The company that became AT&T began in 1875, in an arrangement among inventor Alexander Graham Bell and the two men, Gardiner Hubbard and Thomas Sanders, who agreed to finance his work. Bell was trying to invent a talking telegraph -- a telephone. He succeeded, earning patents in 1876 and 1877. In 1877, the three men formed the Bell Telephone Company to exploit the invention. The first telephone exchange, operating under license from Bell Telephone, opened in New Haven, Connecticut in 1878. Within three years, telephone exchanges existed in most major cities and towns in the United States, operating under licenses from what was now the American Bell Telephone Company.

In 1882, American Bell acquired a controlling interest in the Western Electric Company, which became its manufacturing unit. Gradually, American Bell came to own most of its licensees. Collectively the enterprise became known as the Bell System.

The American Telephone and Telegraph Company was incorporated on March 3, 1885 as a wholly owned subsidiary of American Bell, chartered to build and operate the original long distance telephone network.

Building out from New York, AT&T reached its initial goal of Chicago in 1892, and then San Francisco in 1915. On December 30, 1899, AT&T acquired the assets of American Bell, and became the parent company of the Bell System. Because signals weaken as they travel down telephone wires, building a national network required several inventions. Loading coils, invented independently at AT&T and elsewhere (1899), allowed the network to be built out to Denver. The first practical electrical amplifiers, devised at AT&T (1913) made transcontinental telephony possible.

Until Bell's second patent expired in 1894, only Bell Telephone and its licensees could legally operate telephone systems in the United States. Between 1894 and 1904, over six thousand independent telephone companies went into business in the United States, and the number of telephones boomed from 285,000 to 3,317,000. Many previously unwired areas got their first telephone service, and many others got competing companies. But the multiplicity of telephone companies produced a new set of problems -- there was no interconnection, subscribers to different telephone companies could not call each other. This situation only began to be resolved after 1913.