For a very brief history and photos of U.S. rotary dial telephones, please take a look at my web page atI believe that the evolution of the dial telephone set was driven more by the desire to reduce manufacturing, inventory, installation and maintenance costs than by any desire for miniaturization per se. (The exception to this was the "Princess" phone which was intentionally designed to have a small footprint so that it could be marketed as a bedroom extension which would fit on the typical small bedside nightstand table.)
Portability was never an issue until the advent of wireless technology which allowed mobile telephony to be carried around rather than bolted to an automobile. Its precursor was the hand-held "walkie talkie" of World War II -- a remarkable device given the limitations of vacuum tube technology and its requirement of sufficient battery power to heat a filament and to provide plate voltages of 65 to 90 vdc.
"Briefcase phones," "bag phones," "brick phones" and other transitional designs made from about 1985 to 1995 evolved remarkably quickly into the pocket-size devices which we use and throw-away today.
Even Dick Tracy did not imagine a disposable "wrist radio." :)