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, Yellow Pages, the Bell trademark, Bell Labs, and AT&T Long Distance. It also proposed that it be freed from a 1956 antitrust consent decree, then administered by Judge Vincent P. Biunno in the United States District Court for the District of New Jersey, that barred it from participating in the general sale of computers (retreat from international markets, relinquish ownership in Bell Canada, and Northern Electric a Western Electric subsidiary).[4] In return, it proposed to give up ownership of the local operating companies. This last concession, it argued, would achieve the government's goal of creating competition in supplying telephone equipment and supplies to the operative companies. The settlement was finalized on January 8, 1982, with some changes ordered by the decree court: the regional holding companies received the Bell trademark, Yellow Pages, and about half of Bell Labs.
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%.
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.
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:
The breakup led to a surge of competition in the long-distance telecommunications market by companies such as Sprint and MCI.[5] AT&T's gambit in exchange for its divestiture, AT&T Computer Systems, failed, and after spinning off its manufacturing operations (most notably Western Electric, which became Lucent, then Alcatel-Lucent, now Nokia) and other misguided acquisitions such as NCR and AT&T Broadband, it was left with only its core business with roots as AT&T Long Lines and its successor AT&T Communications. It was at this point that AT&T was purchased by one of its own spin-offs, SBC Communications, the company that had also purchased two other RBOCs and a former AT&T associated operating company (Ameritech, Pacific Telesis, and SNET), and which later purchased another RBOC (BellSouth).
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.[5] The FCC established a system of access charges where long-distance networks paid the more expensive local networks both to originate and terminate a call. In this way, the implicit subsidies of the Bell System became explicit post-divestiture. These access charges became a source of strong controversy as one company after another sought to arbitrage the network and avoid these fees. In 2002 the FCC declared that Internet service providers would be treated as if they were local and would not have to pay these access charges. This led to VoIP service providers arguing that they did not have to pay access charges, resulting in significant savings for VoIP calls. The FCC was split on this issue for some time; VoIP services that used IP but in every other way looked like a normal phone call generally had to pay access charges, while VoIP services that looked more like applications on the Internet and did not interconnect with the public telephone network did not have to pay access charges. However, an FCC order issued in December 2011 declared that all VoIP services would have to pay the charges for nine years, at which point all access charges would then be phased out.[6]
Another consequence of the divestiture was in how both national broadcast television (i.e., ABC, NBC, CBS, PBS) and radio networks (NPR, Mutual, ABC Radio) distributed their programming to their local affiliated stations. Prior to the breakup, the broadcast networks relied on AT&T Long Lines' infrastructure of terrestrial microwave relay, coaxial cable, and, for radio, broadcast-quality leased line networks to deliver their programming to local stations. However, by the mid-1970s, the then-new technology of satellite distribution offered by other companies like RCA Astro Electronics and Western Union, with their respective Satcom 1 and Westar 1 satellites, started to give the Bell System competition in the broadcast distribution field, with the satellites providing higher video and audio quality, as well as much lower transmission costs.[5]
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.
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 Wisconsin Bell lines (covering 19 exchanges) to CenturyTel, which merged them into its company CenturyTel of the Midwest-Kendall.[10][11]
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]
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 $2.5million in what was at the time the NYSE's largest (nominal) block trade.[25]
A Regional Bell Operating Company (RBOC) was a corporate entity created as result of the antitrust lawsuit by the U.S. Department of Justice against the American Telephone and Telegraph Company (AT&T) in 1974 and settled in the Modification of Final Judgment on January 8, 1982.
AT&T Teleholdings, Inc., formerly known as Ameritech Corporation, was an American telecommunications company that arose out of the 1984 AT&T divestiture. Ameritech was one of the seven Regional Bell Operating Companies created following the breakup of the Bell System. Ameritech was acquired in 1999 by SBC Communications, which subsequently acquired AT&T Corporation in 2006, becoming the present-day AT&T.
Southern New England Telecommunications Corporation (SNET) started operations in 1986 as the holding company for The Southern New England Telephone Company. Prior to 1986, The Southern New England Telephone Company had been a minority holding of AT&T until February 1986, when AT&T withdrew its 23% holding. SNET then became its own company, operating a telecommunications sales division, Sonecor Systems Division, which began operations on January 1, 1983, and sold equipment in competition with AT&T before the Bell System divestiture. SNET also operated SNET America, which sold long-distance services to Southern New England Telephone customers within Connecticut.
NYNEX Corporation was an American telephone company that served five states of New England as well as most of the state of New York from January 1, 1984 to August 14, 1997.
The Pacific Bell Telephone Company (Pac Bell) is a telephone company that provides telephone service in California. The company is owned by AT&T through AT&T Teleholdings, and, though separate, is now marketed as “AT&T”. The company has been known by a number of names during which its service area has changed. The formal name of the company from the 1910s through the 1984 Bell System divestiture was The Pacific Telephone and Telegraph Company. As of 2002, the name “Pacific Bell” is no longer used in marketing, although Pacific Bell is still the holder of record for the infrastructure of cables and fiber through much of California.
