Breakup of the Bell System

The breakup of the Bell System was mandated on January 8, 1982, by a consent decree providing that AT&T Corporation would, as had been initially proposed by AT&T, relinquish control of the Bell Operating Companies, which had provided local telephone service in the United States.^[1] This effectively took the monopoly that was the Bell System and split it into entirely separate companies that would continue to provide telephone service. AT&T would continue to be a provider of long-distance service, while the now-independent Regional Bell Operating Companies (RBOCs), nicknamed the "Baby Bells", would provide local service, and would no longer be directly supplied with equipment from AT&T subsidiary Western Electric.

This divestiture was initiated in 1974 when the United States Department of Justice filed United States v. AT&T, an antitrust lawsuit against AT&T.^[2] At the time, AT&T had substantial control over the United States' communications infrastructure. Not only was it the sole telephone provider throughout most of the country, its subsidiary Western Electric produced much of its equipment. Relinquishing ownership of Western Electric was one of the Justice Department’s primary demands.^[3]

Believing that it was about to lose the suit, AT&T proposed an alternative: its breakup. It proposed that it retain control of Western Electric, Yellow Pages, the Bell trademark, Bell Labs, and AT&T Long Distance. It also proposed that it be freed from a 1956 antitrust consent decree, then administered by Judge Vincent P. Biunno in the United States District Court for the District of New Jersey, that barred it from participating in the general sale of computers (retreat from international markets, relinquish ownership in Bell Canada, and Northern Electric a Western Electric subsidiary).^[4] In return, it proposed to give up ownership of the local operating companies. This last concession, it argued, would achieve the government's goal of creating competition in supplying telephone equipment and supplies to the operative companies. The settlement was finalized on January 8, 1982, with some changes ordered by the decree court: the regional holding companies received the Bell trademark, Yellow Pages, and about half of Bell Labs.

Effective January 1, 1984, the Bell System's many member companies were variously merged into seven independent "Regional Holding Companies", also known as Regional Bell Operating Companies (RBOCs), or "Baby Bells". This divestiture reduced the book value of AT&T by approximately 70%.