Breakup of the Bell System
The breakup of the Bell System was mandated on January 8, 1982, by a consent decree providing that AT&T Corporation would, as had been initially proposed by AT&T, relinquish control of the Bell Operating Companies, which had provided local telephone service in the United States.[1] This effectively took the monopoly that was the Bell System and split it into entirely separate companies that would continue to provide telephone service. AT&T would continue to be a provider of long-distance service, while the now-independent Regional Bell Operating Companies (RBOCs), nicknamed the "Baby Bells", would provide local service, and would no longer be directly supplied with equipment from AT&T subsidiary Western Electric.
This divestiture was initiated in 1974 when the United States Department of Justice filed United States v. AT&T, an antitrust lawsuit against AT&T.[2] At the time, AT&T had substantial control over the United States' communications infrastructure. Not only was it the sole telephone provider throughout most of the country, its subsidiary Western Electric produced much of its equipment. Relinquishing ownership of Western Electric was one of the Justice Department’s primary demands.[3]
Believing that it was about to lose the suit, AT&T proposed an alternative: its breakup. It proposed that it retain control of Western Electric,
Effective January 1, 1984, the Bell System's many member companies were variously merged into seven independent "Regional Holding Companies", also known as Regional Bell Operating Companies (RBOCs), or "Baby Bells". This divestiture reduced the book value of AT&T by approximately 70%.
Post-breakup structure
The breakup of the Bell System resulted in the creation of seven independent companies that were formed from the original twenty-two AT&T-controlled members of the System.[5]
On January 1, 1984, these companies were NYNEX, Pacific Telesis, Ameritech, Bell Atlantic, Southwestern Bell Corporation, BellSouth, and US West.
- Verizon Communications
- AT&T Inc.
- AT&T Inc.
- Verizon Communications
- SBC Communications in 1995, acquired AT&T Corporationin 2005
- AT&T Inc.in 2006
- CenturyLinkin 2011
AT&T Corporation RBOC grouped into "Baby Bells" split off in 1984 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BellSouth | AT&T Corporation (non-LEC) | Ameritech | Pacific Telesis | Southwestern Bell (later SBC Communications) | Bell Atlantic | NYNEX | US West | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ILEC ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Verizon | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AT&T (former SBC) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CenturyLink (non-RBOC ILEC) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AT&T | Verizon | Lumen Technologies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In addition, there were two members of the Bell System that were only partially owned by AT&T. Both of these companies were monopolies in their coverage areas, received Western Electric equipment and had agreements with AT&T whereby they were provided with long-distance service. They continued to exist in their pre-breakup form after the antitrust case, but no longer directly received Western Electric equipment, and were no longer bound to use AT&T as their long-distance provider.[5] These companies were:
- Macquarie Infrastructure and Real Assets in 2021, covering the Cincinnati metropolitan area
- Southern New England Telephone (SNET), acquired by SBC in 1998, now part of Frontier Communications, covering Connecticut.
Effects
The breakup led to a surge of competition in the long-distance telecommunications market by companies such as
One consequence of the breakup was that local residential service rates, which were formerly subsidized by long-distance revenues, began to rise faster than the rate of inflation. Long-distance rates, meanwhile, fell both due to the end of this subsidy and increased competition.
Another consequence of the divestiture was in how both national broadcast television (i.e.,
However, the networks stayed with AT&T (along with simulcasting their feeds via satellite through the late 1970s to the early 1980s) due to some stations not being equipped yet with ground station receiving equipment to receive the networks' satellite feeds, and due to the broadcast networks' contractual obligations with AT&T up until the breakup in 1984, when the networks immediately switched to satellite exclusively. This was due to several reasons — the much cheaper rates for transmission offered by satellite operators that were not influenced by the high tariffs set by AT&T for broadcast customers, the split of the Bell System into separate RBOCs, and the end of contracts that the broadcast companies had with AT&T.[5]
AT&T was allowed to enter the computer market after the breakup; observers expected that with Bell Labs and Western Electric, American Bell would challenge market leader IBM.[7] The company's post-breakup strategy did not work out the way it had planned. Its attempt to enter the computer business failed, and it quickly realized that Western Electric was not profitable without the guaranteed customers the Bell System had provided.[8] In 1995, AT&T spun off its computer division and Western Electric, exactly as the government had initially asked it to do. It then re-entered the local telephone business that it had exited after the breakup, which had become much more lucrative with the rise of dial-up Internet access in the early 1990s.[8] Even this, however, would not save AT&T Corporation. It would soon be absorbed by one of the Baby Bells, SBC Communications (formerly Southwestern Bell), which then co-opted the AT&T name to form the present-day AT&T Inc.
Evolution of the Baby Bells
Following divestiture in 1984 and the creation of the seven Baby Bells, the service within the LATAs remained regulated until 1996, when the Telecommunications Act of 1996 was passed. Following this, the Baby Bells began consolidating among themselves. Section 271 of the Telecommunications Act of 1996 also established a way that regulators could approve BOCs to enter the interLATA market in regions where they provide local exchange service.[9] In 1998, Ameritech sold some of its
SBC Communications (named Southwestern Bell Corporation until 1995) purchased Pacific Telesis in 1997 for $16.5 billion, creating an organization with about 100,000 employees, an annual net income of $3 billion, and revenue of about $23.5 billion.[12] SBC purchased Southern New England Telecommunications in 1998 for $5.01 billion,[13] and Ameritech in 1999 for $61 billion, creating the largest U.S. local phone company at the time.[14] AT&T Corporation, the original parent, was acquired effective November 18, 2005, by SBC, which renamed itself AT&T Inc. and began using the ticker symbol "T" and a new AT&T corporate logo.[15] The new company then acquired BellSouth for $85.8 billion on January 3, 2007, with FCC approval.[16]
Bell Atlantic merged with
US West was acquired by Qwest in June 2000 for $43.5 billion.[21] On April 6, 2011, Qwest was acquired by CenturyLink (now Lumen Technologies), an independent telephone provider,[22] bringing Qwest Corporation (originally Mountain Bell), Northwestern Bell, and Pacific Northwest Bell under its control.
