Who broke up AT&T?
Following an antitrust lawsuit initiated by the Reagan government via the U.S. Department of Justice in 1982, AT&T was sold in 1984. John D. deButts, AT&T's chairman, was guiding the company as a monopoly of national telephone service at the time. To the disadvantage of competition and innovation, the Justice Department alleged AT&T controlled the long-distance telephone service and telecommunications equipment market.
The case's background begins in 1974 when the Justice Department started an antitrust lawsuit against AT&T on President Ford's direction. That decision decided that while AT&T Internet was confined to providing local and long-distance telephone services, it was permitted to keep its subsidiary Western Electric, the portion of the corporation dedicated to equipment manufacture. But under the guise of monopoly, the succeeding government under President Reagan renewed the lawsuit thanks to fiber optics, MCI, and other rivals.
Under a settlement deal between AT&T and the Justice Department in 1982, AT&T agreed to divest itself into seven independent regional holding companies, also known as Baby Bells.
- Ameritech Corporation
- Bell Atlantic Corporation
- BellSouth Corporation
- NYNEX Corporation
- Pacific Telesis
- Southwestern Bell Corporation
- US WEST Communications
These Baby Bels had a monopoly over the local telephone operations while AT&T kept with itself the long-distance operations, research facilities including Bell Labs, and manufacturing company Western Electric. The formal dissolution occurred in 1984 after court approval on January 1. As a result of the breakup, AT&T lost monopolistic control of the telecommunications industry and the market became more competitive between many firms. Competition brought about by this new entrant raised the stakes for the development of new telecom services.
The divestitures also affected AT&T in a big way and it suffered a major loss in the immediate aftermath of the split. For instance, AT&T’s revenue dropped from $149 billion in 1983 to $34 billion in 1984. However, over time, the breakup was advantageous in the formation of value by the spinoff companies which were established separately. For instance, Bell Atlantic and NYNEX are today’s Verizon telecoms. Shortly after their establishment, the majority of the Baby Bells had provided long-distance services in direct competition with AT&T through links with rivals like the MCI and Sprint. In several years of operation, AT&T experienced some fluctuation in its market share but was able to maintain its position in the long-distance service.
Competition in the telecom sector had hence shifted significantly from the monopoly of AT&T by the mid-1990s. However, the industry began picking up the pace of consolidations again with a series of mega-mergers and acquisitions. The Telecommunications Act of 1996 reduced many of the regulatory obstacles that paved the way for consolidation. These seven Baby Bells that emerged after the 1984 breakup have been reduced to three dominant carriers – Verizon, Qwest, and BellSouth. This situation can be seen in the aftermath of the AT&T breakup which created the oligopolistic structure of the market that is present in the United States to this day. MCI and Worldcom experienced financial problems in the 2000s with Verizon acquiring the remains of MCI. The original AT&T Corporation was acquired by SBC Communications in 2005, and the company adopted the name AT&T. The evolution since the dramatic divestment of the original Ma Bell in 1984 still characterizes the highly concentrated but innovative telecommunications landscape today.