AT&T Splits: Monopoly Breaks Open

For decades, the Bell System controlled everything Americans used to communicate by phone: the handsets, the wires, the switches, the long-distance lines, and even the plastic housing on the telephone in your kitchen. It was illegal to attach a non-Bell device to your own phone line. AT&T''s monopoly was so complete that it operated as a de facto utility, regulating itself while the government looked the other way. On January 8, 1982, AT&T agreed to the consent decree that would break the largest corporation on Earth into pieces. The antitrust case had been grinding through the courts since 1974, when the Department of Justice filed suit alleging that AT&T used its monopoly over local telephone service to unfairly dominate the long-distance and equipment markets. AT&T employed more people than any other private company in the world and controlled assets worth over $150 billion. Its research arm, Bell Labs, had invented the transistor, the laser, and the Unix operating system. Breaking it up seemed almost reckless. Under the terms of the consent decree, AT&T divested its twenty-two regional Bell Operating Companies, which were reorganized into seven independent "Baby Bells": Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, Southwestern Bell, and US West. Each would provide local telephone service in its region. AT&T retained its long-distance business, Western Electric manufacturing, and Bell Labs. The breakup, effective January 1, 1984, unleashed a wave of competition and innovation that had been suppressed for decades. MCI and Sprint challenged AT&T on long-distance pricing. New companies entered the equipment market with answering machines, cordless phones, and modems. The telecommunications infrastructure that would eventually carry the internet began to take shape in the competitive environment that the consent decree created. Several Baby Bells later merged back together, with Southwestern Bell eventually acquiring AT&T itself in 2005 and adopting the AT&T name. The monopoly was broken, reassembled in a different form, and the telecommunications landscape was permanently transformed in between.