Who broke up AT&T?
This case was filed in 1982 by the U.S. Department of Justice under the Reagan administration on the grounds of antitrust and was aimed at dismantling AT&T's telephone monopoly.AT&T Internet was at that time the only service provider of both the local and the long-distance telephone services in most parts of America. The case reached its conclusion in 1984 when AT&T agreed to one it up into seven Regional Bell Operating Companies or “Baby Bells.
This breakup refers to the dismantling of AT&T which was the largest communication company at the time known as Ma Bell.
The operation is often known as the split of Ma Bell, based on the conventional view of AT&T as a mom looking after her adopted children. At that time, this was the largest business reorganization the United States had seen.
Since AT&T first emerged in 1885, it has essentially served as a monopoly under legal protection and control. The Federal Communications Commission (FCC) and state public utility commissioners that kept AT&T and many other phone companies free from rivals controlled them for much of the twentieth century. For AT&T, this configuration was favorable as it allowed them to maximize economies of scale and provide a phone service reasonably priced for most American households. Starting from the 1960s and 1970s, however, there were mounting concerns that AT&T was a monopoly stifling the development of the Telecommunications sector and overcharging its customers for long-distance calls.
Therefore, in 1974, the United States of America's attorney general launched an antitrust lawsuit against AT&T alleging that the behemoth firm was suppressing competition by leveraging its monopoly in telecommunications. At last, after eight years, AT&T agreed with the regulatory authorities' recommendation that the business should be split into numerous entities rather than attending court and carrying on the legal conflict.
The Breakup Agreement
- On January 1, 1984, AT&T split into seven independent Regional Bell Operating Companies:
- Ameritech
- Bell Atlantic
- BellSouth
- NYNEX
- Pacific Telesis
- Southwestern Bell
- U S WEST
There were seven regional “Baby Bells” that each had the authority for local and intrastate telephone operations, and the long-distance internet service and manufacturing of telephone equipment and instruments remained within the AT&T company. Independent phone companies accounted for the remainder, with the Bell companies accounting for approximately 82% of the telephone lines.
For a period of transition, the Baby Bells also supplied long-distance service to their local customers. But they had to first acquire rights from AT&T to use those lines for building up independent structures. The emergence of new long-distance carriers such as Sprint and MCI brought this transitional system to an early halt.
This paper aims at analyzing the effects of the AT&T breakup and the following section summarizes the key findings of the study.
The advocates of structural reforms for the Bell telephone system pointed out that such changes would bring in more competitive prices as well as technological advancement from fresh entrants into the market.
As to the long-distance rates, yes indeed, for the initial couple of years after the breakup, the rates did decline noticeably, except in the rural areas. New distance telephone operating companies emerged in the market and the Baby Bell phone companies were compelled to cut their rates by between 15-20% in the period between 1984 and 1989. Similar to electronics, the prices of phones and switching gear that are used in the provision of telecommunication services are also reduced because of the availability of many manufacturers.
However, local phone rates in the first five years were much higher than those under the previous plan. They no longer enjoyed the advantages of scale economies and financial subsidies that were offered by the Bell System. upgrade of equipment and systems also had major expenses for them. Opponents claimed that the split allowed the Baby Bells to raise basic residential rates, which helped fund their penetration in the lucrative business services markets. The three subsectors where local prices rose the most are those where there is a weak competitive environment in rural territories.
The breakup forced telephone companies to make costly, rapid improvements and the adoption of new technologies such as fiber optics, wireless, VoIP, and high-speed Internet. However, the main drive was to capture business customers more than the regular users or the residential ones. It was opined by some that more competition led to infrastructure investments, while the same was refuted by others.
The ‘Baby Bells’ started merging back together after thirty years in 2005, into what became known as the ‘Super Baby Bells’. The competition has been strangled anyway by companies that established their fiefdoms in several regions. In addition, cell phones were identified as an innovative technology that threatened to reduce the reliance on local wired communications. Two Goliath companies - AT&T and Verizon have continuously reformed themselves and today control more than 70% of the wireless and landline market share in the US.
Thus, even though the great telephony experiment of 1984 created an opening up for new players and techniques, its impact on consumers has been rather doubtful. The breakup of Ma Bell tore apart the cozy monopolistic structure, but it was not the key to vibrant competition and the most efficient and beneficial for-all solution that we envisaged several decades ago.
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