"centralizing" was attempted in May, 1877, in
Boston, with the circuits of the Holmes burglar-alarm system, four
banking-houses being thus interconnected; while in January of 1878 the
Bell telephone central-office system at New Haven, Connecticut, was
opened for business, "the first fully equipped commercial telephone
exchange ever established for public or general service."

All through this formative period Bell had adhered to and introduced the
magneto form of telephone, now used only as a receiver, and very poorly
adapted for the vital function of a speech-transmitter. From August,
1877, the Western Union Telegraph Company worked along the other line,
and in 1878, with its allied Gold & Stock Telegraph Company, it brought
into existence the American Speaking Telephone Company to introduce
the Edison apparatus, and to create telephone exchanges all over the
country. In this warfare, the possession of a good battery transmitter
counted very heavily in favor of the Western Union, for upon that the
real expansion of the whole industry depended; but in a few months
the Bell system had its battery transmitter, too, tending to equalize
matters. Late in the same year patent litigation was begun which brought
out clearly the merits of Bell, through his patent, as the original and
first inventor of the electric speaking telephone; and the Western Union
Telegraph Company made terms with its rival. A famous contract bearing
date of November 10, 1879, showed that under the Edison and other
controlling patents the Western Union Company had already set going some
eighty-five exchanges, and was making large quantities of telephonic
apparatus. In return for its voluntary retirement from the telephonic
field, the Western Union Telegraph Company, under this contract,
received a royalty of 20 per cent. of all the telephone earnings of the
Bell system while the Bell patents ran; and thus came to enjoy an annual
income of several hundred thousand dollars for some years, based chiefly
on its modest investment in Edison's work. It was also paid several
thousand dollars in cash for the Edison, Phelps, Gray, and other
apparatus on hand. It secured further 40 per cent. of the stock of the
local telephone systems of New York and Chicago; and last, but by no
means least, it exacted from the Bell interests an agreement to stay out
of the telegraph field.

By March, 1881, there were in the United States only nine cities of
more than ten thousand