Telecommunications History & Policy into the 21st Century

3 Divestiture — A Momentous Phenomenon

65 CHAPTER 3 Divestiture— A Momentous Phenomenon At a Washington D.C. press conference on January 8, 1982, Assistant Attorney General for Antitrust in the U.S. Department of Justice, William Baxter, and AT&T CEO, Charles Brown, announced a mutual agreement to terminate the DOJ antitrust suit that it filed in 1974–U.S. vs. AT&T. This announcement ushered in the breakup of the Bell System a.k.a. the Modified Final Judgment (MFJ) or just plain divestiture. AT&T agreed to divest itself of all wholly owned Bell operating companies’ exchange operations and thereafter would be free of constraints of the 1956 Consent Decree, and at the time Brown thought that AT&T would be free of most other restrictions and regulation. AT&T had been prevented from entering the computer business but would now be allowed into it. While the agreement did eliminate the lawsuit, in fact, “the settlement did not eliminate or even modify a single regulation that applied to AT&T or the operating companies. State and federal regulators possessed precisely the same statutory power over the industry as before...”61 This was, in part, due to the fact that the negotiated settlement was made only with the DOJ. The existing laws and regulatory bodies at the FCC and State Public Utility Commissions still maintained all of their power and processes. One of the major principles of the settlement was to separate the monopoly exchange service from the slightly more competitive longdistance and competitive- equipment offerings. This is sometimes referred to as the separation of the “power and incentive to discriminate.” It was thought that being close to customers provided power to influence them, while long-distance telephone service was the lucrative portion of telephone service. Jurisdiction over long distance was a very valuable incentive to making money. Without this separation, it was felt that true 66 Telecommunications History & Policy competitioncouldnotdevelop.SomemajorprovisionsoftheMFJwere:62 • The twenty-two Bell Operating Companies were divested from AT&T and could continue to offer local exchange service and local and intraLATA63 long-distance service. They were combined into seven Regional Bell Operating Companies (RBOCs). • Yellow Pages, the highly profitable directory advertising service, was allocated to the RBOCs. • RBOCs were permitted to provide but not manufacture Customer Provided Equipment. • AT&T kept Western Electric and Bell Labs. • The RBOCs were given exclusive use of the “Bell” name and logo. Within the new AT&T, only Bell Labs could retain the use of the “Bell” name. • AT&T was forbidden to enter the electronic publishing market for seven years. • RBOCs also could not enter the electronic publishing market. • The RBOCs could petition the court to waive the line-of-business restrictions if they could show that competition in those markets would not be harmed and that such businesses would constitute no more than 10% of the RBOC’s net revenues. The Modified Final Judgment announced on January 8, 1982, took effect on January 1, 1984, and was a consent decree or negotiated agreeAssistant Attorney General William Baxter and AT&T Chairman and CEO Charles L. Brown shake hands after announcing the agreement to breakup the Bell System in settlement of an antitrust suit. Courtesy of AT&T Archives and History Center.60 Divestiture — A Momentous Phenomenon 67 ment between the DOJ and AT&T. It ended an antitrust suit that was filed in 1974 against AT&T. This broke up the Bell System and created seven Regional Bell Operating Companies that offered basic telephone exchange service and local calling, but not long distance, which was the domain of AT&T and other interexchange carriers like MCI and Sprint. Telecommunications within the United States in 1982 was arguably the best in the world. Neither the Internet nor wireless communications had yet taken off, but the United States had successfully implemented universal service and had excellent channels of communications that in many ways acted as an “enabler” or added “edge” for business and commerce to flourish, both within the United States and internationally. From today’s vantage point, when even most of the lesser -developed countries of the world have excellent wireless telephone service, it is interesting to note that the United States no longer enjoys a real communications advantage over the rest of the world. The playing field relative to the role that communications plays in the world trade game is now flat. In 1982 though, the United States was far and away the leader in telecommunications. Why, then, break up the provider of this world-class telecommunications network? Had Bell Labs failed to provide the technology of the future? Had Vail’s concept of universal...