Credit for the invention of the electric telephone is frequently disputed, and new controversies over the issue have arisen from time-to-time. As with other great inventions such as radio, television, light bulb, and computer, there were several inventors who did pioneering experimental work on voice transmission over a wire and improved on each other's ideas. Innocenzo Manzetti, Antonio Meucci, Johann Philipp Reis, Elisha Gray, Alexander Graham Bell, and Thomas Edison, among others, have all been credited with pioneering work on the telephone. An undisputed fact is that Alexander Graham Bell was the first to be awarded a patent for the electric telephone by the United States Patent and Trademark Office (USPTO) in March 1876. That first patent by Bell was the master patent of the telephone, from which all other patents for electric telephone devices and features flowed.
The early history of the telephone became and still remains a confusing morass of claims and counterclaims, which were not clarified by the huge mass of lawsuits that hoped to resolve the patent claims of many individuals and commercial competitors. The Bell and Edison patents, however, were forensically victorious and commercially decisive.
A Hungarian engineer, Tivadar Puskás quickly invented the telephone switchboard in 1876, which allowed for the formation of telephone exchanges, and eventually networks. 
A traditional landline telephone system, also known as "plain old telephone service" (POTS), commonly handles both signaling and audio information on the same twisted pair of insulated wires: the telephone line. Although originally designed for voice communication, the system has been adapted for data communication such as Telex, Fax and Internet communication. The signaling equipment consists of a bell, beeper, light or other device to alert the user to incoming calls, and number buttons or a rotary dial to enter a telephone number for outgoing calls. A twisted pair line is preferred as it is more effective at rejecting electromagnetic interference (EMI) and crosstalk than an untwisted pair.
The telephone consists of an alerting device, usually a ringer, that remains connected to the phone line whenever the phone is "on hook", and other components which are connected when the phone is "off hook". These include a transmitter (microphone), a receiver (speaker) and other circuits for dialing, filtering, and amplification. A calling party wishing to speak to another party will pick up the telephone's handset, thus operating a button switch or "switchhook", which puts the telephone into an active (off hook) state by connecting the transmitter (microphone), receiver (speaker) and related audio components to the line. This circuitry has a low resistance (less than 300 Ohms) which causes DC current (48 volts, nominal) from the telephone exchange to flow through the line. The exchange detects this DC current, attaches a digit receiver circuit to the line, and sends a dial tone to indicate readiness. On a modern telephone, the calling party then presses the number buttons in a sequence corresponding to the telephone number of the called party. The buttons are connected to a tone generator circuit that produces DTMF tones which end up at a circuit at the exchange. A rotary dial telephone employs pulse dialing, sending electrical pulses corresponding to the telephone number to the exchange. (Most exchanges are still equipped to handle pulse dialing.) Provided the called party's line is not already active or "busy", the exchange sends an intermittent ringing signal (about 90 volts AC in North America and UK and 60 volts in Germany) to alert the called party to an incoming call. If the called party's line is active, the exchange sends a busy signal to the calling party. However, if the called party's line is active but has call waiting installed, the exchange sends an intermittent audible tone to the called party to indicate an incoming call.
The phone's ringer is connected to the line through a capacitor, a device which blocks the flow of DC current but permits AC current. This constitutes a mechanism whereby the phone draws no current when it is on hook, but exchange circuitry can send an AC voltage down the line to activate the ringer for an incoming call. When a landline phone is inactive or "on hook", the circuitry at the telephone exchange detects the absence of DC current flow and therefore "knows" that the phone is on hook with only the alerting device electrically connected to the line. When a party initiates a call to this line, and the ringing signal is transmitted. When the called party picks up the handset, they actuate a double-circuit switchhook which simultaneously disconnects the alerting device and connects the audio circuitry to the line. This, in turn, draws DC current through the line, confirming that the called phone is now active. The exchange circuitry turns off the ring signal, and both phones are now active and connected through the exchange. The parties may now converse as long as both phones remain off hook. When a party "hangs up", placing the handset back on the cradle or hook, DC current ceases to flow in that line, signaling the exchange to disconnect the call.
Calls to parties beyond the local exchange are carried over "trunk" lines which establish connections between exchanges. In modern telephone networks, fiber-optic cable and digital technology are often employed in such connections. Satellite technology may be used for communication over very long distances.
In most telephones, the transmitter and receiver (microphone and speaker) are located in the handset, although in a speakerphone these components may be located in the base or in a separate enclosure. Powered by the line, the transmitter produces an electric current whose voltage varies in response to the sound waves arriving at its diaphragm. The resulting current is transmitted along the telephone line to the local exchange then on to the other phone (via the local exchange or a larger network), where it passes through the coil of the receiver. The varying voltage in the coil produces a corresponding movement of the receiver's diaphragm, reproducing the sound waves present at the transmitter.
