American Telephone & Telegraph Example

In 1982, The Department of Justice settled its antitrust case against AT&T. The MFJ (The Modification of Final Judgment) separated local business from its long distance business by creating a division between intra-LATA (local access and transport area) and inter-LATA exchange areas. AT&T divested itself of its 22 BOCs which subsequently formed 7 regional Bell operating companies (RBOCs). When it broke up into these 7 firms, AT&T was able to provide long-distance service, while the other firms provided local services in different areas.

The Department of Justice felt that a vertically integrated company that provided both local and long distance services had other offsetting gains from their divestiture. The vertical structure of the company provided an opportunity for unfair competition against other providers of long distance services. By charging high local rates, AT&T can harm other long distance competitors. The same goes for if they were to provide poor local service to other providers of long distance service.

Another concern of the Department of Justice was the difficulty of monitoring cost-shifting among AT&T’s regulated telephone and other unregulated businesses. Its huge system of cross-subsidization that resulted from subsidizing local with long distance created barriers to entry and generally distorted competition in the long distance market. The 1984 breakup introduced a dramatic increase in competition, resulting in greater consumer choice and innovation, if not necessarily lower prices. The breakup led to multiple types of telephone handsets and new technologies.

Long distance became much cheaper;partially because AT&T’s higher long distance prices had previously subsidized local land service, and partly because of competition from companies such as MCI and Sprint. Today, the long distance market is shrinking dramatically due to cell phones and Voice over IP. AT&T has since been purchased by one if its own spinoffs, SBC Communications, the company that had also purchased two other RBOCs(Regional Bell Operating Companies) and a former AT&T associated operating company, and that later purchased another RBOC.

A consequence of the divestiture was in how both national broadcast television and radio networks distributed their programming to their local affiliate stations. Prior to the breakup, the broadcast networks relied on AT&T Long Lines’ infrastructure of terrestrial microwave relay and coaxial cable. Another consequence of the breakup is that local residential service rates, which were formerly subsidized by long distance revenues, rose faster than the rate of inflation. Long-distance rates have fallen due to the end of the subsidy and an increased competition.

The new AT&T began evolving from a long distance company to an integrated voice and data communications company, as increasing percentage of the traffic on its network was data, and to a lesser extent video, rather than voice. By mid-2000, AT&T had three rapidly evolving networks; data, broadband, and wireless, and four separate businesses-cable, wireless, business, and consumer. Its plan is to become a family of separate publicly held companies. By doing it this way, each company can obtain the capital structure needed to fund its growth.

Works Cited “AT&T Divestiture – What Killed Ma Bell? by Melvin D. Barger. ” AT&T Divestiture – What Killed Ma Bell? by Melvin D. Barger. N. p. , n. d. Web. 18 Apr. 2013. “USDOJ: Justice Department Files Antitrust Lawsuit to Block AT&T’s Acquisition of T-Mobile. ” USDOJ: Justice Department Files Antitrust Lawsuit to Block AT&T’s Acquisition of T-Mobile. N. p. , n. d. Web. 17 Apr. 2013. “AT&T Divestiture. ” AT&T Divestiture. N. p. , n. d. Web. 18 Apr. 2013. “The New AT&T| History| AT&T. ” The New AT&T| History| AT&T. N. p. , n. d. Web. 18 Apr. 2013.