, vividly illustrates the imprint of traffic patterns on network design. Toll stations, Doolittle explained, should be connected to the exchange center to which their traffic is tributary, but with due consideration to the length of the... circuit. 28 Despite the latter qualification, these connections represented the net flow of traffic between toll stations and adjacent centers. The charts in Figure 3 illustrate his method for distributing the stations located between centers A and B. For each station, the horizontal lines and corresponding magnitudes indicate the volume of traffic to and from the connecting points (e.g., 3 calls between stations A-27 and -23). Although not necessarily destined for point A, each station s traffic flowed overwhelmingly in that direction. By accommodating this trend, the proposed tributary circuits minimized the cost of making connections, i.e., the number of intermediate switches required and not simply the physical distance traveled (compare the initial and proposed position of station A-27 in the circuit diagrams in the lower half of the Figure 3). The same reasoning governed the construction of direct circuits between toll centers and so determined their accessibility to all points in the network. To illustrate, Doolittle proposed connecting exchanges A and D by a direct line, bypassing intermediate exchanges along the way. The volume of traffic between A and D averaged 18 calls per day. Assuming normal demand

17 15 growth over the planning horizon (which amounted to adding 60 percent to the actual load), this single circuit eventually would support approximately 29 calls daily, just under its rated capacity. Conversely, the marginality of a center followed from its limited interactions with other centers. In one instance Doolittle removed the direct circuit between exchanges K and V, because the line carried a low load, only 16 calls per day, and 75 percent of the calls originated at point U, not K. 29 Just like small centers furnished only with toll stations, he explained, center K did not warrant a direct line for traffic in this direction, but would operate under the control of the more dominant adjacent center U. Doolittle s method does, however, contain one potential hitch. The addition (or removal) of a direct circuit between two centers depended on the total flow of traffic between them, equal to their own traffic calls between parties within each district and relay traffic destined for other points. The inclusion of the latter element implies that the nodality of a center could simply derive from its designation as a switching point for traffic to and from other places. If the system of routing instructions, in fact, governs the trend of traffic, then the very notion of nodality is either rendered tautological or is made contingent on an exogenous factor, such as geographic centrality. In other words, the network would be ordered by an external principle and not by the endogenous interactions among centers, the natural laws to which Doolittle had alluded. A closer inspection of his method for designing the network resolves the dilemma. Instead of circular reasoning, his procedures imply a self-reinforcing mechanism that gives priority to a center s own traffic. In every instance, this component a center s total number of inward and outward calls accounted for the majority of its traffic with other points in the network and therefore made the largest contribution to achieving the necessary demand thresholds. For

18 16 example, in the case of the proposed direct circuit between centers A and D, over half of the calls (60 percent) represented their own or direct traffic, and the rest consisted of relay traffic to outlying points in both directions. 30 Moreover, Doolittle determined the system of routing instructions and thus the volume of relay traffic between centers through a sequential process, which followed and hence bolstered the spatial patterns of own traffic. He initially furnished centers with a sufficient number of direct circuits to handle their own traffic. This preliminary network established the incipient nodality and hierarchy of centers. Applying the principles of routing traffic, then, he determined the most efficient paths for relaying calls through the network. Consequently, the flow of relay traffic favored routes through more dominant centers, determined by their connectivity and hence the scale and scope of their direct calls. Thus, relay traffic tended to augment, not offset, the flow of own traffic and to enhance the nodality of centers based on the spatial patterns of their direct interactions with other centers. The one exception, as is often the case, helps to prove the rule. The flow of traffic from center T to point D and beyond was routed through exchange H and not F, even though the latter pathway potentially offered more circuits and fewer intermediate switches (see Figure 2). This decision was based on the larger volume of relay traffic through H, which also included calls to and from points in the other direction, and hence on its more central location. Geography played a decisive role in this case, precisely because centers F and H supported approximately the same volume of traffic (108.4 and calls daily) and so did not dominate each other along this critical dimension. Consequently, Doolittle reasoned, H would probably be furnished with

19 17 additional switching capacity to handle its other relay traffic, and so could more easily accommodate the rest. Thus, Doolittle s analysis specified, at least implicitly, the trend of traffic by the matrix of inward and outward calls for each center and so by factors independent of routing instructions. It yields, moreover, an alternative representation of the nodality and hierarchy of centers according to their own traffic. The nodal position of centers A and D, for example, ultimately derived from the larger volume and greater diversity of their inward and outward traffic (see the first and last columns in panel A of Table 4). These centers supported 200 to 300 calls daily, and the four largest routes accounted for only 60 percent of the total flow. By contrast, the marginal position of exchanges W and K accorded with their narrow niche in the network. Both exchanges supported a significantly lower volume of traffic, only 82 and 34 calls daily. Equally important, the bulk of their traffic was confined to neighboring centers. For exchange K, over 70 percent of its traffic flowed back and forth between two adjacent exchanges. Similarly, four nearby centers accounted for almost all of the traffic to and from W. This simple case vividly illustrates Jacob Price s thesis, explaining the formation of entrepots or metropolises by the complexity of trade. 31 In fact, his notion corresponds precisely to the source of nodality in toll networks, for, as shown in the previous section, the size and scope of a center s own traffic stemmed from and so mirrored the wholesale trade of its district. Just like in the Chesapeake colonies, the sheer volume of toll calls was not a sufficient condition to elevate centers to nodal points, controlling and coordinating traffic through the network. A large number of calls, restricted to only one or two routes, relegated centers to a tributary position, because their simple, bilateral transactions could be conducted at distance. A pivotal node or higher order

20 18 center, just as the term connotes, required more generalized contacts; its interactions, in other words, could not be so readily confined. 3. Increasing Returns in Toll Networks The hierarchical organization of regional telephone networks, as suggested above, ultimately depended on the sources of increasing returns, which created and reinforced the initial advantage of larger, more dominant centers. Hall, for one, clearly perceived these systemic processes and their influence. Developing fully a good system of terminal and branch feeding lines, he observed,... will not only pay in themselves but will add to the business of the main trunk lines, and every gain in business requiring additional trunk wires means a large gain in profit. 32 Increasing returns, he implies, derived from economies of scale and interdependent demands. Scale-dependent processes yielded greater efficiencies (the gain[s] in profit ) from concentrating traffic through larger toll centers and the trunk lines connecting them. At the same, extending the network to encompass interdependent users, those bound by a strong community of interest, enlarged the demand for toll services, especially the utilization of trunk lines. 33 A properly designed network would tap these complementary demands and generate substantial externalities, the unintended or synergistic benefits from their mutual interaction. Bell engineers tended to regard these forces mechanistically, that is simply in terms of technology or other intrinsic properties of the network. Yet, through insight or experience, key officials comprehended the necessary market conditions to realize fully the telephone s economic potential. Harnessing these market forces influenced the design of all facets of the network plant technology, operating methods, and spatial structure. Thus, when properly conceived, the