The Breakup of AT&T

According to the Department of Justice, the vertical structure of the company provided an opportunity for unfair competition against other providers of long-distance service. For example, by charging high local rates or by providing poor local service to other providers of long-distance service (which require local service), AT&T could harm long-distance competitors. Another concern of the Department of Justice was the difficulty of monitoring cost-shifting among AT&T's regulated (telephone) and other relatively unregulated businesses (such as the manufacture of telephones and other equipment). The resulting breakup of the telephone company presumably mitigated the government's concerns.

Since 1984, the technology and industry structure have changed rapidly. By 2000, there are likely to be only four local phone companies from the Baby Bells remaining, as a result of mergers among the original seven firms. Moreover, there are now several national long-distance carriers that also provide local service.

Source:

Lavey and Carlton (1983). See also Noll and Owen (1994).