AT&T Antitrust Settlement: The Breakup of the Bell System

On January 8, 1982, the American Telephone and Telegraph Company (AT&T), one of the largest corporations in the United States, agreed to a historic antitrust settlement with the U.S. Department of Justice. This agreement required AT&T to divest itself of 22 subdivisions, effectively leading to the dismantling of the Bell System, a giant telecommunications monopoly.

Background

Since its inception in the late 19th century, AT&T had established itself as the dominant force in the American telecommunications industry through the Bell System. This system was a vertically integrated monopoly that controlled the majority of both local and long-distance telephone services in the United States. The company had maintained its monopoly largely due to patents and strategic acquisitions, limiting competition and consolidating control over telephone infrastructure.

The Antitrust Case

The U.S. government filed an antitrust lawsuit against AT&T in 1974, accusing it of anti-competitive practices that stifled innovation and restricted service competition. The case was based on the Sherman Antitrust Act, aimed at dismantling monopolies and promoting fair competition. AT&T’s tight control over the telecommunications market was seen as a major obstacle to these objectives.

The 1982 Settlement

The agreement reached on January 8, 1982, was a consent decree that resulted in the breakup of the Bell System. According to the settlement:

• AT&T agreed to relinquish its control over 22 operating companies, known as the Bell operating companies, which were responsible for most of the local telephone services in the U.S.
• These operating companies were reorganized into seven independent Regional Bell Operating Companies (RBOCs), also known as “Baby Bells.”
• AT&T retained control over its long-distance services, manufacturing operations (Western Electric), and Bell Labs, its renowned research and development arm.

Consequences and Historical Significance

The breakup is considered one of the most significant antitrust actions of the 20th century, reshaping the telecommunications landscape in the United States:

• Increased Competition: The divestiture opened the door for increased competition, leading to more choices and innovations in telecom services. This included the rise of new carriers and the eventual development of the mobile telecommunications industry.
• Regulatory Changes: The telecommunications industry faced significant regulatory changes in subsequent years, reflecting the evolving market dynamics and the need for further deregulation.
• Technological Advancements: The breakup indirectly fueled technological advancements by fostering a competitive environment that encouraged investment in new technologies, including the internet.

The AT&T breakup fundamentally transformed the telecommunications sector, demonstrating the impact of antitrust enforcement on promoting competition and innovation.