Does the AT&T breakup still matter 25 years on?

When AT&T grudgingly agreed to break itself up 25 years ago, it was seen as a truly momentous event in the history of the telecommunications industry. Today, however, some experts question not only whether the breakup of AT&T was necessary, but whether it even had any long-term impact on the telecom market.

The breakup deal forced AT&T to spin off its local divisions that would then become local exchange carriers, and in return AT&T was allowed to keep its long-distance services division.

(View slideshow of the changing shape of Ma Bell and the Baby Bells.)

However, the rise of wireless services as alternatives to landlines, as well as the entrance of cable companies such as Comcast and Time-Warner into the VoIP market, has led some to conclude that the breakup of Ma Bell is irrelevant to the current telecom market.

"The world that existed in 1984 no longer exists because of changes in technology," says Robert Crandall, a senior fellow of economics studies at the Brookings Institution. "The government had originally wanted to set up long-distance companies that would have provided us with lower long-distance rates. But separate long-distance companies are simply not viable now because of the advent of wireless and VoIP."

Click to see: Timeline of AT&T

Another reason that the breakup of Ma Bell has become increasingly irrelevant has been the mergers of many of the local phone companies, which has created a telecom industry that is far more consolidated than any of the breakup's advocates had anticipated. For instance, of the seven Baby Bells originally created by the AT&T breakup that became effective on Jan. 1, 1984, four of them -- Ameritech, BellSouth, Pacific Telesis and South Western Bell -- are now back under the AT&T umbrella. Of the remaining three, Verizon now owns what used to be Bell Atlantic and Nynex, while Qwest bought U.S. West back in 2000.

"The local phone companies have all merged now to the point where there are only three left and they operate in areas where they are huge regional fiefdoms," says Ben Scott, the policy director for Free Press. "We broke up a monopoly and it's basically reconstructed itself without the regulations that used to apply."

A question of innovation

But while technological innovation has made the old world of local landline carriers increasingly less relevant to modern telecommunications, there is still a question about whether breaking up Ma Bell has helped or hampered innovation in the telecommunications market. A. Michael Noll, a professor emeritus at the Annenberg School for Communication at the University of Southern California and a former researcher at Bell Labs, says that breaking up AT&T has actually been detrimental to the advancement of technology in the United States. In particular, he cites the negative impact that the breakup had on his former employer Bell Labs and its ability to innovate.

"The great industrial research labs from the past are pretty much gone," he says. "Bell Labs brought us cell phones, it brought us material science such as digital switching. During World War II you had a lot of innovations that came out of Bell Labs for radar and sonar technology. Today, there have been a lot of advances in existing technologies, but they seem to be incremental improvements in technologies rather than anything totally new."