Bell Canada Business Information, Profile, and History

History of Bell Canada

The Bell Telephone Company of Canada, which came to be called Bell Canada, is the country's largest provider of telecommunications services, supplying voice, data, and image communications to customers in the provinces of Quebec and Ontario and in the Northwest Territories. Most of Bell Canada's revenues are generated from its provision of local telephone service and long-distance service, which includes Wide Area Telephone Service (WATS), 800 service, message revenues, and data transmission. The company also owns a one hundred percent interest in the directories division of Tele-Direct Inc., which sells telephone directory advertising and publishes white pages and Yellow Pages phone books.

Canada can rightfully trace its history of telephone service back to 1874 Brantford, Ontario, where Alexander Graham Bell discovered a way to transmit speech electrically. Bell transferred his Canadian patent rights to his father, Alexander Melville Bell, who established Canada's first telephone network by leasing telephones in pairs to be used on private lines and by contracting with the Dominion Telegraph Company to create exchanges in concentrated areas.

Telephone service did not begin as a monopoly. The Montreal Telegraph Company used Thomas Alva Edison's version of the telephone to establish competing service in that city. The telegraph companies, seeing telephone service as auxiliary to their main function, offered it at low rates or even free of charge. Its value was not perceived to be very high; when Melville Bell offered his patent for sale in 1879, no Canadian would pay his price of C$100,000.

The National Bell Telephone Company of Boston eventually took the patent off Melville Bell's hands. The company enlisted the aid of Hugh C. Baker, head of the Hamilton District Telegraph Company, to apply for a charter from the Canadian Parliament. On April 29, 1880, a special act of Parliament incorporated the Bell Telephone Company of Canada.

Next, National Bell Telephone Company of Boston hired a former sea captain and insurance executive, Charles Fleetford Sise, to negotiate with the telegraph companies for their interest in the telephone business. Sise's labors resulted in his appointment as vice-president and managing director of the new company, and his successful efforts to organize the company led to his reputation as the founder of Bell Telephone Company of Canada.

By the end of the company's first year, telephone exchanges had been established in 14 major cities--including Montreal, Ottawa, and Quebec--and agencies to obtain subscribers and develop exchanges opened in dozens more. Over 2,000 telephones were in service, and the company employed 150 people.

Bell Canada's early goal was to extend service throughout Canada. The country's vastness, however, precluded one company managing all of it. Bell Canada never held a license to provide service in British Columbia, and it sold its plant and interests in Prince Edward Island in 1885. Within four years, it had sold its interests in New Brunswick and Nova Scotia. Early in the next century, many citizens of the Prairie Provinces wished to transfer the ownership of telephones to the government, so the company sold its interests in Manitoba and Alberta in 1908 and in Saskatchewan in 1909. Bell Canada maintained its operations in the remaining provinces of Ontario, Quebec, and the Eastern Arctic.

The company was most successful in establishing service in urban areas, since voice clarity was possible only over distances of less than 20 miles. To provide rural residents access to the city, public telephones were installed at the end of the lines.

Although long-distance lines were originally considered the lines from a large city to neighboring towns, Bell Canada was already attempting a line between Toronto and Hamilton in 1881. It succeeded in October of that year, but the expense forced the company to operate with funds borrowed from Sise. A continuous but undependable route was created from Montreal to Detroit in 1885, and in 1886 the advent of copper wire vastly improved transmission over long distances. Northern Advance newspaper reported in 1886, 'Officials say they could easily guarantee a satis-factory conversation from Buffalo to Owen Sound about 290 miles if anyone ever required to use a line of that length.'

An amendment to Bell Canada's charter in 1892 read, 'The existing rates shall not be increased without the consent of the Governor in Council.' Although the company was now subject to regulation, it still had to contend with competitors. Bell bought out several rival companies between 1890 and 1925, including the Federal Telephone Company, whose competition had forced Bell to lower rates in Montreal from C$50 to C$25 dollars a year. Rural territory was an open field, but Bell's more extensive network and resources forced many competitors into bankruptcy.

The twentieth century brought several innovations that improved Bell Canada's service, including underground cables with hundreds of pairs of wires, which replaced poles in cities, and the common battery, or central energy switchboards, which eliminated the need for batteries on the subscriber's premises. Perhaps the greatest innovation of that time was the phantom circuit. Two pairs of wires with special equipment at each end could transmit a third conversation, and the phantom circuit actually had a higher transmission quality than the physical circuits. Bell's first installation of this early form of multiplexing linked Montreal and Ottawa beginning in 1908.

Bell Canada became increasingly regulated in the early 1900s. In 1902 the company's charter was amended to include a regulation requiring the company to provide service to whoever applied for it, on the condition that the instrument would not have to be placed far from a road. In 1906 the government decided that Bell Canada should be included in the Railway Act of 1903, meaning rates would be regulated by the Canadian Board of Railway Commissioners.