A Lineman's handset is a telephone designed for testing the telephone network, and may be attached directly to aerial lines and other infrastructure components.
- 1844 — Innocenzo Manzetti first mooted the idea of a “speaking telegraph” (telephone).
- 26 August 1854 — Charles Bourseul publishes an article in a magazine L'Illustration (Paris) : "Transmission électrique de la parole" [electric transmission of speech].
- 26 October 1861 — Johann Philipp Reis (1834–1874) publicly demonstrated the Reis telephone before the Physical Society of Frankfurt
- 22 August 1865, La Feuille d'Aoste reported “It is rumored that English technicians to whom Mr. Manzetti illustrated his method for transmitting spoken words on the telegraph wire intend to apply said invention in England on several private telegraph lines.”
- 28 December 1871 — Antonio Meucci files a patent caveat (n.3335) in the U.S. Patent Office titled "Sound Telegraph", describing communication of voice between two people by wire.
- 1874 — Meucci, after having renewed the caveat for two years, fails to find the money to renew it. The caveat lapses.
- 6 April 1875 — Bell's U.S. Patent 161,739 "Transmitters and Receivers for Electric Telegraphs" is granted. This uses multiple vibrating steel reeds in make-break circuits.
- 11 February 1876 — Gray invents a liquid transmitter for use with a telephone but does not build one.
- 14 February 1876 — Elisha Gray files a patent caveat for transmitting the human voice through a telegraphic circuit.
- 14 February 1876 — Alexander Bell applies for the patent "Improvements in Telegraphy", for electromagnetic telephones using undulating currents.
- 19 February 1876 — Gray is notified by the U.S. Patent Office of an interference between his caveat and Bell's patent application. Gray decides to abandon his caveat.
- 7 March 1876 — Bell's U.S. patent 174,465 "Improvement in Telegraphy" is granted, covering "the method of, and apparatus for, transmitting vocal or other sounds telegraphically … by causing electrical undulations, similar in form to the vibrations of the air accompanying the said vocal or other sound."
- 10 March 1876 — The first successful telephone transmission of clear speech using a liquid transmitter when Bell spoke into his device, “Mr. Watson, come here, I want to see you.” and Watson heard each word distinctly.
- 30 January 1877 — Bell's U.S. patent 186,787 is granted for an electromagnetic telephone using permanent magnets, iron diaphragms, and a call bell.
- 27 April 1877 — Edison files for a patent on a carbon (graphite) transmitter. The patent 474,230 was granted 3 May 1892, after a 15 year delay because of litigation. Edison was granted patent 222,390 for a carbon granules transmitter in 1879.
Early commercial instruments
Early telephones were technically diverse. Some used a liquid transmitter, some had a metal diaphragm that induced current in an electromagnet wound around a permanent magnet, and some were "dynamic" - their diaphragm vibrated a coil of wire in the field of a permanent magnet or the coil vibrated the diaphragm. The dynamic kind survived in small numbers through the 20th century in military and maritime applications where its ability to create its own electrical power was crucial. Most, however, used the Edison/Berliner carbon transmitter, which was much louder than the other kinds, even though it required an induction coil, actually acting as an impedance matching transformer to make it compatible to the impedance of the line. The Edison patents kept the Bell monopoly viable into the 20th century, by which time the network was more important than the instrument.
Early telephones were locally powered, using either a dynamic transmitter or by the powering of a transmitter with a local battery. One of the jobs of outside plant personnel was to visit each telephone periodically to inspect the battery. During the 20th century, "common battery" operation came to dominate, powered by "talk battery" from the telephone exchange over the same wires that carried the voice signals.
Early telephones used a single wire for the subscriber's line, with ground return used to complete the circuit (as used in telegraphs). The earliest dynamic telephones also had only one port opening for sound, with the user alternately listening and speaking (or rather, shouting) into the same hole. Sometimes the instruments were operated in pairs at each end, making conversation more convenient but also more expensive.
At first, the benefits of a telephone exchange were not exploited. Instead telephones were leased in pairs to a subscriber, who had to arrange for a telegraph contractor to construct a line between them, for example between a home and a shop. Users who wanted the ability to speak to several different locations would need to obtain and set up three or four pairs of telephones. Western Union, already using telegraph exchanges, quickly extended the principle to its telephones in New York City and San Francisco, and Bell was not slow in appreciating the potential.
Signalling began in an appropriately primitive manner. The user alerted the other end, or the exchange operator, by whistling into the transmitter. Exchange operation soon resulted in telephones being equipped with a bell, first operated over a second wire, and later over the same wire, but with a condenser (capacitor) in series with the bell coil to allow the AC ringer signal through while still blocking DC (keeping the phone "on hook"). Telephones connected to the earliest Strowger automatic exchanges had seven wires, one for the knife switch, one for each telegraph key, one for the bell, one for the push button and two for speaking.
