The breakup of AT&T was initiated by the filing in 1974 by the U.S. Department of Justice of an antitrust lawsuit against AT&T. The case, United States v. AT&T, led to a settlement finalized on January 8, 1982, under which "Ma Bell" agreed to divest its local exchange service operating companies, in return for a chance to go into the computer business, AT&T Computer Systems. Effective January 1, 1984, AT&T's local operations were split into seven independent Regional Holding Companies, also known as Regional Bell Operating Companies (RBOCs), or "Baby Bells". Afterwards, AT&T, reduced in value by approximately 70%, continued to operate all of its long-distance services, although in the ensuing years it lost portions of its market share to competitors such as MCI and Sprint.

Regional Bell Operating Companies (RBOCs)

• Ameritech Corporation
• Bell Atlantic Corporation
• BellSouth Corporation
• NYNEX Corporation
• Pacific Telesis Group
• Southwestern Bell Corporation
• U S WEST, Inc.

Non-RBOC Bell System members

The only difference between these two incumbent local exchange carriers (ILECs) and the seven divested Baby Bells (RBOCs) was that AT&T owned only a minority interest in these ILECs as opposed to owning them outright before the breakup. Both were monopolies in their coverage areas much like the RBOCs.

• Cincinnati Bell, the only remaining former Bell System member not owned by a Baby Bell, covering the Greater Cincinnati area.
• SNET, the other non-RBOC Bell System member, was acquired by SBC in 1998 and rebranded as AT&T in 2005; it covered Connecticut.

Effects

The breakup led to a surge of competition in the long distance telecommunications market by companies such as Sprint and MCI. AT&T's gambit in exchange for its divestiture, AT&T Computer Systems, failed, and after spinning off its manufacturing operations (most notably Bell Labs, which became Lucent, now Alcatel-Lucent) 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, which started as Southwestern Bell, and proceeded to buy two other RBOCs, a former AT&T associated operating company, AT&T itself, then another RBOC. See AT&T for details.

One negative outcome of the breakup is that local residential service rates, which were formerly subsidized by long distance revenues, have been forced to rise faster than the rate of inflation. Long-distance rates, meanwhile, have fallen due both to the end of this subsidy and increased competition. 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 Ma Bell 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 has recently been split on this issue; VoIP services that utilize IP but in every other way look like a normal phone call generally have to pay access charges, while VoIP services that look more like applications on the Internet and do not interconnect with the public telephone network do not have to pay access charges.

Mergers

In 2005, SBC Communications purchased AT&T Corp., thus reuniting the venerable phone company with three of its spinoffs (SBC was composed of Southwestern Bell, Pacific Telesis, and Ameritech). The merger was completed on November 18, 2005. The merged company is named AT&T Inc. Additionally, on December 29, 2006, AT&T purchased BellSouth, another AT&T Corp. spinoff.

AT&T Inc. is headquartered in Dallas. Atlanta is the location of the headquarters for AT&T Mobility, which was formerly Cingular Wireless. The name change came after the merger with BellSouth, as well as Southeast region telephone operations. Bedminster, New Jersey is to the AT&T Global Network Operation Center and is the headquarters of AT&T Corporation, a subsidiary of AT&T, Inc. The new AT&T Inc. lacks the vertical integration that characterized the historic AT&T Corp. and led to the Department of Justice antitrust suit.

AT&T Inc. announced it would not switch back to the Bell logo, thus ending usage of the Bell logo for corporate use by any of the Baby Bells with the exception of Malheur Bell and on payphones, hats, and company repair trucks by Verizon.

Evolution of the RBOCs

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 amongst themselves. Namely, SBC, the former Southwestern Bell, purchased Pacific Telesis in 1997, SNET in 1998 and Ameritech in 1999; Bell Atlantic merged with NYNEX in 1997, and with GTE in 2000 to create Verizon. US West was acquired by Qwest in 2000. AT&T Corp. was acquired by SBC to form AT&T Inc. in 2005; the merged company acquired BellSouth in 2006.

Financial arbitrage

Because of 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.

See also

• Harold H. Greene

References

External links

• Obituary of Harold H. Greene, judge presiding over the divestiture