It was 30 years ago yesterday - Jan. 8, 1982 - that AT&T agreed under extreme antitrust duress to divest itself of seven Regional Bell Operating Companies, the so-called Baby Bells.
The bust-up would take effect two years later, and the telecommunications industry would never be the same, despite the fact that a fully grown Baby Bell, SBC, went on to acquire AT&T in 2005 and three others would be returned to the nest. In exchange for agreeing to divest, AT&T was allowed to enter the computer business through AT&T Computer Systems, products of which you'll have a hard time finding at your local Best Buy today.
Having been under Justice Department pressure since 1974, AT&T on that date in early '82 finally agreed to divest its local telephone service companies: Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, Southwestern Bell and U.S. West. (Pop quiz: Where is each today? Answers at the bottom of this post.) In a photo from AT&T's Web site, below, Assistant Attorney General William Baxter and then AT&T CEO Charles L. Brown can be seen shaking hands after announcing the historic breakup agreement.
Brown admits that his deal with the Government was a retreat from AT&T's longtime resistance to a breakup. "Divestiture was not our idea," he says, "and we think it is wrong from the standpoint of the country's interests." But the alternative seemed bleaker: "Time was not on our side. The Government's determination to restructure the Bell System would have gone on for years, draining our energy and preventing us from planning our own future." Rather than cling to the past, Brown was eager to get on with the "exciting" task of building the new AT&T.
In the years since, books have been written about the agreement, of course. A Business Week cover story from 1999 - published at the height of Microsoft's antitrust trouble -- took a look back at the catastrophic predictions of adverse consequences that preceded the AT&T breakup:
Breaking up is not always bad. Defense Secretary Caspar W. Weinberger argued strenuously in 1981 that the Justice Dept. should drop its suit against AT&T because the military needed a single, integrated communications network. Arno A. Penzias, a Nobel laureate at Bell Laboratories, testified that the world-class labs would become a ''sinking ship'' if AT&T were broken up. Former AT&T CEO Robert E. Allen, who was a high-ranking Bell System executive in 1982, recalls that ''people were crying in the hallways'' after the settlement was announced.
The breakup created an array of choices that consumers still find confusing. But it's widely agreed that it lowered long-distance prices and stimulated innovation. The companies created out of the Bell System, including those since swallowed up, are worth about $810 billion today, vs. $59 billion before the breakup. That 1,300% gain compares to a market-cap rise of just 140% for IBM over the same period.
Penzias says the breakup got Bell Labs focused on customers: ''They still create jewels, but more of them are made into jewelry,'' he says. Weinberger, now chairman of Forbes Inc., hasn't decided whether the breakup was good, but says that the U.S. is ''back again where we do have reliability established.''
In 2009, the Internet Society's New York Greater Metropolitan Area Chapter conducted a conference entitled: "Has Divestiture Worked?" featuring a trio of panels that those with three-and-a-half hours to spare can see on YouTube here, here and here.
And here are the quiz answers, via Wikipedia: Ameritech was acquired by SBC in 1999, now part of the AT&T; Bell Atlantic was acquired GTE in 2000 and changed its name to Verizon; BellSouth was acquired by AT&T in 2006; NYNEX was acquired by Bell Atlantic in 1996, now part of Verizon; Pacific Telesis was acquired by SBC in 1997, now part of the AT&T; Southwestern Bell changed its name to SBC in 1995, acquired AT&T Corp. in 2005 and changed its name to AT&T Inc.; U.S. WEST was acquired by Qwest in 2000 and Qwest was acquired by CenturyLink last year.
I'm sure you got them all.
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