AT&T's Successful Spinoffs

AT&T has a storied history reaching back to 1885, and it was highly profitable as a legal monopoly. But, charges were filed against the firm, which was also known as Ma Bell, under the Sherman Antitrust Act in the 1970s, which led to the breakup of the Bell System. Under a settlement reached in 1982, AT&T was allowed to keep its long-distance service. In 1984, the company's local telephone service was broken up into seven Baby Bells as part of the agreement.

The Lawsuits

AT&T (T) successfully defended itself in several previous antitrust lawsuits. The firm reached agreements with the U.S. government in 1913 and 1956, which allowed it to avoid a breakup during most of the century. However, AT&T had to stay out of other businesses as part of the 1956 agreement. That limited the company's ability to use bundling to spread its monopoly to other industries.

The final case began in 1974, and it was decided against AT&T in 1982. The Baby Bells were finally spun off from Ma Bell in 1984, and they inherited AT&T's local phone service business. The parent company held on to its long-distance service and was allowed to move into computers and other industries.

Benefits of the Breakup

AT&T's breakup produced immediate benefits for consumers. For many decades, AT&T did not allow users to connect phones manufactured by other firms. It claimed these phones could degrade the quality of the network. AT&T also wouldn't sell its phones to consumers, so everyone had to rent them.

The Baby Bells controlled the direct connections to consumers after the breakup, and they dropped these restrictions. There was soon a thriving market to sell phones to consumers. Phone prices dropped, quality increased, and renting phones faded away.

The other significant benefit of the breakup of AT&T was competition in long-distance phone service. The Baby Bells allowed consumers to choose among long-distance carriers. Companies like MCI and Sprint (S) challenged AT&T in this market. As competition and technology progressed, long-distance charges fell. In 2006, long-distance charges for calls within the U.S. were eliminated. However, per-minute charges were still common for calling foreign countries.

Criticism of the Breakup

The strongest criticism of the breakup is that it may have delayed high-speed internet for many consumers. In the early days of the internet, speeds were kept low by the need to use the local phone lines of the Baby Bells. As monopolies within their service areas, the Baby Bells were often slow to upgrade their lines.

AT&T was very aggressive in adopting internet technology, and it was highly regarded as an internet service provider in the 1990s. If AT&T kept control of local phone lines, many consumers might have gained access to high-speed internet connections earlier. Many of the Baby Bells delayed moving into internet technology, leaving much of the data service market to cable providers and wireless services.

Another criticism of the breakup is that it was simply unnecessary. The main argument was that cable companies and wireless providers would ultimately have created competition for AT&T. The fact that many of the Baby Bells were later reintegrated into a single company also supports the view that the breakup was unnecessary.

The Aftermath of the Breakup

The Baby Bells proved to be some of the most successful spinoffs in history. AT&T had already paid for the infrastructure, and their businesses were established and producing cash from day one.

The government loosened telecommunications restrictions, and the Baby Bells began to merge and buy out each other to increase their service areas. By 2014, most of the Bells were together again as a single company called AT&T.

As of 2024, AT&T is still a telecommunications giant, led by its mobile and fixed telephone services. It made a big move into the media space, acquiring DIRECTV in 2015 and Time Warner in 2018. It then turned around and sold both companies in 2022 and 2024 to focus on its core businesses. However, with the growing trend towards cord-cutting as well as the costs associated with servicing the debt from these two acquisitions, they proved to be ill-conceived, and AT&T has since spun off both.

The Bottom Line

AT&T has millions of customers, including consumer wireless customers and businesses that use the company's internet and networking services. But many people aren't aware of the company's beginnings and troubled past. Antitrust lawsuits led to a big breakup and the spinoff of the Baby Bells, only to have most of them reincorporated into what we know as AT&T today.