Telephony or voice telecommunications refers to the communication of sound over a distance using wire or wireless telephones and related technology. Telephony is one domain of telecommunications, which includes:

  1. Data communications, which involves the transfer of numbers and text through computer networks.
  2. Video communications, which refers to the transfer of images through broadcast, cable, and satellite television.
  3. Voice communications, which involves the transfer of sounds—especially the human voice—through telephone systems.

These domains are not mutually exclusive, however, because the differences between various kinds of telecommunications are beginning to disappear. For example, telephone lines are used for telephones, fax machines, and modems. Despite the overlap, the distinction between these kinds of telecommunication remains useful, since each may employ separate technology and serve different purposes.

Telephony has played and is expected to continue to play a significant and increasing role in business and has become just as essential to companies as personnel, capital, and marketing. Not surprisingly, voice communications is the most important form of telecommunications for businesses, because of its use for communication among employees and between employees and customers and for the dissemination of information. Consequently, voice communications is a business resource that can improve internal and external communication, maintain good internal and external relationships, save time and money, and even help earn money. Key business applications of telephony include telemarketing, teleconferencing, and telecommuting.


Telephony has its origin with telegraphy in 1844, when Samuel Morse (1791-1872) developed the capability to send pulses of electric current over wires that spanned distances farther than one could shout, walk, or ride. The mechanics involved a battery power source, a key switch to pass or interrupt the flow of current, wires to carry the signal to another location, and a receiving device that used current to operate a magnet that pulled on a metal armature to produce an audible click.

Morse developed the first application of discrete signals for telegraphy, using a lexicon of multiple long and short closures of the circuit to represent letters and numbers—known as Morse code. Telegraph operators used Morse code to send messages between stations located in different cities.

Due to the costs involved in setting up this network of operators linked by wires, the commercialization of telegraphy required that the service be offered at a price that only businesses could afford. Thus the first telecommunications network, using telegraphy, was largely a business-to-business enterprise whose dominant provider was the Western Union company.

Even with extremely fast key operators and massive networks consisting of hundreds of wires between locations, telegraph companies were unable to meet the rising demand for their services. This is because each wire could carry only one message at a time. In order to maximize the capacity of the wires already in place, several entrepreneurs tried to develop a system in which several messages could be sent over the same circuit using several harmonically discrete signals.

One of these experimenters was Alexander Graham Bell (1847-1922) who, in developing such a system, stumbled on the principle of telephony—transmission of a voice signal. When Bell's assistant Thomas Watson (1854-1934) flicked a telegraph armature to release it from its magnet, Bell heard the ring of the armature. This convinced him that sounds could be made to influence a magnetic field, and that these fluctuations in the magnetic force could be translated into an electrical signal that could operate a speaker.

In the celebrated event of his discovery, Bell set up his device, but spilled battery acid on his lap. He called for Watson, who was in a laboratory down the hallway. When Watson arrived, he reported that he had heard Bell's cry over the wires.

The two worked diligently to prepare a patent application, but in the oddest coincidence, filed their patent the very same day as Elisha Gray (1835-1901), another inventor who had developed a similar but slightly superior device. After an acrimonious 17-year legal battle, Bell was awarded the patent in 1876.

But Bell had tremendous difficulty selling his invention. He failed to interest Western Union, which maintained that there was no use for such a toy when key operators could communicate faster than people could talk. To raise money, Bell demonstrated his invention in sideshows, and eventually raised enough to set up the Bell Telephone Company with networks in Boston and New York, and even acquired Gray's rival Western Electric Company.

As the telephone grew in popularity, it became obvious that Western Union had failed to appreciate the greatest asset of the telephone: anyone, not just skilled key operators, could use it. With the prospect of serving a thousand times as many accounts, Western Union scrambled to get in on the business and hired Thomas Edison (1847-1931) to develop a superior telephone unrelated to Bell's patent. Bell sued and won, winning the right to acquire Western Union's telephone network and the patent rights on Edison's vastly improved telephone.

