United States v. AT&T (1982)

The United States District Court for the District of Columbia oversaw the proceedings for nearly a decade as AT&T and the Department of Justice formulated a plan to break up the company.^[8] In 1978, Judge Harold H. Greene, on his first day on the bench at the District Court, took over management of the case.^[9]

The Department of Justice announced in early 1982 that it had completed the development of its plan to break up AT&T.^[10] Judge Greene investigated this plan and issued a ruling to wrap up the U.S. v. AT&T proceedings. Greene cited evidence that the company had restricted connection of service offerings and devices from other companies to its landline network, had unfairly prioritized equipment manufactured by its Western Electric subsidiary, and had overcharged for long distance telephone calls.^[11] Greene then ruled that the plan to break up the company was consistent with various provisions of antitrust law, including the Sherman Act which allows government action against companies that abuse their market power, and the Tunney Act which enables government investigations of the effects of mergers and acquisitions.^[1]

The final plan for breaking up AT&T, which was originally in the form of a consent decree between the company and the Department of Justice, was called the Modification of Final Judgment and was signed off by AT&T Chief Executive Officer Charles L. Brown and Assistant Attorney General William F. Baxter.^[12][13] Judge Greene accepted the terms of this agreement in an addendum to his ruling in August 1982.^[1]

After Greene's ruling in August 1982, the AT&T corporate structure was divested into seven regional holding companies that became known as Regional Bell Operating Companies, or colloquially as "Baby Bells", which went into operation on January 1, 1984. Those companies inherited local landline telephone services for each region, while AT&T continued to exist as a long distance service provider at about 30% of its previous size.^[10] That version of AT&T was later acquired by one of the Baby Bells. Southwestern Bell; the new entity retained the AT&T name and the company evolved into the present multinational telecommunications firm known as AT&T.^[14]

The most obvious impact for consumers was the proliferation of new types of telephone equipment produced by myriad companies, including answering machines and designer handsets,^[15] while companies like Sprint and MCI offered competitive new options for long distance service.^[16] The Baby Bells were mostly successful and some of them merged with each other, resulting in the modern telecommunications companies Verizon^[17] and Lumen Technologies.^[18]

The divestiture of AT&T, and the actions by courts and regulatory agencies to achieve it, was the largest government action to reduce a corporation's market power in American history,^[19][20] and it is a dominant instance of the enforcement of American antitrust law.^[21][22] However, the results for the American telecommunications marketplace have been mixed. Some researchers praised the divestiture as an act of deregulation (of a natural monopoly) that enabled more competition,^[23][24] which in turn enabled the development of firms that could serve multiple sectors of the marketplace such as phones, computer networks, and cable television.^[25] On the other hand, further technological and financial developments in the telecommunications industry, such as the convergence of networks and services, have made the lessons of the divestiture unclear, as the marketplace is again dominated by an oligopoly of large firms.^[26][27][28]

The judicial process that enabled the AT&T divestiture is often cited as an instructive historical example in modern discussions about possibly breaking up the big tech firms that have gained market dominance in the 21st century.^[29][30]