From instrument to network
The first telephones were sold as instruments. An exchange turned them into a service. It changed the product from “a device that talks to one other device” into “a way to reach anyone else who subscribes.” That change, more than any improvement in the handset, is why the telephone grew from a novelty into a utility.
The central idea
Connecting every subscriber directly to every other is not practical. The alternative is to run a single line from each subscriber to a central place, the exchange, and to put a switch there that can join any two lines when a call is made. Each subscriber needs only one line, and the cost of adding a customer grows in proportion to the number of customers rather than the square of that number.
The idea was not entirely new. The telegraph had used central offices to receive and retransmit messages, and many of the first telephone exchanges were managed by people familiar with the telegraph. Burglar alarm and messenger companies also had central offices to which many customers were connected. What the telephone added was a switch that could join two customers into a live conversation.
Manual exchanges
The first exchanges, opened in 1878, relied on switchboard operators, who connected callers by hand. A subscriber signaled the exchange, the operator asked for the wanted name or number, and joined the two lines with a cord. In many places people at first asked for others by name, not by number, and operators learned to recognize the voices and habits of their customers.
Numbers became necessary as exchanges grew, and especially when substitute operators might not know the subscribers. Numbered lines also prepared the way for automatic switching. Exchange companies added directories, billing methods and rules about service quality.
Trunks and the logic of sharing
As soon as there was more than one exchange in a city, they had to be linked. The lines between exchanges are called trunks. Because not every subscriber speaks at once, the number of trunks can be far fewer than the number of subscribers. Engineers estimated the number of trunks needed from the number of calls expected at busy times. This idea of sharing a limited set of circuits among many users, accepting a small chance of finding all busy, runs through all telephone engineering. It was formalized in early twentieth-century studies of telephone traffic, including the work of the Danish engineer A. K. Erlang.
A hierarchy of exchanges developed, a little like railway networks with local stations and main junctions. Local exchanges served subscribers; higher-level exchanges linked local ones; long-distance exchanges linked cities. A call might pass through a handful of exchanges, with each one choosing a route. The hierarchy cut costs and made the network easier to expand.
Who ran the exchanges
In the early years, the Bell company licensed local businesses to operate exchanges, and in many places independent companies grew up, especially after the original Bell patents expired in the 1890s. The result was a patchwork. In some towns, subscribers needed two telephones to reach everyone, one for each competing company, a situation that illustrates why central switching and interconnection mattered so much. Over time, most countries moved toward either a regulated near-monopoly or a system of mandatory interconnection, so that any subscriber could call any other. In Britain, the state post office took over the main telephone company in 1912.
The cost of success
Manual exchanges scaled poorly. More subscribers meant more calls per subscriber, so traffic grew faster than the number of lines, and large cities needed hundreds of operators in huge rooms. Labor was the main cost. Delays, misconnections and privacy concerns rose with scale.
Engineers and managers therefore looked for ways to reduce the work: multiple boards that gave every operator access to every line, lamp signals, common battery power, and finally automatic switches. The first automatic exchange in regular service opened in 1892. Over the following decades, automatic systems, step-by-step and later crossbar and electronic, replaced manual ones, first in cities and then everywhere.
The network effect
An often-quoted idea about networks is that their value grows as more people join. A telephone alone has no value, two telephones connect one pair, and a thousand connect a vast number of possible pairs. Exchanges made this practical and, in doing so, created what economists later called a network effect. A new subscriber benefits from everyone already connected, and the existing subscribers benefit from the newcomer. That dynamic encouraged growth and also explains why interconnection rules were such a focus of regulation.
The legacy
Modern networks, from mobile cellular networks to the internet (sometimes described as a network of networks), use ideas that the exchange introduced, including packet switching’s shared links: a central or distributed switching point, shared links, a hierarchy of nodes and a numbering scheme. The telephone exchange was the first large public example of a network that connects any user to any other, and in that sense it was a communication revolution in structure as much as in technology.