AT&T Divestiture

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AT&T DIVESTITURE. American Telephone and Telegraph (AT&T) was the largest company in the world for most of the twentieth century, with $75 billion in assets and more than a million employees. Unlike other corporations, AT&T was a regulated monopoly; the government allowed it to operate without competitors in return for high-quality, universal service.

Despite the success of the Bell System, which provided the world's best telephone service, competitors, state regulators, legislators, and the federal government conspired to break it up. AT&T faced constant regulatory scrutiny, but the alliance between the company and regulators was never formal enough. Many of the relationships rested on faith and personal assurances, even after the Federal Communications Commission (FCC) was created to regulate telecommunications. The FCC gradually permitted competition, while technology hastened the process. By the end of the 1970s, most sectors of telecom were on the way to becoming fully competitive.

Advanced technology made it impossible to adhere to the structure that shaped the industry for so long. No regulatory body could keep pace. Computer switching equipment, satellite communications, and fiber optics made it simpler and less expensive for companies to enter the market. The regulated monopoly seemed like an anachronism and an enemy of the free-market economy.

In 1974, the government filed an antitrust suit. AT&T officials believed that the antitrust actions were unfair, since the Bell System operated under regulatory statutes fundamentally incongruous with antitrust law. Essentially, AT&T resented being punished for observing its regulatory charter. The FCC clearly did not understand the forces it had set in motion. The commission attempted to make incremental changes without adequately considering the long-term impact the decisions would have.

In March 1981, United States v. AT&T came to trial under Assistant Attorney General William Baxter. AT&T chairman Charles L. Brown thought the company would be gutted. He realized that AT&T would lose and, in December 1981, resumed negotiations with the Justice Department. Reaching an agreement less than a month later, Brown agreed to divestiture—the best and only realistic alternative. AT&T's decision allowed it to retain its research and manufacturing arms. The decree, titled the Modification of Final Judgment, was an adjustment of the Consent Decree of 14 January 1956. Judge Harold H. Greene was given the authority over the modified decree.

The government's antitrust suit, supposedly protected from political maneuvering, turned out to be wholly political, and it was political reasons that kept President Reagan from ending the suit. Dismissing the antitrust case would have generated bad publicity and started a partisan fight between Congress and the president. Since there was simply no easy way for the Reagan administration to end the case, it did not act. The lack of Congressional control over telecom helped competitors enter the market. No single agency had authority over the entire process, so the breakup occurred, despite widespread political support.

In 1982, the U.S. government announced that AT&T would cease to exist as a monopolistic entity. On 1 January 1984, it was split into seven smaller regional companies, Bell South, Bell Atlantic, NYNEX, American Information Technologies, Southwestern Bell, US West, and Pacific Telesis, to handle regional phone services in the U.S. AT&T retains control of its long distance services, but was no longer protected from competition.


Cohen, Jeffrey E. The Politics of Telecommunications Regulation: The States and the Divestiture of AT&T. Armonk, N.Y: M.E. Sharpe, 1992.

Cole, Barry G., ed. After the Breakup: Assessing the New Post-AT&T Divestiture Era. New York: Columbia University Press, 1991.

Coll, Steve. The Deal of the Century: The Breakup of AT&T. New York: Simon and Schuster, 1988.

Henck, Fred W., and Bernard Strassburg. A Slippery Slope: The Long Road to the Breakup of AT&T. New York: Greenwood Press, 1988.

Kleinfield, Sonny. The Biggest Company on Earth: A Profile of AT&T. New York: Holt, Rinehart, and Winston, 1981.

Shooshan, Harry M., ed. Disconnecting Bell: The Impact of the AT&T Divestiture. New York: Pergamon Press, 1984.

Smith, George David. The Anatomy of a Business Strategy: Bell, Western Electric, and the Origins of the American Telephone Industry. Baltimore: Johns Hopkins University Press, 1985.

Stone, Alan. Wrong Number: The Breakup of AT&T. New York: Basic Books, 1989.

Tunstall, W. Brooke. Disconnecting Parties: Managing the Bell System Break-Up, An Inside View. New York: McGraw-Hill, 1985.

Wasserman, Neil H. From Invention to Innovation: Long-distance Telephone Transmission at the Turn of the Century. Baltimore: Johns Hopkins University Press, 1985.


See alsoAntitrust Laws ; Government Regulation of Business ; Telecommunications ; Trusts .