Bell System divestiture

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The break up of AT&T was initiated in 1974 by the U.S. Department of Justice antitrust suit against the telephone monopoly. Under the terms of a settlement finalized on January 8, 1982, "Ma Bell" agreed to divest its local exchange service operating companies, in return for a chance to go into the computer business, AT&T Computer Systems. Effective January 1, 1984, AT&T's local operations were split into seven independent Regional Holding Companies, also known as Regional Bell Operating Companies (RBOCs), or "Baby Bells". Afterwards, AT&T, reduced in value by approximately 70%, continued to operate all of its long-distance services, although in the ensuing years it lost portions of its market share to competitors such as MCI and Sprint.

1 Regional Bell Operating Companies (RBOCs)
2 Non-RBOC Bell System members
3 Effects
4 End of an era
5 Evolution of the RBOCs
6 Financial arbitrage
7 See also
8 External links

[edit] Regional Bell Operating Companies (RBOCs)

Map of the original and current companies.

[edit] Non-RBOC Bell System members

The only difference between these two incumbent local exchange carriers (ILECs) and the seven divested Baby Bells (RBOCs) was that AT&T owned only a minority interest in these ILECs as opposed to owning them outright before the breakup. Both were monopolies in their coverage areas much like the RBOCs.

Cincinnati Bell, the only remaining former Bell System member not owned by a Baby Bell, covering the Greater Cincinnati area; it is not included on the map to the right as it is not owned by a Baby Bell.
SNET, the other non-RBOC Bell System member, was acquired by SBC in 1998 and rebranded as AT&T in 2005; it covered Connecticut.

[edit] Effects

The breakup led to a surge of competition in the long distance telecommunications market by companies such as Sprint and MCI. AT&T's gambit in exchange for its divestiture, AT&T Computer Systems, failed, and after spinning off its manufacturing operations and other misguided acquisitions such as NCR and AT&T Broadband, it was left with only its core business with roots as AT&T Long Lines and its successor AT&T Communications. It was at this point that AT&T was purchased by one of its own spin-offs, SBC Communications, which started as Southwestern Bell, and proceeded to buy two other RBOCs, a former AT&T associated operating company, AT&T itself, then another RBOC. See AT&T for details.

Humorous Cartoon making fun of the split up of the Bell System

One negative outcome of the breakup is that local residential service rates, which were formerly subsidized by long distance revenues, have been forced to rise faster than the rate of inflation. Long-distance rates, meanwhile, have fallen due to the increased competition. The FCC established a system of access charges where long distance networks paid the more expensive local networks both to originate and terminate a call. In this way, the implicit subsidies of Ma Bell became explicit post-divestiture. These access charges became a source of strong controversy as one company after another sought to arbitrage the network and avoid these fees. In 2002 the FCC declared that Internet service providers would be treated as if they were local and would not have to pay these access charges. This led to VoIP service providers arguing that they did not have to pay access charges, resulting in significant savings for VoIP calls. The FCC has recently been split on this issue; VoIP services that utilize IP but in every other way look like a normal phone call generally have to pay access charges, while VoIP services that look more like applications on the Internet and do not interconnect with the public telephone network do not have to pay access charges.

[edit] End of an era

In 2005, SBC Communications purchased AT&T Corp., thus reuniting the venerable phone company with three of its spinoffs (SBC was composed of Southwestern Bell, Pacific Telesis, and Ameritech). The merger was completed on November 18, 2005. The merged company is named AT&T Inc. Additionally, on December 29, 2006, AT&T purchased BellSouth, another AT&T Corp. spinoff.

AT&T Inc. is headquartered in San Antonio, the same as when it was previously named SBC Communications. Atlanta is the location of the headquarters for Cingular Wireless, which was renamed AT&T Mobility after the merger with BellSouth, as well as Southeast region telephone operations. The new AT&T Inc. lacks the vertical integration that characterized the historic AT&T Corp. and led to the Department of Justice antitrust suit.

AT&T Inc. announced it would not switch back to the Bell logo^{[citation needed]}, thus ending usage of the Bell logo for corporate use by any of the Baby Bells with the exception of Malheur Bell and on payphones, hats, and company repair trucks by Verizon.

[edit] Evolution of the RBOCs

[edit] Financial arbitrage

Because of discrepancies between the pricing of the "old" AT&T shares and the new "when-issued" shares, investors were able to make risk-free profits, most spectacularly Edward O. Thorp, who made $2.5 million in what was at the time the NYSE's largest (nominal) block trade:description of arbitrage