AT&T Monopoly Broken: End of Bell System Era

The largest corporation in the world ceased to exist at midnight on December 31, 1983, when the American Telephone and Telegraph Company completed the court-ordered breakup of the Bell System, divesting itself of its twenty-two local telephone operating companies and ending a monopoly that had controlled American communications for over a century. The dismantling of AT&T was the most significant antitrust action since the breakup of Standard Oil in 1911 and reshaped the telecommunications industry in ways that made the modern internet possible. The Bell System traced to Alexander Graham Bell 1876 patent. AT&T controlled long distance, Bell operating companies handled local service, Western Electric manufactured equipment, and Bell Labs conducted research. A single corporation controlled every aspect of American telephony. Customers could not even own their telephones; they rented from AT&T. The Justice Department had pursued antitrust action intermittently since 1949. The case filed in 1974 alleged AT&T used its local network control to exclude competitors from long-distance and equipment markets. After eight years of litigation, AT&T chairman Charles Brown agreed to a consent decree, known as the Modification of Final Judgment, that required the company to divest its local operating companies in exchange for permission to enter the computer business, which had been prohibited under a previous agreement. The breakup created seven independent Regional Bell Operating Companies, immediately dubbed the "Baby Bells," which controlled local telephone service. AT&T retained long-distance service, Western Electric, and Bell Labs. The immediate effect was confusion and rising rates. But the competitive market produced an explosion of innovation. MCI and Sprint drove long-distance prices down 90 percent. The deregulated environment enabled internet providers, mobile carriers, and the broadband infrastructure underpinning the digital economy.