Pacific Telesis Group (PacTel) was one of the seven Regional Bell Operating Companies, sometimes also referred to as "RBOCs" or "Baby Bells", created in 1983 in preparation of the breakup of AT&T Corporation. Pacific Telesis was the holding company for Pacific Bell, Nevada Bell, Pacific Telesis International, PacTel Mobile Services and PacTel InfoSystems. Pacific Telesis was headquartered in San Francisco and incorporated in Nevada. It was acquired by SBC Communications in 1997, which would eventually become today’s AT&T Inc.
Verizon New England, Inc. is a Bell Operating Company that once covered most of New England but now only serves most of Massachusetts and all of Rhode Island. It was formerly New England Telephone and Telegraph Company, more commonly known as New England Telephone, which for seven decades served most of the New England area of the United States as a part of the original AT&T. New England Telephone's original coverage area included Maine, New Hampshire, and Vermont as well as Massachusetts and Rhode Island, Verizon has sold off service in the northern three states, which as of 2020 were served by Consolidated Communications.
Michigan Bell is the subsidiary of AT&T serving the state of Michigan. Following the Bell System divestiture on January 8, 1984, the company became a subsidiary of Ameritech, the Regional Bell operating company that served the midwestern United States. Ameritech was subsequently acquired by SBC Communications, which later changed its name to AT&T.
Illinois Bell Telephone Company, LLC is the Bell Operating Company serving Illinois. It is owned by AT&T through AT&T Teleholdings, formerly Ameritech.
SBC Long Distance LLC is a long-distance telephone company owned by AT&T that does business as AT&T Long Distance. SBC Long Distance competes with other long-distance providers who provide service within some of the Bell Operating Company service boundaries of AT&T. SBC Long Distance is a separate subsidiary than AT&T Communications, the incumbent long-distance carrier for most of the country acquired in the SBC merger with AT&T.
Dex One Corporation was an American marketing company providing online, mobile and print search marketing via their DexKnows.com website, print yellow pages directories and pay-per-click ad networks in the U.S.
Advanced Mobile Phone Service, Inc. was a subsidiary of AT&T prior to the Bell System Divestiture. Abbreviated AMPS, the company was created in 1978 to build and operate the new Advanced Mobile Phone System, also abbreviated AMPS. AMPS was developed by Bell Labs to replace older, severely limited radiophone services, such as IMTS. AMPS was one of the first modern cellular phone systems, which remained in operation until 2008.
AT&T Inc., an abbreviation for its former name, the American Telephone and Telegraph Company, is an American multinational telecommunications holding company headquartered at Whitacre Tower in Downtown Dallas, Texas. It is the world's third largest telecommunications company by revenue and the third largest wireless carrier in the United States behind Verizon and T-Mobile. As of 2023, AT&T was ranked 13th on the Fortune 500 rankings of the largest United States corporations, with revenues of $122.4 billion.
United States v. AT&T, 552 F.Supp. 131 (1982), was a ruling of the United States District Court for the District of Columbia, that led to the 1984 Bell System divestiture, and the breakup of the old AT&T natural monopoly into seven regional Bell operating companies and a much smaller new version of AT&T.
The Bell System was a system of telecommunication companies, led by the Bell Telephone Company and later by the American Telephone and Telegraph Company (AT&T), that dominated the telephone services industry in North America for over 100 years from its creation in 1877 until its antitrust breakup in 1983. The system of companies was often colloquially called Ma Bell, as it held a vertical monopoly over telecommunication products and services in most areas of the United States and Canada. At the time of the breakup of the Bell System in the early 1980s, it had assets of $150 billion and employed over one million people.
AT&T Corporation, an abbreviation for its former name, the American Telephone and Telegraph Company, was an American telecommunications company that provided voice, video, data, and Internet telecommunications and professional services to businesses, consumers, and government agencies.
Southwestern Bell Telephone Company, LLC is a wholly owned subsidiary of AT&T. It does business as other d.b.a. names in its operating region, which includes Arkansas, Kansas, Missouri, Oklahoma, Texas, and portions of Illinois. The company is currently headquartered in Dallas, Texas at One AT&T Plaza.
The history of AT&T dates back to the invention of the telephone. The Bell Telephone Company was established in 1877 by Alexander Graham Bell, who obtained the first US patent for the telephone, and his father-in-law, Gardiner Greene Hubbard. Bell and Hubbard also established American Telephone and Telegraph Company in 1885, which acquired the Bell Telephone Company and became the primary telephone company in the United States. This company maintained an effective monopoly on local telephone service in the United States until anti-trust regulators agreed to allow AT&T to retain Western Electric and enter general trades computer manufacture and sales in return for its offer to split the Bell System by divesting itself of ownership of the Bell Operating Companies in 1982.
AT&T Communications, Inc. was a division of the AT&T Corporation that, through 23 subsidiaries, provided interexchange carrier and long-distance telephone services.
References
↑ "The End of AT&T". Celnet. Archived from the original on October 6, 2014. Retrieved October 3, 2014.{{cite web}}: CS1 maint: unfit URL (link)
↑ "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.
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