Federal Agencies: Justice Department & the AT&T Divestiture

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On November 20, 1974, the United States Department of Justice (Justice Department or DOJ) filed an antitrust lawsuit against AT&T, also known as the American Telephone and Telegraph Company (“History" AT&T Antitrust"). The suit claimed that the company was inhibiting the advance of competition in the telecommunications industry and sought to increase its own monopoly power. The goal of the lawsuit was to divest AT&T from its operating companies, called BOCs, or regional diverse companies which serviced local and regional areas telephone needs across the U.S.; and to divest and dissolve Western Electric, the company’s manufacturing arm. After almost eight years of positioning, wrangling and maneuvering, the parties arrived at a settlement, where AT&T agreed to divest itself of its local phone companies. Further, AT&T was released from its 1956 Consent Decree with the Justice Department, which had prevented the company from entering unregulated areas of the market (“History" AT&T Antitrust"). Judge Harold Greene, presided over the antitrust case, one of his first case assignments, after being commissioned in 1978. The settlement was approved in 1982 with a few modifications by the judge, and the divestiture was implemented and completed by AT&T on January 1, 1984. The divestiture represented a landmark decision in the history of telecommunications, no less in the history of American business, generally. The judge required that the DOJ prepare a report on the communications industry and competition on a triennial basis (Yurcik).

The History of AT&T the DOJ and the FCC

 In 1949, the Justice Department filed a law suit against AT&T, on suspicions of the Federal Communications Commission (FCC), that the company was in violation of antitrust laws, and requested that Western Electric, the manufacturing component of the phone company, be divested ("A Brief History”). In 1956, AT&T conceded to a consent decree, agreeing to limit its involvement to common carrier services and projects related to the government. The company consented to limit its manufacturing efforts to specific products needed by the system, and assented to sharing its patent to any company that wanted it without charge ("A Brief History”).  

In 1971, the FCC issued a finding and order that communications would be regulated, data processing would be deregulated and those aspects that represented an amalgam of both components should be determined by the court (Pelkey). In 1974, the Justice Department, under the auspices of the Sherman Antitrust Act, filed its suit alleging that Western Electric and Bell Laboratories had conspired to create a monopoly. The Justice Department included each of the BOCs in their allegations and charged them with being co-conspirators. In 1980, the FCC issued a second finding and order that services would be aligned pursuant to basic services or enhanced services. Basic services would be regulated and enhanced services would be non-regulated. The FCC also established structural requirements for carriers that were considered major. In 1982, Judge Greene completed the Modified Final Judgment releasing AT&T from the 1956 Consent Decree, allowing the company to enter new, unregulated businesses and requiring the company to divest its BOCs (Yurcik).

In 1984, the largest divestiture in the history of the United States was complete, and AT&T was divided into eight unique businesses, Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, Southwestern Bell and U.S West (Yurcik). The regional businesses, which went through some permutations, were all ultimately acquired by either the new AT&T or Verizon. In 1987, the FCC prepared its triennial report (Bolter, McConnaughey and Kelsey). The Commission determined that the regional companies should be allowed to offer long-distance services, and have the ability to manufacture telephone equipment. Later that year, Judge Greene rendered his decision on the FCC’s recommendations. Some restrictions were eliminated but others were not. Regional companies were allowed to be the conduit for electronic information transmission, but they could not provide the services or content. In October of that year, some of the regional companies decided to appeal Judge Greene's decision. In December, Judge Green determined that the regional companies could not design or create their own equipment. In 1988, Judge Greene ordered that the regional companies could offer services like email and voice messaging, but could not provide information systems content or online Yellow Pages (Bolter, McConnaughey and Kelsey).

