Light From The East

The precise origins of phone phreaking are unknown, although it is believed^[who?] that phreak-like experimentation began with widespread deployment of automatic switches on the telephone networks. In the United States, AT&T began introducing automatic switches for long distance and certain forms of trunking carriers in the mid-to-late 1950s. With the introduction of these switches, the general population began, for the first time, to interact with computing power on a large scale.

Phreaking can be viewed as an extension of this, where individuals interested in computers and technology, yet unable to further that interest for a variety of reasons, turned to the only available option: the computer controlled telephone network.^{[original research?]}

AT&T's fully automatic switches use tone dialing, a form of in-band signaling, and include some tones which are for internal telephone company use. One internal use tone is a tone of 2600 Hz which causes a telephone switch to think the call was over, and could be exploited to provide free long-distance and international calls.

The tone was discovered in approximately 1957, by Joe Engressia, a blind seven-year old boy. Engressia was skilled with perfect pitch, and discovered that whistling the fourth E above middle C — a frequency of 2600 Hz — would stop a dialed phone recording. Unaware of what he had done, Engressia called the phone company and asked why the recordings had stopped. This was the beginning of his love of exploring the telephone system.

Other early phreaks, such as "Bill from New York", began to develop a rudimentary understanding of how phone networks worked. Bill discovered that a recorder he owned could also play the tone at 2600 Hz with the same effect. John Draper discovered through his friendship with Engressia that the free whistles given out in Cap'n Crunch cereal boxes also produced a 2600 Hz tone when blown (providing his nickname, "Captain Crunch"). This allowed control of phone systems that worked on Single Frequency (SF) controls. One could sound a long whistle to reset the line, followed by groups of whistles (a short tone for a "1", two for a "2", etc.) to dial numbers.

Source :  http://en.wikipedia.org/wiki/Phreaking