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The Bell System divestiture, or the breakup of AT&T, was initiated by the filing in 1974 by the U.S. Department of Justice of an antitrust lawsuit against AT&T. The case, United States v. AT&T, led to a settlement finalized on January 8, 1982, under which "Bell System" 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 Holding Companies, also known as Regional Bell Operating Companies (RBOCs), or "Baby Bells". Afterwards, AT&T, reduced in value by approximately 70%, continued to operate all of its long-distance services, although in the ensuing years it lost portions of its market share to competitors such as MCI and Sprint.
The 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.
The breakup led to a surge of competition in the long distance telecommunications market by companies such as Sprint and MCI. AT&T's gambit in exchange for its divestiture, AT&T Computer Systems, failed, and after spinning off its manufacturing operations (most notably Western Electric, which became Lucent, now Alcatel-Lucent) and other misguided acquisitions such as NCR and AT&T Broadband, it was left with only its core business with roots as AT&T Long Lines and its successor AT&T Communications. It was at this point that AT&T was purchased by one of its own spin-offs, SBC Communications, the company that had also purchased two other RBOCs and a former AT&T associated operating company (Ameritech, Pacific Telesis, and SNET), and that later purchased another RBOC (BellSouth).
One consequence 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 both to the end of this subsidy and 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 2002 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, while 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.
Another consequence of the divestiture was in how both national broadcast television (i.e. ABC, NBC, CBS, PBS) and radio networks (NPR, Mutual, ABC Radio) distributed their programming to their local affiliate/member stations. Prior to the breakup, the broadcast networks relied on AT&T Long Lines' infrastructure of terrestrial microwave relay, coaxial cable, and, for radio, broadcast-quality leased line networks to deliver their programming to local stations. However, by the mid-1970s, the then-new technology of satellite distribution offered by other companies like RCA Astro Electronics and Western Union with their respective Satcom 1 and Westar 1 satellites started to give the Bell System competition in the broadcast distribution field, with the satellites providing higher video & audio quality, as well as much lower transmission costs.
However, the networks stayed with AT&T (along with simulcasting their feeds via satellite through the late 70s to the early 80s) due to some stations not being equipped yet with earth station receiving equipment to receive the networks' satellite feeds, and also due to the broadcast networks' contractual obligations with AT&T up until the breakup in 1984, when the networks immediately switched to satellite exclusively. This was due to several reasons: the much cheaper rates for transmission offered by satellite operators that were not influenced by the high tariffs set by AT&T for broadcast customers, the split of the Bell System into separate RBOCs, and the end of contracts that the broadcast companies had with AT&T.
Following divestiture in 1984 and the creation of the seven Baby Bells, the service within the LATAs remained regulated until 1996, when the Telecommunications Act of 1996 was passed. Following this, the Baby Bells began consolidating amongst themselves.
SBC Communications (named Southwestern Bell Corporation until 1995) purchased Pacific Telesis in 1997, Southern New England Telecommunications in 1998, and Ameritech in 1999. AT&T Corp., the original parent, was acquired effective November 18, 2005, by SBC, which renamed itself AT&T Inc. The new company then acquired BellSouth December 29, 2006.
Bell Atlantic merged with NYNEX in 1997, and then with non-Bell GTE in 2000 to create Verizon Communications. Verizon sold all of its wireline operations in northern New England (Maine, New Hampshire, and Vermont) in 2008 to FairPoint Communications; a new operating company, Northern New England Telephone Operations, was created. Operations in Vermont were later split into Telephone Operating Company of Vermont but continued with FairPoint. In 2010, Verizon sold Verizon West Virginia (originally The Chesapeake and Potomac Telephone Company of West Virginia) to Frontier Communications, which changed Verizon West Virginia's name to Frontier West Virginia.
AT&T Inc. is headquartered in Dallas. Atlanta is the location of the headquarters for AT&T Mobility, formerly Cingular Wireless. The name change came after AT&T's merger with BellSouth, as well as with southeast-region telephone operations. Bedminster, New Jersey is home to the AT&T Global Network Operation Center and is the headquarters of AT&T Corp., the long-distance subsidiary of AT&T Inc. The new AT&T Inc. lacks the vertical integration that characterized the historic AT&T Corp. and led to the Department of Justice antitrust suit. AT&T Inc. announced it would not switch back to the Bell logo, thus ending usage of the Bell logo for corporate use by any of the Baby Bells except Verizon.
Due to discrepancies 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.