Legislation. In 1986 and 1987, Congress introduced a flurry of bills attempting to impact the telecommunications industry. They included the Telecommunications Equity Act of 1986, the Telecommunications Equipment and Information Services Act of 1987, the Telecommunications Policy Coordination Act of 1987, the Telecommunications Employees' Protection Act of 1987, and the Telecommunications Trade Act of 1987. The Telecommunications Equity Act of 1986, intended to allow the regional communications companies (RCCs) to offer information services and manufacture equipment under regulations. It was introduced by Senator Al Gore of Tennessee, but it did not make it through to enactment ("S. 2362 (99th)”). The Telecommunications Equipment and Information Services Act of 1987, sponsored by Thomas Tauke of Iowa, intended to allow RCCs to offer information services and manufacture equipment as long as doing so would not negatively impact customers or the industry in general ("H.R. 2030 (100th)”). The bill also intended to allow manufacturers to compete with their products, under the same restrictions. This bill did not include electronic publishing, due to concerns that the RCCs would monopolize the industry again. A board was created to monitor and safeguard against cross-subsidization, similar to what Western Electric had been doing previously. The bill was not enacted. The Telecommunications Policy Coordination Act of 1987 had the goal of improving executive branch policy creation. The bill was introduced by Representative Cardiss Collins of Illinois ("H.R. 323 (100th)”). The bill was ultimately not enacted. The Telecommunications Employees' Protection Act of 1987, introduced by Representative Allan Swift of Washington, was sponsored to provide re-employment rights for those who had lost their jobs due to the divestiture. Sadly, this bill was also part of the set of legislative efforts that failed to accomplish its intended goal ("H.R. 2828 (100th)”). The Telecommunications Trade Act of 1987 was established to promote international trade related to equipment and authorized the creation of trade agreements among nations ("S. 596 (100th)”).

The Impact of Divestiture on Competition

Robert Allen, who was the Chairman and CEO of AT&T at the time, said that the divestiture of the company was advantageous to the company and to America (Dresser). The system functions better as a result of the restructuring. Ten years after the antitrust dismantling of the Bell System, it is viewed as an iconic moment in the economic yesteryear of the country. AT&T’s signing of the consent decree ended the intricate regulatory scheme and ho hum business as usual of Ma Bell, and hurled the company into a marketplace of intense competition, fierce technological change and a need to be nimble, innovative and responsive. John Glynn, counsel who represents consumers before the Maryland Public Service Commission, said, in 1993, that the breakup was one of the most immense tales of the preceding twenty five years, because of the impact that it had on everyone’s lives. Much was made of the fact that long distance rates have plummeted since 1984, and no one has been the benefactor of this plunge more than the business world. Not all consumers, however, were in love with all the choices, at least initially. It required some getting used to. Sometimes it is better to have a more concise menu of options than a smorgasbord. There were numerous confused consumers. There was an amazing increase in new services, but no one knew what the new services actually were. One reactor, ten years after the divestiture felt confused about where to go when something needed to be fixed, the resulting phone bills made things a bit confusing regarding precisely who was responsible for what (Dressler). Some consumers were disturbed by the increase in residential costs. Essentially, long distance rates went down and local rates went up. Of course there are those that disagree with this. Bruce Kushnick, a telecommunications consultant, suggested that local charges increased by 315 percent between 1980 and 1992, if new charges are taken into the mix, Kushnick said, that we basically simply switched monopolies, one for the other. Mike Raimondi, a Boston economist, said that long distance rates stopped their decline in 1990, and that the Big Three at the time, AT&T, MCI and Sprint, are simply a “complacent oligopoly . . . if AT&T raises prices, MCI and Sprint feel comfortable in raising prices, too” (Dressler). Nicholas Johnson, a former member of the FCC, said that the people who have suffered the most are the elderly. Those with fixed income and constrained means, their local rates increased, no longer subsidized by the long distance callers. But the highest price was paid by people like Lee Esther Johnson, from Northeast Baltimore. Ms. Johnson lost her job working at the factory in 1984, when Western Electric closed its doors (Dressler). 

What Happened to Ma Bell’s Babies?

After the 1994 divestiture of Ma and her Baby Bells, local service continued to be regulated until 1996 ("Baby Bells"). At this time, the Telecommunications Act of 1996 (Act) was introduced and passed by Congress. After the new legal scheme, the Baby Bells started to consolidate, becoming a confusing time for all attempting to follow what was happening. The Act also allowed for the approval of the provision of long distance service by the local companies. In 1998, Ameritech merged with CenturyTel becoming CenturyTel of the Midwest-Kendall. SBC Communications (formerly Southwestern Bell Corporation until changing to its acronym in 1995) bought Pacific Telesis, Southern New England Telecommunications, and Ameritech, becoming the largest local phone enterprise during this period. AT&T Corporation, once the parent company, was acquired by SBC and renamed itself to AT&T Inc.. AT&T Inc. then acquired BellSouth ("Baby Bells"). 