In 1905 a detailed examination of Bell Canada was made by a special committee appointed by the Canadian Parliament. After producing approximately 2,000 pages of testimony and exhibits, the committee concluded the investigation without coming to any determination. The company issued the following statement in response, 'Although the records of the Company have been searched from its organization twenty-four years ago, not a single fact has been adduced which reflects discreditably on the integrity or the justice of the management.'

Also in the early 1900s many independent telephone companies provided service in Ontario and Quebec. Some, fearing they would be taken over by Bell Canada, refused to interconnect their lines with those of the huge company. Many others, however, readily exchanged business with Bell Canada, taking advantage of the company's established long-distance lines. During the next few decades, Bell Canada integrated systems throughout Quebec and Ontario.

Long-distance telephone service changed significantly when the vacuum tube repeater was introduced in 1915. The device, which theoretically could transmit a voice an infinite distance, allowed the development of a transcontinental network. In 1917 Bell Canada installed its first repeater at Kingston, Ontario, and within six years the Bell system's use of repeaters was estimated to have saved approximately $100 million in construction costs of long-distance lines.

A shortage of materials during World War I led to an extended delay in providing service to new applicants. Held orders accumulated, reaching a peak of 22,000 at the beginning of 1924. Bell Canada, however, remained committed to providing service to rural residents.

Bell introduced overseas service by radio in 1927. A three-minute call from Quebec City, Ottawa, Toronto, or Montreal to London, England, cost C$75. Another important innovation, the carrier system, was first installed by Bell Canada in 1928 from Montreal to Ottawa, Sherbrooke, and Trois Rivieres. The new technology simultaneously sent several conversations over the same pair of lines, avoiding interference by transmitting each call at a different frequency. Now known as a form of multiplexing, it was originally referred to as wired wireless.

The economic Great Depression of the 1930s affected even the phone company. Revenues from long-distance service were down five percent, and new orders for service decreased. In addition, the few new telephones Bell Canada did install could not match the surging numbers of telephones being disconnected. In 1931 the number of residential telephones leased by the company decreased by 11,321; in 1933 the net loss of telephones was 41,829. By 1934, though, recovery seemed to have begun: the company had a net gain of approximately 3,000 telephones. In an attempt to regain some of its losses, Bell Canada intensified its efforts to subscribe rural residents.

Stock prices and dividends also fell during the Depression. In 1932 the stock price dropped to C$75 a share, down from C$125 in 1929. Bell Canada had been paying dividends of C$2 a share since 1891. It was forced to reduce that in 1932 and could not return to that level until 1937.

World War II brought about restrictions that taxed Bell Canada's resources. In 1942 the Wartime Prices and Trade Board ordered telephone companies to conserve facilities for war purposes, restricting the installation of nonessential orders for service. By the end of the war, more than 100,000 orders had accumulated. The company's plans to replace most of its long-distance lines were altered by the wartime need for metals. By employing strict conservation procedures, however, the company managed to complete the project and still replace the copper it drew from the national reserves.

Postwar prosperity meant a boom in telephone installations for Bell Canada. In 1945 it installed its one millionth telephone, and in the next eight years it established another million. In 1946 the company was installing telephones at the rate of 6,800 per month.

The number of Canadian holders of the Bell's stock quickly increased after World War II. An amendment to the company's charter in 1948 increased the authorized capitalization from C$150 to C$500 million and required stock to be divided into shares of a par value of C$25 rather than C$100. Canadian investors took advantage of the inexpensive, widely available stock. Investors in the United States could not buy the new issues since they were not registered with the Securities Exchange Commission (SEC) in the United States. In 1948 American Telephone and Telegraph Company (AT&T) held 14.6 percent of Bell Canada's stock. By 1975, when AT&T sold the remainder of its holdings, it held only two percent of the Bell Canada's stock.

The 1950s began an era of rapid technological innovation for Bell Canada. It installed the first permanent television link between two countries in 1953, bringing programs from Buffalo, New York, to the Canadian Broadcasting Corporation (CBC) in Toronto. Bell opened the first intercity microwave radio relay between Toronto and Montreal in the same year, allowing audiences in the two cities to view the same live program simultaneously. In 1958 the company completed its microwave network, making its coast-to-coast coverage the longest system in the world. Also in 1958, Bell Canada offered Dataphone service, which enabled subscribers to transmit data or text over voice channels at speeds of up to 800 words a minute.

In the 1960s Bell Canada introduced a myriad of services: Wide Area Telephone Service (WATS), which applied flat-rate calling to long-distance service; Teletypewriter Exchange Service (TWX), a system linked to TWX in the United States in 1963 and to International Telex in 1965; PHONE-FAX, which was the first facsimile service in the world offered by a telephone company; Message Switching Data Service (MSDS), which used a computer to switch between private-line data circuits; and DATACOM and DATA-LINE, a provider of inexpensive communications between remote users and time-sharing computers.