Bell's American Telephone & Telegraph Company (AT&T) unfairly muscled hundreds of other independent telephone companies into lopsided mergers. This invited U.S. Department Justice intervention in 1914, whereby AT&T was enjoined from further acquisitions and was declared a regulated monopoly.

During this time, a Kansas City undertaker named Almon Strowger noted a steady decline in his business. He suspected the culprit was the local operator, who was married to a competing mortician. Telephony was impractical as a strictly point-to-point system; it required operators to switch calls from one person to any number of others on the network. Strowger set out to develop an automatic switching system that used a dial on the telephone to mechanically switch calls without intervention from an operator. Thus, the automatic switch was born.

The telephony network remained basically unchanged for half a century. Due to its pre-1914 acquisitions, AT&T had monopolized the nation's largest markets and ran the only long distance network. During the 1960s, AT&T developed a touch-tone dialing system, using audible signaling tones, to replace the dial and its electromechanical switches.

More importantly, in 1968 the Carterfone company won the right to connect its own brand of equipment to the AT&T-dominated network. This cleared the way for other competing manufacturers to enter the market.

But also that year, an upstart company called MCI Communications Corp. established a long distance network separate from AT&T's, using microwave communications. Others followed, including GTE, which built another long distance network out of the Southern Pacific Railroad's sprawling private telephone system—an enterprise called Sprint.

In 1982 several decades of antitrust action against AT&T by the U.S. Department of Justice culminated in a consent decree in which AT&T agreed to divest its 22 local service Bell companies. The divestiture, which took place in 1984, created seven independent "Baby Bells" and left AT&T with only its long distance operations, its Bell Labs research group, and the Western Electric manufacturing division. It also cleared the way for competition in the long distance market.


The initial reform of the telecommunications industry had the immediate effect of splitting up AT&T, but it also paved the way for additional telecommunications reform. The most significant kind of reform since the breakup of AT&T was the passage of the Telecommunications Act of 1996. The primary purpose of the act was to promote competition within the telecommunications industry by eliminating obstacles and offering incentives for companies to enter the market. The act also was designed to bring about the integration of various telecommunications services: telephone, cable, wireless, and Internet access services.

In the telephony sector, the act opened up local and long distance phone markets to competition and replaced any state laws prohibiting competition in these markets. Under the act, local telephone companies can enter long distance markets and long distance companies can enter local markets. In addition, local exchange carriers are still able to operate their long distance networks, but they must allow competitors to connect to these networks.

The act also allows cable companies to offer telephony and related services even if they do not own local franchises and replaced rules prohibiting cross-ownership, permitting telephone companies to own cable companies and vice versa.

Nevertheless, little progress had been made in realizing this more competitive telecommunications market by the end of the decade. Although many telephone companies announced their plans to enter new markets before the Telecommunications Act was signed into law, they were unable to execute their plans because they became embroiled in lawsuits and disputes over opening up their own markets and entering new ones. Consequently, the Bell spin-offs still dominated the local market and the big-three long distance phone companies (AT&T, MCI, and Sprint) still controlled the long distance market. Nevertheless, there was at least one new competitor in the top 100 phone markets and 165 new telephone companies by 1999, according to the National Journal. Moreover, Supreme Court rulings have upheld the Federal Communications Commission's authority to establish national telecommunications rules and prices that will encourage competition—powers that had been blocked since 1996.


A telephone system is a system that allows private, two-way voice and data communication. Phones are interconnected at local central offices, which use solid-state switches controlled by digital logic circuitry or by computers. The switches are integrated systems that direct calls to other locations and prepare the signals for transmission. Local central offices are connected with "trunks," which consist of wires, fiber-optic cables, and radio links and are also largely controlled by computers. The different components of the telephone system are connected to each other by countless miles of wire—including copper wire, coaxial cable, and fiber-optic cable—as well as radio waves. This network of wires, phones, and switches enables any telephone subscriber to call any other telephone subscriber.

