A federal judge in 1983 ordered the breakup of the Bell System
A federal judge in 1983 ordered the breakup of the Bell System. Through 1983, the U.S. telecom system was dominated by AT&T, which operated as a monopoly. What followed was 40+ years of deal-making, mergers and technology evolution. Finally, we know how this 1983 order turned out.
The telecom system as it was in 1983
The Bell System was in place for 107 years and it was a monopoly. Wireless communications had not yet developed and long-distance calling was complicated and expensive. The culmination of a lawsuit was that U.S. District Judge Harold Greene ordered the breakup of the Bell System.
Essentially, AT&T was broken up into eight components. There were seven regional Bell companies, which were Bell Atlantic, NYNEX, BellSouth, Ameritech, US West, Pacific Bell and Southwestern Bell. A map of these companies is below. Phone service continued as a monopoly, but on a regional basis, with the new regional Bell operating companies (RBOCs) not allowed initially to offer long distance service.
Long distance service was handled by the eighth component of the breakup, which was known as AT&T. AT&T was essentially a long distance company, although it also retained certain assets from the breakup, including Bell Labs. The long distance market emerged as its own market, with MCI and Sprint building their own nationwide fiber networks and marketing long distance service, leading to a vibrant and competitive long distance market.
The RBOCs merge into two companies — AT&T and Verizon
Long story short, the RBOCs by 2026 will all have merged, creating two companies. One is AT&T and the other is Verizon. Verizon is essentially comprised of the legacy Bell Atlantic and NYNEX RBOCs – the two Bell companies in the Northeast. Over time, four other RBOCs — BellSouth, Ameritech, Southwestern Bell and PacBell — all merged and the AT&T long distance business created by Judge Greene’s order also became part of this company, lending it the AT&T brand name, which had the advantage of not being regional in addition to being known nationally.
“AT&T doubles down on fiber with $5.75 billion Lumen buy” was the headline of a May 21 report by RCR Wireless News. “The deal doesn’t include Lumen’s enterprise fiber customers or its consumer customers who use copper-based infrastructure,” the report noted. This is not quite as clear-cut as the previous RBOC deals — as copper connectivity has largely evolved to fiber connectivity in recent decades — but AT&T nonetheless is gaining a substantial portion of the assets of the RBOC that 30 years ago was known as US West.
Not the rise of a duopoly, as time has changed
It is hard to imagine what Judge Greene would say about the eight companies from the divestiture ultimately merging into AT&T and Verizon. Superficially, the phone companies of yesterday have all merged into a duopoly. Judge Greene could not have imagined that the market for landline service would suffer a cataclysmic decline in the decades that followed. The federal Centers for Disease Control in 2023 reported that 76% of adults and 87% of children live in homes without landlines, based on a Fox TV report.
The voice market became a wireless market
Copper-based telephony was a natural monopoly, given the expense and difficulty of connecting all homes and businesses. Wireless has been a game changer, as all Americans have access to dozens of carriers and at least three wireless networks in nearly all cases.
The rise of the cablecos
The cablecos were founded to provide broadcast television. When the Bell system was broken up in 1984, they were not a factor for telecom service.
Times have changed. By the early 2000s, the cablecos not only were selling Internet service, they had a majority of broadband connections, as broadband replaced dial-up connections. Then – partly in collaboration with Sprint – they launched landline voice service, as the broadband connection gave them a viable “pipe” for voice. In recent years, they became significant wireless providers, primarily as MVNOs using Verizon’s network.
Converged communications
The last stage of this evolution so far has been the rise of converged communications. The phone companies morphed into wireless companies, focused mostly on wireless sales, but also generally maintaining a landline link to the home, whether fiber or copper. The cablecos — primarily Comcast, Charter and Cox — lack wireless networks, but have access to them at a rate that generally allows for unlimited usage at $30/month.
Broadband no longer a duopoly
There has been one final piece in the last few years. Broadband for many years was a cableco/phone company duopoly. The rise of 5G and 4G has allowed the wireless carriers to provide broadband at a favorable cost in much of the U.S. Wireless has become a third “pipe” to the home.
The rise of telecom stores — illustration of competition
Wave7 Research recently reported that the national carriers — Verizon, AT&T, T-Mobile and Boost Mobile — together operate more than 30,000 stores, inclusive of postpaid and prepaid stores. The cablecos have spiffed up their stores, which are now more modern-looking and located in highly visible venues. The number of stores operated by cablecos has grown to more than 1,400.
Judge Greene would be happy
Judge Harold Greene died in 2000, but I think he would have been happy with the outcome. Focusing only on the 1980s, the phone monopoly continued to be a phone monopoly. However, the combination of the breakup of the phone monopoly and the rise of wireless technology has led to vibrant competition. Also, the combination has broadened to three separate markets — voice, broadband and video. Telecom competition is more vibrant than ever and the great strength of telecom retail proves this.
We now know how the 1983 order to break up the telecom monopoly turned out. It is a happy story.