Rural and other telephones that were not on a common battery exchange had a magneto or hand-cranked generator to produce a high voltage alternating signal to ring the bells of other telephones on the line and to alert the operator.
In the 1890s a new smaller style of telephone was introduced, packaged in three parts. The transmitter stood on a stand, known as a "candlestick" for its shape. When not in use, the receiver hung on a hook with a switch in it, known as a "switchhook." Previous telephones required the user to operate a separate switch to connect either the voice or the bell. With the new kind, the user was less likely to leave the phone "off the hook". In phones connected to magneto exchanges, the bell, induction coil, battery and magneto were in a separate bell box called a "ringer box."  In phones connected to common battery exchanges, the ringer box was installed under a desk, or other out of the way place, since it did not need a battery or magneto.
Cradle designs were also used at this time, having a handle with the receiver and transmitter attached, separate from the cradle base that housed the magneto crank and other parts. They were larger than the "candlestick" and more popular.
Disadvantages of single wire operation such as crosstalk and hum from nearby AC power wires had already led to the use of twisted pairs and, for long distance telephones, four-wire circuits. Users at the beginning of the 20th century did not place long distance calls from their own telephones but made an appointment to use a special sound proofed long distance telephone booth furnished with the latest technology.
What turned out to be the most popular and longest lasting physical style of telephone was introduced in the early 20th century, including Bell's Model 102. A carbon granule transmitter and electromagnetic receiver were united in a single molded plastic handle, which when not in use sat in a cradle in the base unit. The circuit diagram of the Model 102 shows the direct connection of the receiver to the line, while the transmitter was induction coupled, with energy supplied by a local battery. The coupling transformer, battery, and ringer were in a separate enclosure. The dial switch in the base interrupted the line current by repeatedly but very briefly disconnecting the line 1-10 times for each digit, and the hook switch (in the center of the circuit diagram) disconnected the line and the transmitter battery while the handset was on the cradle.
After the 1930s, the base also enclosed the bell and induction coil, obviating the old separate ringer box. Power was supplied to each subscriber line by central office batteries instead of a local battery, which required periodic service. For the next half century, the network behind the telephone became progressively larger and much more efficient, but after the dial was added the instrument itself changed little until touch tone replaced the dial in the 1960s.
The Public Switched Telephone Network (PSTN) has gradually evolved towards digital telephony which has improved the capacity and quality of the network. End-to-end analog telephone networks were first modified in the early 1960s by upgrading transmission networks with T1 carrier systems. Later methods such as SONET and fiber optic transmission further advanced digital transmission. Although analog carrier systems existed, digital transmission allowed lower cost and more channels multiplexed on a single transmission medium. Today the end instrument remains analog but the analog signals are typically converted to digital signals at the (Serving Area Interface (SAI), central office (CO), or other aggregation point. Digital loop carriers (DLC) place the digital network ever closer to the customer premises, relegating the analog local loop to legacy status.
Internet Protocol (IP) telephony (also known as Voice over Internet Protocol, VoIP), is a disruptive technology that is rapidly gaining ground against traditional telephone network technologies. As of January 2005, up to 10% of telephone subscribers in Japan and South Korea have switched to this digital telephone service. A January 2005 Newsweek article suggested that Internet telephony may be "the next big thing."  As of 2006 many VoIP companies offer service to consumers and businesses.
IP telephony uses an Internet connection and hardware IP Phones or softphones installed on personal computers to transmit conversations encoded as data packets. In addition to replacing POTS (plain old telephone service), IP telephony services are also competing with mobile phone services by offering free or lower cost connections via WiFi hotspots. VoIP is also used on private networks which may or may not have a connection to the global telephone network.
IP telephones have two notable disadvantages compared to traditional telephones. Unless the IP telephone's components are backed up with an uninterruptible power supply or other emergency power source, the phone will cease to function during a power outage as can occur during an emergency or disaster, exactly when the phone is most needed. Traditional phones connected to the older PSTN network do not experience that problem since they are powered by the telephone company's battery supply, which will continue to function even if there's a prolonged power black-out. A second distinct problem for an IP phone is the lack of a 'fixed address' which can impact the provision of emergency services such as police, fire or ambulance, should someone call for them. Unless the registered user updates the IP phone's physical address location after moving to a new residence, emergency services can be, and have been, dispatched to the wrong location.
By the end of 2006, there were a total of nearly 4 billion mobile and fixed-line subscribers worldwide. This included 1.27 billion fixed-line subscribers and 2.68 billion mobile subscribers. 
Telephone operating companies
In some countries, many telephone operating companies (commonly abbreviated to telco in American English) are in competition to provide telephone services. The above Main article lists only facilities based providers and not companies which lease services from facilities based providers in order to serve their customers.