In 1973 Bell Canada introduced Dataroute, the world's first nationwide digital data transmission system. The company began experimenting with fiber optics and in 1978 became the first in the world to test optical fiber service on home telephones.

Bell Canada's organization changed in several ways during the 1970s. First, it became independent of AT&T, which sold the remainder of its stock in Bell Canada in 1975. That same year, the companies terminated their 52-year-old service agreement. Second, Bell Canada created a number of new subsidiaries, including Bell Northern Research (BNR) and Tele-Direct Limited in 1971 and Bell Canada Inter-national Management Research & Consulting Limited (BCI) and B-N Software Research (BNSR) in 1976. In addition, Bell Canada's manufacturing arm, the Northern Electric Company, became Northern Telecom Ltd. in 1976.

The 1970s were a period of international growth for Bell Canada. Northern Telecom reported C$1 billion in sales in 1975, and sales to the United States accounted for ten percent of that. The following year, Northern Telecom began an aggressive marketing strategy in the United States to boost that percentage even higher. In addition, Bell Canada won several international contracts, not the least of which was a C$1 billion consulting contract with Saudi Arabia.

In order to free its nonutility business concerns from regulation, Bell Canada planned to reorganize in 1982. A new holding company would be established, Bell Canada Enterprises (BCE), Inc., and Bell Canada would become a subsidiary, retaining only its telephone utility functions. Since its incorporation in 1880 by a special act of Parliament, Bell Canada had been regulated by various government commissions, concluding with the Canadian Radio and Telecommunications Commission (CRTC). The CRTC took all of Bell Canada's profits into consideration when rates were set, despite the fact that by 1982 half of Bell's revenues came from nontelephone business. In effect, telephone rates were being subsidized by Bell's other businesses.

Bell Canada first made--and won--an application for continuance under the Canadian Business Corporations Act. The shift allowed Bell to begin implementing its plan without regulatory approval. Opposition came from consumer groups, who feared the reorganization would greatly increase telephone rates, and the government, who claimed the change would make Bell Canada too difficult to regulate. Government officials worried that telephone subscribers could end up subsidizing Bell's sister corporations. For example, Bell could buy overpriced equipment from Northern Telecom and pass the expense on to its subscribers. Bell Canada, however, claimed the reorganization would merely free its non-telephone subsidiaries to compete on equal footing with unregulated businesses, particularly internationally. The Quebec Superior Court eventually ruled that Bell did not need CRTC approval of the restructuring. So, barring an act of Parliament, the company was free to implement its plan.

The price of Bell's shares steadily increased--from $13.25 to $27.13 on the New York Stock Exchange--as the company reorganized. Shareholders approved the restructuring and exchanged their Bell Canada shares for those of the new holding company, BCE, Inc. The gradual deregulation of the telecommunications industry in the United States during the 1970s and early 1980s encouraged Canadians to lobby for lower long-distance rates through deregulation. CNCP Telecommunications applied to the CRTC for an opportunity to break into Canada's long-distance market, promising consumers 30 percent lower rates. In 1985 the CRTC rejected CNCP's request on the grounds that Bell Canada needed the long-distance revenues to subsidize local phone rates.

In 1990, however, the CRTC ruled that companies could buy time on private telephone lines in bulk from the phone companies and resell it at a discount. Within two years, the resellers had captured two to four percent of the phone companies' long-distance business. In 1992 the CRTC was expected to institute even greater changes in the long-distance market, such as allowing companies to resell discount packages like WATS. Resellers, however, wanted the CRTC to go further and allow them to own their own lines, an idea Bell Canada was fighting. Canadian Business quoted Bell Chairman Jean Monty as saying that '[the presence of resale means Canada already enjoys] a workable balance between competition and monopoly.'

Although between 1987 and 1992 Bell Canada had already lowered its long-distance rates, sometimes by as much as 51 percent, its rates remained almost double those in the United States, which was not helping the company fight competition from that country. AT&T, US Sprint Communication Co., and MCI Communications Corp. were all selling services to Canadians whose networks crossed into the United States.

While Bell Canada still maintained a monopoly in the telecommunications industry in Ontario, Quebec, and the Northwest Territories in 1992, increased competition and the likelihood of further deregulation pointed toward major changes for the company. Although some feared competition would force Bell Canada to raise local phone rates, others saw competition as encouragement to revitalize Bell's operations and offer better service at lower prices.

Principal Subsidiaries: Tele-Direct (Publications), Inc. (100% of Class A nonvoting common shares); Bell-Northern Research Ltd. (30%); Telesat Canada (24.4%).