Is Society Better Off After the 1984 Breakup of AT&T?
AT&T (formerly American Telephone and Telegraph) is the world's largest telecommunications company, providing services, products and systems to consumers, businesses, governments and other telecommunication companies. At one time, AT&T had the broadest, most advanced communications network in the world, and created Bell Labs, a premier manufacturer of telecommunications equipment. In 1984, AT&T was forced to divest into separate businesses; the company rebuilt its business to include long distance, computers and manufacturing. In late 1995, the company announced that it would divest into three separate companies along its business unit lines.
The 1984 breakup of AT&T came about because of a suit brought by MCI, one of AT&T's primary competitors today. The argument was that because AT&T was a monopoly, consumers were ill-served. When viewed from the standpoint of service, cost and economic effect, the divestiture has had the opposite effect of its original goal. Rather than benefitting the American consumer, the divestiture left the consumer worse off (when judged by these criteria) than before the divestiture. This paper examines the conditions which led to the 1984 breakup, and how the divestiture has failed to benefit the consumer.
Until the mid-1980s, AT&T was the only provider of local and long-distance telephone service in the country. AT&T worked hard to protect its large capital investment. It persuaded Congress that a competing parallel telecommunications network would be wasteful, and the government effectively made AT&T a government sanctioned monopoly. However, the government, having agreed that telephone service is a natural monopoly, then set about regulating it to prevent abuse by AT&T. Under legislation passed by the government, AT&T's rates and profits were kept at levels set by regulation.
The government took this action ostensibly to protect...