Each piece of voice communications equipment is connected to the network with inside wire or building cable. This wire is connected to the public network at a terminal box, or "point of presence," where it meets telephone company wires that lead it to a central office.

Each of these connections is called a local loop, because it consists of a single pair of wires from a subscriber's phone to a local central office. One wire sends current from the central office to the terminal equipment, and the other carries it back to the central office. One central office serves each "exchange." An exchange is the group of all phones with the same first three digits as part of the phone number. The circuit is broken until a telephone is lifted off its switch hook. This allows current to flow through the circuit, signaling the central office switch that a request for service has been made.

The switch then provides dial tone, indicating that it is ready to receive instructions from the caller. These instructions are an address, or telephone number, which tell the switch where to send the call. If the call is to another number served by the same central office, the switch simply sets up a connection between the caller and the person being called.

If the call is to a number served by another central office, the switch sends the call over an interoffice trunk to the central office serving that number, and the switch at that location makes the final connection.

If the call is going a great distance, such as to another state, it will direct the call over another type of trunk to a tandem toll office, which will send the call over long distance lines to a counterpart, and direct the call to another local office serving the party being called. This hierarchy of switching systems is necessary to support the immense number of telephone numbers that have been assigned.

Calls fall into roughly four billing categories, based on the mileage involved. Local calls generally run up to 8 miles, while zone calls cover distances up to 15 miles. Local long distance runs up to 40 miles or so, and distances beyond that are long distance calls. All but local calls are billed according to the duration of the call.

With the divestiture of the Bell System, the Federal Communications Commission established local access transport areas, or LATAs. These LATAs comprise the areas in which the Bell companies or local exchange carriers may complete calls alone. A call to someone in another LATA must be carried by a long distance company, or interexchange carrier (sometimes called an IXC).

LATAs were created to ensure that local Bell companies do not compete in the long distance market. But in addition to the Bell companies, several hundred independent telephone companies exist that are not bound by LATA restrictions because their presence is not nearly as ubiquitous. In most cases, they have no choice but to hand the call off to an IXC or another local telephone company.

The basic telephone circuit is engineered to carry a voice grade level of bandwidth, which ranges from 300 to 3300 Hertz. Several conversations may be carried over the same pair of wires through various forms of multiplexing.

Frequency division multiplexing literally stacks different conversations by changing their frequency, much like an FM radio signal. Filtering equipment can "tune in" to whichever conversation it is supposed to hear. Time division multiplexing gives each conversation one twenty-fourth of a given transmission period to pass over the wires. Sampling equipment can reconstruct all 24 conversations with completely adequate quality.

The wires used to transmit the calls are called facilities. An ordinary twisted wire pair can support several dozen voice grade conversations. Coaxial cable has greater bandwidth capacity, and can carry up to 10,800 different conversations. Fiber-optic cable, which operates on the concept of digital light pulses, rather than analog waveforms, has an even greater capacity, handling millions of signals simultaneously.

By and large, digital systems are more accurate than analog because they allow error correction. Over great distances, analog signals must be amplified. But in amplifying the conversation, intermediate transmission equipment also amplifies electrical "noise" that enters the circuit.

By contrast, digital signals are regenerated, meaning that transmission equipment hears the message being sent, but rather than amplifying it, it repeats what it has heard. Included in the stream of information are signals that ensure the transmission equipment has heard correctly. If it has not, the system will ask to hear it again and make adjustments, such as changing its timing, to correct the error. The result is a transmission of nearly perfect quality. This is why a long distance call from Hong Kong to Chicago can sound as clear as a call from next door.

In handling a call, telephone switching equipment determines billing information by reading the identity of the line in use. As it switches the call to interoffice trunks, it provides that identity along with the number being dialed. This information is called automatic number identification, or ANI.

