stroyed or acquired by AT&T (also known as the Bell
system).
In the wake of this development, which was miti-
gated only slightly by federal antitrust prosecution,
state and federal laws were passed to regulate the
telephone industry. This regulation limited the
prices AT&T could charge for local and long-
distance service, but it also largely protected the
company from new competition. Beginning in 1934,
the Federal Communications Commission (FCC)
was created to oversee the federal regulations.
When the FCC began to encourage competition
for the long-distance market in the 1970’s, AT&T re-
sponded by delaying and often refusing to intercon-
nect competitors’ equipment and long-distance
calls with its own system, effectively preventing cus-
tomers from placing and receiving phone calls using
any equipment or any services other than those of
AT&T. In response, in 1974, the Antitrust Division of
the U.S. Department of Justice once again sued
AT&T for violating antitrust laws. AT&T fought the
case tooth and nail. For four years, the company
filed motion after motion, claiming that it was either
exempt from the antitrust laws or subject to the ex-
clusive jurisdiction of the FCC and not the courts. All
of these attempts to end the case were unsuccessful.
Finally, in 1978, the parties began discovery, the pre-
trial exchange of documents and the taking of state-
ments under oath from witnesses.
In 1981, the most important antitrust trial since
the Standard Oil case of 1911 finally began. By 1982,
most observers believed that the government was on
the verge of winning a dramatic victory. Seeing the
handwriting on the wall, AT&T settled the case,
agreeing to a voluntary breakup. Under the settle-
ment, the company would have eighteen months to
spin off all regulated local phone services into seven
new, independent companies dubbed the “Baby
Bells.” The Baby Bells would be prohibited from en-
tering the long-distance telephone business until
such time as they could demonstrate that they faced
significant competition for local phone service.
The new AT&T would be a much smaller com-
pany, consisting of the long-distance, equipment,
and research portions of the old Bell system. It
would be allowed, however, to enter new unregu-
lated markets without prior court approval. In 1984,
the Baby Bells were created through a multibillion-
dollar stock sale to the public, and the new American
telecommunications system was born. Judge Harold
Greene of the U.S. District Court for the District of
Columbia, the judge who presided over the trial,
also oversaw the administration of the settlement
agreement and arbitrated the many disputes that
arose for the next twelve years, until the U.S. Con-
gress eventually passed the Telecommunication Act
of 1996, setting new rules governing both regula-
tion and competition in the telecommunications in-
dustry.Impact The breakup of AT&T into the seven Baby
Bells and a new, unregulated AT&T changed every-
thing about the American telephone industry. It re-
introduced competition into the industry, although
little new competition was created for local tele-
phone service until the introduction of cell phones
and the beginning of Internet phone service. Per-
haps more important, the breakup meant that the
nation’s telecommunications infrastructure was in
multiple hands. Beginning in the 1980’s, a customer
in one region seeking to place a long-distance call to
another region necessarily sent signals through mul-
tiple companies’ equipment. As a result, standards
had to be adopted and maintained that allowed the
various companies effectively to interconnect their
systems.Subsequent Events Over the years following the
breakup, many of the Baby Bells were allowed to
merge and reenter the long-distance communica-
tions market. Ironically, the competition from these
matured Baby Bells proved to be more than AT&T
could take: In 2005, it was announced that one of the
most powerful Baby Bells, SBC Communications,
would purchase AT&T for $16 billion. Because the
latter company had the more recognizable name,
SBC renamed itself AT&T after the merger was com-
pleted.Further Reading
The AT&T Breakup: 20 Years of Confusion. Avail-
able at http://consumeraffairs.com/news04/
att20.html. Consumer-oriented history of the
breakup’s aftermath.
Benjamin, Stuart Minor, et al.Telecommunications
Law and Policy. 2d ed. Durham, N.C.: Carolina Ac-
ademic Press, 2006. Details both the law govern-
ing U.S. telecommunications and the public pol-
icy decisions behind it.
Forest, Herbert E.After the AT&T Settlement: The New
Telecommunications Era. New York: Practising LawThe Eighties in America AT&T breakup 79