While based in San Antonio, Texas, since 1992, AT&T Inc. moved its headquarters to Dallas by the end of 2008. The name change came after AT&T's merger with BellSouth, as well as with southeast-region telephone operations.[citation needed] Bedminster, New Jersey, is home to the AT&T Global Network Operations Center and is the headquarters of AT&T Corp., the long-distance subsidiary of AT&T Inc. The new AT&T Inc. lacks the vertical integration that characterized the historic AT&T Corporation and led to the Department of Justice antitrust suit.[23] AT&T Inc. announced it would not switch back to the Bell logo,[24] thus ending corporate use of the Bell logo by the Baby Bells, with the lone exception of Verizon.
Financial arbitrage
Due to discrepancies between the pricing of the "old" AT&T shares and the new "when-issued" shares, investors were able to make risk-free profits, most spectacularly Edward O. Thorp, who made $2.5 million in what was at the time the NYSE's largest (nominal) block trade.[25]
See also
- Standard Oil – The 1911 breakup of Standard Oil is often compared to the breakup of AT&T and, like AT&T, later had many "baby Standards" merge.
- AT&T Technologies
References
- ^ "The End of AT&T". Celnet. Celnet. Archived from the original on October 6, 2014. Retrieved October 3, 2014.
- ISBN 0-465-04195-7.
- ^ "Bell Telephone System".
- ^ "AT&T Breakup II: Highlights in the History of a Telecommunications Giant". Los Angeles Times.
- ^ ISBN 9780070654341. Retrieved April 14, 2013.
- ^ Connect America Fund order details access charge reforms Archived May 2, 2013, at the Wayback Machine
- ^ Greenwald, John (July 11, 1983). "The Colossus That Works". Time. Archived from the original on May 14, 2008. Retrieved May 18, 2019.
- ^ a b "AT&T Move Is a Reversal Of Course Set in 1980's". The New York Times. September 22, 1995.
- ^ Jerry A. Hausman, Gregory K. Leonard & J. Gregory Sidak (2002). "Does Bell Company Entry into Long-Distance Telecommunications Benefit Consumers?", Antitrust Law Journal. 70: 463, 463–464.
- ^ "Business Brief -- Century Telephone Enterprises Inc.: Wisconsin Telephone Assets Purchased for $225 Million". Wall Street Journal, Eastern edition. March 13, 1998. p. B4.
- ^ Public Service Commission of Wisconsin. "Application Requirements for Requesting Certification to Provide Competitive Local Exchange Services". Archived from the original on October 30, 2014. Retrieved December 29, 2014.
- ^ "SBC Communications Inc.: Merger with Pacific Telesis closes, creating a giant". Wall Street Journal, Eastern edition. April 2, 1997. p. B, 4:3.
- ^ "Business Brief -- SBC COMMUNICATIONS INC.: Acquisition Is Completed Of New England Concern". Wall Street Journal, Eastern edition. October 27, 1998. p. B, 8:4.
- ^ Reinhardt, Krause (October 13, 1999). "SBC-Ameritech No 'Baby' Bell As Giant Telecom Firm Forms". Investor's Business Daily. p. A06.
- ^ Cronin, Anthony (December 2, 2005). "SBC dumps its newer letters for AT&T's old one". Knight Ridder Tribune Business News. p. 1.
- ^ "AT&T Inc. Closes $85 Billion Acquisition Of Bell South Corp". FinancialWire [Forest Hills]. January 3, 2007. p. 1.
- ^ "Bell Atlantic, Nynex merged". Electronic News. Vol. 43, no. 2181. August 18, 1997. p. 80.
- ^ Elkin, Tobi (June 26, 2000). "New Verizon plans print to usher in merged unit". Advertising Age. Vol. 71, no. 27. p. 28.
- ^ Ravana, Anne (January 17, 2007). "FairPoint buys out Verizon operation". McClatchy - Tribune Business News [Washington]. p. 1.
- ^ "Frontier CEO Says Telco In Strong Shape After Verizon Deal". Telecommunications Reports. Vol. 76, no. 20. October 15, 2010. p. 13.
- ^ "Qwest closes US West merger". Global Telecoms Business. No. Jul/Aug. 2000. p. 49.
- ^ "CenturyLink Merges with Qwest". Wireless News. April 6, 2011.
- ^ U.S. District Court for the District of Columbia (February 28, 1983). "United States v. American Tel. and Tel. Co., 552 F. Supp. 131 (D.D.C. 1983)".
- ISBN 9780521345576.
- ^ "Ed Thorp". Archived from the original on October 31, 2005. Retrieved March 15, 2006.
Further reading
- Steve Coll (1986), The Deal of the Century: The Breakup of AT&T, New York: Atheneum.
External links
- Obituary of Harold H. Greene, judge presiding over the divestiture
- Has Divestiture Worked? A 25th Anniversary Assessment of the Breakup of AT&T Conference at NYU, May 6, 2009.