AT&T Split Into 8 Companies on Jan. 1, 1984, the Largest Breakup in Antitrust History
AT&T kept long distance, its Western Electric equipment factories and its Bell Labs research facility
This article summarizes several of the key points in Lesson 12: The Divestiture of AT&T, which is part of Broadband Breakfast's online course, "150 Years of American Telecommunications." A new lesson will be released every Monday.
The telephone company AT&T began 1984 with less than a third of what it had owned.
On Jan. 1, seven new regional companies took over the 22 local Bell telephone companies AT&T had run. The press nicknamed them the Baby Bells.
Each Baby Bell served a region of the country. NYNEX took New York and New England, Bell Atlantic took the mid-Atlantic states and BellSouth took the Southeast. Ameritech took the Midwest, Southwestern Bell took five states from Texas to Missouri, U S West took 14 Mountain and Northwestern states, and Pacific Telesis took California and Nevada.
AT&T's own assets fell from roughly $150 billion to $34 billion. Its workforce fell from just over one million people to 373,000.
The breakup came from a consent decree, a settlement that a federal court approves and then enforces. The decree "brought the largest dissolution in American antitrust history," the former Justice Department antitrust chief Thomas Kauper wrote in a 2009 retrospective. Kauper ran the department's Antitrust Division when it sued AT&T in 1974.
The path to the breakup
AT&T had sold nearly all American long-distance service for decades. The first challenge came from a request to build radio towers.
In 1963 the Illinois two-way-radio salesman Jack Goeken sought permission to build microwave towers between Chicago and St. Louis. The towers would relay calls by radio from one station to the next, bypassing AT&T's wires. His company, Microwave Communications Inc., became known as MCI.
After six years of opposition from AT&T, the Federal Communications Commission, the federal telephone regulator, approved the application on Aug. 13, 1969. The vote was 4 to 3.
The license covered only private lines, dedicated circuits that a business rents between two points. In 1975 MCI began selling Execunet, a dial-up service that let any customer place ordinary long-distance calls over MCI's network. The commission ordered it stopped.
On July 28, 1977, the U.S. Court of Appeals for the D.C. Circuit overturned the commission's order. The ruling opened ordinary long-distance calling to a competitor for the first time.
AT&T settled by choosing which half of itself to keep
On Nov. 20, 1974, the Justice Department sued AT&T in federal court in Washington, calling it "the world's largest privately owned corporation." The suit also named Western Electric, AT&T's equipment manufacturer, and Bell Labs, the research division the two companies owned jointly.
AT&T held more than $67 billion in assets, according to the department's announcement. Its local subsidiaries supplied more than 80 percent of the nation's telephones and took part in handling more than 90 percent of interstate calls.
The complaint charged the companies with monopolizing telephone service and equipment, a violation of Section 2 of the Sherman Act, the core federal antitrust law since 1890. That section bars a company from keeping monopoly power by shutting out competitors.
Government lawyers sought divestiture, a court order splitting up the Bell System, as AT&T and its subsidiaries were known. The department asked the court to separate Western Electric from AT&T and to separate some or all of the local companies from Long Lines, AT&T's long-distance department.
AT&T later tested a smaller deal in which it would buy less equipment from Western Electric and stay whole. "This case is going to be a severed limbs case," the Justice Department lawyer Ken Anderson told AT&T's lawyers after taking over the case in 1977. The exchange appears in The Deal of the Century, a 1986 history of the case by the journalist Steve Coll.
The case was reassigned on June 21, 1978 to Judge Harold Greene of the federal district court in Washington, according to a timeline from the Bell System Memorial, a historical archive of the company. The trial opened on Jan. 15, 1981.
After the government rested, AT&T moved to dismiss the case, and Greene refused on Sept. 11, 1981. The evidence showed "that the Bell System has violated the antitrust laws in a number of ways over a lengthy period of time," he wrote.
AT&T settled four months later. On Jan. 8, 1982, the company's chairman, Charles L. Brown, and the government's antitrust chief, William F. Baxter, announced the terms, according to a history of the case by the Federal Judicial Center, the federal courts' research agency.
AT&T would give up its 22 local operating companies and keep long distance, Western Electric and Bell Labs. The deal also canceled a 1956 consent decree that had confined AT&T to regulated telephone service, freeing the company to sell computers.
AT&T's leaders feared harsher terms from Congress, the judicial center's history says, citing a House bill from Rep. Tim Wirth, a Colorado Democrat. The Senate had already passed its own telecommunications rewrite, S. 898, by a vote of 90 to 4 in October 1981. Settling let the company choose the half it kept.
The settlement still needed a judge's approval under the Tunney Act, a federal law requiring courts to find an antitrust settlement in the public interest. After months of public comment, Greene ordered changes that left the Yellow Pages directories with the departing local companies and barred AT&T from electronic publishing over its own lines for seven years.
On Aug. 11, 1982, Greene approved the amended decree, and the case was dismissed on Aug. 24. The decree's formal name, the Modification of Final Judgment, reflected that it rewrote the 1956 decree.
Regional companies kept the local wire
Each regional company kept a regulated monopoly on local phone service in its states. The line into the house stayed a one-company market almost everywhere until 1996, when the Telecommunications Act, a rewrite of federal communications law, opened local service to rivals.
The regional companies then merged with one another and with their former parent. Southwestern Bell renamed itself SBC in 1995. It bought AT&T in 2005 for $16 billion and took the AT&T name.
Bell Atlantic merged with the independent phone company GTE in 2000 to form Verizon. Verizon bought MCI in 2006.
Panelists at a Broadband Breakfast event on Oct. 1, 2026 divided over what the breakup achieved. One side credited it with putting the local wire and the businesses that depended on it under separate owners.
The breakup "eliminated vertical integration through structural separation," said Gigi Sohn, executive director of the American Association for Public Broadband, a community-network trade group.
The counterexample is Canada, which kept its telephone monopolies whole, the Columbia University economist Eli Noam argued. Canada "didn't divest anything, and they ended up pretty much in the same place as the U.S. did," he said.
Lesson 12 also examines AT&T's 1974 disconnection of MCI's customers. Lesson 13 explains how AT&T let cellular service pass to the regional companies, and Lesson 20 covers the 1996 Telecommunications Act.