ANI allows every carrier associated in completing the call to properly assign charges. Recently, telephone companies have allowed consumers to use ANI by providing a service called Caller ID, that reveals the billing number on a small display device. Caller ID enables the called party to see the number, and in some cases the billing name, of the person calling even before answering the phone.

A more invasive use of ANI is made by inbound telemarketing organizations. By calling the telemarketer's toll-free telephone number, customers can reveal their ANI code. The company's computer can be instructed to match a customer record with the incoming call so that when an attendant answers, he or she already has the customer's purchasing and credit history on a computer screen.

These types of business systems are highly complex and always involve the use of private branch exchanges (PBXs). The PBX is a miniature telephone switch owned and operated by a company for its own use. It allows calls to be completed between offices without using telephone company facilities. PBXs can span several buildings and, with connections provided by telephone companies, can even link sites in different states or countries.

In some instances, a PBX will connect two different sites with a point-to-point connection that is not switched, called a dedicated circuit. These lines are constantly connected between the two points to ensure that access between the sites is always available. Dedicated circuits use telephone company facilities and are billed at a special rate.

For all practical purposes, PBXs, like telephone switches, are computers. Their job is to administer and complete requests for connections and monitor the system for trouble. They can assign billing to specific users—ending unauthorized use of the telephone for personal calls—and can be made to restrict certain types of calls, such as long distance or 900 numbers. PBXs can also be programmed to know which long distance company offers the lowest rate for a given destination and time, and automatically switch outgoing calls to that carrier.

But despite its cost-containment features, the PBX is primarily a tool for maximizing efficiency. A typical office of 100 people does not need 100 telephone lines, but perhaps the 24 offered by T-1 cables. This is because, depending on the employees' calling characteristics, no more than 15 or 20 people will be using a phone at any one time. The PBX can be used to match requests for service with available resources, with a minimum of waste. In addition, most PBXs are endowed with diagnostic features that allow the system operator to locate wiring faults and determine the nature of terminal equipment failures.

PBXs with an automated attendant feature can handle call-answering tasks, greeting the caller and requesting an extension number to complete the call. If the called party does not answer, the PBX will switch the caller to a voice mail system to leave a message for that party. Automated attendant systems also handle routine menial tasks, such as providing hours of operation, a mailing address, fax number, or other frequently requested information.

For offices with a high amount of inbound calling, such as an order-processing center, the PBX may be matched with an automatic call distributor (ACD). These devices distribute incoming sales calls among a pool of operators, and may even direct calls to those who it knows are least busy. This ensures that operators share the workload evenly. PBXs range in size from as few as 5 lines to as many as 10,000. Usually, the larger the system, the more sophisticated its capabilities.

Other types of voice communications equipment, specifically designed for the mobile market, are pagers and cellular phones. While not voice communications devices themselves, pagers are radio receivers that are programmed to display simple messages, such as a caller's telephone number, thereby facilitating voice communication. In contrast, cellular phones are actual telephones, connected to the network not by wires, but by a radio signal. Each cellular phone operates off a host antenna located nearest to it. As the caller moves from one area, or "cell," to another, the system hands the call over to another antenna in an adjacent cell. This allows a caller to roam anywhere within a service area without losing the connection.


Traditionally, businesses have been served by a single local telephone company authorized to provide service in a given area. In addition, all calls between the business and other parties on the network have been switched through this local exchange carrier, or LEC.

But competition will soon be extended to the local market, because of the Telecommunications Act of 1996. Local telephone companies face the loss of significant portions of market share to competing cellular telephone companies, digital wireless radio, bypass operators, and even cable television companies.

Bypass operators are among the most important new competitors in the business market. They establish alternate connections between a company's PBX and its long distance carrier, completely bypassing the local telephone company. In practice, companies do not transfer all their communications traffic to a bypass operator, but choose to split it between them and the local telephone company to leverage each on price and service reliability.