Bell Atlantic and NYNEX combined using the name Bell Atlantic ("Baby Bells"). The company later merged with GTE, which was not a Bell company, and created Verizon Communications in 2000. The new Verizon sold its wirelines in the northern part of New England to Fairpoint Communications, creating Northern New England Telephone Operations. The Vermont component was eventually split becoming the Telephone Operating Company of Vermont, still part of Fairpoint. Verizon then sold numerous access lines in a number of states to Frontier Communications, including Verizon West Virginia, which at one time was called The Chesapeake and Potomac Telephone Company of West Virginia ("Baby Bells").

Qwest bought US West in June and was thereafter purchased by CenturyLink ("Baby Bells"). This meant that Qwest Corporation, formerly Mountain Bell, became part of its holdings. AT&T, Inc. became headquartered in Dallas, Texas. Bedminster, New Jersey is the home of AT&T Global Network Operation Center, the provider and of AT&T Bedminster was the original home of AT&T pre-divestiture ("Baby Bells").

After divestiture, on January 1, 1984, AT&T woke up the next day a leaner version of itself and forever changed in the annals of history. The biggest corporation in American history shed its Bell Operating Companies and settled the largest antitrust lawsuit of its kind in the nation.

Works Cited

"A Brief History: The Bell System." AT&T. <http://www.corp.att.com/history/history3.html>.

"Baby Bells." Historical Stock Info. n. d. Web. 22 August 2016. <http://historicalstockinfo.com/chart.html>.

Bolter, Walter G, McConnaughey,  James W. and Kelsey, Fred J. Telecommunications Policy for the 1990s and Beyond. New York: M.E. Sharpe (Taylor and Francis), 1990 Print. 

Dresser, Michael. "10 years after divestiture by AT&T, Baby Bells and competitors flourish Breaking up HARD to do BELL BREAKUP: 10 YEARS LATER." The  Baltimore Sun. 26 December 1993. Web. 15 August 2016. <http://articles.baltimoresun.com/1993-12-26/business/1993360162_1_breakup-divestiture-american-telephone>.

"History" AT&T Antitrust." Cybertelecom. n. d. Web. 22 August 2016.

<http://www.cybertelecom.org/notes/att_antitrust.htm>.

"H.R. 2030 (100th): Telecommunications Equipment and Information Services Act of 1987." GovTrack. n. d. Web. 22 August 2016. <https://www.govtrack.us/congress/bills/100/hr2030>.

"H.R. 2828 (100th): Telecommunications Employees’ Protection Act of 1987." GovTrack. n. d. Web. 22 August 2016. <https://www.govtrack.us/congress/bills/100/hr2828>.

"H.R. 323 (100th): Telecommunications Policy Coordination Act of 1987." GovTrack. n. d. Web. 22 August 2016. <https://www.govtrack.us/congress/bills/100/hr323>.

Pelkey, James. "Data Communications: Market Competition 1969-1972 Modems and Multiplexers." A History of Computer Communications 1968-1988. n. d. Web. 22 August 2016. <http://www.historyofcomputercommunications.info/Book/3/3.8ATTComputerInquiry70-71.html>.

"S. 2362 (99th): Telecommunications Equity Act of 1986." GovTrack. n. d. Web. 22 August 2016. <https://www.govtrack.us/congress/bills/99/s2362>.

"S. 596 (100th): Telecommunications Trade Act of 1987." GovTrack. n. d. Web. 22 August 2016. <https://www.govtrack.us/congress/bills/100/s596>.

Yurcik, William. "Judge Harold H. Greene: A Pivotal Judicial Figure in Telecommunications Policy and His Legacy." ETHW. n. d. Web. 22 August 2016. <http://ethw.org/images/1/1d/Yurcik.pdf>.