Bell System divestiture

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The break up of AT&T was initiated in 1974 by the U.S. Department of Justice anti-trust 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 Bell Operating Companies (RBOCs) known as "Baby Bells". AT&T, reduced in value by about 70%, continued to run all its long distance services, although it lost some market share in the ensuing years to competitors MCI and Sprint.

Contents

1 RBOCs
2 ILECs
3 Effects
4 End of an era
5 Evolution of the RBOCs
6 Financial arbitrage
7 References
8 External link

RBOCs

Map of the original and current companies.

ILECs

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 ILEC, covering the Greater Cincinnati area; not an RBOC, so not included on the map to the right
SNET, the other ILEC that was not an RBOC, acquired by SBC in 1998 and renamed AT&T in 2005; covered Connecticut

Effects

The breakup led to a surge of competition in the long distance telecommunications market by companies such as Sprint, MCI, AT&T, BellSouth, Verizon, Qwest, and Equant. Four of these are "Baby Bells" or former competitors that have merged with the Baby Bells. The local telecommunications market has remained essentially a monopoly, with the incidental and short lived appearance of competitive telephone companies (CLECs) after the Telecommunications Act of 1996. AT&T's computer venture failed and the company became a shadow of its former self.

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 1982 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 - 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.

End of an era

In 2005, SBC Communications purchased AT&T, thus re-uniting the venerable phone company with three of its spinoffs (SBC was comprised 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 March 5, 2006, AT&T announced that it will merge with BellSouth, pending shareholder and government regulatory approval. The surviving company will be named AT&T, and will be headquartered in San Antonio with Atlanta retaining the headquarters for Cingular Wireless (which will switch to the AT&T Wireless name), as well as Southeast region telephone operations. If the merger is approved, it is assumed AT&T will not switch back to the Bell logo, thus ending usage of the Bell logo for corporate use by any of the Baby Bells. (Cincinnati Bell continues to use the logo; however, it is not considered an RBOC because it had been a minority holding of AT&T before 1984.) AT&T, from its days as SBC, already controlled 60 percent of Cingular Wireless, which had itself recently bought AT&T Wireless from the "old" AT&T. The other 40 percent is controlled by BellSouth, meaning the merger would unite the company under one corporate parent.

Evolution of the RBOCs

Financial arbitrage

Because of discrepencies 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]

References

External link

[Bell System Memorial]

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