With the new telecommunications legislation, cable companies are poised to provide significant competition to local telephone companies. For example, Time Warner's cable operations compete with Nynex in parts of New York. Cable companies are well positioned because they have hundreds of miles of cable running through neighborhoods, are connected to millions of households, and have armies of repair and installation workers. Perhaps most importantly, their wiring consists of coaxial cable, which can provide high-speed data and computer networking as well as television programs and telephone calls.

Because of the deregulation of the local telephone market and the competition forecasted to ensue, analysts expect lower-cost and higher-quality telecommunications services, which should benefit businesses, according to Telephony. The expanding competition in the telephony market also is predicted to lead to new methods for data, video, and voice services.

Furthermore, some analysts expect satellite-based wireless telephony to become a major component of wireless telephony, because of the plans for several telecommunications satellite systems, such as Iridium and Globalstar in the late 1990s. These systems are linked through ground stations to wireless infrastructure already in place and are designed to allow users to place and receive calls and paging from anywhere in the world. Iridium became the first worldwide mobile telecommunications service in 1998.


While the number of business telephone connections is substantially smaller than the number of residential connections, business traffic volume is far greater than residential traffic. While telecommunications services and technology have been viewed, like office equipment, as playing a supporting role, contemporary businesses have begun to place greater emphasis on telecommunications, including voice communications, and have recognized that telecommunications contributes to a company's competitive advantage by increasing productivity and facilitating marketing.

Telephone use and service constitutes the largest business application of telecommunications and most likely will continue to. Because basic telephone use has matured, telephone companies have introduced a host of features to benefit telephone users, such as call waiting, caller ID, and voice- or text-guided phones. The importance of the telephone for business also helped bring about voice mail, which allows callers to leave messages in voice mailboxes if someone is away from the phone or on another line. This service not only strengthens a company's internal communication but also its external communication with suppliers and customers. In addition, telephone companies provide businesses with direct inward dial and direct outward dial. Direct inward dial enables an outside caller to dial a called party's extension and reach him or her directly, whereas direct outward dial allows a user with an extension to dial directly outside the system.

The growth of business use of telephony also led to the rise of telemarketing and call centers. Telemarketing is an offshoot of direct marketing and the practice of making cold calls to consumers in an effort to introduce them to and sell them products or services. Telemarketers often obtain lists of phone numbers of consumers who meet a number of criteria that indicate their potential in having an interest in a company's offerings. For many companies, the telephone has become an indispensable marketing tool and telemarketing has become a significant component of their overall marketing mix. In 1998, for example, companies spent $62 billion on telemarketing and garnered revenues of $482 billion from telemarketing efforts, according to the Direct Marketing Association.

Call centers are professional operations or company divisions that handle large numbers of incoming and outgoing calls for companies and thereby help businesses provide efficient and more affordable telephone service to their customers. Call centers allow companies to offer telephone services 24 hours a day, seven days a week. Furthermore, they can help companies build solid relationships with customers by providing them with both specialized and personalized service. In addition, some call centers also perform telemarketing. Telephone equipment makers have developed technology especially for call centers, creating phones that automatically route callers to the next available representative, match callers with subject experts, and match callers' phones numbers to their accounts.

Furthermore, telephone technology makes possible one-to-one and group audio-conferencing, enabling managers, executives, and other workers to "meet" via the telephone. Teleconferencing saves companies time and effort, especially when conference participants would have to travel great distances to participate in person. According to a survey by Advanstar Communications, more than 30 million office workers in the United States have access to audio, video, and data conferencing technology or services and 88 percent of these workers say that these forms of teleconferencing enhance productivity and efficiency.

Telecommuting is another business application of telecommunications technology, although it involves data communications technology to a greater extent than voice communications technology. Telecommuting refers to working from home and "commuting" to the office through telecommunications equipment such as computers, fax machines, and telephones. Despite the importance of computers to telecommuting, telephones are still effective ways of contacting a working site from home. Home telephones and cellular phones allow workers to teleconference, check voice mail, schedule meetings, make sales calls, and so forth from home.

[ John Simley ,

updated by Karl Hell ]


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