A history of the telephone system in the UK
How the Post Office became a major phone supplier
The Post Office decided to take advantage of the court ruling and in 1881 began to convert some of its telegraph exchanges so that they could be used as telephone exchanges. This first occurred in the Welsh industrial cities of Swansea, Newport and Cardiff, followed by other major industrial ports such as Newcastle-upon Tyne and Middlesbrough.
Although the Post Office effectively had a monopoly on the telephone system, private companies could still flourish under the Post Office umbrella. Hence the formation of the National Telephone Company in 1881 to exploit the market in the Midlands and Scotland, and the Lancashire and Cheshire Telephonic Exchange Companies .
This monopoly of the Post Office was somewhat reversed in 1882, when the Postmaster General, Henry Fawcett, decided that any responsible person or company could be granted a license to operate a telephone system, even if they wished to establish a company where a Post Office system already existed. This reflected the capitalist industrial view of the time, where competition was seen as the best way to create superior industries.
This liberalisation of the telephone industry allowed the development of the public call office. Up until 1884, the use of telephones had been primarily confined to businesses and industries, with extremely little use in a private capacity. The public call office, however, meant that, theoretically, anyone could have access to a telephone. Public call offices were set up in public places such as railway stations and general stores. Again, this decision was taken by the Post Office, showing how it was still the most powerful player in the telephone business. The call office would later evolve to become the iconic red telephone box.
The expansion of private companies and eventual Post Office Monopoly:
The telephone systems across Britain became more developed and more complex throughout the 1890s, culminating in the 1899 Telegraph Act which allowed local authorities outside of London to establish their own local telephone systems. It was hoped that this would establish competition between the National Telephone Company and local entrepreneurs. The plan however was not as successful as the government would have wishes. There were 1,334 urban local authorities that could have sought licenses, however only 13 asked for licenses, and only 6 actually managed to open their own local telephone systems.
The turn of the 20th century saw great advances with regard to the telephone system. In 1901, an agreement between the Post Office and the National Telephone Company allowed free intercommunication between the two systems in London. This meant that companies registered with the Post Office could ring National Telephone Company lines and vice versa. From 1905 onwards, the two companies began their plan of unifying the two systems, in order to provide a coherent and synchronised telephone system.
Government interest in the telephone system had been growing throughout the last two decades of the 19th century, and in 1905 the Treasury and the War Office had both subscribed to the Post Office's London Telephone Exchange. Growing demand from government departments and London businesses led to the installation of a new common battery exchange in 1906. This had a capacity of 150,000 lines. This 'city' exchange was officially opened in 1907.
By 1912, there were seven separate private phone companies operating throughout Britain. However, the Post Office at this point took over the National Telephone Company's system (the largest competitor), meaning that there existed a unified telephone system throughout most of Britain for the first time. Remaining municipal systems existed in Hull, Portsmouth and the island of Guernsey, however, the Post Office in this year took over all other private telephone companies that had sprung up throughout the country.