For most of early telephone history, calls were completed by young men and women working at the phone company central office, where they used plug-in cords to connect callers to the people and businesses they wanted to communicate with.
Almond Strowger was an undertaker/inventor in Kansas City, MO, who was described as "eccentric, irascible and even mad." He was motivated to invent an automatic telephone system after having trouble with local Bell Telephone operators.
He thought the operators were sending calls to a competitor rather than to his business. The origin of this suspicion reportedly arose from an incident when a friend died and the family contacted a rival undertaker. Other stories claim that the wife or cousin of a competing undertaker was a telephone operator and Strowger suspected that the operators were telling callers that his line was busy or connecting his callers to the competition. Yet another story has him boasting of inventing "the girl-less, cuss-less telephone."
Convinced that callers -- not operators -- should choose who was called, Strowger first conceived his invention in 1888, and patented the automatic telephone exchange in 1891.
The patent consists of:
1. A device for use by the customer, creating trains of on-off electric pulses corresponding to the digits 0-9. This equipment originally consisted of two telegraph keys, and evolved into the rotary dial telephone.
2. A stepping switch at the telephone exchange. A rotating arm steps over, in a semi-circular fashion, 10 possible contact points. The stepping motion was controlled by the power pulses coming from the originating customer's telegraph keys, and later from the rotary dial.
Cascading enabled connection among more than 100 customers. Additional switches can be positioned vertically and horizontally to increase the switching capacity.
The almost unlimited potential for expansion gave the Strowger system a big advantage. Previous systems had a fixed number of subscribers to be switched directly to each other in a mesh arrangement. This became geometrically more complex as new customers were added, as each new customer needed a switch to connect to every other customer. In modern terminology, the previous systems were not scalable.
The Strowger Automatic Telephone Exchange Company was formed, and it opened its first exchange in La Porte, Indiana in 1892, with about 75 subscribers. It took the Bell Telephone System a long time to become convinced that electronics made more sense than humans for completing local calls, and Bell finally licensed Stroger's technology in 1924.
Strowger sold his patents for $1,800 in 1896, and they were resold for $2.5 million in 1916. In 1898, he got $10,000 for his share in the Automatic Electric Company, which later became GTE, which became part of Verizon. (Photo shows operators at the Roseburg Telephone and Telegraph Co. circa 1910, from Douglas County OR Museum) (Info from Wikipedia & other sources)